Federal Acquisition Reform: a Status Report and Outlook for The Future

Ida Ustad

General Services Administration

As a Senior Procurement Specialist at the General Services Administration (GSA), I am responsible for issuing regulations in the Federal Acquisition Regulations (FAR) and for internal GSA acquisition policy. I also took part in Vice President Gore's National Performance Review (NPR), reviewing federal procurement policies and practices.

The past three years have seen unprecedented changes in federal acquisition practices, changes prompted by both Congress and the Executive Branch. I will address what I see as the main themes of that change, focusing on issues directly affecting facility management.

The 1991 Department of Defense (DoD) authorization act established an industry-government panel to review DoD's acquisition laws, with the goal of greater efficiency. The Section 800 Panel, as it was known, issued its report in early 1993. The NPR's report came out later that year. The extensive proposals in these two reports provided the foundation of today's reforms. However, change was made possible above all by the concern to balance the budget and to control government costs, which has been the catalyst for much greater innovation in government.

Legislative action was seen in the Federal Acquisition Streamlining Act (FASA) of 1994, hailed as the most significant change in acquisition since the Armed Services Act and Property Act of the early 1950s. Congress followed up FASA in 1995 with the Federal Acquisition Reform Act (FARA) and the Information Technology Management Reform Act. Simultaneously, initiatives of the NPR, the Office of Federal Procurement



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--> Federal Acquisition Reform: a Status Report and Outlook for The Future Ida Ustad General Services Administration As a Senior Procurement Specialist at the General Services Administration (GSA), I am responsible for issuing regulations in the Federal Acquisition Regulations (FAR) and for internal GSA acquisition policy. I also took part in Vice President Gore's National Performance Review (NPR), reviewing federal procurement policies and practices. The past three years have seen unprecedented changes in federal acquisition practices, changes prompted by both Congress and the Executive Branch. I will address what I see as the main themes of that change, focusing on issues directly affecting facility management. The 1991 Department of Defense (DoD) authorization act established an industry-government panel to review DoD's acquisition laws, with the goal of greater efficiency. The Section 800 Panel, as it was known, issued its report in early 1993. The NPR's report came out later that year. The extensive proposals in these two reports provided the foundation of today's reforms. However, change was made possible above all by the concern to balance the budget and to control government costs, which has been the catalyst for much greater innovation in government. Legislative action was seen in the Federal Acquisition Streamlining Act (FASA) of 1994, hailed as the most significant change in acquisition since the Armed Services Act and Property Act of the early 1950s. Congress followed up FASA in 1995 with the Federal Acquisition Reform Act (FARA) and the Information Technology Management Reform Act. Simultaneously, initiatives of the NPR, the Office of Federal Procurement

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--> Policy, and various agencies have made the procurement system more efficient, more cost-effective, and better able to serve its customers. Key Elements of Reform The statutory and regulatory procurement reforms have several major themes. The first is flexibility. Federal procurement has traditionally been highly regulated and rather rigid. We are moving toward a system that is more flexible and promotes innovation. The traditional complex system is being streamlined and simplified. The federal purchasing monopolies, such as GSA, are fading away and being replaced by competing sources. The NPR has encouraged letting program offices choose among contracting offices, so that the most effective can be used. Procurement personnel are being encouraged to focus on the customer, rather than the process of procurement. Previously, there was too much concern for the process and not enough for the result. Electronic transactions are replacing the traditional paper-based system. The administrative costs of electronic commerce are lower for both buyer and seller. In addition, electronic commerce makes information available more freely to bidders. The traditional short-term contracts are being deemphasized, to stress multiyear contracts that allow building more productive relationships between buyer and seller. Under the authority of FASA and various Presidential executive orders, government-unique specifications and standards are being eliminated whenever possible, to follow commercial practice, such as the use of commercial specifications and private sector voluntary standards. The practice of buying from the lowest bidder, with little or no regard for other considerations, is giving way to the search for best value over the long term. Vendors' past performance is being weighed more heavily in selection. In the past, although it could be considered, it generally was not, largely because procurement people feared protests and lawsuits. Rewarding those contractors who perform well makes good business sense. Finally, we are working more in partnership with contractors. The traditional confrontational government contracting relationship led to too many disputes and appeals.

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--> Flexibility and Innovation Innovation has been stifled in the past by the prevailing view among procurement personnel that a method or approach may not be used unless the FAR gives explicit permission to use it. To correct that misapprehension, we have added some ''guiding principles'' to the first part of the FAR. One is a clear statement that the absence of direction in the FAR should not be interpreted as precluding the process or approach one wishes to use, so long as it reflects sound business judgment. FASA and FARA also have encouraged innovation by calling for a number of pilot projects to test new approaches, many of them involving waivers of certain laws. Some of these projects are mandated for specific agencies. Others are spelled out in general terms, to be implemented by agencies with the Office of Federal Procurement Policy. The aim is to encourage innovation and to find better ways of doing business. Simplified Procedures The efforts to simplify the procurement process include a variety of far-reaching reforms for smaller purchases. FASA established the use of government credit cards or purchase cards for so-called micro purchases, those of less than $2,500. Virtually all procurement laws are eliminated below that threshold (except for requirements to buy from the Federal Prison Industries and the National Industries for the Blind and Severely Handicapped), so people who have the authority can make purchases as one does in one's personal life. A minimum of paperwork is required, and it is not necessary to go through a procurement office. The potential savings are very great. About 75 percent of government transactions are below this threshold, and each transaction with a purchase card saves about $50 in administrative costs over the use of a purchase order. In addition, the contract for the current card provides a rebate on sales made with the card. In 1990, about 18,000 cardholders governmentwide made 270,000 transactions, totaling about $56 million. By the end of 1995, 180,000 cardholders made more than 4 million transactions, totaling $1.6 billion. Moreover, potential total transaction savings are estimated to be $10 to $12 billion dollars annually. Another FASA initiative is to raise the "small purchase" threshold (which for years was at $25,000) to $100,000. In the process, Congress

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--> waived a number of statutory requirements below that threshold, simplifying the process and getting rid of some boilerplate terms and conditions that contractors for small transactions had been saddled with. In FARA, Congress authorized a test, now underway, of simplified procedures for commercial items of between $100,000 and $5 million. Commercial items include services as well as supplies. Competing Sources The National Performance Review has worked to introduce competition among government contracting offices, to promote better service and customer focus. NPR recommended that agencies allow their program offices to deal with other agencies' procurement offices when they can provide better service. The NPR also recommended that GSA eliminate its monopoly as the mandatory source of products and services. GSA has done so in all new contracts, and all active mandatory contracts will expire within the year. Performance-Based Contracting Performance-based contracting, in pilot tests, has shown significant potential for cost savings, better service, and shorter delivery times. The Office of Federal Procurement Policy, more than Congress, has pushed for performance-based contracting. Such contracts define the product or service required, rather than specifying how the contractor will do the work. The contractor is then able to innovate, instead of simply following directions. These contracts provide objective, measurable performance requirements and quality standards, and establish criteria in selecting the contracting approach. Performance-based contracting makes it easier to use incentives for quality, and it assigns responsibility for quality performance to the contractor, rather than relying on government inspectors. The 26 agencies that tested this approach have had some very promising results. On average, it has reduced costs by about 15 percent; procurement lead times have been reduced, and the quality of service has improved. Performance-based contracting has been tested in a number of areas, including facilities management, janitorial services, grounds maintenance, and mechanical equipment maintenance.

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--> Electronic Commerce In the federal government, the use of electronic communications and data processing in contracting has come to be known as "electronic commerce." The Acquisition Reform Network (ARNET), initiated by the National Performance Review, was originally a relatively modest project to put contracting information on the World Wide Web. But ARNET has evolved into a more comprehensive system, providing contractors a much larger window into the federal acquisition world, covering contracting opportunities, solicitations, regulations, and more. For federal contracting personnel, ARNET is becoming a vital source of professional information. It will soon provide training materials and handbooks, the list of parties excluded from doing business with government, the list of vendors who accept electronic funds transfer payments, Davis-Bacon wage rates, service contract blanket wages, and other information needed on a daily basis. Another vehicle for electronic commerce, mandated by FASA, is the Federal Acquisition Computer Network (FACNET). Congress, in raising the threshold for simplified procedures from $25,000 to $100,000, linked that provision to the use of electronic commerce. FASA required the creation of FACNET as a way to broadcast small transactions to potential competitors, who would themselves submit their quotes back electronically. Orders, payments, and notices of shipments would also be transmitted on the network. FACNET has had a slow start, with some problems, but in the past three or four months, the volume of transactions and number of agencies using FACNET have begun to increase. Both ARNET and FACNET contain electronic catalogs. GSA has the catalog "GSA Advantage!" and other agencies, such as the Defense Logistics Agency and Department of Veterans Affairs, are developing similar catalogs. One can access the GSA Advantage on-line shopping service through GSA's home page on the Web. Users can browse the products, read product descriptions (and sometimes see pictures of products), and order products, using a GSA billing account or a purchase card; and the item will be delivered directly. About 20,000 items are available through the system now; within the next two years about 4 million products, representing all of GSA's contracts, will be available. Electronic invoicing and fund transfer are underused tools in federal contracting. Recent legislation (the Debt Collection Improvement Act of

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--> 1996) requires all new contracts after July 1996 to stipulate that payments be made electronically, whenever practical. Electronic fund transfer is more cost-effective for government and vendors receive their payments sooner. More and more business will be conducted electronically: submitting procurement requests, conducting transactions, receiving invoices, making payments, and so forth. Multiyear Contracts Some agencies have had multiyear contracting authority in the past, though most federal civilian agencies have not. FASA provides authority for five-year contracts. While government cannot be obligated for more than five years, agencies are now writing five-year contracts with an additional five-year option or two, to allow for longer-term contracts and relationships. GSA, for example, has a current solicitation for elevator maintenance in a 15-state area for a five-year period with two five-year options, an arrangement closer to commercial practice for the types of supplies and services being acquired. Streamlined Solicitations for Commercial Items FASA contains an important provision encouraging agencies to move closer to commercial practice. The law requires agencies to do market research, not only to identify needed products and services, but also to ascertain exactly how the commercial world buys them, and to seek similar terms and conditions. FASA streamlines the solicitation process dramatically as well, regarding the length and structure of the contract, and warranties. It waives certain laws at the prime and subcontractor levels when commercial items—whether products or services—are bought. (The list of laws is contained at FAR 12.503 and 12.504.) Minimum bidding times can be avoided. The Commerce Business Daily can simply be used in some cases, such as for commercial furniture and computers. The goal is to achieve the same efficiencies that a large corporation does in contracting. For all these reasons, program personnel, in defining their needs with acquisition personnel, will need to be more involved in market research. The GSA elevator maintenance solicitation incorporates the new commercial item provision. GSA has aggregated its maintenance requirements to give the agency more leverage with contractors; instead of

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--> 105 contracts for about 160 facilities, there will be five of the five-year contracts described above and performance-based specifications. GSA has not received the offers yet, but it is looking forward to substantial savings, not only in administrative costs, but also in reduced prices for service and better quality service. New Techniques and Approaches under FASA and FARA Several specific contracting approaches and techniques authorized by FASA and FARA bear on facilities management. FARA allows agencies to carry out a two-phase selection process for a design-build project in a single contract. In Phase I, interested parties submit their qualifications along with a general description of their proposed approach to the project, without any pricing information. The agency selects a designated number from among these parties (the statute suggests five). The chosen few go to Phase II, involving a more detailed proposal, including price. The process is then completed like a traditional negotiated procurement, with a best-value award. GSA has received industry comments on an advance notice of proposed rulemaking for this provision, and will publish the notice for public comment within the next two or three weeks. Another FASA provision of interest to architect-engineer (AE) and construction companies is one expressing a preference for multiple task order contracts. A task order contract is a contract for services that does not procure or specify a firm quantity of services (other than a minimum or maximum quantity) and that provides for the issuance of orders for the performance of tasks during the period of the contract. The law provides a general preference for the award of multiple contracts under a single solicitation to two or more sources. When multiple awards are made, all of the contract holders must be given "fair consideration" when placing orders. In other words, you in effect create a continual competition for the work among the contract holders. The AE firms have asked how this provision interacts with the Brooks Architect-Engineer Act under which agencies now procure AE services. The FAR to be published in June will clarify the current rule to indicate that the preference for multiple awards does not apply to AE contracts, but that there is no prohibition against awarding multiple contracts, as long as they are awarded consistently with the Brooks AE Act.

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--> There has also been much interest and concern about the multiple task order contracts on the part of those who use indefinite-quantity contracts or task order contracts for minor construction. The industry is concerned that if multiple contracts are not used in appropriate cases and the general preference is taken literally, it will increase costs to contractors for bid and proposal preparation, as well as setup costs for construction. The multiple award provision has also raised concerns about extremely sensitive tasks, such as some environmental remediation, for which multiple contracts may not be appropriate. The next change in the FAR, in June, will make it clear that agencies can make class determinations; if they conclude that a particular class of procurements would not be appropriate for multiple awards, they can make exceptions for those classes of contracts. A third streamlining provision in this year's reform (FARA) allows the government to limit the competitive range, to permit an efficient procurement. Typically today, when an agency issues a request for proposals, it may receive 25 offers back. Those offers are reviewed, and the government looks to establish a competitive range, often by identifying some natural breaks among the offers considering their quality and price. However, this approach often results in a large number of offers being included, and all these potential contractors then go through a lengthy process of negotiating and submitting more information, and sometimes audits, before the contract is awarded. Under the new authority, if the normal competitive range includes too many offers to permit an efficient procurement, the contracting officer can limit the number for efficiency. Potential contractors could be limited to the best three, for example. This strategy restricts the competition to those who have a real chance to succeed, saving time and resources for both contractors and government. This change will be issued shortly as a proposed rule for public comment. Best Value One of the other shifts I have mentioned is to the use of best value rather than lowest price. Best value considers what is most advantageous to the government, considering price or cost and other factors such as experience, past performance, and management plans. This criterion is being used increasingly.

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--> Past Performance of Contractors Contractors' past performance is also being used more and more, in a variety of ways. It is used in selecting contractors, in deciding whether to exercise contract options, and in deciding who receives task orders under multiple task and delivery order contracts. To that end, agencies are giving contractors "report cards" to help them improve their performance and have better chances for future contracts. Partnering Partnering has been an important trend in construction contracting and is spreading to other areas of contracting. The traditional adversarial contract relationship is giving way to a joint focus on results by government and contractors. Alternative forms of dispute resolution are taking hold. Provisions in the law (FASA) designed to reduce the number of protests are beginning to take effect. A provision providing for debriefings in source selection allows greater disclosure to unsuccessful offerers. The agency tells these offerers why they failed to win. Many agencies find that this more open exchange of information is already reducing the number of protests, because often in the past offerers would protest simply to get to discovery, to learn how the decision was made. To expedite and simplify protests that do occur, the law (FASA) includes some changes in the protest process. Agencies have been encouraged to establish internal processes as alternatives to the traditional external avenues of protest. Solving these problems within the agency is quicker and more efficient, and does not impede procurement so much. Summary and Outlook for the Future The recent and ongoing reforms offer a great opportunity to re-engineer processes to take advantage of the flexibility and efficiency of commercial practices, electronic commerce, and other procedures. In the past three years, most of the reform has been devoted to changing procurement laws and regulations. The next year or two will require greater attention to the operational level: using the authority provided by new laws

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--> and regulations. Procurement personnel will need the training and tools to ensure that we take full advantage of the new procedures, the new flexibility, and the new opportunities to innovate. Rather than pushing Congress for further changes, procurement officials should seek out untapped opportunities and begin experimenting to take full advantage of them. With the continuing pressure for downsizing and cost reduction, the old way of doing things is no longer tenable. To survive we must continue to create a government that works better and costs less.