Executive Summary

Electronic commerce (EC) and electronic data interchange (EDI) represent one of today's fastest growing areas of business technology.1 Government has recognized the potential of such technologies in recent major legislative and executive actions to reform procurement. The object of these efforts is to convert federal processes, beginning with acquisition, from labor-and paper-intensive processes to streamlined electronic exchanges. However, EC/EDI has not been employed often in the government procurement of construction and architect-engineer (AE) services. To explore these new applications, the Federal Facilities Council (FFC), of the National Research Council's Board on Infrastructure and the Constructed Environment, hosted a one-day symposium in May 1996. This report presents symposium papers and Summarizes some of the principal themes and issues of the presentations and of the exchange among participants in the meeting's final open discussion.

Background

The Federal Acquisition Streamlining Act (FASA) of 1994 was enacted to make government procurement processes simpler and more cost-effective. Long agreed to be cumbersome, traditional procurement processes are both expensive and slow. FASA realized the far-reaching recommendations of two major studies, which themselves built on many others—a Department of Defense

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"Electronic commerce (EC)" refers to a paperless process, including electronic mail, electronic bulletin boards, electronic funds transfer, electronic data interchange, and similar techniques, for accomplishing business transactions. "Electronic data interchange (EDI)" refers to any technique for electronically transferring and storing formatted information between computers, using established and published formats and codes, as authorized by the applicable Federal Information Processing Standards.



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--> Executive Summary Electronic commerce (EC) and electronic data interchange (EDI) represent one of today's fastest growing areas of business technology.1 Government has recognized the potential of such technologies in recent major legislative and executive actions to reform procurement. The object of these efforts is to convert federal processes, beginning with acquisition, from labor-and paper-intensive processes to streamlined electronic exchanges. However, EC/EDI has not been employed often in the government procurement of construction and architect-engineer (AE) services. To explore these new applications, the Federal Facilities Council (FFC), of the National Research Council's Board on Infrastructure and the Constructed Environment, hosted a one-day symposium in May 1996. This report presents symposium papers and Summarizes some of the principal themes and issues of the presentations and of the exchange among participants in the meeting's final open discussion. Background The Federal Acquisition Streamlining Act (FASA) of 1994 was enacted to make government procurement processes simpler and more cost-effective. Long agreed to be cumbersome, traditional procurement processes are both expensive and slow. FASA realized the far-reaching recommendations of two major studies, which themselves built on many others—a Department of Defense 1   "Electronic commerce (EC)" refers to a paperless process, including electronic mail, electronic bulletin boards, electronic funds transfer, electronic data interchange, and similar techniques, for accomplishing business transactions. "Electronic data interchange (EDI)" refers to any technique for electronically transferring and storing formatted information between computers, using established and published formats and codes, as authorized by the applicable Federal Information Processing Standards.

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--> (DOD) study of procurement reform, issued by the so-called Section 800 Panel,2 and Vice President Gore's much broader effort to streamline government, the National Performance Review (NPR). Among other changes, FASA instituted new Simplified Acquisition Procedures for smaller government purchases, trying the new procedures partly to the use of EC/EDI. FASA, together with subsequent changes in the Federal Acquisition Regulations (FAR), established the Federal Acquisition Computer Network (FACNET), which is managed by the Defense Information Systems Agency (DISA) and is specifically designed to carry out government business using EC/EDI. While, according to FASA, the new simplified procedures could be used for any procurement of up to $50,000, they could also be used for procurements of from $50,000 to $100,000 as well—if a government purchasing office was FACNET-certified by October 1996. The Federal Acquisition Reform Act (FARA) of 1996 extended this date to December 1999, permitting the use of the simplified procedures in the meantime for procurements of up to $100,000, regardless of the office's certification status. FARA also permitted agencies to experiment with forms of electronic communication other than FACNET in conducting business. Symposium Scope The use of EC/EDI, particularly as envisioned by FASA and FARA, poses special challenges for both contractors and government in AE and construction contracting. Problem areas include the time it takes to transmit drawings electronically; the ways drawings can be secured from unauthorized changes; the ways to procure AE contracts electronically, given that these contracts have their own procedures and forms; the difficulties of involving in the FACNET system the many small contractors who do construction work of under $100,000; as well as the general difficulties that have been reported in implementing EC/EDI through FACNET. The FFC symposium was thus designed to exchange information on several related basic topics: 2   The 1991 authorizing legislation for the Department of Defense stipulated that a government-industry study be conducted on streamlining the department's acquisition process; the Section 800 Panel authored this study.

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--> FASA's provisions for electronic commerce, the architecture of electronic commerce and FACNET, government approaches to implementation, and possible future developments Federal agency experiences with electronic commerce, the availability of FACNET, barriers to implementation, alternative computer/electronic systems in use, and related initiatives Private sector contractors' perspectives on the advantages and disadvantages of electronic commerce, barriers to implementation, ways to circumvent barriers, and future developments The services of the Electronic Commerce Resource Centers, which are sponsored by the Advanced Research Projects Agency and funded by the Department of Defense, and whose mission is to help small to medium-sized businesses and government offices establish electronic commerce. FACNET Following on FASA and high-level executive orders, DISA assumed responsibility for putting the FACNET infrastructure in place. FACNET is based on the concept of presenting a single government face to industry. While electronic commerce had already long been used between government and industry in particular cases, these efforts represented an array of machines, languages, and practices. To provide a more comprehensive, user-friendly system, ANSI X12 and UN EDIFACT were established as standards for the structure, format, and content of FACNET's EDI transactions.3 Related initiatives to standardize business practices across federal agencies—which is the more difficult problem—are ongoing. DISA was also challenged to use commercial, off-the-shelf systems in developing new infrastructure, to reduce costs and leverage resources. Within four months of its charge, DISA implemented an electronic commerce infrastructure using existing DOD and civilian federal gateways to effect translation from other languages to ANSI X12. Various capabilities have since been added, including an encore massively parallel processor, to improve 3   ANSI—the American National Standards Institute—is the coordinator and clearinghouse for national standards in the United States. UN EDIFACT refers to the United Nations rules for Electronic Data Interchange for Administration, Commerce, and Transport.

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--> production capability, and improved communications systems. A variety of additional developments are envisioned, and special activities are underway in such areas as developing digital signature hash and encryption. Transactions over this DISA network with commercial value-added networks (VANs, the commercial equivalents of federal gateways) have doubled in the last year, to well over one million transactions per month. While the new infrastructure has greatly shortened transaction times (delivering 80 percent of transactions in less than two hours), it has yet to meet the growing demand. The new infrastructure is scalable—more processors can be added at will. But even today, it is capable of handling larger engineering files, such as those required for AE and construction procurements. The questions in this area may be economic rather than technical. For example, it may not be cost-effective, particular for contractors, to transmit a public request for quote along with all its engineering drawings to all potential trading partners. Both DOD and the Army have pursued the implementation of FACNET. In DOD alone, approximately 280 acquisition sites have been established in the last two years. This fast-track implementation approach has yielded both benefits and problems. Buyers have a broader means of advertising for goods and services, which encourages more competition, and procurement lead times have been sharply reduced. Among the problems of the new system, the volume of transactions overall remains low. Additionally, while selected contracting functions have been shifted to electronic commerce—requests for quotes and purchase and delivery orders—many other paperwork processes have not been adapted or simplified. Extensive outreach efforts to assist contracting offices and their vendors, for example, in choosing commercial VANs, are being carried out with the help of the Electronic Commerce Resource Centers (ECRCs). Beyond these DOD activities focused on contracting, the department is developing transaction types in many other functional areas; logistics and finance area transactions will shortly be on-line. DOD plans to proceed with establishing EC/EDI in areas in keeping with the order of the actual procurement process. A challenge for the use of electronic commerce in these multiple areas is to ensure functional business areas are well integrated. In spite of the challenges, electronic commerce offers great opportunities for savings in DOD alone. One study found that billions of dollars could be saved by shifting the department's paperwork procurement processes to the new technology (90 percent of DoD actions represent less than $100,000). In some cases, EC/EDI may allow the bypassing of transactions completely—die Defense Commissary Agency has already eliminated invoicing. However, many

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--> obstacles to implementation remain, including the difficulty of making any major change in any organization in an era of constrained resources and downsizing. The U.S. Army Corps of Engineers has also pursued FACNET extensively. Of its 50 automated contracting offices, 45 have interim FACNET certification. Together with the Tri-Service CADD/GIS Technology Center, the Corps has also developed its own Corps-wide approach to delivering documents for construction contracts in an electronic format. These electronic bid sets, which are distributed both via the Internet and on CD-ROM, include the contract forms, clauses and conditions of the contract, and related drawings and technical specifications. Five pilot projects using these bid sets are now in progress. Use of the bid sets should eliminate some paper processes (including expensive mailing and filing costs), and enable greater lead times, just-in-time delivery, and efficient use of project data throughout the project life cycle. Central Contractor Registration. Central Contractor Registration (CCR) is an EC/EDI initiative inspired by the recommendations of DOD contracting officers. Previously, contractors were required to register separately with any individual DOD site to do business at that site. Additionally, they had to update their registration annually at all the individual sites where they did business. This registration system was clearly very labor-and paper-intensive on all sides. The new CCR, which is now operational, is designed to allow a contractor to register only once annually to do business at any federal site. The development of the CCR database was supported by interagency cooperation, particularly in the sharing of software. Major outreach efforts, carried out by the Electronic Commerce Resource Centers, are now underway to increase CCR registration, which is still low. While the CCR is closely associated with FACNET, vendors are encouraged to register with the CCR whether they choose to do business by FACNET or not. The CCR is potentially a much more efficient way for vendors to do business with government. The ability to register through the World Wide Web is expected soon. State governments are already seeking to use the CCR for their own procurements and other functions. The repository may be useful in other environments as well, such as for non-profit organizations. Alternative Agency Approaches The Naval Facilities Engineering Command (NAVFAC) encountered several large barriers in its recent initiation of electronic commerce. While attempting to implement EDI at its contracting offices within the period of a

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--> year, NAVFAC also faced the Department of Defense order to avoid buying or developing new software systems until the new DOD Standard Procurement System (SPS) for contracting processes was emplaced—an expected wait of roughly seven years. To implement its own electronic commerce, then, NAVFAC had to obtain a waiver from the SPS, a step requiring a thorough economic analysis to justify new software costs. Another challenge was ensuring that the new software would work well with all relevant NAVFAC processes. The new software finally acquired is now being installed. Additionally, NAVFAC is helping to develop a Navy Internet site, as an alternative approach to FACNET in advertising contract jobs. It is also developing its own contract page. A remarkable demonstration of the new technology's potential is the real-time availability on the Internet of Department of Labor wage determinations, accessible through such home pages of any military organization. The General Services Administration (GSA), in its own efforts, has been concerned foremost with the general goal of providing the information needed on electronic contracting as easily and inexpensively as possible to around 500,000 people worldwide. Immediately after FACNET was developed, the Internet was commercialized, followed by the arrival of much improved software, allowing platform-and application software-independence. A variety of important acquisition-related material is already available on the Internet, including the FAR and other policies and regulations. GSA's philosophy is that there is a place for all these approaches, which the market can best determine. The National Aeronautics and Space Administration (NASA) has developed an innovative Internet service, the NASA Acquisition Internet Service (NAIS), instead of using FACNET. NASA's approach was prompted partly by concern over FACNET costs, especially for small businesses. NAIS is based on World Wide Web browser technology—''click and point'' technology—that, unlike FACNET, requires very little training. NAIS now provides immediate access to all NASA acquisitions, synopses, competitive proposals under $25,000, and requests for proposals (RFPs). It is platform-independent, an important characteristic in the view of NASA users. Additionally, NASA sites are linked to other Internet acquisition sites, and will be linked to FACNET shortly. NASA continually improves NAIS in light of both customer feedback, which is encouraged via the system's e-mail capability, and commercial market developments. The Air Force has used some elements of the NASA approach as a model, and other agencies are looking at it as well.

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--> Private Sector Initiatives and Requirements According to private sector representatives, any electronic commerce used in architect-engineer and construction contracting must handle special requirements. The type of information that FACNET is designed to handle differs from architecture and engineering contracts, in that the latter are typically not repeat transactions, but rather project-unique. FACNET also presents barriers to many small construction businesses, which would have difficulty supporting the costs of FACNET training. Many AE and construction procurements are also large—often for more than $300,000. These procurements are obviously inappropriate for FACNET. Moreover, these large projects raise their own problems for electronic commerce, such as the costs, reliability, and ease of transmitting very large documents. The electronic commerce systems for large and small projects may therefore need to be considered separately. Additionally, the transmission of AE and construction documents entails special issues of logistics, copyright, and liability. Proposal submission would also require a high level of security. Private AE and construction firms already use electronic commerce in the form of e-mail systems and the Internet. Some have their own well-developed electronic initiatives, for example, in project planning, project management, and financial systems. Teleconferencing is also commonly used in these industries. However, while commercial electronic commerce is already integrated in industry practices, the professional societies, such as the American Institute of Architects and the Associated General Contractors of America, have not been much involved to date. Like many agency representatives, symposium participants from the private sector emphasized the importance of following and capitalizing on the fast-paced developments in the commercial world of electronic commerce. Laws and regulations should be flexible enough to allow this to happen. Follow-on Activities Symposium discussion identified several further activities toward implementing electronic commerce in AE and construction contracting. Industry leaders, including professional society representatives, might meet, to clarify their requirements for electronic commerce. In addition to technical questions, this group might address process issues, such as legal and security concerns. Agencies with experience in implementing electronic commerce might also meet to exchange more detailed information about their progress and the barriers they face in developing systems specifically for AE and construction contracting.