59
Tab 1—Milestone Plan

Action PR Milestone
Meet with DoD senior contracting executives to elicit their support and com-  DUSDIAR) ... Sep 16, 1994
mitment of personnel resources, work space, and all administrative re-
quirements:
‘Seek agreement from OFPP and other federal agencies on plan - DUSDIAR) Sep 19, 1994
OIRA agreement to expedite (24 hours) E.0, 17866 review of proposed and OFPP, DUSDIAR) .... Sep 19, 1994
final FAR rules to implement the Act
FAR Council Mtg to Finalize Proposal and to take action to identity teams Project Mar Sep 23, 1994
and team members, Resolve any membership issues with FAR Council
and DUSD(AR). Discuss requirement for Regulatory Flexibility and Paper-
work Reduction Act accelerated procedure analyses
Develop tasker for teams Project Mar Sep 28, 1994
Set up tracking and reporting system to monitor progress Project MBP enn Sep 30, 1994
Meet with teams to ensure they fully understand objectives and conventions FAR Council and Oct 3, 1994
DUSDYAR) Project
Mer.
Issue taskers for teams to begin work Project Met Oct 4, 1994
‘Submit reports with draft proposed rule to Project manager Teams Oct 19, 1994
Start writing Regulatory Flexibility Act analyses, Paperwork Reduction Act Teams .. Oct 19, 1994
analyses, and Federal Register Notice
Project manager sends rule to OFPP, agency focal points, and to FAR Sec- Project Mgr... Oct 20, 1994
retariat for comment
FAR Secretariat establishes FAR case file; analyzes case for codification and FAR Secretariat ...... Oct 21, 1994
effect on current regulations or forms; drafts amendatory language to
identity regulatory changes and clearance documents as necessary
Project manager receives agency comments Project Mar . Oct 31, 1994

Project manager tasks drafting teams

Drafting teams submit revised proposed rule to project manager. Report
‘must include Regulatory Flexibility Act analyses, Paperwork Reduction Act
analyses, and Federal Register notice

‘Technical proofing on publication package

Proposed rule reviewed by project manager

Proposed rule to OIRA

Send proposed rule to Federal Register for publication

Proposed rule published for 60-day public comment period
Project manager receives requests for public meetings

Arrange place of meeting and publish notice in Federal Register
Conduct public meetings

Project manager receives public comments

Project manager tasks drafting teams.

Drafting teams reconcile public comments and submit draft final rule, Fed
eral Register notice, revised Regulatory Flesibilty Act analyses, and re-
vised Paperwork Reduction Act analyses

Project manager submits draft final rule to OFPP, agency focal points, and
AR Senior Steering Group and FAR Seretarat

Prepare loose leaf pages and final FAC; technical proofing of Federal Reg-
ister document

Drafting teams reconcile agency comments end submit draft final rule to
Project manager

Technical proofing on revisions

Draft final rule renewed by project manager

‘Submit FAC to FAR Councit

FAR Council signs FAC

Submit FAC to OIRA for review

IRA approval obtained

‘Send final rule to Federal Register for publication

Publish final rule

Final rule e:tective

Nov 1, 1994
Now 14, 1994

Nov 15, 1994
Nov 16, 1994
Nov 17, 1994
Project Mgr FAR Nov 18, 1994
Secretariat.
Federat Register
Teams ....

Nov 25, 1994
Various

FAR Secretariat... Various
FAR Council, Various
DUSD(AR), Teams.

Project Mer Jan 24, 1995
Project Mer Jan 25, 1995
Teams a Feb 6, 1995
Project Mar nn Feb 16, 1995
FAR Secretariat... Various
Teams Feb 27, 1995
FAR Secretariat... Mar 3, 1995
Project Mer Mar 6, 1995
Project Mer Mar 7, 1995
FAR Counc. Mar 14, 1995
Project Mer Mar 15, 1995
Project Mer Mar 16, 1995
Project Mer Mar 17, 1995
Federal Register .. Mar 23, 1995

FAR ‘Apr 22, 1995



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25

these goals. We cannot abandon those goals because they are valid goals of the fed-
eral procurement process that we as a nation are committed to supporting. But
what we must do is better balance the costs of achieving those goals with the
achievements that we gain from pursuing them through most procurement efforts.
And above all, we cannot lose sight of the fact that the acquisition system is not
an end in itself—that it was created to serve a purpose: to meet the warfighter’s
needs.

Acquisition System Vision
What are we doing to try to change this process? First of all, we've set out as our
vision for the DoD acquisition system that:
“The primary mission of the acquisition system is to meet warfighter needs,
and that we must never forget that meeting the customer's needs is paramount.
We will be the world’s smartest buyer, continuously reinventing the acq
process while taking maximum advantage of emerging technologies that en
usiness process reengineering. We will procure best value goods and services
by buying from world class suppliers, predominantly in the commercial market-
place, and by using commercial practices. We will deliver efficiently and on a
timely basis by reinventing the acquisition system to make DoD a world class
customer. And, because we are buying on behalf of the U.S. taxpayer, we will
do so by using strategies and methods that are fair, open, efficient timely, pro-
tect the public trust, are supportive of the nation’s socio-economic policies, that
foster the development of an integrated National industrial and tec! nology base
composed of globally competitive U.S. suppliers, by balancing the risk of abuse
of the process and the socioeconomic gains to be achieved, with the cost of com-
pliance.
Execution

How are we, and will we, execute this vision? First of all, the Secretary of Defense
established my olfice—the Office of the Under Secretary of Defense for Acquisition
Reform, to be a focal point and a catelyst for the development of a coherent and
practical step-by-step plan to reengincer the acquisition procees while focusing on
[inplementation and institutionalization of the reforms. My office has been Kept
small on purpose-—so that we are forced to rely on Process Action Teams of individ.
uals from the field—experts who know what it is to buy on a day-to-day basis, and
know what it’s going to take to make the system right.
fe have successfully utilized Process Action Teams to develop implementation
plana to change the acquisition process on five very difficult issues, People have
Come together from all aver the country. They have worked through the process of
team building and spent 3, 4, sometimes 5 months together trying to work out rec-
ommendations and implementation plans, and theyve done it in a way that will
identify metrce of suotear so that, we have measurable goals and ways to achive
them. They have identified the road map to get us there, as well as the disincentives
in the existing process that are inhibitors to meking change.

Tam advised by a Senior Acquisition Reform Steering Group, made up of ep
resentatives of various affected offices in OSD, the Services, Defense agencies, the
TG, and DCAA—all of whom are essential to the process of acquisition reform. These
are the “stakeholders,” and everyone of us must work together to implement these
relorma and achieve these goals.

‘Acquisition Reform Actions

Actions we have already instituted recommendations of a Process Action Team on
specifications and standards reform. On June 29, 1994, Secretary Perry directed

D to use performance specifications beginning December 26, 1994. If'a perform
ance specification cannot meet the user's needs’ then a nongovernmental standard
may be used. Ifa nongovernmental standard will not ensure that you can meet your
tser’s need, then you may use « MILSPEC. but only afler you have received a waiv-
er from the milestone decision authority. ‘So, depending on what ACAT level. pro-
gram it is, you're going to go up to the MDA at that level. The only things that
fre excluded from the waiver. process, even though the underlying philosophy ap-
plies, are basically spares and repairables. And we're looking at ways to address
those insues as well, so that we affect many of our current systems,

Tn terms of improving how we buy, one of our major focuses has been the adoption
of commercial practices to acquire hot only commercial items, but military-unique
items. We approved regulatory waivers for the JPATS program, the JDAM program,
some DPSC procurements, commercial derivative engines, commercial derivative
aircraft, and a few Army lead programs. We've got really two types of programe that
we're working: that is we're working “pilot” programs, which we have used to refer
to those programs that need not only regulatory waivers, but also statutory waivers



149

view and price negotiation needed by the Government on subsequent contracts.
However, consistent with the policy expressed in FAR 15.802,15 the condition should
not be used as an offset to contract prices in the future.

MODIFICATIONS TO CONTRACTS FOR COMMERCIAL ITEMS.

Industry also supported the ision in the Federal Acquisition Streamlining Act
which prohibited contracting officers from obtaining cost or pricing data on contract
modifications, as long as the modification did not change the commercial item to a
noncommercial item.'® This provision addressed the problem of being forced to com-
By with the cost or pricing data rules when contract modifications occur. However,

‘A believes that the proposed rule may not properly implement that provision, as
shown below.

FAR 15.804—1(bX4Xii)—“For modifications of commercial items, the exception
at 15.804-1(aX3) applies if the modification of a commercial item does not
change the item from a commercial item to a noncommercial item. However, if
the modification changes the nature of the work under the contract [subcontract
either by a change to the commercial item or by the addition of other non-
commercial work, the contracting officer is not prohibited from obtaining cost or
pricing data for the added work.” (emphasis added)

‘The proposed rule appears to allow the contracting officer to obtain castor pricing
data if the nature of work has been changed, irrespective of the fact that the
commercial item might still be a commercial item. To avoid confusion, AEA rec-
ommends that the provision be more closely aligned with the provision contained
in the Federal. Acquisition Streamlining Act.

COST ACCOUNTING STANDARDS (CAS)

Finally, although the proposed rule did not contain any revisions to the CAS ap-
plicability rules at FAR Part 9903.201-1, AEA believes that such action should be
‘en soon, possibly concurrent with the issuance of final rules on commercial pric-
ing. As you know, the Federal Acquisition Streamlining Act added a new exception
for commercial items purchased under firm fixed-price contracts (without cost incen-
tives)? AEA wishes to avoid situations where CAS is applied to circumstances
where the Government did not intend do so, especially because of timing differences
in implementing these rules.
thermore, industry has on previous occasions urged the CAS Board to revise
the CAS applicability rales in a number of other ways in order to ease the burden
being place on commercial companies. These are recapped below.
fake CAS inapplicable to all contracts awarded on the basis of adequate
price competition (rale now exempts only firm fixed-price contracts awarded
with submission of cost data).
lake CAS inapplicable to all contracts where a substantial portion of the
price is based on established catalog or market price (e.g,, fixed-price labor con-
tract with cost reimbursable other direct charges) or, if'such contracts are to
be CAS covered, only include the portion not based on established catalog or
market price.
Make CAS inapplicable to commercial segments.

SUMMARY

In summary, AEA’s basic concern is that the proposed rules do not reduce the risk
of doing business with the Government. As long as the Government intends to apply
relational tests, focus on lowest prices, demand certifications and representations,
and assert post-award audit rights, companies will be forced to invest in expensive
risk aversion infrastructure. This will do little to remove the barriers that now exist
between the Government and the commercial market place. Removing these bar-
riers will be vital to the success of the Federal Acquisition Streamlining Act and
the efforts to increase use of commercial items to satisfy Government requirements,

AEA, and other industry groups, are anxious to work with OFPP, the Board of
Directors, and the Federal Acquisition Regulatory Council to make the commercial
pricing rules satisfy the needs of all. AEA thanks you for the opportunity to present
comments at earing.

35FAR 15.802 requires contracting officers to price each contract separately and independ-
ent

1 Sections 1202 and 1251.
17 Section 8301.


COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
WILLIAM F. CLINGER, JR., Pennsylvania, Chairman

BENJAMIN A. GILMAN, New York
DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

STEVEN SCHIFF, New Mexico

ILEANA ROS-LEHTINEN, Florida

WILLIAM H. ZELIFF, Jr, New Hampshire

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

PETER BLUTE, Massachusetts

THOMAS M. DAVIS, Virgin

DAVID M. MCINTOSH, Indiana

JON D. FOX, Pennsylvania

RANDY TATE, Washington

DICK CHRYSLER, Michigan

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

WILLIAM J. MARTINI, New Jersey

JOE SCARBOROUGH, Florida

JOHN B. SHADEGG, Arizona

MICHAEL PATRICK FLANAGAN, Illinois

CHARLES F. BASS, New Hampshire

STEVEN C. LATOURETTE, Ohio

MARSHALL “MARK” SANFORD, South
Carolina

ROBERT L. EHRLICH, JR, Maryland

CARDISS COLLINS, Iinois

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

JOHN M. SPRATT, JR., South Carolina

LOUISE MCINTOSH SLAUGHTER, New
York

PAUL E. KANJORSKI, Pennsylvania

GARY A. CONDIT, California

COLLIN C. PETERSON, Minnesota

KAREN L. THURMAN, Florida

CAROLYN B, MALONEY, New York

THOMAS M. BARRETT, Wisconsin

GENE TAYLOR, Mississippi

BARBARA-ROSE COLLINS, Michigan

ELEANOR HOLMES NORTON, District of
Columbia

JAMES P. MORAN, Virginia

GENE GREEN, Texas

CARRIE P, MEEK, Florida

FRANK MASCARA, Pennsylvania

CHAKA FATTAH, Pennsylvania

BERNARD SANDERS, Vermont
(Independent)

JAMES L. CLARKE, Sto/f Director
KEvIN SABO, General Counsel
JUDITH McCoy, Chief Clerk
Bub MYERS, Minority Staff Director

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68

you could have a 100,000 people respond to one bid. How are we
going to be able to process?

It sounds wonderful and I am all for it, but earlier I asked for
a list of salad dressings that are being chan; and you say we do
not have the staff to do that. I am asking for 20 hours dedicated
to that one project and I think that is legitimate but how in the
world are we going to handle this? Because I can see every person
in the United States deciding to bid on whatever and you will have
4,000 bid requests come in.

Mr. KELMAN. That is a fair question and that is just the kind of
practical management issue that we are grappling with now. You
can take the 4,000 bids and the computer can list them low bid to
high bid. So the computer will do that work for you. The problem
is if we do not ask for a specific brand name or model number,
which we generally do not want to do, we want to try to avoid that,
when you say brand name or equal or something like that, then
you start getting a lot of people who are saying, well, here is my
product and here is how it is equal.

There, if you have 400 bids or however many ou said, unless we
can find a streamlined way to screen those ids and take only a
few of the most promising ones, you are absolutely right, the sys-
tem is not going to work and it will not succeed at being a stream-
lined method of procurement.

Therefore, we are trying, we are working very hard in our regs,
one of the reasons the regulation on electronic commerce is only
just going to be coming out, is we have been talking with people
in the field and on the front lines about how we can craft our regu-
latory language to empower them to do that kind of screening. We
are going to need support from Congress on that.

We also are going to need support from Congress. As you start
having a thousand bidders, you have just increased by a thousand
times the universe of potential protestors against a decision. And
we are going to be asking Congress in the package we send up to
say that if a procurement is done under $100,000 and using elec-
tronic commerce that there is no opportunity to protest this into
the normal protest bodies because we are afraid that we are just
so much increasing the exposure of the system to bid protests as
the number of bids orders come up so dramatically, again we will
be in a situation if we do not watch out it will not be streamlined.

Mrs. MALONEY. I would like to understand this better myself and
possibly you would not like to respond now but in writing.

[The information referred to follows:]

EC BID PROCESS

The government wide EC process consists of the following steps:
1) the government buyers prepare the electronic equivalent of a Request for

Quotation (RFQ). The RG ie sent out electronically addressed to “The Public.”

(2) The RFQ goes to a “hub” facility (also referred to as a “virtual network”
much like a switchboard).

(3) When the RFQ is received at the hub, it is forwarded to all value added
network (VAN) providers that are certified to participate in this process.

(4) The VANs make the RFQs (and Notification of Award) available to their
subscribing vendors.

-(5) A vendor that wants to bid on a particular RFQ prepares a bid and sends
it via its VAN of choice.

(6) The VAN will send it to the hub where the information will be validated
against the vendor registration database.


152

or pricing data being required unless an exception is justified. This is a far cry from
a “clean sheet” approach to the regulations.

The result ig a patchwork quilt of confusing and contradictory statements which
are guaranteed to confuse government and industry personnel alike. For this rea-
son, it is highly unlikely that the proposed regulatory language will lead to the
changes in pricing practices intended by FASA.

‘As presently drafted, the regulations do not provide clear and concise guidance
on three fundamental questions: (1) When are certified cost or pricing data re-
quired? (2) When is information other than cost or pricing data required? (3) What
type of information is required to determine price reasonableness when certified cost
or pricing data are not required?

in order to correct these problems, we recommend a fundamental reorganization
of the proposed regulations. The revised regulation should be structured to provide

dance on each of the pricing methods described in the hierarchy in the proposed

‘AR 15.802 Policy, with which we fully concur. The proposed 15.802 language states
that in establishing the reasonableness of prices offered to the government, the con-
tracting officer “shall not obtain more information than necessary and shall gen-
erally use the following order of preference” in determining the type of information

‘ired:

t No further information should be required from the offeror if the price is based
on adequate price competition.

2. Information other than cost or pricing data may be required in order to estab-
lish cost realism or price reasonableness, including: (i) information related to prices
(e.g., established catalog or market prices), relying first on information available
within the government, second on information obtained from sources other than the
offeror, and last on information obtained from the offeror; and (ii) limited cost infor-
mation, which does not meet the definition of cost or pricing data.

3. The contracting officers “should use every means available to ascertain a fair
and reasonable price prior to requesting cost or pricing data.”

We recommended a reorganization of the proposed rule ich tracks this hier-
archy- Under this arrangement, 15.800 Scope, 15.801 Definition and 15.802 Policy,
would be followed by sections which would provide detailed guidance for pricing pro-
curements based on adequate price competition (15.803), based on information other
than cost or pricing data (15.804) and based on certified cost or pricing data
(15.805). Each section would describe the procedures, clauses, forms, etc., prescribed
for the pricing technique. Such an arrangement would allow contracting personnel
to focus only on those procedures pertinent to the pricing method appropriate for
the particular procurement (as determined by the hierarchy). This organization
would be far easier to understand than the current organization.

The draft TINA regulations are the first set of FASA regulations that directly im-
pact the government's ability to buy commercial products. EIA is disappointed that
these draft regulations are difficult to follow, but we appreciate the fact that these
regulations are only drafts. EIA, along with the other CODSIA associations, will be
providing you with specific elements toward simplifying and retooling the final regu-

lations to get the practical results we all desire—user friendly regulations that
make it easier, rather than harder, under the proper statutory conditions, to be
granted an exemption from TINA. We hope that you will listen to our concerns with
‘an open mind, and allow us to help create final regulations that will achieve mean-
ingful TINA reform.

10)



79

3, With regard to the text of FAR 3.901, definition of “head of agency,” we
believe that this term is adequately defined at FAR 2.101 and at DFARS
202.101. This redundant definition should be deleted:

4. With regard to the text of FAR 3.901, definition of “authorized official of
an agency,” we believe that this term, while not defined by the statute, is de-
fined much too broadly in this proposed regulation. Under this definition, any
conversation with any employee of the contracting agency would qualify a con-
tractor employee for coverage. This is not what the statute was intended to do;

5. With regard to the text of FAR 3.902, “Applicability,” we believe that the
language is too broad. There is sufficient latitude in the statute to establish a
dollar threshold or contract-type limitation. At the least, this subpart should not
be applicable to purchases made under the simplified threshold;

6, With regard to the text of FAR 3.905, generally, “Procedures for Investigat-
ing Complaints,” we note that paragraph (a) requires the IG to conduct an ini-
tial inquiry, even if the complaint is later determined to be wholly frivolous. It
in quile foreseeable that some complaints may be lodged that are so cbviously
without merit on their face that not even an initial inquiry is justified. In su
instances, the IG should have the authority to reject such complaints imme-
diately without any “initial inquiry” and the regulation should so provide. Sub-
section (b) of the statute clearly allows the IG to reject @ frivolous complaint
without conducting any investigation;

7. With regard to the text of FAR 3.905(b), we suggest that this provision in-
clude a time period of 60 days for the IG to notify the complainant, contractor,
and head of the contracting activity if the eomplaint merits further investiga-
tion; an

8. With regard to the text of FAR 3.905(4), we believe that 30 days, as pro-
posed, for the contractor to submit a written response to the IG’s report may
be too restrictive a period of time for a contractor to submit a written response.
Since the statute does not fix a period of time for the contractor's response, we
recommend that FAR 3.905(d) provide authority for the IG to set a reasonable
period of time for the response appropriate to the nature and complexity of the
issue and the facts.

We appreciate the opportunity to comment on the proposed rule designated as
FAR Case 94-803, “Whistleblower Protections for Contractor Employees.” If we may
provide further information in connection with these industry comments, please con-
tact Elaine Guth of the Manufacturers Alliance and CODSIA’s project officer for this
FAR Case at (703) 841-9000.

Sincerely,

Don Fuqua,

President, Aerospace Industries Association.
LAWRENCE F. SKIBBIE,

President, American Defense Preparedness Association.
JOHN F, MANCINI,

Chief Operating Officer, American Electronics Association,
Gary D. ENGEBRETSON,

President, Contract Services Association,
DaN C, HEINEMEIER,

Vice President, Electronic Industries Association.
KENNETH MCLENNAN,

President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoc,

President, National Security Industrial Association.
Bert M. CONCKLIN,

President, Professional Services Council.
8.0. NUNN,

Acting President, Shipbuilders Council of America.


15

Similarly, the National Aeronautics and Space Administration (NASA) has devel-
oped, and is testing, midrange procedures to simplify and expedite the award of con-
tracts up to $500,000. NASA has been able to reduce the typical solicitation to 7—
10 and resulting contract to 10-15 pages (down from an average of 70 pages
and 40 pages respectively). Such a document is far less intimidating to industry and
will encourage more interest in bidding on NASA work. Evaluation, approval, and
award time have also been significantly reduced.

I would like to acknowledge before this Committee the work of Lydia Butler at
Marshall Flight Space Center for helping to make the Midrange program the suc-
cess that it is.

Meeting the Challenges of Electronic Commerce

One area to which I am giving particular attention is the initiative to streamline
the procurement, process through the use of electronic commerce (EC)—by sending
out requests for bids, receiving quotes, and making awards over computer networks.
‘The Administration shares your belief that EC can reduce rement leadtimes,
increase the productivity of the procurement workforce, and reduce the prices for
what we buy through competition. As you know, the President issued a
Memorandum back in October 1993 establishing an aggressive schedule for imple-
menting EC in the federal acquisition process, and we were pleased to see the provi-
sions in FASA endorsing its use.

Many agencies have undertaken enormous efforts to get started on EC on a faster
schedule than would have occurred without this presidential and congressional in-
terest. We owe a vote of thanks to the dedicated federal employees who have been
working to make EC a reality.

However, the number of transactions occurring using EC has been growing more
slowly than I would like. In all likelihood, volume will pick up somewhat as we
move beyond typical startup problems, such as transitioning from agency unique
dedicated electronic systems to a governmentwide system, getting the “bugs” out of
the new network, and so forth.

Startup problems notwithstanding, I want to make you aware that there is still
a difficult, hurdle which we will need your support in conquering if EC is to be the
streamlining tool we envision. I am talking about how ef ly and efficiently to
deal with vastly larger number of offerors who respond to solicitations for small pur-
chases.

By way of example, assume that an agency sends out a request for quotation for
8 computer printer for which they specify “brand name or equal”—a given brand or
8 product equal in performance to that brand. Assume the agency receives back 100
bids electronically and that the 20 low bids are from companies bidding an “or
equal” product, many of which the buying office has never heard of or done business
with before. The twenty-first low bid is from a firm offering to provide the brand
name. Under these circumstances, you can imagine the apprehension buying offices
have with using EC. They are understandably worried that they will have to evalu
ate the specifications on a large number of bids before they can make an award,
that they will have no streamlined way to weed out companies that have had deliv-
ery or performance problems in the past, and that their exposure to bid protests will
increase dramatically because the number of losing bidders will go up significantly.
For all these reasons, they are afraid—and rightly so—that, in practice, EC will not
increase productivity but rather that it will actually require more resources than the
current process.

We are actively working to develop regulatory language that would address some
of these problema, by allowing various simplified screening techniques for purchases
Using EC. We will aleo be preposing statutory language to addresa this critical situ-
ation. We urge your support both for our regulatory approach and for our legislative
change. Without it, I am seriously concerned that EC's potential to make the pro-
curement process faster and less resource-intensive will never be fully realized.

For my part, I am also committing myself to strengthening goveramentwide EC
program management. In this re; Thave asked the Electronic Commerce Acqui-
sition Program Management Office, which has responsibilities for day-to-day govern-
mentwide management, to develop, implement, and maintain an EC project man-
agement tracking and statistics system so we can better monitor major tasks, key
milestones, costs, and transaction volume.

Conclusion.
‘The message to reform is being heard, And, as you can see, our efforts are under-
way. Let me emphasize that some of the success stories I have described to you

began under the previous Administration. This shows that the job of making govern-
ment work better and cost less knows no party lines.



128

We suggest that the list be drawn from the current version of the clauses listed
in the OF 847 with—at least-the following deleted:
FAR 52.203-1, Officials Not to Benefit (proposed to be deleted on December
1, 1994)
FAR 52.222-41, Service Contract Act (only applies over $2,500)
FAR 52.225-3, Buy American Act-Supplies (only applies over $2,500)
FAR 52.243.1, Changes-Fixed Price (no application to commercial items)
A possible additional clause to add would be the old DFAR 252.7001, “Warranty
Exclusion and Limitation of Damages (February 1983).” Commercial companies pro-
vide for such protection in selling their items and this clause would provide for uni-

formit

FAR Subpart 13.602 does not recognize that micro-purchase procedures can be ef:
fectively used by prime contractors. The clauses that are required to be flowed down
prohibit, prime contractors from taking advantage of the eimplified procedures of the
micro-purchase, Therefore we recommend that a subparagraph (d) be added as fol
lows:

“(d) Contracts and subcontracts for less than the micro-purchase threshold of
$2,500 ne abe, awarded without including any contract clauses otherwise re-
quil ry

The interim rule in FAR Subpart 13.603 states in subparagraph (a) that the
“Micro-purchases may be awarded without soliciting competitive quotations if the
contracting officer determines that the price is reasonable.” Also, in subparagraph
(bX1), the contracting officer is directed to verify price reasonableness if there is a
suspicion that the price may not be reasonable. This language places too much em-
phasis on the determination of price reasonableness and is going to give contracting
officers the message that the need for a determination is the norm. We believe the
subpart should be rewritten to emphasize the fact that the administrative cost of
verifying the price reasonableness will offset potential savings.

This subpart does not recognize that the micro-purchases can be made without
the use of required FAR clauses. FAR requires the clause at 52.203-6, Restrictions
on Subcontractor Sales to the Government. This type clause cannot and should not
be included when a Government-wide Commerci: chase Card is used to make
@ purchase.

Therefore, we recommend that 13.603(a) be changed to read “Micro-purchases
shall be awarded without soliciting competitive quotations unless the contracting of-
ficer determines in writing that the price is not reasonable.” Paragraph (bX1) should
say “The contracting officer has information to indicate that the price may not be
reasonable . . .” Also, a subparagraph (d) should be added as follows:

“(d) Micro-purchases may Be awarded without including any contract clauses
otherwise required by FAR..”

If you have any questions about our comments or need additional information,
please contact Roger Smith, American Electronics Association, at (20) 682-4434.

Sincerely,
Don Fuqua,
President, Aerospace Industries Association.
LAWRENCE F, SKIBBIE,
President, American Defense Preparedness Association.
Joun F. MaNcinI,
Chief Operating Officer, American Electronics Association.
Gary D. ENGEBRETSON,
President, Contract Services Association.
Dan C. HEINEMEIER,
Vice President, Electronic industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoce,
President, National Security Industrial Association.
Bert M. CoNcKLIN,
President, Professional Services Council.



134

Exceptions

Subsection 2455(b) of FASA states that regulations implementing this provision
of the Act “shall provide that, an agency may grant an. exception permitting a
debarred, suspended, or otherwise ded party to participate in procurement ac-
tivities of that agency to the extent exceptions are authorized under the Federal Ac-
quisition Regulation. . . .” A slight inference may be found for this provision in ex-
isting coverage at FAR Subpart 9.405(a), but the reference is weak and ambiguous
at best. We suggest that the proposed nile at FAR Subpart 9.405(a) be modified to
incorporate the direction of FASA Subsection 2455(b) and be rewritten as follows:

(a) Contractors debarred, suspended, or Broposed for debarment are excluded
from receiving contracts, and agencies shall not solicit offers from, award con-
tracts to, or congent to subeontracts with these contractors (delete remainder of
existing text of sentence]. Agencies Brant an exception permitting a
deborrad, suspended. oF otherssoe excluded party to participate in'o contract or
subcontract with that upon certain conditions to be prescribed i
implementing regulations. Contractora debarred, suspended or proposed for de
barment are also excluded from conducting business with the
agents or representatives of other contractors. [New language to coverage ap-
pears in italics.]

We appreciate the opportunity to comment on the proposed FAR rule to imple-
ment government-wide reciprocity for rement and nonprocurement suspension
and debarment actions designated as FAR Case 94-801. If we may provide further
information in connection with these industry comments, please contact Elaine Guth
of the Manufacturers Alliance and CODSIA’s project officer for this FAR Case at
(703) 841-9000.

Sincerely,

Don Fuqua,
President, Aerospace Industries Association.
LAWRENCE F. SKIBBIE,
President, American Defense Preparedness Association.
JOHN F. MANCINI,
Chief Operating Officer, American Electronics Association.
Gary D, ENGEBRETSON,
President, Contract Services Association.
Dan C. HEINEMEIER,
Vice President, Electronic Industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hocc,
President, National Security Industrial Association.
Bert M. CoNCKLIN,
President, Professional Services Council.
8.0. NUNN,
Acting President, Shipbuilders Council of America.
Enclosure (Letter to Mr. Robert Meunier re: Notice of Proposed Rulemaking on De-
barment, Suspension, and Ineligibility (Nonprocurement Common Rule))

CODSIA Case 13-94.12

February 17, 1995
Mr. Robert Meunier
Director
Suspension and Debarment Division
of Grants and Debarment
Environmental Protection Agency
‘nvironmel tection
401 “M” Street, SW
Washington, DC 20460

Re: Notice of Proposed Rulemaking on Debarment, Suspension, and Ineligibility
(Nonprocurement Common Rule), Federal Register, December 20, 1994

Dear MR. MEUNIER: The undersigned members of the Council of Defense and
Space Industry Associations (CODSIA) appreciate the opportunity to comment on
the notice of proposed rulemaking on debarment, suspension, and ineligibility which



74

ious provisions of the Federal Acquisition Streamlining Act of 1994 (“FASA”, P.L.
103-355). The TINA implementing regulations are among the most important’ draft
rules published to date. Changes in TINA coverage can, if made properly, not only
provide significant streamlining of the procurement process, but may also represent
one of the best opportunities for culture change within both Government and indus-

try.

‘On behalf of all CODSIA member associations, we appreciate the opportunity to
share our initial views on the proposed rule. However, on the experience of
the February 13 meeting, we want to share our concerns about both the meeting
and implementation process in the hope of improving the process for the remainder
of the regulatory implementation of FASA.

As ou know, when the FAR Council announced its drafting teams in late 1994,
CODSIA grganized comment teams to mirror the government's drafting team orga-
nization. We promptly conveyed our points of contact to the Council and to your
teams in order to facilitate Malog during the drafting process. However, we were
disappointed to find that, due in part to the accelerated schedule set by the Admin-
istration, we were not permitted to participate in or even monitor the FAR Council’s
drafting process.

We occasionally receive status information on the imminent timing of publication
of certain rules, but little, if any, substantive information on their content. More
typically, our first substantive information on a proposed rule is when it is pub-
lished in the Federal Register. The public has sixty days to provide written com-
ments; for major cases, public meetings are held thirty days into the public com-
ment period.

At the least, the CODSIA associations anticipated that public meetings on the im-
plementing regulations would include, as stated in the preamble statement with
each published rule, an exchange of views between the government and industry—
that is, a forum in which industry would have an opportunity to discuss initial reac-
tions to the proposed regulations with the Council and the drafting team. Contrary
to our expectations and the public notice, however, both the Small Business and the
TINA public meetings opened with a statement from the FAR Team Leader that the
government representatives would listen to industry comments and ask questions

for clarification only. The meeting would not be an exchange of ideas as indicated
in the notices, Furthermore, since no official record of the meeting was prepared,
we question the long-term impact of any presentation made. This is disheartenin,

at best and serves as a disincentive (if this practice is to be followed for all hearings)
to any meaningful partnering between government and industry in this rulemaking
process,

We recommend that future public meetings be structured as a dialog that will
allow for mutual questioning and discussion. This would allow industry to structure
its input so that our written final comments are provided to the Government in a
way most helpful for final rule promulgation. If the meetings were scheduled toward
the end of the public comment period rather than the middle, industry might be in
a better position to discuss the full content of our comments. The meeting could
then serve as the initiation of an ad hoc working group to understand and work to-
ward resolving the differences for the final regulations. However, this may be too
late in the process. Alternatively, a public meeting near the beginning of the com-
ment period where the Government outlines its approach to a complex rule (like the
TINA case) would be of great benefit to the public. This approach would help indus-
try embark on a meaningful, productive and perhaps more expeditious review and
comment process.

Further, it seemed that the Government representatives ex; d to hear final or
near-final comments from those appearing at the TINA and Small Business public
meetings, which were only thirty days into the comment period. It is not reasonable
to shorten the comment period in any event, and certainly industry should not be
expected to have well-developed positions in 30 days if we first see the regulati
when they are published in the Federal Register. It was announced at the meeting
that, if industry submits final comments on day 60, the Government would have
“little time to consider our input in the final rule” due to the Government's self-im-
posed accelerated schedule. This scenario, where artificial deadlines take precedence
over substance, places the public in a no-win situation and thwarts the Congres-
sional purpose for the public comment process.

We also recommend that adequate time be scheduled for dialog with the public
after the final comments are submitted at the sixty day mark. This will still allow
time to work out final regulations cooperatively within the statutory deadlines for
final rule publication. Alternatively, or in addition, we recommend interaction with
the drafting team prior to publication of the proposed rules in the Federal Register.



32

I know we are having a hearing on this and Chairman Horn has
planned a series of hearings on the whole bill and what it means,
ut I would like to hear the theory come down to the reality. _

And not that you have a task force of people working on it, but
maybe if you could ask one person to spend maybe 20 hours be-
tween now and the next hearing making a list of exactly where we
have saved money so far from off-the-shelf purchases or from other
specific areas, I think that would be helpful for us to see. And if
you could give it to us at that hearing or back as a written question
some examples of some of the specifications that you are looking
at now; that you think may be wasteful of taxpayers’ money,
think that would be very helpful. I am not asking it now, but in
the future.

(The information referred to follows:]

A list of initial measures relating to military specifications and standards reform
efforts on a few specific weapon system programs. Please note that the acquisition
time for major weapon systems can span a decade or more and have many inter-
related factors that can affect cost. For the most part, the results of military speci-
fication and standards reform on these types of programs will take several years to
become visible and will always be hard to measure. The saving identified for Joint
Direct Attack Munitions (DAM) and Wind Corrected Munitions Dispenser are
based upon a comparison of total estimated unit costs. Military specification and
standard reform is only one of the factors affecting the change in estimated cost.

EXAMPLES OF MILSPEC REFORM

Enhanced Seasparrow Missile
97 MILSPECs and STDs originally cited:
23 were deleted
31 were replaced
43 remained but were tailored
Mark 48 Torpedo went from 103 MILSPECs and STDs cited down to five.
Cobra Helicopter had 70 MILSPECs and STDs in the RFP. Reduced down to
two—one for ADA and one for weapon system interfaces.
Advance Seal Delivery System—The SOW contained over 50 MILSPECs and
STDs. No there are zero.
Joint Direct Attack Munition
100 page SOW is down to seven pages.
Data requirements reduced by 60%
Zero MILSPECs and STDs.
Initial cost estimate was $100K per system.
In 1991, after some streamlining, it was estimated that in 1995 dollars it
would cost $60K.
Now the estimate is down to $30K. Air Force and Navy are going to buy
around 74,000 systems. Streamlined requirements have saved a little over $2B.
Wind Corrected Munitions Dispenser
Zero data requirements.
Down to two MILSTDs.
$25K per unit, which is 20-30% lower than initial costs.

COMMERCIAL ITEMS SAVINGS.

Item 1—Gasoline Lantern

The military specification (MIL—L-1594) was replaced by a commercial item de-
scription (CID) (A-A-52078) in 1991. The last buy to the MILSPEC was in 1990
at an item price of $71.49; the first buy to the CID was at $54.90. Coleman is the
current supplier. A Tong istory of quality problems ended after switching to the
commercial item—in addition to the cost savings.

Item 2—Barracks Bags

The military specification (MIL-B-2378) was replaced by a CID (A-A-55105) in
1994. The last buy to the MILSPEC was in 1993 at an item price of $6.53; the first
buy of the CID was in 1994 at $2.29. It is interesting to note that the manufacturer,
Mississippi Independent, did not change. We switched to their commercial product.
The last buy was a quantity of $168,900 for a total savings of $716,000.



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39

And Representative Morella earlier on talked about communicat-
ing with constituents. Just listening to your question, it might be
useful for us, as we move toward implementing the system, to pre-
pare a simple package that Members could include at your discre-
tion, obviously, in communications you send to your local business
community. This really gives access to small businesses that do not
live right near a government facility to be able to bid on govern-
ment business.

What has happened in the past is, often only the small busi-
nesses able to bid are those who are right near, physically located
to the government facility. This will allow really for it to be nation-
wide.

Mr. Horn. That is an excellent idea.

Mrs. PRESTON. May I mention—we do have a package of informa-
tion that has already been developed that we can hand out to indi-
viduals and we also have a 1-800 number for anyone that wishes
to call and get information.

Mr. KELMAN. Let us put the number on the record. We have a
1-800 number on EC. Can we put that on the hearing record?

Mrs. PRESTON. I knew I was not going to remember it.

Mr. Horn. I think a good demonstration group would be the
members of this committee.

Mrs. PRESTON. We will provide that for the record, but we do
have the package, and I would also like to say we are already plan-
ning to work with the small business procurement technical assist-
ance centers, and DOD has funded the Small Business Administra-
tion over $80,000, to assist us in working with small businesses.
We have also worked out an arrangement with what we call
ECRC’s in the Department of Defense which are Electronic Com-
merce Research Centers.

The 1-800 number is 1-800-EDI~3414. I should trust my mem-
ory better. That is what I was going to say, but I was not sure. But
People can call that number. It is manned until 8 o’clock every
night.

Mr. Horn. That is eastern time.

Mrs, PRESTON, Eastern time.

Mr. Horn. OK. Some of us think in other time periods.

Mrs. PRESTON. If we can get some more money, we can keep it
open 24 hours a day.

Mr. KELMAN. That is 11 o’clock in California.

Mr. Horn. With reinventing and reprogramming, you will have
more money already under your own control.

I was impressed by the success stories and particularly pleased
to see, Mr. Kelman, you mentioned the people involved. I long ago
learned, like 30 or 40 years ago, we have a very distin; ished civil
service and to give people the opportunity to think and create and
see some of their actions implemented and be encouraged by others
is impressive.

To what degree are all of these success stories being shared in
some systematic repetitive way with other agencies and getting
down into where the real work is done in all these agencies? You
cannot just say it once. You cannot just say it 10 times. You might
have to say it 100 times. How are we doing that?


64

Section 3006, Repeal of Requirement for Competitive Prototyping for Major Pro-
ams
Section 3007, Repeal of Requirement for Competitive Alternative Sources for

Major Programs
Section 3011, Authority of Director of OT&E to Communicate Views Directly to
SECDEF
Section 3012, Responsibility of Director of OT&E for Live Fire Testing
Section 3013, Requirement for Unclassified Version of Annual Report on OT&E
Section 3014, Survivability and Lethality Testing
a Section 3015, Limitation on Quantities to be red for Low-Rate Initial Pro-
juction
Section 3062, Repeal of Requirements Regarding Product Evaluation Activities

SERVICE SPECIFIC

Section 3021, Gratuitous Service of Officers of Certain Reserve Components
oneetion 3022, Authority to Rent Samples, Drawings, and Other Information to

thers
conttion 3023, Repeal of Application of Public Contracts to Certain Naval Vessel

‘ontracts

Section 3024, Repeal of Requirement for Construction of Vessels on Pacific Coast

Section 3025, Scientific Investigation and Research for the Navy

Section 3031, Definitions (CRAP)

Section 3032, Consolidation of Provisions Relating to Contractual Commitment of
Aircral

Section 3033, Use of Military Installations by Contractors

Section 3065, Codification and Revision of Limitation on Lease of Vessels, Air-
craft, and Vehicles

Section 3064, Liquid Fuels and Natural Gas: Contracts for Storage, Handling, or
Distribution

Section 3066, Soft Drink Supplies

ACQUISITION MANAGEMENT

Section 1503(c), Approval of Terminations and Reductions of Joint Acquisition

ms
Sections 5001 & 5051, Performance Based Management
Section 5002, Review of Acquisition Program Cycle
Section 5052, Results-oriented Acquisition Process

PILOT PROGRAMS,

OFPP

Section 5061, OFPP Test Program for Executive Agencies
NASA

Section 5062, NASA Mid-Range Procurement Test Program
FAA

Section 5063, FAA Acquisition Pilot Program
DoD

Section 5064, DoD Acquisition Pilot Programs

CONTRACT AWARD

Section 1091, Policy Regarding consideration of Contractor Past Performance
Section ry ooeerh Hos f ADP E Federal Ager
tion 1439, Oversight Acquisition o pment, ral Agencies
Section 1505, Restrictions on Undefinitized Contractual Actions
Section 1507, Regulations for Bids
Section 1555, Cooperative Purchasing
p Section 2102, Repeal of Authority for Contract Profit Controls during Emergency
eri
Section 3061, Regulations on Procurement, Production, Warehousing, and Supply
Distribution Functions

CONTRACT ADMINISTRATION,
Section 2002, Repeal of Vouchering Procedures Section


148

In either cas, the Government has generally no contractual remedies for adjust
ing contract price.!? Therefore, if a coropany is unwilling to offer a voluntary refund,
the Government might wish to explore ether meane, such ae the fraud statutes. Just
the process of resolving a pricing dispute in this foram alone can be lethal enough
to a'company, regardless of the damages, fines, penalties, and sanctions that the
Government might ultimately seek. Perhaps, the best indication of the level of Tisk
faced by commercial companies is CSA's owa expressed policy that anything other
than a simple error or mistake must be reported to the Inspector General asa sus-
pected irregularity.12

‘AEA is disappointed that the Government will continue to impose post-award
audit rights on contracta awarded using established catalog or market prices, These
Fights are granted through the “ine print” representation agned by the offeror at
the bottom of the Standard Form 1412, as shown below, and no place else in the
FAR. ABA is also alarmed that these rights would now be extended to determina.
tions of reasonableness rather than limiting them to verification of data contained
on the form.

Representation—“Pending consideration of the proposal supported by this
submission and, if this proposal or a modification of it is, accepted by the Gov.
ernment, until the expiration of 3 years from the date of final payment under
@ contract resulting {vom this proposal, the Contracting Officer and authorized
representatives are granted access to books, records, documents, and other sup-
porting data that will permit verification of thie request for exemption and the
Feasonableness of price” (emphasia added)

AEA believes that any audit rights on actions being supported by catalog or mar.
ket prices (and prices set by law or regulation) should be limited to the pre-award.
Even then, such audit rights should be confined to a verification of the pricing data
eupplied by the offeror. This limitation would be consistent with the Truth in Nego-
Hetlons Act and the rights being proposed by the Government under the Standard
Form 141X, “Proposal Cover Sheet (Cost or Pricing Date Not Required)”

Ona related issue, AEA is concerned with the apparent continued use of GSA’s
“Certificate of Established Catalog or Market Price” (see FAR 15 804—1(eKi)). AEA
agrees thatthe inclusion ofa commercial item on e GSA multiple award schedule
thou

in and of itself, be sufficient evidence that the commercial item satisfies the
criteria for established catalog or market price. It should also serve as a baseline
for determining a fair and reasonable price. However, AEA is concerned with GSA’s
practice of requiring offerors to execute a certificate and the apparent FAR sanction
of this practice. In essence, this is like imposing the Certificate of Current Cost or
Pricing Data on circumstances that have been explicitly excepted from the Truth in
Negotiations Act. It should also be noted that certificate contains a caution;
“Palse statementa may subject the offeror to penalties provided by statute and regu-
lation.” Again, industry's principal concern is risk.

COMMERCIAL ITEM EXCEPTION

Industry supported the new exception for commercial items added by the Federal
Acquisition Streamlining Ad.1¢ It should benefit companies that do not wish to use
the existing exceptions for catalog or market price. Offerors should have the option
of submitting a Standard Form 1412 on the basis of catalog or market price or, al-
ternatively, supply other information to the contracting officer to demonstrate the
reasonableness of price.

Consistent with industry's previous comments, there is a significant concern with
access to records and post-award audit rights, which in this case is 2 years from
date of contract award or modification. While AEA is aware that these rights were
imposed by the Federal Acquisition Streamlining Act, the proposed rule’s silence on
remedies for inaccurate data creates a high risk condition for industry. That is, as-
suming that the Government found that the data submitted by the offeror was inac-
curate (without fraudulent intent) and it had a bearing on negotiated price, what
is the next step the Government wants the contracting officer to take?

'A’s view, there should be no unilateral action taken by the contracting offi-
cer to adjust contract prices, and the condition should not give rise to a referral ac-
tion under the fraud statutes. Instead, the results of the post-award audit should
shared with the offeror, who may or may not offer a voluntary price adjustment.
The submission of inaccurate data should be considered as a past performance fac-
tor. It should also be used as a basis for establishing the amount of pre-award re-

12 GSA imposes a defective prici ision.
18G8A Feteral Supply Schedule Handbook (Chapter 38), paragraph 92d, December 19, 1990.
¥4 Sections 1204 and 1251.


35

ing folks is to show the support within the political system for
these kinds of spontaneous initiatives from the work force.

Mrs. PRESTON. If I could, Representative Maloney, could I add
something to this discussion because I think it is important, par-
ticularly when you talk about the hammer, since these were DOD
purchases and the tee shirts Steve mentioned and also the salad

ressing.

There are some critical things we need support from Congress
on. One of the things we cannot do today, for example, at least in
the Department of Defense, is go out and buy a hammer from a
hardware store. That is why you find people buying hammers from
their prime contractors—because they know they can get it and
they can get it that day. Although we received purchase card au-
thority last year under FASA to use a credit card and go out and
buy something of that nature, one of the laws that Congress did
not exempt is a law peculiar to DOD, a procurement integrity pro-
vision. Because of that and because that law has no dollar thresh-
old, in order for us to contract with anyone, we have to get them
to sign a statement that says they complied with this law. And that
is one reason. These are not things that people do because they
wanted to do or because they are stupid.

In the case of the salad dressing, we have MILSPECs just like
we did for fruitcake, for whistles, for things like that because the
intention of the procurement process had always been at that time
to buy from the low bidder. People were afraid that their decision
would. not be supported or the procurement would be protested if
they bought from anyone other than the low bidder. In order to do
that and still let everyone compete, you have to specify every single

letail.

The first time we went out to buy commercial tee shirts, we
ended up with 400,000 tee shirts that shrunk four sizes the first
time they were washed and were totally unusable. So there are
changes that have to be made.

There are MILSPECs for a reason. And in order to go away from
that, we are having to change the way we do business, much of
which was directed or is a result of legislation, some of which was
just regulatory.

Mrs. MALONEY. I was going to question you later, I do want to
have a series of questions for you, also. But just to follow up, I
found your testimony very confusing because | thought the whole
purpose of FASA was to make your life easier in procurement. I
thought that you would be able to purchase off the shelf. Wasn’t
that part of FASA that should apply to DOD? Why is that not ap-
plying to DOD?

Mire. PRESTON. Because we did not get a waiver of one particular
law that we requested that applied only to DOD. There are many
laws particularly in the procurement integrity area that were
adopted by Congress that ap ly only to DOD.

Mrs. MALONEY. I would like to meet with you on what that is
and try to get it changed. It was my understanding that——

Mr. KELMAN. It will be a part of our legislative package.

Mrs. MALONEY. The goal was to bring commercial or private ex-
penditures in Defense under the same system, that would not be
confusing, that would save taxpayers dollars.


67

customers, the Federal division is still dominated by lawyers, and
if I had to make one plea to industry and one cultural change that
I think is necessary on industry's part to make the procurement
process work better just as we are seeking to bring about cultural
changes in the government, it is to show that kind of devotion to-
ward satisfying the customer which in this case in the final analy-
sis is the taxpayer that is shown in the commercial marketplace.

Mrs. MALONEY. Mr. Kelman, what is the administration doing to
achieve the contracting goals Congress has mandated with respect
to small businesses ‘and small disadvantaged businesses?

Mr. KELMAN. Representative Maloney, we have congressional
goals of congressionally established goals of 20 percent of Federal
contracting dollars for small business and 5 percent for small dis-
advantaged business.

Last year, the first year of the administration for which we have
numbers, we are exceeding both of those goals. On awards to small
disadvantaged businesses, where the congressional goal is 5 per-
cent, last year 5.7 percent of our purchases were from small dis-
advantaged businesses. That was up from 5.5 percent the year be-
fore. I believe we are running something over 22 percent on our
purchases from small businesses as a whole. That also is in excess
of—we are exceeding——

Mrs. MALONEY. How are you achieving this if we were not able
to achieve it in the past? What are you doing to make things——

Mr. KELMAN. They are ongoing efforts. Again, I don’t want to
make a partisan statement about this. These efforts began this
past—they are continuing in the present to reach out to small and
small disadvantaged businesses to make them more aware of gov-
ernment contracting opportunities.

1 think probably the biggest innovation that we are doing is in
our electronic commerce initiative, because through electronic com-
Merce knowledge about government contracting opportunities will
become available to hundreds of thousands of small businesses,
that, as Representative Souder indicated before, people may not.
have known about now, a lot more small businesses will find out
about the ability to do business with the government than existed

efore.

Mrs. MALONEY. On electronic commerce, when do you expect that
to be—what is your timetable? When do you expect that to be up
and running?

Mr. KELMAN. We have already gotten started. We have—let’s see,
where should I start? We are working on a very, very aggressive
time schedule that the President set up in an executive memoran-
dum October 93. We are moving I think much faster than we ever
would have been without that. Almost all the agencies now have
at least a pilot electronic commerce capability available.

I am, as I indicated in my written testimony, feeling that we
need to do a better job in actually getting the number of trans-
actions working through that system up faster than we have been
doing it. DOD, as Mrs. Preston indicated in her testimony, is prob-
ably leading the government; has a very, very aggressive plan for
bringing new sites on line.

Mrs. MALONEY. You mentioned there might be difficulties. One
thing that—when you get this electronic commerce division going,


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126

© The Section 800 Panel also made the following additional point in its report to
jongress:
“Currently, there are several complex and comprehensive provisions in the
FAR governing the allowability and allocability of contractor travel expenses.
Because the regulatory process provides greater flexibility in implementation
and quicker responses to changing conditions, it is unnecessary to retain this
statutory authority. In the interests of encouraging the integration of the de-
fense and commercial markets, it is further recommended that the regulations
promulgated in the place of this statute require contractors to keep travel costs
to a reasonable level without restricting them to rigid rate schedules.”

Congressional acceptance of the 800 Panel Report recommendations recognized
the inequities and burdensome administrative costs associated with the earlier stat-
ute and that was the rationale for its repeal.

The proposed rule does not implement Congressional repeal of the use of Federal
per diem rates for Federal contractors and ded revision proposes an alter-
native new process that potentially will generate hundreds of individual company
rate schedules that would need to be negotiated and administered by contractors
and the Government. Each segment of each company will be required to support
rate schedules of travel cost incurred by each employee. The new process is neither
cost effective nor consistent with Congressional efforts to streamline Federal Acqui-
sition policies and procedures. We believe there is a better alternative to respond
to both Government and contractor concerns about ensuring the reasonableness of
contractor travel costs in the current environment.

In our opinion, the existing provisions in FAR 31.201-3 are satisfactory for estab-
lishing cost reasonableness, and therefore we recommend that the proposed travel
cost principle be revised to eliminate the use of Federal per diem rates as a basis
for establishing the reasonableness of contractor travel costs. Our revision to the

proposed rule would include the elimination of FAR 31.205~46 (a) subparagraphs
(2), (3), (4), (5) and (6). FAR 31.201-3 provides an opportunity to question or chal-
lenge the reasonableness of a contractor’s cost without requiring Federal per diem
rate tables or hundreds of alternative rate tables. Moreover, competition in the mar-
ketplace demands that contractors not exceed the boundaries of reasonableness, and
competition for the services of valued employees requires that a contractor's travel
policies ensure that its employees are fairly reimbursed for business travel expendi-
tures. We strongly believe that our recommended approach of control by market
forces coupled with existing FAR 31.203-3 provisions in lieu of additional regulatory
control is both cost effective and more beneficial to the Government. Furthermore,
the Government can still challenge any transactions where travel costs appear to
be excessive.

Finally, returning to the subject of Congressional intent, Section 2191 of the
Streamlining, Act made the repeal of Section 24 of the OFPP Act effective imme-

diately. (See FASA Section 10001(c).) Nothing in the law or “statement of man:
authorized the retention of the complex system referred to in paragraph (a) C) 0 of
31.205-46 until a contracting officer approves of an acceptable alternative system.
As indicated above, we believe the FAR Council is obliged to consider the intent of
Congress in developing implementing regulations relating to the immediate repeal
of the OFPP statutory provision.

If we may be of further assistance and/or answer questions regarding our rec-
ommendations, please contact Mr. Richard Powers, Director of Financial Adminis-
tration, Aerospace Industries Association (202/371-8526).



45

Good afternoon. I would like to also congratulate you on excellent
testimony and very good implementation of what appears to be
working very well.

I do have one question, though, for Mrs. Preston. You mentioned
just a few minutes ago in balancing out a perfect system against
a reasonable system and how much we are willing to absorb and
not absorb, and I heard about the paint and someone will buy a
can of paint and take it home.

When I was in the service, I was a dining facility officer and I
had a six figure budget every year and I fed 60 soldiers, and had
a terrific job doing it. But I will tell you, I am a good, honest, won-
derful person, and I would never cheat the system, certainly never
take a hotdog home for my own use. But I would tell you that, par-
ticularly in the area of small purchases, with a threshold of
$100,000, even though it does only make up 16 percent of the dol-
lars spent, and that you have given us in your testimony, Mrs.
Preston, that is still a significant amount of money. And it goes far
beyond a can of paint.

At what level of oversight are we talking about for those small
purchases and for the micropurchases, as well?

Mrs. PRESTON. The micropurchases are $2,500 and below right
now. We have not precluded the use of credit cards for purchases
above that level, but the intention is and the regulations actually
are being crafted and have not been finalized, but there are levels
of oversight in there depending on the dollar value of the purchase
and there are requirements for specific training, et cetera, that are
required of an individual.

$s you get up to $2,500, you would receive one level of training;
above $2,500 and up to $100,000, you would receive an additional
level of training. And with all the credit card purchases there is a
process where there is an oversight individual who is responsible
for reviewing the bill that comes in once a month to make sure that
there have been no inappropriate purchases, just as we review the
telephone bills every month to make sure nobody is making per-
sonal phone calls.

So I think we have set up adequate controls. As you know, some-
one will always figure out a way to beat the system, but we at least
have something in place that we think is reasonable to prevent
that type of thing.

Mr. KELMAN. I would add, if I could, above $2,500 we have com-
petitive procedures. There are simplified procedures but we get
price competition and quality competition and so forth once we get
above $2,500.

When I was visiting a contracting office in Oregon—or actually
Seattle. I am sorry, us Easterners, I don’t know, it is all one big
blur out there. I apologize.

Mr. FLANAGAN. I understand; it is the Atlantic, Manhattan Is-
land, the Hudson River, and then the Pacific Ocean.

Mr. KELMAN. I am humiliated. I apologize.

But, nonetheless, in Seattle 1 was actually looking at the proce-
dures that Mrs. Preston referred to that, for example, when they
were reviewing, I looked at some previous credit card billings that
were checked, and one was for getting auto repair services. And I
noticed in the personal review that there was a circle around the




8

‘overnment products have been people manufacturing specifically
fr the government’s specifications rather than regular commercial
manufacturers.

Rather than having access to commercial brands of, let’s say,
salad dressing, the government has by this process been forced in
the past to buy products such as this. This is government salad
dressin; produced specifically for government requirements that
are sold nowhere on the commercial marketplace. It is a fovern-
ment-unique product. This is what we bought in the past. Thanks
to the procurement reinvention efforts at the Defense Personnel
Supply Center in Philadelphia, PA, working to move toward com-
mercial products, this is what we are now buying for salad dress-
ing. So we have moved from this fovernment-unique, fovernment-
manufactured salad dressing to the same kind of salad dressing
that all of us buy in the store every day.

This has not only allowed us to save on average between 5 and
10 percent on the food we bought this way, but we are getting qual-
ity national brands for this less money rather than government-
unique items.

In addition, we are now getting just-in-time delivery. So we do
not need to spend as much money to store these items in foyer
ment warehouses. Right here in Washington, Walter Reed Army
Hospital has been able to cut its food inventory levels in half, that
is food for patients, close a storage facility, and get rid of two re-
frigerated trucks.

want to acknowledge before this committee the work of Tony
DiCioccio and the Food Demonstration Program Team at the De-
fense Personnel Supply Center in Philadelphia for making this suc-
cess story possible.

In addition, I would like to point out the Air Force has reduced
the number of military standards and military specifications docu-
ments from 150 to 2 when it contracted recently for the space-
based infrared system, which was an upgrade of an existing sat-
ellite system. The Air Force is relying instead of those special gov-
ernment requirements on international and best commercial prac-
tice standards for the new system. And for that I want to acknowl-
edge before this committee the efforts of Colonel Craig Weston of
the Air Force’s Space-Based Infrared Program office for making
that success story possible.

Let me move on to using incentives to motivate contractors.

Thanks to an innovative procurement technique that has allowed
us to unleash the ingenuity of the private sector, the Santa Monica
Freeway, fairly near Congressman Horn’s district, not quite in your
district, the Santa Monica Freeway which collapsed during the
1994 Los Angeles earthquake was rebuilt in record time. Contrac-
tors were allowed to compete both on price and on how quickly they
could reconstruct the freeway. Contractors agreed to accept finan-
cial penalties for failing to achieve their time commitments and
were given the prospect of financial rewards if they came in under
their time commitments.

The result was that the actual reconstruction, which was initially
expected to take 104 weeks, ended up being accomplished within
10 weeks, one-tenth of the time originally expected. I would like to
acknowledge before this committee the work of Jim Bednar and his


OVERSIGHT OF IMPLEMENTATION OF FED-
ERAL ACQUISITION STREAMLINING ACT OF
1994

TUESDAY, FEBRUARY 21, 1995

HOUSE OF REPRESENTATIVES,
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
Washington, DC.

The committee met, pursuant to notice, at 2 p.m., in room 2154,
Rayburn House Office Building, Hon. William F. Clinger, Jr. (chair-
man of the committee) presiding.

Present: Representatives Clinger, Morella, Shays, Zeliff, Horn,
Mica, Blute, Fox, Chrysler, Gutknecht, Souder, Flanagan, Slaugh-
ter, Thurman, Maloney, Taylor, and Mascara.

Staff present: Ellen Brown, procurement counsel; James Clarke,
staff director; Jonathan Yates, associate general counsel; Judith
McCoy, chief clerk; Russell George, staff director/counsel, Sub-
committee on Government Management, Information, and Tech-
nology; Mark Brasher, professional staff member, Subcommittee on
Government Management, Information, and Technology; Susan
Marshall, procurement specialist, Subcommittee on Government
Management, Information, and Technology; Andrew Richards,
clerk, Subcommittee on Government Management, Information,
and Technology; Cheryl Phelps and Miles Q. Romney, minority pro-
fessional staff members.

Mr. CLINGER. The Committee on Government Reform and Over-
sight will come to order.

e committee is meeting today to hear testimony from the ad-
ministration on its implementation plan for the Federal Acquisition
Streamlining Act of 1994.

Reforming the incredibly arcane and red tape constructed Fed-
eral procurement system is an extremely difficult and complex
task. Nevertheless, it is an issue of vital importance to American
business, both large and small, and to the American taxpayer.

There is no doubt that the almost $200 billion spent each year
by the Federal Government has been done in an _ inefficient and
Byzantine way. The current system costs too much, has involved
too much red tape, and has ill-served both the taxpayer and indus-
try. The Federal Acquisition Streamlining Act of 1994, FASA, was
a direct attack on a procurement system that had gone haywire. It
applied some common sense approaches to the bureaucracy to re-
duce the inefficiency of the system, get some real cost savings for
the taxpayer by encouraging competition, and reduce the burdens

q)


150

PREPARED STATEMENT OF CHARLES E. RUMBAUGH, HUGHES AIRCRAFT COMPANY, ON
BEHALF OF THE AEROSPACE INDUSTRIES ASSOCIATION

My name is Charles E. Rumbaugh, Assistant to Corporate Vice President, Con-
tracts, for Hughes Aircraft Company. I’m appearing today at this public meeting on
FAR Case 94-721 on behalf of the Aeros) Industries Association (AIA) in order
to affirmatively support three aspects of this TINA case—

A new Standard Form (SF) 141X

Replacement of “estimate” for the term “best estimate” on the SF1411

“Adequate price competition could be established to exist even though there
may ultimately be only one offeror

Initially, I want to personally commend the TINA team for their excellent efforts
in these three areas whereby they literally took the Federal Acquisition Streamlin-
ing Act (FASA) as a mandate for regulatory change. Congratulations! We support
these proposed changes as being consistent with the Congressional intent as well
as the expressed direction of Congress to streamline the acquisition process.

NEW SF141X AS A PROPOSAL COVER SHEET

The SF141X is long overdue!

There have been numerous Government admonishments by senior acquisition offi-
cials over the past several years which have attempted to “discourage” contracting-
officers from requesting cost or pricing data where there is adequate price competi-
tion. During this same time period the added, unnecessary cost to Industry was
being voiced on this ongoing burden. A survey of AIA member companies in late
1993 resulted in an AIA estimate that the expense of producing cost and pricing
data for competitive procurements to be in excess of $250 million annually. This fig-
ure does not include the equally significant amount spent by the Government in au-
diting and analyzing this data.

However, at the same time, contracting officers were finding that they were sad-
dled with only one form to use as a proposal cover sheet, i.e. the current SF1411
since it was the only regulatory tool available to them. Consequently when adequate
price competition was present, and only limited information was needed to support
a finding of price reasonableness or cost realism analyses, the detailed TINA re-
quirements embodied in the SF1411 was the regulatory “operating” rule of the day.
Case proposes a new form, entitled, “Proposal Cover Sheet (Cost or
Pricing Data Not Required)” and fills this regulatory void, i.e. provide a regulatory
vehicle to collect information other than cost or pricing data which may be necess:
in some circumstances to help establish price reasonableness or cost realism. Such
information would also not be deemed cost or pricing data.

It is proposed that this form would be used in competitive procurements and
would mitigate as noted above the tremendously expensive “cost and pricing data”
content and format requirements included in the SF1411 and eliminate the unneces-
sary confusion associated with the current use of SF1411. While permitting offerors
to submit SF141X information in their own format, and thus reducing proposal
preparation costs, this regulatory change also provides the necessary flexibility for
the contracting officer such that requests for information could be tailored to suit
the specific needs of a particular solicitation/program.

Clearly, change is needed and the time is ripe for “two proposal cover sheets being
on the shelf.” Government procurement professionals need them and with the
SF1411 and the new SF141X each form will satisfy a specific need.

The genesis of this initiative for a new proposal cover sheet was the pricing orga-
nization at Wright-Patterson Air Force Base—the contracting officers “who are on
the line.” The Air Force recognized the need for such a change (and it should be
noted, this had exactly the same type of origins as the FASA change in the micro-
purchasing arena). Industry, primarily through the Aerospace Industries Associa-
tion, also provided support. The Center for Strategic and International Studies also
provided invaluable assistance.

REPLACEMENT OF “ESTIMATE” FOR THE TERM “BEST ESTIMATE” ON THE SF1411

Briefly, we support the proposed replacement of “estimate” for “best estimate” in
the language between items 14 and 15 on the face of the SF1411. The use of the
word “best estimate” is vague and ambiguous as well as being undefined and not
required by the Truth In Negotiations Act.

B Again, this proposal originated with the Air Force at Wright-Patterson Air Force
jase.


42

is going on as you put it very aptly inside the beltway. So I will
endorse what you say, said, what Congressman Horn said, that it
is a real challenge. It is a big government out there.

Mrs. THURMAN. I found it interesting that when you talked about
one of your Customs Service field offices that they were able to
save—I guess they were going to pay probably $4,000 for privacy
panels, but yet they were able to go to a liquidation sale.

Mr. KELMAN. That was in Florida, also, I might say.

Mrs. THURMAN. See, we are good. We may want to check and see
how they received that information; what was the best avenue for
them to get it and how you could spread that?

Mrs. PRESTON. We are exploring a lot of different ways to go out
there with information, and hopefully, redundant as well. We are
conducting what we call road shows. Many of the services are
doing—where they are going out and putting on a “road show.” I
know that Dr. Kelman and myself speak more times than we would
like to in any given week at conferences, et cetera, that are spon-
sored and we try to hit all over the country and get the word out.

We are also looking at putting in a segment on the Internet with
all of the new implementing regulation guidance once we get the
materials developed. But we cannot even start developing the edu-
cation and training materials until we have the final regulations—
well, we will begin, but we cannot finalize them until we get the
regulations done, and that in and of itself is going to be a huge
task—to just put training materials together.

I think in terms of text, I am keeping copies of each one of the
packages we have sent out for comment, and I know my copy is at

least 4 inches high. So we are talking about some very complex and
detailed things we are going to have to teach people.

Mrs. THURMAN. With that, too, let me ask a question that I do
not think has been asked? What kind of opposition you are getting
from what might have been the traditional contractors to going into
a new procurement?

It would seem to me if I were losing $1,500 when I could have
gotten my $4,000 or if this tradeoff that we are doing, are we hav-
ing any opposition because they are saying, wait a minute, you can-
not do this, you cannot go into hometowns and buy this, you are
supposed to be buying from us?

Mr. KELMAN. Well, I think that is a risk. There are some, obvi-
ously. Any bad system has some special interests that benefit from
it, and there has been—I get letters. I suspect Colleen gets letters
from People who are saying, gee, we used to have certain things re-
served for us. It was marketed to be bought just from us. You are
taking our business away.

My response is we are not taking your business away, you still
have an opportunity to compete for the government’s dollar, we are
just not giving you a right to that business.

I think, though, that the reaction in general from industry as a
whole has been positive. I think that there is a need for, in my
view, a cultural change within industry as a whole in a direction
of having the same laser beam-like emphasis on customer satisfac-
tion that companies show vis-a-vis their commercial customers.

We need to get more of that laser beam direction on satisfying
the government, customer, and the taxpayer as to who the govern-


73

CONCLUSION

Many of the regulations which will implement the provisions of the Federal Acqui-
sition Streamlining Act have yet to be published for comment. The Coalition will
continue to be an integral part of this process and would appreciate the opportunit
to submit comments on further developments should the Committee so desire, We
applaud the Committee's role in this process and recommend continued oversight.
Again, the Coalition appreciates this opportunity to submit comments on develop-
ments to date for the hearing record on this important subject. We would be pleased
to discuss the issues we have presented here with the Committee further and look
forward to working with you on commercial product procurement reform.

PREPARED STATEMENT OF THE COUNCIL OF DEFENSE AND SPACE INDUSTRY
ASSOCIATIONS

In response to your request for industry comments on the pro) regulations
implementing the Federal Acquisition Streamlining Act of 1994 (FASA) and on the
FABSA regulatory implementation process, members of the Council of Defense and
Space Industry Associations (CODSIA) are pleased to submit the following docu-
ments:

1. CODSIA letter of 8 March 1995 to the FAR Council and to Truth in Negotia-
tions Act (TINA) Team Leader Al Winston on the nature and timing of public meet-

i
"8" CODSIA letters on implementing regulations:

a. FAR 94-802: Officials Not to Benefit

b. FAR 94-803: Whistleblower Protections for Contractor Employees

g; RAR 94 904: Procurement Integrity

d. General Services Administration Board of Contract Appeals Rules of Proce-

ture
e. FAR 94-720: Certified Cost or Pricing Data Threshold
f. FAR 94-753: Implementation of Various Cost Principle Provisions
£ FAR 94-754: Travel Costs
. FAR 94-771: Micropurchase Procedures
i. FAR 94-700: Repeal of Requirement for Secretariat/Agency Head Deter-
minations Regarding Use of Cost or Incentive Contracts
j. FAR 94-751: Penalties on Unallowable Indirect Costs
. FAR 94-752: Contractor Overhead Certification
1, FAR 94-801: Debarment, Suspension and Ineligibility (two letters)
pens fAR 94-740: Consolidation and Revision of the Authority to Examine
0)
n. FAR 94-780: Small Business
3. Statement at the February 13, 1995 Public Meeting on Small Business by Alan
L. Chvotkin, Sundstrand Corporation, on behalf of CODSIA
4. Three statements at the February 13, 1995 Public Meeting on TINA:
a. Richard J. Wall, Ernst & Young, on behalf of the American Electronics As-
sociation
b. Charles E. Rumbaugh, Hughes Aircraft Company, on behalf of the Aero-
space Industries Association
c. Carol A. Hulgus, Rockwell International Corporation, on behalf of the Elec-
tronic Industries ‘iation
We hope these documents will be helpful in your analysis of the proposed regula-
tions and your review of the implementation process.

CODSIA Case 13-94

March 8, 1995

FAR Council
Al Winston, TINA Team Leader
General Services Administration
FAR Secretariat (VRS)
Room 4037
18th & F Streets, NW
Washington, DC 204

Dear CounciL MEMBERS AND MR. WINSTON: Three member associations of
CODSIA presented statements at the FAR Council public meeting on February 13
on the proposed Truth in Negotiations Act (TINA) regulations which implement var-


82

We believe. such a rule will permit all parties a fair and reasonable opportunity
to get their views before the advising board.

ingress intended in Section 1433(a) of The Act to allow a protester to obtain a
suspension of the procurement if it files a protest within five days of its required
debriefing. The purpose of this relief is to obviate the need for protesters to file “dis-
covery” protests prior to receiving information in their debriefings, ‘The Section 800
Panel recognized that needless protests could be avoided if offerors were given
meaningful debriefings prior to the filing deadline for their protests (Section 800
Panel Report, 1-232).

The GSBCA rules as currently proposed may fail to carry out this Congressional
intent. These rules now require protesters to file protests within 10 working da
of the date on which the protester knew, or should have known, of the grounds for
its protest. For protests based on information known (or constructively known) at
the time an award is announced, the 10-day timeliness period may expire before a
required debriefing is held. Accordingly, if an unsuccessful offeror waits to file a pro-
test until after receipt of a required debriefing, its protest will trigger a suspension,
but may be dismissed as untimely. The disparity between the Board’s timeliness
regulations and The Act’s suspension provisions may result in the filing of unneces-
sary “covery” protests, which Congress sought to avotd.

'o correct this disparity, the Board rules should provide that a protest, other than
one based upon information that was known or should have been known prior to
award of the contract, will be considered timely if: (a) it is filed within 10 days after
the protester knew or should have known of the basis of protest; or (b) it would trig-
fer the suspension procedure under The Act, Section 1435),

We appreciate the opportunity to comment on the proposed rules of procedure for
the GSBCA. If we may provide further information in connection with these indus-
try comments. please contact Ed Schiff of the National Security Industrial Associa-
tion and CODSIA’s project officer for this matter at (202) 775-1303.

Sincerely,
Don Fuqua,
President, Aerospace Industries Association.
Lawrence F, SkKIBBIE,
President, American Defense Preparedness Association.
JOHN F. MANCINI,
Chief Operating Officer, American Electronics Association.
Gary D. ENGEBRETSON,
President, Contract Services Association.
Dan C. HEINEMEIER,
Vice President, Electronic Industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoce,
President, National Security Industrial Association.
Bert M. CONCKLIN,
President, Professional Services Council.
8.0. NuNN,
Acting President, Shipbuilders Council of America.

CODSIA Case 13-94.5

February 1, 1995
General Services Administration
FAR Secretariat (VRS)
18th & F Streets, N. W.
Room 4037
Washington, D. C. 20405

Subject: FAC Case 90-22, Certified Cost 2a Pricing Data Threshold (FAR Case 94~

Dear FAR Councit: The undersigned members of the Council of Defense and
Space Industry Associations (CODSIA) appreciate the opportunity to comment on
the interim rule published in the Federa) Register on mber 5, 1994 (Vol. 59,
No. 232). Formed in 1964 by industry associations with common interests in the de-
fense and space fields, CODSIA is currently composed of nine associations rep-


OVERSIGHT OF IMPLEMENTATION OF FEDERAL
ACQUISITION STREAMLINING ACT OF 1994

HEARING

BEFORE THE

COMMITTEE ON
GOVERNMENT REFORM
AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION

FEBRUARY 21, 1995

Printed for the use of the Committee on Government Reform and Oversight

ee

U.S. GOVERNMENT PRINTING OFFICE
93-292 CC WASHINGTON : 1995

For sale by the U.S. Government Printing Office
‘Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-047644-5,



108

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131

Finally, we believe the proposed regulation should note, and accept in the provi-
sions of subpart 42.709, a contractor's voluntary disallowance of a lump-sum amount
to offset any inadvertent unallowable costs in the final rate submission. Voluntary
disallowances are occasionally proposed when the contractor's representative sus-
pects there are some inadvertent unallowable costs included in rate proposal sub-
mission to the Government. These situations may arise in cases where the contrac-
tor has undergone frequent reorganizations, or where the immateriality of Govern-
ment business makes the costs of instituting procedures, staff training, and over-
sight to identify the unallowable costs appear to be of unequal benefit. If the con-
tractor’s representative believes it is in the company’s interest to voluntarily set-
aside a certain lump sum (reduce the proposed indirect cost pool) to compensate for
specific unallowable costs which might be identified during a Government audit, the
contractor should be allowed to offset the lump sum against any unallowable
amounts identified by the auditor. We understand that such a position has been
taken by individual ACO’s on a case-by-case basis.
Tf you have any questions concerning the above comments and recommendations,
please contact Mr. Richard Powers, Director of Financia] Administration, Aerospace
Industries Association at (202) 371-8526.
Sincerely,
Don Fuqua,
President, Aerospace Industries Association.
LAWRENCE F. SkiBBIE,
President, American Defense Preparedness Association.
JOHN F, MANCINI,
Chief Operating Officer, American Electronics Association.
Gary D, ENGEBRETSON,
President, Contract Services Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.

Bert M. CoNCKLIN,
President, Professional Services Council.
S.0. NUNN,
Acting President, Shipbuilders Council of America.

CODSIA Case 13-94.11

February 16, 1995
FAR Secretariat (VRS)
ATTN: Ms. Beverly Fayson
General Services Administration
Room 4037
18th & F Streets, N.W.
Washington, D.C. 20405

Dear Ms. Fayson: The undersigned associations of the Council of Defense and
Space Industry Associations are pleased to respond to the December 19, 1994, Fed-
eral Register notice requesting comments on the proposed rule entitled “Contractor
Overhead Certification,” FAR Case 94-752.

The proposed Tule appears to go beyond the legislative intent of Section 2151(h)
of the Federal Acquisition Streamlining Act of 1994. Section 2151(h)(1) requires &
certification by a contractor official when submitting “a proposal for settlement of
indirect costs applicable to a covered contract.” There is no mention of a certification
being required to “establish billing rates.” Apparently, the writers of the draft regu-
lation are attempting to extend to civilian agencies the same DFAR Supplement re-
quirements that are applicable to DoD contractors. This is inappropriate because in
most civilian agency contracts, provisional “billing rates” are the same as rates es-
tablished in Forward Pricing Rate Agreements (I }) or incorporated specificall,
into cost reimbursement type contract provisions based on rates used to “estimate
contract funding amounts. ‘ilian agency contractors should not be expected to cer-
tly the allowability of costs luded in indirect cost proposals submitted to estab-
lish either FPRA rates or estimated rates for the funding of a specific cost reim-
bursement type or flexibly priced contract. This is particularly true for offerors who
have never been awarded a Federal contract.

requirements
.” If you have

We recommend that the proposed rule be amended to e
any questions concerning the above comments and recommendation, please contact.

for a certification of “any proposal to establish or modify bil




109

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30

established a what we are calling a front line procurement profes-
sionals forum, which is having its first meeting tomorrow afternoon
in the Vice President’s ceremonial office downtown. That is a group
of about 30 nonsupervisory front line buyers who are going to be
many from the D.C. area but others from outside who will meet
with Colleen and me each month to talk about how to make pro-
curement streamlining happen in the field, on the ground.

One of the things we will do, again going back to Representative
Morella’s question about how we are doing in the process, tradi-
tionally in the past the people on the front lines, on the operational
end, have not been asked to comment or give their reactions to reg-
ulations. We are going to be showing those draft commercial prod:
uct regulations, for example, to the members of this front line pro-
curement professionals forum and get their input and feedback.
They are the people who are actually trying to buy these things out
there. So we are doing that.

And then we continue, when the commercial product proposed
regulation comes out it will be on a 60-day public comment, period.
Has not come out quite yet, it will be out soon. I will repeat to in-
dustry and notify the industry people who are in the audience
today or who are listening to this hearing today, that we are com-
mitted to making this happen and we are also committed to listen-
ing to comments from industry and others about how to make this
work most effectively.

Mr. CHRYSLER. Wouldn’t it have been more efficient to have solic-
ited input before the drafting process so that the proposed regula-
tions could have incorporated some of their expertise?

Mr. KELMAN. Colleen would like to add.

Mrs. PRESTON. I would like to address that first, if 1 might, and
that is that we wanted to have joint industry participation, that we
looked at the process and tried to figure out a way to do that and
have everybody involved in the initial drafting when we made our
proposal. We just could not figure out a way to do it and do it in
the timeframes we were looking at.

So we tried to do the best we could by holding the public meet-
ings where people could come in and then stating that afterwards
we would be happy to discuss these initiatives with anyone, and
would be receptive to changes, I think, is something that most of
industry would agree is something new for the Federal Government
in terms of responsiveness in the regulatory process. Even being
willing to meet with them publicly and sitting down and discussing
some of these issues.

It is our commitment, both Steve’s and myself, to make sure that
this process works. People are going to have to rely on, and we are
the ones that will be held accountable if it does not occur. But we
decided that efficiency was the most important aspect of the proc-
ess right now and at some point you get where you have so many
people involved and you are in such great levels of detail that it

loes not help to have additional groups of people in.

Did you want to add anything?

Mr. KELMAN. As always, Colleen spoke very well. I will not add
anything to that.

Ir. CHRYSLER. I appreciate your efforts. We certainly can do bet-
ter and we need to do better.


‘CODSTA concurs with revision,

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84

Sincerely,
Don Fuqua,
President, Aerospace Industries Association.
LAWRENCE F. SKIBBIE,
President, American Defense Preparedness Association.
JOHN F. MANCINI,
Chief Operating Officer, American Electronics Association.
Gary D, ENGEBRETSON,
President, Contract Services Association.
Dan C. HEINEMEIER,
Vice President, Electronic Industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoce,
President, National Security Industrial Association.
Bert M. CONCKLIN,
President, Professional Services Council.
S.O. Nunn,
Acting President, Shipbuilders Council of America.


12

the challenges presented by, and reap the rewards associated with, transitioning
from a paper-based to an electronic procurement process.

Developing Implementing Regulations for FASA

Recognizing that FASA authorizes critical procurement streamlining in an era of
declining resources, the Administration has committed itself to implementing its au-
thorities as quickly as possible. We do not want to lose even a single day of the ben-
efits this law provides to the taxpayer. Congress gave us 340 days to develop the
regulations. The President announced when he signed FASA in October last year
that regulations would be developed on an accelerated basis, faster than the statu-
tory deadline.

"Following the President's commitment, the Federal Acquisition Regulatory Coun-
cil adopted an action plan to carry out this promise. Under the action plan, teams
of procurement specialists have been established to address the various substantive
areas of the legislation. Each team includes at least one legislative liaison who par-
ticipated in the discussions with Congress in the development of the law. The liai-
son's role is to provide background on the legislative history of the provisions and
a better understanding of Congress’ intent.

To help ensure that implementation occurs expeditiously, special measures have
been incorporated into the action plan to avoid the more time-consuming process
that would typically occur under routine procedures for regulatory development. The
teams have been operating on a full-time basis to draft regulations. Review of the
team’s work has been performed simultaneously by both defense and civilian offi-
cials. Traditionally, this review is performed sequentially. Agencies have been re-
quired to offer comments on the draft regulations within 10 days. OMB review of

raft regulations has also been accelerated based on our office’s agreement to con-
duct expeditious technical review.

To date, four interim rules and fifteen proposed rules have been published. The
six remaining rules are being readied for quick publication. The most important of
the remaining regulations—those on commercial items, the simplified acquisition
threshold (SAT), and the Federal Acquisition Computer Network (FACNET)—will
be published shortly. In fact, I cleared the rule on SAT and FACNET this morning.
Iwill be providing you with a status report within the next few days.

T want to emphasize that the public's opportunity to offer input in the develop-
ment of these regulations has not been curtailed despite this tight time schedule.
Rules are being published for a full 60-day public eomment period. The FAR Council
will also consider requests for public meetings on any proposed regulation, provided
the request is made during the first 30 days of the public comment period. So far,
publie meetings have been held on the proposed regulations dealing with small busi.
ness programs and the revisions to the Truth in Negotiations Act. I also note that
meetings are scheduled on March 17th for the proposed rules dealing with commer-
Gil items, simplified acquisitions, and FACNET.

In all, I'am very optimistic about our regulatory implementation efforts. While the
task is formidable, T believe that upon its completion, the new regulations will allow
for the streamlining we need and the cost savings our taxpayers deserve.

Procurement Reform in Action
While ensuring the successful regulatory implementation of FASA is of the high-
est priority, you should know that the Administration’s commitment to reinventing
procurement hardly stops here. Our goals are three: streamline the process, obtain
good quality and fair prices, and achieve partnership between government cus-
tomers and industry suppliers. Moving “from red tape to results” was the message
of the NPR—and is the common theme of our many procurement reform projects.
Our project to increase the use of past performance as an evaluation factor in the
source selection process promises not only to secure for the government better value
for its dollar but also to streamline the evaluation process by reducing the amount
of technical requirements that need to be evaluated. Our performance-based service
contracting initiative to get agencies to focus on what they need done in mission-
related output terms can be expected to reduce significantly the total cost of services
and improve contractor performance at the same time. Our effort to help agencies
better understand FASA’s clarifying authority to make multiple awards for the
same requirement and then allow a fair opportunity for consideration of each task
order amongst the contract awardees shou! fd help reduce costs and improve contrac-
tor performance as contractors compete for business in real time.
fe’ve only been at it for a year, but I am proud to say that we are beginning
to see our procurement reform efforts show some results. I would like to share some
of the success stories with you. I would also like to acknowledge by name some of
the career federal employees who have made these successes possible. Too often, fed-



54

down tremendously had they built to a commercial spec or even a
higher grade than commercial spec but something less than what
you were asking for.

Mrs. PRESTON. I will take a look at——

Mr. KELMAN. Your general proposal, Congressman, beyond even
just this one sealift kind of ship is a very, very good one and a
very—I think it is something we have also been thinking about on
the governmentwide level.

Part of Secretary Perry’s MILSPEC initiative is to try to imple-
ment exactly what you suggest, is that we will be putting or the
DOD will be putting into its solicitations a provision saying if we
have put a MILSPEC in our request for proposals, and you think
that you can meet our needs or meet almost. ail of our needs
through a commercial spec come back and tell us that when you
hand in your proposal to the government.

I would like to see that similarly become part of our process in
general, because anybody who has any experience in industry

nows that a lot of times for that last 5 percent of performance you
might double your price.

id I just wrote down what you said. I am not sure whether
there are currently any problems in statute that would inhibit an
agency from just requesting those kinds of things. I will go back
and ask my lawyers. I do not think there are, but I will go back
and ask my lawyers about whether we need any statutory changes.
If so, we will come back with them. If not, I will pledge to you that
we will, governmentwide, continue to do more to promote the kind
of approach you just outlined, where we invite offerors to tell us
here is a cheaper way we can do something.

[The information referred to follows:]

ReviseD List oF Statutes THAT IMPACT COMMERCIAL ACQUISITION
NUMBER, STATUTE, AND EXPLANATION

1, 10 USC 2241 Note—Berry Amendment. Limitation on Defense procurement of
food, clothing, and specialty metals not produced in the U.S.

2. 10 USC 2313—Permits Comptroller General or authorized representative of
GAO to examine contractor records related to contract. Requires flowdown to first-
tier subcontracts exceeding the small purchase limitation.

3. 10 USC 2320—Rights in technical data. FASA established a presumption of pri-
vate development for commercial products, but currently commercial companies are
required to share rights.

4. 10 USC 2321—Validation of proprietary data. Provides that supply or service
contractors for DOD justify any use or release restriction related to their provision
of technical data. Covers any tier subcontractor.

5. 10 USC 2327—Requires firms contracting with DOD to disclose any significant
interest in a firm controlled by a foreign entity that has the State Department has
listed as having terrorist affiliations.

6. 10 USC 2384(b)—Requires marking of supplies with name of seller, contractor's

art number etc. unless commercial items sold in substantial quantities to the pub-
‘ic and to DOD at established catalog or market prices.

7. 10 USC 2391—If DOD plans to reduce spending and downsize facilities, DOD
may conduct studies of the impact and make grants if there has been a significant
adverse im} ona sommunity.

8. 10 USC 2393—Prohibits DOD from doing business with debarred or suspended
contractors, and requires contractors to disclose whether any subcontractors are
debarred or suspended.

9. 10 USC 2397—Procurement integrity. Requires employees or former employees
of defense contractors to file reports concerning their work related activities.

10. 10 USC 2402—Prohibits prime contractors from limiting subcontractor sales
directly to the U.S.




15

If we are allowed to work with the teams as partners in the drafting process, there
should be fewer and more meaningful comments to be submitted.

We continue to support the Government’s goal of accelerating the statutory dead-
lines where possible and of timely publication of the final regulation. Our rec-
ommendations will allow for a more meaningful public comment process without
sacrificing on-time publication of clear, concise and fully-coordinated final rules.

Government and industry alike will be looking to these regulations as an indica-
tion of whether there really is a new approach to Government procurement. We be-
lieve industry's contribution is vital to sending the right message in the final regu-
latory implementation of FASA.

‘We are ready to work with you as the implementation process progresses. To that
end, we have again provided our CODSIA points of contact for each of the drafting
team sections.

Best regards,
Don Fuqua,
President, Aerospace Industries Association.
LAWRENCE F. SKIBBIE,
President, American Defense Preparedness Association.
JOHN F. MANCINI,
Chief Operating Officer, American Electronics Association.
Gary D. ENGEBRETSON,
President, Contract Services Association.
Dan C. HEINEMEIER,
Vice President, Electronic Industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoca,
President, National Security Industrial Association.
Bert M. CONCKLIN,
President, Professional Services Council.
Penny L. EASTMAN,
President, Shipbuilders Council of America.


36

In your testimony you made one statement, you said that some
of the FASA regulations were cost prohibitive; to follow the FASA
regs would cost too much money, that DOD needed their own regs.

I am just taking down notes of what you said on certain things.
And, to me, the idea was to allow DOD to buy off the shelf, so you
are not buying $500 hammers, and allow you to simplify your pur-
chasing, but it sounds like they are not letting that happen to you.

Mrs. PRESTON. If I said that, I apologize because I certainly did
not intend to indicate that. We believe that FASA gave us 95 per-
cent of everything we need to be able to reengineer our business
processes. We, in fact, have just concluded a study that showed
what the difference was in doing business with the government
versus the same company providing that same product to a com-
mercial supplier and found it is about an 18 percent price differen-
tial that we pay, and, more importantly —

Ms. MALONEY. That is outrageous.

Mrs, PRESTON. Many of the factors are factors we have in our
control to change. No. 1 was our specification for quality control,
which has now been changed and we have adopted the inter-
national standard. But, No. 2 is the Truth in Negotiations Act.

So these top 10, what we call our top 10 cost drivers, we are now
working a plan to come up with recommendations on what we need
to do to change that.

Mrs. MALONEY. Could we get, for the record, the copy of the top
10 cost drivers?

Mrs. PRESTON. Certainly.

(The information referred to follows:]

The top ten cost drivers identified in a recent study conducted for the Secretary
of Defense by Coopers & Lybrand/TASC of the value-added costs incurred by the
ten firms participating in the study were: quality assurance, TINA, cost/schedule
control system, configoration management, contract specific requirements, DCAA/
DCMAO interface, cost accounting standards, material management accounting sys-
tem, engineering drawings, and government property administration.

Mrs. MALONEY. You also testified —

Mr. CLINGER. The gentlelady’s time is about to expire. We will
have another round, if you wish.

Mrs. MALONEY. Can I ask one more question, please?

Mr. CLINGER. Certainly.

Mrs. MALONEY. You said many private businesses refuse to do
business with us because of the large amount of paperwork. Again,
a goal of FASA was to cut down on the paperwork so that it is easi-
er to contract with the government. So has FASA not accomplished
this for you? Can you elaborate on that?

Mrs. Preston. I meant to refer to the existing system and then
the system that we want, which is to have—yes, FASA did 95 per-
cent of what we needed. Are there still unique provisions that
would impede the ability or the willingness of some companies to
do business with us? Yes.

Mrs. MALONEY. Can we get a copy of those, what those sugges-
tions are?

Mrs. PRESTON. Yes, we would be happy to provide you at least
the listing of laws that were not waived.

Mrs. MALONEY. Thank you.

[The information referred to follows:]


48

Mr. CLINGER. Well, I think it is pretty apparent that if there has
been resistance within the bureaucracy it has not slowed down the
process at all. Because you obviously are ahead of schedule in
terms of implementation of the regulations.

Just one other question, FASA contained the repeal of a lot of
laws, apparently not as many as perhaps we should, would have
liked and hopefully we will revisit that to simplify the process.

And the streamlining goal, I understand that in some specific
cases, like the travel cost provision, a regulatory process has been
proposed which could be more complex, possibly, and might be im-
plemented inconsistently within the various agencies, which of
course would not be the sort of result we would like to achieve. We
are trying to get more uniformity, not less. This could potentially
require a company to maintain several systems, programs, for ac-
counting for these costs. This is not streamlining.

How would you respond?

Mr. KELMAN. Well, I don’t want—I only want to talk about that
in general because it is an ongoing regulatory process where we
will need to make some decisions.

As you indicated, Mr. Chairman, Congress last year repealed the
statutory provisions regarding tying reimbursement for travel costs
for contractors to government per diems. So you cannot get more
for hotels if you are a government contractor than I can or Colleen
can as a government employee. And that was previously in statute.
The statute was repealed and it was left to regs to determine what
the rules should be.

We do understand there has been some industry concern about
the draft reg that has come out. We will look at the industry con-
cerns. At the same time, I need to say at this time of budget cut-
ting there is a lot of money at stake here and if as a result of mov-
ing our travel reimbursement from the current system, which is
linked to government per diems, to a reasonable cost system, we
could easily, I think it is a conservative estimate, that could easily
cost the government $1 or $200 million a year. So in these times
of tight budgets, we are going to have to—and I look forward—we
look forward to working with industry on this to think about a way
that looks at minimizing administrative burdens while not in a
time when budgets are in a very, very tight situation. If I can put
it in the vernacular, start paying out more money so contractors
can stay at the Hyatt instead of the Holiday Inn.

Mrs. PRESTON. I would just second that in terms of the adminis-
trative burden and that is a primary concern for us. If you have
no regulation of the process, what happens is the contractors’ costs
are assessed to determine whether or not they are reasonable. If
they are reasonable, they would be allowed. If we have to go in and
review or somehow set up a system to sample the costs, there is
a significant administrative burden associated with that as well.
And so what we were looking for in the regulatory process was for
industry to say either you either are capped at whatever the gov-
ernment rate is or you have to set up an internal system yourself
to show that your costs are reasonable so that we do not get into
a process of having to verify that every person who stayed in the
Washington, DC, area did not spend more than $150 a night for
a room.


117

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53

the market that were nowhere near MILSPEC and they were doing
the same thing right next to the ones that were MILSPEC.

It gets kind of silly in our striving for perfection we end up with
very few of what we need whereas if we just lowered the standard
a little and went to a commercial standard on nonoffensive weap-
ons that we could save a heck of a lot of money and accomplish 90
percent—well, a great deal more of what we need.

Mrs. PRESTON. I cannot answer that question directly. I am just
not familiar with the procurement, but I would be happy to go back
and look into it and give you an answer for the record.

Mr. TayLor. One thing that was brought to my attention as we
were trying to, when we did fund some sealift ships that almost
every one of the bidders that I spoke to said they could have saved
an enormous amount of money to the taxpayer and come up with
a ship that was just slightly less capable had it gone to a commer-
cial spec or even a commercial spec plus but not quite a MILSPEC.

Again, it was kind of silly when you think about it that we had
gone to a lot of trouble to upgrade the Cape May and some of those

fast RoRo ships when the ships right next to them were just a com-
mercial RoRo ship we had to pick up on the market because we
needed something to get the troops over there in a hurry.

Mrs. PRESTON. In fact, the fast sealift ships was one of the early
DOD programs for pilot programs, and it never made it out of the
building. I think we found now that one of the reasons is that the
law requires in order for us to come forward with a proposal to
waive the government-unique laws that would apply, that we have
to justify them, and we have to justify them based on cost savings,
et cetera.

It is not an easy thing to do, and what the program managers
told us was that it was more trouble than it was worth because the
amount of time it would take them to come up with cost estimates
of how much money they were going to save, et cetera, made the
process so difficult for them that they just were not willing to put
the effort in. The thing they wanted was to get relief from over-
sight from OSD, and OSD was not willing to give up the reins at
that point and lessen up on the oversight process.

Things have changed now, and it was a lot of work for us to get
the packages together to get the congressional agreement to au-
thorize these pilot programs, and so for those program managers
it took double the effort because they did not know if they were
going to get them approved and they had to do two separate acqui-
sition strategies until they knew they were going to get approval
for the program. When we finally got the approval in some cases
the contracts had already been awarded, so it was too late to take
advantage of the legislative relief we did get.

Mr. Taytor. If I could make a recommendation. I understand
that there will be about a half dozen sealift ships yet to be pur-
chased. We have purchased some under a MILSPEC. I would cer-
tainly recommend that your department look at buying the second
set without the MILSPEC. Just see for yourself what the savings
would be.

Thave a feeling, and, again, this is based on not one supplier tell-
ing me he could have saved the government some money but every
one of the suppliers who bid on it said they could have run the cost


138

If there are any Pestions: or if we can be of further assistance, please do not
hesitate to contact industry coordinator, Patrick Sullivan, Aerospace Industries
Association, (202) 371-8522.
Sincerely,
Don Fuqua,
President, Aerospace Industries Association.
LAWRENCE F. SKIBBIE,
President, American Defense Preparedness Association.
JOHN F. MANCINI,
Chief Operating Officer, American Electronics Association.
Gary D. ENGEBRETSON,
President, Contract Services Association.
DAN C. HEINEMEIER,
Vice President, Electronic Industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoca,
President, National Security Industrial Association.
Bert M. CONCKLIN,
President, Professional Services Council.
8.0. NuNN,
Acting President, Shipbuilders Council of America.

March 6, 1995
General Services Administration
FAR Secretariat (VRS)
18th & F Streets, N.W., Room 4037
Washington, DC 20405

Re: Proposed Changes to the Federal Acquisition Regulation, Small Business, 60
Fed. Reg. 2302-2316 (1995) FAR Case 94.780

DEaR SiR OR MADAM: The Council of Defense and Space Industry Associations
(CODSIA) is pleased to take this opportunity to comment on the proposed imple-
mentation of small business changes included in the Federal Acquisition Streamlin-
ing Act of 1994 (FASA), Public Law 103-355, appearing in the January 6, 1995 Fed-
eral Register, 59 Fed. Reg. 2302-2316 (1995).

CODSIA was formed in 1964 by industry associations having common interests
in the defense and space fields. The Department of Defense encouraged formation
of this organization as a vehicle of obtaining broad industry reactions to new or re-
vised procurement regulations, policies and procedures. In our 30th year, CODSIA
is comprised of nine associations, representing some 4,000 large and small member
firms across the nation.

Our comments follow the order of the proposed changes of the Federal Register
notice.

1, Section 8.404—Using schedules.

CODSIA believes that the term “Federal Supply Schedule” appearing, in the first
line of paragraph (a) should be replaced with the term Mu tip) Award Schedule.”
‘This change is necessary because the term “Federal Supply Schedule” may be inter-

reted to apply only to the Federal Supply Schedule portion of the Multiple Award
Bthedule m. Currently, purchases under both the Federal Supply Service and
Information Technol Service Schedules are exempt from small business set-aside
requirements. According to the legislative history, Con, intended purchases
from the entire Multiple Award Schedule Program—both the Federal Supply Sched-
ule and the Information Technology Service Schedule—to continue to exempt
from the set-aside requirements. The following colloquy occurred during the debate
on the legislation:
Mr. LIEBERMAN: Will the Senator yield? Section 4012 of this bill establishes
a small business reservation for contracts under the new simplified acquisition
threshold of $100,000. It is my paderstanding that, in effect, this amendment
merely updates ion 15(j) of the Small Business Act to reflect the new
reshold.
Mr. GLENN: The Senator is correct . . .


49

So there are a couple of competing interests there we are trying
to balance, and we have made a commitment to industry at our
meeting last week that we would sit down with them and figure
out—in fact, we are waiting for a proposal from them on what they
think makes sense.

Mr. CLINGER. The gentleman from Indiana, Mr. Souder.

Mr. SoupeER. I have a couple of questions, and as a freshman Re-
publican I am going to plead ignorance on some of the details of
the bill, so tell me if this is not covered.

A number of years ago when I was working for then Congress-
man Coats in Indiana doing economic development, I got directly
involved in Federal procurement with a number of our auto and
truck manufacturers who wanted to bid on defense contracts.

One of the main problems was in Columbus, OH, where we were
trying to get more competition to drive a bid down. We did a pilot
program, at that point, where they took photos of all the things
they were buying and made a presentation and we eventually
wound up with a 125 additional bidders they had not previously

a

One of the problems was that they could not tell what price they
had paid or the quantity they were going to purchase. When we
first raised this the Tocal business group thought it was kind of a
ridiculous situation to go into a bidding process.

I understand a reluctance to state what is going to be purchased
and at what price, because it varies on the quantity you order and
various budgeting type concerns. But they, at that point, would not
even release how many they bought, or the average price paid.

Has that been changed over the last few years, or is that infor-
mation still very difficult for someone who wants to bid on defense
contracting? Is that still difficult to obtain?

Mrs. PRESTON. I would say no. Many of the activities are pub-
lished at the beginning of every year, a document listing what their
particular acquisitions are expected to be. Any contract, after it is
awarded, is a publicly available document, so that anyone could go
in and request on any particular buy what price the government
paid for it.

They may not have had the information there where they could
tally it for you and give it to you on an average basis, but there
should not be any reason that could not be done now. In fact, we
have the electronic commerce system operating.

What will happen is that the, through the electronic commerce
system all of the bid prices will be posted right on the system and
everyone can see what the market price is and basically who won
the procurement, et cetera. It will be much more visible.

Mr. SoupeEr. On a historic basis as well up to—

Mrs. PRESTON. I don’t think we are Planning on trying to keep
it on a historic basis, but most people keep track of the market and
know what is a given.

Mr. SouDER. at we found is that small manufacturers were
being priced out of the market because they did not have the per-
sonnel that could know when the bids were going to be posted and
how to tap into the system.

We put together a resource center funded by a development
group in northeast Indiana to try to create some sort of resource


78

Sincerely, Don Fuqua,
President, Aerospace Industries Association.
LAWRENCE F. SKIBBIE,
President, American Defense Preparedness Association.
JOHN F. MANCINI,
Chief Operating Officer, American Electronics Association.
Gary D. ENGEBRETSON,
President, Contract Services Association.
Dan C. HEINEMEIER,
Vice President, Electronic Industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoce,
President, National Security Industrial Association.
Bert M. CONCKLIN,
President, Professional Services Council.
8.0. NUNN,
Acting President, Shipbuilders Council of America.

CODSIA Case 13-94.2

January 27, 1995
General Services Administration
FAR Secretariat (VRS)
ATTN: Mr. Julius Rothlein
Ethics Team Leader
18th & F Streets, NW
Room 4037
Washington, DC 20405

Re: FAR Case 94-803: Whistleblower Protections for Contractor Employees (Ethics)

Dear MR. ROTHLEIN: The undersigned members of the Council of Defense and
Space Industry Associations (CODSIA) appreciate the opportunity to comment on
the proposed rule to amend the Federal Acquisition Regulation (FAR) and imple-
ment Sections 6005 and 6006 enacted in the “Federal Acquisition Streamlining Act
of 1994” (FASA, Public Law 103-355) on coverage designated as “Whistleblower
Protections for Contractor Employees.” The text of the proposed rule was issued for
public comment in the Federal Register of December 1, 1994.

CODSIA was formed in 1964 by industry associations having common interests
in the defense and space fields. The Department of Defense encouraged formation
of this organization as a vehicle for obtaining broad industry reactions to new or
revised procurement regulations, policies and procedures. In our 30th year, CODSIA.
is comprised of nine associations, representing some 4,000 large and small member
firms across the nation.

In general, we support the proposed change to current FAR coverage but ask that
the following comments and concerns be incorporated as changes to the text to the
proposed rule in your draft of a final rule:

1. The duplicative coverage under DFARS 203.71 should be deleted and re-
served. Although by operation of law this DFARS section expired on November
5, 1994, there is no reason to retain this section in the DFARS except for any
special routing that the Department of Defense (DoD) may want to develop. For
example, under the current regulations, all notifications are to be sent to the
Defense Logistics Agency (DLA);

2. Neither the DFARS rule nor the proposed FAR coverage provides for treat-
ing complaints, responses, or Inspector General (IG) investigations in a “con-
fidential” manner to protect the reputations of individuals who may be identi-
fied in the investigation. We are not suggesting that “confidentiality” be used
to mask the existence of a complaint, but rather that the proceedings be treated
like any other company or government personnel matter. Without specific cov-
erage under the regulations, we are concerned that the government would not
be able to properly protect government or contractor employees;



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43

ment is representing. We need to get that cultural change into in-
lustry.

But I think, by and large, the reaction of industry has been very
supportive of procurement reform because there are so many
nonvalue-added burdens that do not help anybody that the tradi-
tional system has created and we are trying to get rid of.

Mrs. . One of the other areas that concerns me every
so often is that one of the reasons I think some of this started, and

‘ou alluded to it, was the idea of the $600 toilet seat, and the

4,000 hammer. the public will come back to us in another 2
or 3 years and say, OK, wait a minute, let me show you where you
spent X amount.

Are we actually putting accountability in this as you go through
these changes?

Mrs. PRESTON. I would not say that we were putting additional
accountability into the process. I think it is a question of lookin;
at how much is it costing us to try to make the system perfect, and
also separating the system itself, the process, from an individual
action. In other words, if you have a system that is bad, you ought
to fix the system. If you have an individual who makes a mistake,
you do not want to kill the individual.

And, in fact, we have been talking, as we go through and looking
at incentives and things like that, particularly in companies who
have done reinventing or reengineering, what they do is go out and
give every one of their employees three chits for mistakes for that
year, and when you do something that is really bad or something
goes wrong, you turn that in. That is the only way you get people
to do something innovative.

And it is interesting because we have some groups now where
the only way they would go out and try a new practice is through
a reinvention lab cover, in essence, because they said what happens
if it does not work. We are trying to reduce our oversight of con-
tractors. We think we can do this in a much better way with much
less expense to the government because we ultimately bear the
burden of that cost for both the government and the contractor,
since it gets included in their product to us. But they did not want
to take a chance until the reinvention lab opportunity came up, be-
cause as a laboratory now, if there is a failure they can say, OK,
it did not work and now we will start all over again.

I would analogize it to how many policemen are you going to put
on the beltway to make sure nobody goes over 55 miles an hour.
At some point it just does not make sense. There will always be
mistakes and we should never lead anyone to believe we will not
have another horror story on a spare part or something of that na-
ture, because if we did, there would be the opportunity to come
back in then, a couple years from now, and we would be back in
the same situation we are now, which is, as you alluded to, every
time there was a problem in the system, there was a law enacted
to make sure that would not happen again or a regulation adopted.
to make sure it would not happen again.

And I would also analogize it to a reef building up. We have now
created a reef that totally has encircled our procurement process
and any ship that tries to get through does so at their own peril,
in some cases.


129

CODSIA Case 13-94.9

. February 13, 1995
Ms. Melissa Rider
Contract Award Team Leader
FAR Secretariat
General Services Administration
18th & F Streets, NW
Room 4037
Washington, DC 20405

Re: FAR Case 94-700

Dear Ms. RIDER: The undersigned members of the Council of Defense and Space
Industry Associations (CODSIA) are pleased to have this opportunity to comment
on the proposed rules implementing Sections 1021 and 1071 of the Federal Acquisi-
tion Streamlining Act of 1994 (FASA). The rules address the repeal of the require-
ment for secretariat/agency head determinations for the use of cost-type or incentive
contracts,

We believe the proposed rule effectively reflects the letter and intent of FASA and
we are supportive of it. We do, however, have one request for a modest addition to

e rule.

We are concerned that the rule lacks clarity regarding the use of Fixed-Price, In-
centive Fee (FPIF) contracts, which, depending on the incentive matrix involved, can
be quite similar to a Firm Fixed Price (FFP) contract. Currently, the law and the
DFAR contains specific proscriptions against the use of fixed-price type contracts for
research and development, unless a high level agency official grants specific ap-

oval otherwise. It has been unclear whether the proscription—and corresponding
igher level approval requirement—applies to both FPIF and FFP type contracts,

The passage of FASA, and the removal of higher-level approval requirements, will
result in there being even less, if any at all, oversight to ensure that an incentive
contract for R&D is not structured in such a way as to approximate a FFP type con-
tract while circumventing the current requirements for Righer level review of the
use of such contracts in R&D.

Therefore, we est that the final rule include a requirement that the use of
FPIF contracts for R&D for contracts in excess of $25 million continue to be subject
to a secretarial determination. In so doing, we believe the intent and spirit of FASA
as well as current, and important DFAR requirements can be met.

If you have any questions or need further information on this subject, please con-
tact Stan Soloway of the Contract Services Association (202/347-0600), who is serv-
ing as CODSIA’s project officer for this FAR Case.

ank you for your time and consideration.
Sincerely,
Don Fuqua,
President, Aerospace Industries Association.
LAWRENCE F. SKIBBIE,
President, American Defense Preparedness Association.
JouNn F, MANCINI,
Chief Operating Officer, American Electronics Association.
Gary D. ENGEBRETSON,
President, Contract Services Association.
Dan C. HEINEMEIER,
Vice President, Electronic Industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoce,
President, National Security Industrial Association.
Bex M. CoNCKLIN,
President, Professional Services Council.
8.0. NUNN,
Acting President, Shipbuilders Council of America.


118

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127
Sincerely,

Don Fugu.

President, Aerospace Industries Association.
LawRENCcE F. SKIBBIE,

President, American Defense Preparedness Association.
JOHN F, MANCINI,

Chief Operating Officer, American Electronics Association.
Gary D. ENGEBRETSON,

President, Contract Services Association.
Dan C. HEINEMEIER,

Vice President, Electronic Industries Association.
KENNETH MCLENNAN,

President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoca,

President, National Security Industrial Association.
Bert M. CoNCKLIN,

President, Professional Services Council.
S.O. NUNN,

Acting President, Shipbuilders Council of America.

CODSIA Case 13-94.8

February 13, 1995
General Services Administration
FAR Secretariat (VRS)
ATTN: Ms, Diane Moykowshy}
18th & F Streets, N.W.
Room 4037
Washington, D.C. 20405

Subject: FAC Case 9024, Federal Acquisition Regulation, Micro-Purchase Procedures
(FAR Case 94-771)

Dear FAR Councit: The undersigned members of the Council of Defense and
Space Industry Associations (CODSIA) ap iate the gpportunity to comment on
the interim rule published in the Federal ‘ister on December 15, 1994 (Vol. 59,
No, 240). Formed in 1964 by industry associations with common interests in the de-
fense and space fields, CODSIA is currently composed of nine associations rey
resenting over 4,000 member firms across the nation. Participation in CODS!
projects is strictly voluntary; a decision by any member association to abstain from
participating in a particular activity is not necessarily an indication of dissent.

The interim rule, which was effective December 15, 1994, implements provisions
of the Federal Acquisition Streamlining Act of 1994 (Public Law 103-355) which (1)
established the threshold for micro-purchases at $2,500 and (2) exempts purchases
not exceeding the micro-purchase threshold from the Buy American Act and certain
small business requirements.

CODSIA members have reviewed this interim rule and do not believe that it fully
supports the FASA goal to simplify micro-purchase acquisitions. Our review sug-
gests the administrative burden has not been eased and we offer the following com-
ments to support that position and suggest improvements that will take steps to-
ward that end.

‘We believe that micro-purchases should be handled on a commercial basis with
no government-unique clauses included as part of the purchase. It is our under-
standing that in many instances, credit cards will be used to buy commercial items
and may make purchases directly from retail outlets. We do not believe such a sys-
tem will be workable with a number of government-unique clauses being used on
such smal} dollar purchases.

However, if the government is not going to eliminate all such clauses, we strongly
suggest that a new section be added to new FAR subpart 13.6 that would list
the only clauses that apply to micro-purchases. We believe the section should state
that “no other clause, even if incorporated onto a purchase order, is effective other
than the clauses listed in the section.” An exception could be made for terms and
conditions pertaining to the identity of items and services, quantities, price, delivery
date, and delivery location. The government might consider whether it wants to add
another form for micro-purchases.



151

“ADEQUATE PRICE COMPETITION” COULD BE ESTABLISHED TO EXIST EVEN THOUGH
THERE ULTIMATELY MAY BE ONLY ONE OFFEROR

We support the regulatory change in proposed FAR. 16.804—1(6X1Xii). Thie pro-
pose] provides a regulatory ren For an exception to cost or pricing data submittal

irements under TINA. Adequate price competition could exist if the contracting
ofifocr reasonably determines-bused upon specific enumerated criteria—-that it wor
reasonable to expect two or more offers in response to a specific solicatation even
though only one offer was in fact later received.

‘Ae background on the need for this evolutionary definition change one should lock
to the legislative language, It must be realized that Congress compelled regulatory
change in the definition of the TINA exceptions when F’ at Section 1202(a), in
modifying 10 USC 2306a, require that

“The Federal Acquisition Regulation shall provide clear standards for deter-
mining whether the (TINA) exceptions... apply. In the case of the (adequate
Price competition) exception . . . , the regulations shall ify the criteria to

= toed to determine whether adeqiate Drce competition ests... .”(emphasie
adde

‘Accordingly, what was a past definition in this area, is past! It is now a new envi-
ronment in which we operate with the passage of FASA. The question to be a1
awered is whether or ot this regulatory proposal properly implements the Congres
sional direction of FASA and not whether any new definition conforms to some prior
notions of “adequate price competition.” Congresa knew the history of the prior
definition(s) and the need for change. Congress has provided a sufficient road map
and directions with this FASA change to 10 USC 2306a.

Specific, objective criteria are listed in the proposed regulations in order to deter-
mine whether such competition exists. Further, requirements are imposed by regu-
lation whereby approval at a level above the contracting officer must be obtained
on whether the @) the proposed price ts based on adequate price competition and
Gi) the price is reasonable. This double-edged standard provides the final “check and
balance’ and should satisfy the FASA stalutory direction. This regulation also pro-
vides sufficient flexibility in the executive agencies for any “required” agency supple-
ments to define the appropriate level above the contracting officer for the specific
approval of that determination. Equally important is the stated regulatory require:
ment that the price be determined to be reasonable for a TINA exception.

‘Accordingly, this “new definition for “adequate price competition’ is a proper im-
plementation of FASA. rt th 1 icy shift evidenced in th th

in conclusion we su, e regulatory policy shift evidenced in these three as-
pects of the proposed TINA changes.

‘We will also provide written input by the March 7th response due date, but we
do appreciate this opportunity to speak at this public forum.

1 would be pleased to address any questions you may have.

PREPARED STATEMENT OF CaROL A. HULGUS, ROCKWELL INTERNATIONAL
CORPORATION, ON BEHALF OF THE ELECTRONIC INDUSTRIES ASSOCIATION

Good afternoon, my name, is Carol Hulgus of Rockwell International. 1 am pre-
senting this testimony on behalf of the Electronic Industries Association (BIA). EIA
and several other trade associations represented here today are working with the
Council of Defense and Space Industry Associations (CODSIA) to prepare one set
of final industry comments to the draft Federal Acquisition Streamlining Act of 1994
(FASA) implementing regulations for TINA. However, the positions taken herein
are, at this point, the view of EIA, as full coordination within CODSIA has not yet

occurred.

I must begin today by saying that the proposed rules on TINA are some of the
most important regulations resulting from last year’s Federal Acquisition Streamlin-
ing Act (FASA). strongly supports the intent of the proposed regulations, Nu-
merous studies, most recently the Coopers & Lybrand/TASC study sponsored by the
Office of the Secretary of Defense, have identified the Truth in Negotiations Act
(TINA) as a major barrier to the Government's use of commercial products and NDI.
If properly implemented, the TINA provisions of the Federal Acquisition Streamlin-
ing Act (ASA) will go a long way toward eliminating this barrier.

e proposed rule is a good faith attempt at implementing the FASA provisions
and we support a number of the regulatory changes which have been made. How-
ever, the proposed regulations fail to overcome a fundamental problem with their
construction. The authors have attempted to superimpose FASA implementation
language, which is premised on the use of certified cost or pricing data as a last
resort, over the preexisting regulatory language which is premised on certified cost


CONTENTS

Hearing held on February 21, 1995
Statement of:

Kelman, Steven, Administrator, Office of Federal Procurement Policy .
estan Colleen, Deputy Under Secretary of Defense, Acquisition
form

Letters, stat " y:

Bass, Hon. Charles F., a Representative in Congress from the State
of New Hampshire, prepared statement of ... le

Chvotkin, Alan, corporate director of government relations and senior
counsel, Sunstrand Cor repared statement of ..

Coalition for Government rement, prepared statement of

Collins, Hon. Cardiss, a Representative in Congress from the State of
Illinois, prepared statement of .. ao

Council of Defense and Space Industry Associations, prepared statement

o! a
Hulgus, Carol A., Rockwell International Corp., on behalf of the Elec-
tronic Industries Association, Prepared statement of ...
Kelman, Steven, Administrator,
EC bid process information ..
Implementation plan for FASA
Information concerning the Federal Acquisition Streamlining Act
Information concerning measures relating to military specifications
and standards reform efforts eennee
List of provisions of law that apply to commercial contractors
pared statement of .....
Revised list of statutes thi
Morella, Hon. Constance A., a Representative in Congress from
of Maryland, prepared statement of ......
Preston, Colleen, Deputy Under Secretary
Information concerning acquisition reform ..
Information concerning rulemaking process
List of laws not waived by FASA
Prepared statement Of .....-..s.00+
Top ten cost. drivers of the value-added costs incurred by firms par-
ticipating in study _
Rumbaugh, Charles E., Hughes Aircraft Co., on behalf of the Aerospace
Industries Association, prepared statement of ....
Wall, Richard J., Emst ‘oung, on behalf of the American Electronics
Association, prepared statement of ... .

fice of Federal Procurement Policy:

qq)



145

ADEQUATE PRICE COMPETITION

To be fair, the best example of where the Government has adequately modemized
its pricing policies is in the area of adequate price competition, Under existing rules,

ate price competition meant that a contracting officer had to receive two or
more offers and make award to the lowest price (responsiveness and responsibility
assumed). Literally interpreted, this rule meant that if the selection conside:
technical factors, adequate price competition could not possibly exist. This interpre-
tation was moderated in practice when the Comptroller General released a decision
which stated that, in order to have adequate price competition, price need only be
a substantial factor. Notwithstanding the Comptroller General’s decision and
reaffirming policy letters and pronouncements, industry continues to observe in-
stances where the literal interpretation is being applied today and given as ration-
ale for requiring cost or pricing data in competitive procurements,

AEA strongly supports the measures being proposed by the Government, which
are summarized below.

Clarify that adequate price competition exists if award is made to the offeror
Proposing greatest value and price is a substantial factor,
llow that adequate price competition exists even if only one offer was sub-
mitted, as long as that offer was made with a reasonable expectation of competi-
ion.

Preclude requests for cost or pricing data when offers are being solicited on
basis of adequate price competition. ABA believes that requirement for any data
should be strongly discouraged.

Improve the understanding of “based on” adequate price competition. AEA
hopes that this understanding will include competitions for supplies and serv-
ices which have been conducted in the commercial market place.

CATALOG OR MARKET PRICES

The creativity displayed in the adequate price competition rules was not equall
apparent in the efforts to modernize the Truth in Negotiation Act's implementing
rules on catalog or market price. The proposed rules appear to be little more than
an incorporation of the specific legislative provisions contained in the Federal Acqui-
sition Streamlining Act. In some cases, however, the proposed rules seem to conflict
with that Act. In AEA’s view, taken as a whole, the proposed rules do not represent
a reasonable attempt to satisfy the Conferee's intent that “the current regulatory
interpretation of this exception [catalog or market, price] should be changed in light
of the purposes of this Act to provide broader flexibility for the purchase of commer-
cial items . . ."? The proposed rules have not adopted substantive recommenda-
tions made by industry in response to the previous proposed rules on catalog or
market prices. Specific concerns follow.

RELATIONAL TESTS

In the previous public comments on catalog or market price reforms, industry had
urged the Government to eliminate the relational tests being prescribed to contract-
ing officers for determining whether a substantial quantity of commercial items had
been sold to the general public.* In industry's view, the tests were unnecessary to
implement the exceptions provided under the Truth in Negotiations Act and often
produced unfair and illogical results. Moreover, industry was concerned about indus-

Ty's continued exposure to the enormous risk inherent in circumstances where the
Government might allege, after contract award, that a company failed to pass either

test.

AEA was pleased to see that the Federal Acquisition Streamlining Act banned de-
terminations of substantial quantity on the basis of the quantity of items sold to
the Government.® Yet, despite this ban, the Government's proposed rules continue
to perpetuate such relational tests in several places:

'AR 18.804 1(bX2X—“An item will automatically qualify for this exception
if sold in substantial quantities, and sales at established catalog prices made
to the general public are at least one-fourth of total sales of the item.

FAR 15.804 1(X2Xvi)—‘Even though the eriteria of paragraphs (bX2Xi) and
Gi) of this section are not met [established catalog price and established market
price], the contracting officer may use other criteria to determine that the price

7 Conference Report, page 185.

FAR 15.804-3() applies two tests: Test #1 = (B+CV(A+B+C) and Test #2 = B(B+C). Where:
A = sales to Government; B = sales to general public at catalog price; C = sales to 1 public
not at catalog price. An ‘Generally passed the teete if Test #I > 55% and Test #2 > 75%.

Sections 1202 and 1251.


106



66

Mrs. MALONEY. I would like to follow up on a comment by Mr.
Chrysler. He was interested in ways that the private sector was in-
volved in this and ye mentioned a series of public hearings that,
have taken place. I would like to have that as part of the record
so we know how we have reached out to everyone with the govern-
ment community, the vendor community.

(The information referred to follows:]

The entire rule making process to implement FASTA was conducted on a govern-
ment-wide basis utilizing the personnel resources of all procurement agencies that
were available. DoD participated in this and did not act on its own. No special
groups or committees including private sector personnel were convened for the pur-
pose of rulemaking. By contrast, the Section 800 Panel that was chartered by Con-
gress and whose work provided the Eeesis for FASTA was an Advisory Committee
made up of 13 individuals equally drawn from the private and public sector under
the leadership of the Commandant of the Defense Systems Management College.
Now that we are in the proposed rulemaking stage of the implementation effort, we
are providing a 60 day period during which the public is encouraged to provided
comments. At the recommendation of DoD, public meetings on the more significant
rules are being held approximately half way through this 60 day period so that we
can have a face to face dialog with the public. This is unique and different from
what we have done in the past.

Mrs. MALONEY. Likewise, if you have public hearings or public
forums coming up, if you could put them in the record so we will
know about it, I might want to go and listen myself.

And what responsibilities do you believe the members of the con-
tractor communities have in improving the acquisition process?

Mr. KELMAN. That is a good question. I have spent a moderate
amount of time interacting, separate from my government job, with
large commercial companies that are competing in the private mar-
ketplace, separate from doing government business. One thing you
notice when you deal with or when you talk to or interact with
world class companies competing in the commercial marketplace is
they are very, very strong—I guess I would use the word “obses-
sion.” I mentioned this before in another context with the idea of
customer satisfaction.

While I certainly would not go so far as to say that that concern
is entirely missing or even close to entirely missing from the gov-
ernment contractor community, I really think there is a difference
in attitude and a need for a cultural change in industry on this
issue of customer satisfaction; that there is far more litigation in
the government contracting context than in the commercial con-
text. I would really like to see a situation where the contractors
that do business with the government spend less time thinking
about how to sue the customer and more time thinking about how
to satisfy the customer.

I met recently with a woman who is a vice president of a large,
I won’t mention the company, of a large company that deals both
with the government and with the commercial sector. And talking
about in her commercial dealings and her division dealings only
with the general public, not with the government, all the work they
are doing for customer satisfaction. And I mentioned to her that
their Federal division did not necessarily always have the same at-
titude.

She said it is impossible; the Federal division is still the only di-
vision of this company that is dominated by lawyers; every place
else is accommodated by people who are in the business of serving


52

Mrs. PRESTON. Yes, sir.

Mr. TayLor. Which leads to the next question on why is—I real-
ize that F-16’s, F-15 combat vehicles, there ought to be a
MILSPEC; it ought to be one of a kind and it ought to be the abso-
lutely best in the world. But for those things that are cargo carriers
in nature for the sealift ships, for the C-17, I really wonder if you
all have given much thought in the past year or so toward the pos-
sibility of acquiring a C-17 equivalent on the commercial market?

Mrs. PRESTON. Yes, sir, we have. And, in fact, that is the pro-
posal for the C-17, if we do go to another aircraft, that will be
called the nondevelopmental airlift aircraft, and we are coming
over under a provision of statute that has passed now—it has been
5 years. But last year is the first year we were ever successful in
getting any pilot programs adopted. And we come over with a re-
quest and say even though this is a military-unique item, we be-
lieve that we can buy it using commercial practices, and we ask
that it be treated as a commercial product. And so the only thing
that would be done uniquely is any modifications that might be
necessary. But we are planning on buying that directly off the
shelf.

The five pilot programs that were authorized last year are
JPATS, the primary aircraft chain near, JDAM, which is a smart
missile guidance system to put—smart bomb, I am sorry, and the
nondevelopmental airline or aircraft initiative, nondevelopmental
engines because airplane engines are another example of where we
are buying the same thing that the commercial sector is buying;
and I’m going to forget the last one.

Mr. KELMAN. Let me add to that, Congressman Taylor, that as
part of the administration’s legislative package for this year we will
be asking you folks in Congress to give us additional pilot authority
to do additional numbers of these kinds of commercial buys that
you are talking about for major weapons systems.

Mr. TAYLOR. Would this nondevelopmental aircraft include some-
thing like the replacements for the P-3? I realize it is not in the
works yet but at some point you will have a replacement obviously
something like that. It might make a heck of a lot more sense to
buy something off the shelf.

Mrs. PRESTON. I can tell you that every effort is being made to
buy anything off the shelf that we can now. And, in fact, every
Major system when it comes up for a review, we are looking
through the entire solicitation to see what MILSPECs are in there
and to make sure that there are a minimum number of military
specifications. And Mr. Longvemare and Dr. Kaminski personally
sit in on those reviews and the question is asked at every meeting
that I have been at now.

Mr. TayLor. It is my understanding that at some point the Navy
will have to come to us to replace the aging fleet of tankers. What
are the chances of going to a commercial—I am talking about for
ship tankers—what are the chances of going to commercial—get-
ting back, Mrs. Preston, to something you and I went through, and
that is in the Gulf War where we had been so insistent upon hav-
ing picture perfect MSC capability, and spent a great deal of
money, and then we turned around and chartered 90 ships just off




26

if we are to buy using commercial practices; and then what we call “lead” pro-
grams—those which require really only regulatory waivers and don’t require any

statutory changes.

The Federal Acq ‘ion Streamlining Act of 1994 ranted the statutory waivers,
but it wasn't as early as we had hoped, and many of the programs had already gone
to contract award. They're now going through the process of trying to see what
changes can be made in the programs to streamline them further and to allow the
contractor and the government to save some money by utilizing commercial suppli-
ers to a greater extent.

Another of our goals has been to improve the Service and OSD milestone decision
making and information collection processes for major systems—or in short-hand,
the Defense Acquisition Board process—the oversight and review process that every
program manager has to go through in order to get his program approved at the

SD level, or for that matter, the Service level.

We commissioned a Process Action Team that made a number of far reaching and
very provocative recommendations in terms of changing the existing way in which
we review programs. Its report is now being coordinated throughout Dol). We have
just finished assimilating the comments of the Steering Group. My office will make
‘a recommendation on them, along with the Acquisition Reform Senior Steering
Group, and we expect those recommendations to go up to Secretary Kaminski in the
next few weeks. il ‘i and the Service Acquisition

fe will then meet with Dr. Kamins!
Executives in what will probably be about a 2- to 3-hour meeting to see if we can
resolve some of the outstanding issues and concerns about some of these rec-
ommendations, and determine which ones can be implemented immediately.

We are trying to adopt internal best practices of world-class customers and
suppliers/ and the way we identify the best mechanism to reach that goal is to pur-
sue legislative change. In the Federal Acquisition Streamlining Act, we received I
would say 95 percent of what we needed to be able to make all of the changes nec-
essary so that DoD can, in fact, become a world-class customer and supplier. We
focused in that statute on two primary objectives:

(1) Increasing the small purchase threshold to $100 thousand so that we
could use simplified procedures for 99 percent of our contract actions, which by
the way account for only 16 percent of our dollars, freeing up our well trained
contracting officers and senior buyers to work on that 1 percent of our contracts
that encompass 84 percent of our dollars. The savings there, as you can imag-
ine, are phenomenal. And we are pursuing that—we did get relief. It is tied to
the implementation of a Federal Computer network. Suffice it to say, we were
very happy with the statutory changes.

(2) The second objective in crafting FASTA as focused on removing govern-
ment-unique laws and regulations from the acquisition of commercial products,
and that includes our “pilot” programs, which have been deemed commerci
products for purposes of the statute. Now we're looking at further changes as
a result of other Process Action Teams. The procurement Process Action Team,
which has been working for the last 3% months, recently reported to the Acqui-
sition Reform Senior Steering Group on the items in disagreement—the rec-
ommendations that various services, etc., had reclaimed on and had objected to.
They have worked out all of the issues, and after briefing Dr. Kaminski received
his endorsement on their recommendations. We also have a Contract Adminis-
tration Team whose recommendations have just now been briefed to Dr.
Kaminski.

In the Contract Administration arena, I think it’s easy to encapsulate exactly
what we're trying to do here by just saying that ‘we need to move from inspection
to process control. We need to be out of the business of inspecting products and con-
tractors, period. We've taken a lot of actions already this year to enhance that proc-
ess. One of the things we've found is we just completed a study—the first empirical
study or verifiable study—of what it costs to do business with the government look-
ing at firms who do both commercial business and evernment business. That study
was conducted for us by Coopers and Lybrand and The Analytical Sciences Corpora-
tion. They concluded through an_activity-based cost accounting assessment that 18
percent was the price diflerential we were paying—non-value-added cost at the
prime contractor level. The difference between what the commercial sector was pay-
ing for essentially the same product. The reasons for that: No. 1 on the list is MILQ
9858a, our quality assurance standard. Why? Because the requirements imposed by
this document are different from anything the contractor utilizes in his commercial

vision.

No. 2 was the Truth in Negotiations Act, because it requires contractors to main-
tain accounting data based on cost for every product. Commercial companies do not
track their costs on a product-by-product basis; therefore, all of the costs of creating



22

to try and provide as much guidance as we can to them but also
allow them some leeway to make the decisions and judgments that.
they should.

I, too, have a couple of examples, just to bring home some points
that I mentioned here. One is on electronic commerce, and the
other on the Joint Advance Strike Technology Program Office
(JAST PMO]. The JAST PMO used a simplified solicitation process,
all electronic, and asked that bids be submitted electronically as
well, for a major systems procurement. By doing that, they received
two solicitations that required less than 4 months each fom initi-
ation to contract award, a savings of typically 47 weeks in acquisi-
tion lead time compared to our traditional process.

In addition, over 2,000 work sheets were generated during each
evaluation of over 300 proposals. The electronic tools that were
used permitted one person to administer the entire evaluation and
provide immediate documentation following a determination. This
equates to a savings of about three full time administrators and 2
months of document preparation for each procurement.

In terms of MILSPECs, we have had a number of successes that.
the services have initiated on their own in many cases. One is the
Army’s new training helicopter, where the training helicopter solic-
itation did not require the offeror to comply with any military spec-
ifications whatsoever. The first helicopter was delivered ahead of
schedule, only 8 months after contract award, by purchasing a com-
mercial helicopter modified for government use. The result is that
training is more effective; that we have leading-edge technology
right now in place; and we have generated a savings of approxi-
mately $20 million per year in operational and support costs alone
by getting rid of our previous helicopters, which were so old it was
costing us a fortune to keep them going.

In addition, we have an individual, Vaughn Martin, out at San
Antonio Air Logistics Center at Kelly Air Force Base, who, on his
own, has transferred over 200 military specifications to commercial
standards and enabled us to purchase 200 commercial items of test
equipment. In just one case alone, using the commercial item de-
scription allowed us to procure 500 spectrum analyzers that were
listed for $60,000 apiece. And that is what—we have been purchas-
ing them for only $14,000 each, a savings of $23 million. These are
not peanuts that we are talking about here.

Finally, in terms of acquisition lead time, I would like to just
give you two examples. The Defense Industrial Supply Center initi-
ated something called Bulk Metals Initiative. Under that program
they have dropped their average lead time from 99 days to less
than 23. Under the defense Construction Supply Center’s Wood
Products Initiative, their lead time dropped from 72 days, on aver-
age, to a standard 10 to 30 days, depending on the size of the
order, with 1-day delivery available.

These are some examples of what people have been doing on
their own. I would be remiss if I did not say and emphasize that
this is a team effort. My office is there in the department, estab-
lished by the Secretary of Defense, to facilitate and coordinate the
efforts of our services and defense agencies. We also have been
working very hard with the administration, with OFPP—and the


105

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34

subject this to judicial review and court challenge and hold up our
ability to save the taxpayers money here.

Mrs. MALONEY. Well, I know Chairman Clinger wants to save
taxpayers money, and this is going to the floor, so if you have any
ideas, I suggest you meet with him or his staff and let us try to
clean it up before it goes to the floor.

Do you want to comment? Excuse me, sir.

Mr. CLINGER [presiding]. If the gentlelady would yield. Yes, I
think those are legitimate concerns. We have indicated in the re-
port language that it was certainly the intention that the procure-
ment regulations will not be affected by this and would be exempt-
ed from it. I think your point about judicial review is a legitimate
one.

Mr. KELMAN. We I hope, for instance, over next few days, we can
work with the committee on that issue.

Mrs. MALONEY. Mr. Kelman, I am studying everything you have
done and it takes a while to learn all of this. I found your testi-
mony really heartening, the examples that you gave, of how gov-
ernment officials are saving taxpayers money. Maybe you could
comment briefly now but in writing back, how did FASA allow
them to do this? In other words, was there action just that of a bu-
reaucracy listening to a talented employee and reasoning to their
suggestions of how to make government work better; or were they
a Geect result of the bipartisan Vice President Gore initiative? And
if it is a direct result, again, I would like to tie it into the section
of the law, et cetera, and how it was changed and maybe, maybe
that is too long or lengthy of an answer to be given now, but I
would like that on the four or five excellent examples, and I ap-
plaud you and applaud the people that made it happen, but again
I want to get down to the specifics of the law.

[The information referred to follows:]

The Federal Acquisition Streamlining Act (FASA) directs purchasing agencies to
procure commercial items to the greatest extent possible. Many agencies looked for
ways to implement this strategy because of the potential cost savings to be realized.
The enactment of FASA with its statutory preference for commercial products
placed greater priority on these efforts.

Mr. KELMAN. I will answer briefly that, as you know, the provi-
sions of the law do not take effect until the implementing regula-
tions become final. Of course, there are several interim regulations
that are out, but I think it is fair to say that each of these efforts,
and again, as I indicated in my testimony, some of these efforts ac-
tually had their genesis in the previous administration. This is bi-
partisan. Each of these efforts results from the spirit of reinvention
and the unleashing of an empowerment of our work force to say let
us do things in more sensible ways; let us get away from red tape
and bureaucracy.

And I think that the regulations are crucial, and once the regula-
tions start coming out I think we will be able to multiply these suc-
cess stories tenfold, a hundredfold. These are things that have all
been done even prior to the law being implemented.

I think that one of the reasons I so much welcome Chairman
Clinger’s willingness, your willingness to actually come out to a
buying office and meet some of those folks on the line, the operat-


115

06

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136

Furthermore, the definition proposed for “List of Parties” differs from the defini
tion proposed in amending F) rt 9.403. Again, the argument is for consistency
between the two proposed rules and we prefer that the proposed language for F!
Part 9 also be incorporated into this coverage for the common rule.

Section 110, Coverage.

1. To streamline the text further, we suggest that the phrase “in accordance with
E.O. 12689 and Section 2355 of Public Law 103-355” be deleted for the reason that
the cited authorities are already provided in the Proposed text for -100(c).

2. It is fundamental to this “Common Rule”, and to the related FAR rule, to en-
sure that the reciprocal effect is given only comparable enforcement. There are sig-
nificant substantive differences between a suspension action and a debarment ac-
tion, and the “reciprocal effect” ranted by other federal agencies to the actions of
@ single agency should be pai 1. For example, a suspension for a procurement
“violation” by one agency should operate as no more and no less than a suspension
from the non-procurement benefits by other federal agencies. Under the Common
Rule, the use of the term “an exclusion” could be applied arbitrarily by a secondary
agency to mean “either a suspension or debarment” in a manner that imposes great-
er or different burdens on a person than the burden imposed by the initiating agen-
ey. To protect against such inconsistency, we recommend that two changes be incor-
porated into this section: (a) that the phrase “as an exclusion” in the first sentence
should be changed to “a comparable action” and (b) that the phrase “as a debarment
or suspension” in the second sentence be changed to “as a comparable action.” (We
suggest similar changes in our comments to the FAR rule.)

3m the last sentence of this section, as a point of clarification, we suggest that
the phrase “imposed under this regulation” be followed with the words “after [the
effective date of the rule].”

Reciprocal Application
An extremely important issue is raised by the correlating proposed rule to FAR
Part 9 with regard to reciprocal application between the FAR coverage and the

nonprocurement common rule coverage. Under existing FAR Section 9.405, a con-
tractor who is “proposed for debarment” is excluded from receiving contracts. By
contrast, under the existing nonprocurement common rule, a “notice of proposed de-
barment” does not operate to exclude persons from receiving “nonprocurement
transactions” (as that term is used in the revised FAR Section 9.403 definition).
Thus, the “proposed for debarment” status under the FAR rule is given full reci
rocal effect, but the “notice of pro debarment” status under the common rule
is given no recognition under the FAR rule. To avoid this inconsistency and imbal-
ance between the two rules, the FAR category of “proposed for debarment” should
be excluded from the actions that are given reciprocal effect under the common rule.
We appreciate the opportunity to comment on the notice of proposed rulemaking
for nonprocurement agency actions on the subject of uniform suspension and debar-
ment. If we may provide further information in connection with these industry com-
ments, please contact Elaine Guth of the Manufacturers Alliance and CODSIA’s
Broject officer for this matter at (703) 841-9000.
incerely,
Don Fuqua,
President, Aerospace Industries Association.
LawRENceE F. SKIBBIE,
President, American Defense Preparedness Association.
JOHN F, MANCINI,
Chief Operating Officer, American Electronics Association.
Gary D. ENGEBRETSON,
President, Contract Services Association.
Dan C. HEINEMEIER,
Vice President, Electronic Industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoca,
President, National Security Industrial Association.
Bert M. CONCKLIN,
President, Professional Services Council.
8.0. NUNN,
Acting President, Shipbuilders Council of America.
Enclosure (Letter to FAR Council Re: FAR Case 94-801)


58

for coordination within the Office of Management and Budget (OMB) and for expe-
diting paperwork reduction clearance numbers for publication in the Federal Reg-
ister.

Prior to publication of a draft proposed rule, the project manager will submit
drafts to OFPP and agency points of contact for coordination. If, because of an inter-
agency disagreement, a ing team is unable to reach agreement in the develop-
ment of a draft proposed rule, the team will develop the necessary provisions and
implementing language to support all alternative positions, which will be submitted
by the project manager to OFPP and agency points of contact for coordination.
OFPP and each agency will have 10 calendar days to review and submit comments
to the project manager. OMB review, with the exception of the Office of Information
and Regulatory Affairs (OIRA), as well as review by the FAR Secretariat will be
conducted during this 10 calendar day period. OFPP or agencies that do not agree
with the draft proposed rule shall, as part of their formal comments, include sug-

sted alternative language and rationale to support that language. Unless suc

language is provided, full coordination will be assumed. Agencies subsequently can

comment on draft proposed rules during the 60-day public comment period, but are
not. permitted to request a public meeting. Each drafting team has 10 calendar days
to fully reconcile agency comments on draft proposed rules and incorporate any ap-
propriate revisions.

If the drafting team reaches the agreement on the draft pro; rule after con-
sidering OFPP and agency comments, the rule will be submitted to the project man-
ager for distribution to OIRA for review, and publication in the Federal Register for
a 60-day public comment period. The project manager will coordinate publication
through the FAR Secretariat. The project manager will then proceed immediately
with publication of the rule, without further review, and will provide a courtesy copy
to OFPP and agency focal points. If, because of an interagency disagreement, a
drafting team is unable to reach agreement in the development of a draft proposed
tule after considering OFPP and agency comments, the team will develop the nec-
essary provisions and implementing lan, age to support all alternative positions.
The team will present the issue to the F, uncil for resolution. If the FAR Coun-
cil does not accept one of the alternatives and cannot reach agreement on a com-
promise draft proposed rule within 5 calendar days, it will be considered in dispute
and resolved by the Administrator of OFPP.

At the conclusion of the public comment period, the project manager will provide
public comments back to the drafting teams. Each drafting team has 10 calendar
days to fully reconcile all comments received, including comments received during
any public meetings conducted on the published proposed rules, and make any ap-
propriate revisions. If the full drafting team is in agreement on the draft final rul
after considering all comments, the rule and an analysis of comments will be sub-
mitted to the project manager for distribution to OFPP and agency points of contact.
If, because of an interagency disagreement, a drafting team is unable to reach
agreement in the development of a draft final rule, the team will develop the nec-
essary provisions and implementing language and an analysis of comments to sup-
Port all positions which will be provided to the project manager for distribution to

FPP and agency points of contact.

On draft final rules, OFPP and each agency will have 10 calendar days to review
and voice any objections in writing to the project manager. If no objection is heard,
It will be forwarded to the FAR Council and acted upon by them within 5 calendar
days. If not acted upon within 5 calendar days, it will be considered in dispute and
resolved by the Administrator of OFPP. If, because of an interagency disagreement,
the drafting team is unable to reach agreement on a draft final rule after review
of agency comments, the team will prepare, within 5 calendar days of such deter-
mination, alternate draft final rules and present them to the FAR Council for reso-
lution within 5 calendar days. If the FAR Council does not accept one of the alter-
natives and cannot reach a; ment on a compromise draft final rule, the rule will
be considered in dispute and resolved by the Administrator of OFPP.

ATTACHMENTS

A milestone plan for the implementation of the Act is at Tab 1. The composition
of each team and the sections of the Act for which it is responsible are at Tab 2.
Sections of the Act that require implementation in a regulation other than the FAR,
or that are deferred, are at Tab 3.



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28

stituents where they can go to get more thorough knowledge, so
that we can be the conduit for conveying what is happening not
only with your department but throughout.

Mrs. PRESTON. We would be happy’ to follow up ‘on that and get
back with you on making sure that we can give you some avenues
to send people to.

Mrs. MoRELLA. Great. It would be very, very helpful.

[The information referred to follows:]

Information about acquisition reform in the Department of Defense is available
through a central clearinghouse and coordination point:

Acquistion Reform Communication Center
Defense Acquisition University

2001 N. Beauregard St.

Alexandria, VA 22311

(703) 845-6755

fax (703) 820-9753

Members of Congress, your staff, your constituents in the Defense isition
workforce, and your constituents who do business with the Department of Defense
may contact the Acquisition Reform Communication Center for leads to training and
other information sources about acquisition reform.

Those with questions about policy matters I would encourage to contact my office,
(703) 695-7413, rather than the Acquisition Reform Communication Center.

Mrs. MORELLA. We will be following up in writing with some spe-
cific questions; I know some of the Members who are not here be-
cause of conflicting schedules have indicated that they wanted to
submit some questions. I just have a few general process related

uestions. Incidentally, the chairman had been called by the
jpeaker and so it is an honor for me to be in his chair.

The FASA statute provides 210 days for publication of Proposed
regulations, 60 days for public comment, and promulgation of final
rules not later than 330 days after enactment. We chose, the com-
mittee did, what was considered a doable schedule for such a com-
prehensive statute. We understand that the administration has
considerably accelerated this schedule and commend you for your
ambition.

However, how will you ensure that quality regulations that are
fully coordinated with all interested parties are not sacrificed for
expediency?

Mr. KELMAN. Well, first of all, as I indicated in my testimony,
the public comment period for review of these regulations has not
been decreased at all. It is the same. It is actually greater than it
has been in the past. Traditionally, it has been 30 days. It has been
moved up as per congressional intent to 60 days. So we have a sig-
nificant public comment period. We already have had hearings on
some of the most important regs. We are going to be having some
hearings on important regulations that have not come out.

I guess one of the ways it is possible, ma’am, for us to assure a
quality product while doing it faster is we are learning the same
lessons that businesses have learned as part of business process
reengineering. You do not necessarily gain in quality by some of
the traditional procedures we have used where things have gone
sequentially and back and forth and so forth. You just use up time.

What we have done is basically to create a team approach.
Again, we are really following the precepts of business process
reengineering used successfully in the private sector where we are
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9

team at the Department of Transportation for making that story
the success that it is. -

Let me move on to talk about the increasing use of purchase
cards, commercial bank cards, in the government. In October 1993,
10 Federal agencies pledged to double their use of purchase cards,
commercial bank cards, to allow program offices to make simple
purchases under $2,500 without needing to go through a separate
procurement bureaucracy. On average, the government saves $54
every time we bypass these extra bureaucratic administrative steps
and allow program offices to buy direct.

We make 10 million purchases under $2,500 a year. In addition
to saving money, using the purchase card allows us to shave as
much as several weeks off of procurement lead time. The 10 agen-
cies that made the pledge to double their use of the purchase card
met their pledge 4 months ahead of schedule.

At one custom service field office, the government was able to
purchase privacy panels for an office from a liquidator for $2,450
compared to a low bid of $4,000 received through the normal proc-
ess because the purchase card allowed them to take advantage of
a special-while-supplies-last offer.

Scientists at the National Oceanic and Atmospheric Administra-
tion have reported that the ability to use the purchase card has al-
lowed for timely repair of scientific equipment when otherwise sci-
entific data would have been lost or experiments interrupted.

The supply operation at the Pentagon was able to absorb a 40
percent cut in purchasing staff due to the expanding use of the
card from 500 actions in 1993 to 16,000 actions in 1995. I am
pleased to commend before this committee Annelie Kuhn at the De-
partment of the Treasury and her interagency team for successfully
promoting expanded use of the purchase card.

Let me just talk quickly about a few more success stories and
then I will finish up. Expanding use of past performance. Since the
Defense Personnel Supply Center in Philadelphia moved several
years ago to a best value procurement of clothing: and textiles.
where they looked very carefully at how contractors had perform
in the past before awarding new contracts, the dollar value of the
contracts the government has needed to terminate because a sup-
plier performed so poorly has declined from $133 million a year to
one-tenth of that, $13 million a year.

I would like to acknowledge before this committee the efforts of
Paul Zebrowski of the clothing and textiles unit’s quick response
team at DPSC in Philadelphia for making this success story pos-
sible.

Using multiple award contracts. I saw recently an article in a
computer magazine in a trade press reporting Zenith Data Sys-
tems, a vendor supplying personal computers to the Air Force, low-
ered the price and increased the performance of the PCs it was
supplying under the contract.

low, presumably, to any of us, as consumers, that does not
sound surprising since those kinds of price drops are taking place
every day in the commercial marketplace. Traditionally, however,
the government had locked itself into long-term contracts with one
supplier to supply these PC’s over several years, and prices typi-
cally did not go down in line with the marketplace.


77

CODSIA Case 13-94.1

January 27, 1995
General Services Administration
FAR Secretariat (VRS)
ATTN: Mr. Julius Rothlein
Ethics Team Leader
18th & F Streets, NW

DeaR MR. ROTHLEIN: The undersigned members of the Council of Defense and
Space Industry Associations (CODSIA) appreciate the opportunity to comment on
the proposed rule to amend the Federal uisition Regulation (FAR) and imple-
ment Section 6004 enacted in the “Federal jisition Streamlining Act of 1994”
(FASA, Public Law 103-355) on coverage designated as “Officials Not to Benefit.”
‘The text of the proposed rule was issued for public comment in the Federal Register
of December 1, 1994.

CODSIA was formed in 1964 by industry associations having common interests
in the defense and space fields. The Department of Defense encouraged formation
of this organization as a vehicle for obtaining broad industry reactions to new or
revised procurement regulations, policies and procedures. In our 30th year, CODSIA
is comprised of nine associations, representing some 4,000 large and small member
firms across the nation.

In general, we support the proposed change to current FAR coverage which, if
adopted, would eliminate the requirement for contracts to contain the clause at FAR
52.203~1. Elimination of unnecessary contract terms and conditions is consistent
with the FASA move toward commercial practices.

Of broader concern is the manner in which the FAR Council has, by this example,
undertaken to implement FASA. The FAR Council has responded to section 6004
of FASA by proposing to delete the clause prescription at FAR 3.102-2 and the
clause itself at 52.203-1. This leaves in the relevant FAR both 3.102, “Officials not
to benefit,” and 3.102-1, “General” (although a “-1” appears at this point to be sur-
plusage). These proposed changes are in literal compliance with the statutory direc-
tion, but they represent a less-than-whole-hearted approach toward real change.

Specifically, the proposed implementation leaves in the FAR language describing
the amended statute at 41 U.S.C. Section 22, which is a broad prohibition addresses
to Members of Congress that is applicable to all government contracts or agree:
ments. If the FAR Council leaves in the general description of the law and deletes
the FAR clause that was required in association with that law, then two con-
sequences inevitably follow:

1. Of significant concern is the implied authority for any buying office or
agency to develop its own, non-standard clause to implement 41 U.S.C. Section
22—or any other law that does not have a standard FAR clause but is men-
tioned in the FAR. If FAR 3.102 is retained, we recommend that a sentence be
added to this section such as: “No clause is required to implement this provi-
sion.”

2. The FAR will have to include/maintain a section in the regulation for every
single law that is applicable to any government contract, or is applicable to the
public and business generally. To include a FAR description of some, but not
all, laws applicable to government contracts will give the impression that a law
is only applicable if it is discussed in the FAR. Then what happens if a law is
inadvertently left out? Does that make it inapplicable to government contracts,
or does the Christian Doctrine apply? It is difficult, if not impossible, to kee}
an absolutely correct and up-to-date listing of all applicable laws in the FAR.
Such a list would be out of date before it was published. The better system is
to delete all FAR coverage on all statutes that have general application to U.S.
businesses and the public and which do not require a unique contract clause.

We appreciate the opportunity to comment on the proposed rule designated as
FAR Case 94-802, “Officials Not to Benefit.” If we may provide further information
in connection with these industry comments, please contact Elaine Guth of the Man-
ufacturers Alliance and CODSIA’s project officer for this FAR Case at (703) 841—
9000.



83

resenting over 4,000 member firms across the nation. Participation in CODSIA
projects is strictly voluntary; a decision by any member association to abstain from
participating in a particular activity is not necessarily an indication of dissent.

The interim rule, which was effective December 5, 1994, implements provisions
of the Federal Acquisition Streamlining Act of 1994 (Public Law 103-355) which (1)
increased the threshold for certified cost or pricing data from $100,000 to $500,000
and (2) removed the requirement for commercial pricing certificates. Similar provi-
sions had been previously adopted for the Department of Defense, National Aero-
nautics and Space Administration, and Coast Guard.

CODSIA generally concurs with the amendments made by the FAR Council and
offers a few recommendations to improve the guidance being given to contracting
officers (see attached analysis).

Effective Date of Threshold Increase

CODSIA notes that the interim rule was effective December 5, 1994. With respect
to the threshold increase, this date appears to be inconsistent with the effective date
established under the Act. Specifically, Section 1251(b) stated that certain provi-
sions were to be effective on and after the date of enactment (October 13, 1994).
CODSIA recommends that the FAR Council retroactively establish October 13,
1994, as the effective date.

Changes to Existing Contracts

The interim rule at FAR 14.201-7(d) and FAR 15.804—2(a\2) instructs contracting
officers to incorporate the increased threshold into existing contracts at the request
of the contractor, without requiring consideration. The contracting officer is to insert
“new contract clauses” that now refer to the threshold specified in FAR 15.804—
2(aX1) rather than a specific dollar amount (i.e., $500,000).

In the interest of acquisition streamlining, CODSIA recommends that the Admin-
istration consider alternative methods of implementing the threshold increase. Rath-
er than requiring individual contractors to petition each civilian agency contracting
officer to make this one-time change, the Administration should consider using its
broad authority to implement the change across-the-board by direction. This alter-
native approach takes advantage of the fact that each of the affected contract
clauses are incorporated by reference rather than full text. Failing this approach,
the Administration should grant agency heads, heads of contracting activities, con-
tracting officers, and contractors (i.e., for subcontracts) the means to adopt the
threshold increase on a blanket basis.

CODSIA also believes that this type of action would be more appropriate as a
FAC item rather than as a regulatory provision at FAR 14.201-7(d) and FAR
15.804~2(a\(2). Terms such as “new contract clauses” and “current version of the
clauses” will later have a confusing meaning as other changes are adopted (e.g., in-
serting additional exemption for commercial products). The FAR, instead, should
provide a means for implementing future threshold increases on modifications and
subcontract through self-executing provisions contained in the pertinent contract
clauses.

CODSIA further recommends that the Administration make a stronger statement
of its policy intent for taking full advantage of this streamlining initiative. For ex-
ample, the FAC should instruct contracting officers to amend contracts as quickly
as Possible. The goal should be to apply the threshold increase to all appropriate
undefinitized contract actions for which no agreement on price was reached as of
October 13, 1994. Further, the FAC should state that it is the Administration’s in-
tent that higher tier contractors take similar action with respect to its subcontrac-
tors as quickly as possible (conforming changes are probably needed to FAR 15.806).

Commercial Pricing Certificate

CODSIA was pleased to see that the FAR Council took swift action to eliminate
the commercial pricing certificate at FAR 14.214 and FAR 15.813. CODSIA urges
the FAR Council to also permit contracting officers to remove the related clauses
from existing contacts, without requiring consideration. The Government has little
to benefit from obtaining commercial pricing certificates on future modifications to
existing contracts.

If you have any questions about our comments or need additional information,
please contact Roger Smith, American Electronics Association, at (202) 682-4434.
Attachment.

CODSIA Analysis, FAR Case 94-720



5

forward to hearing today about its implementation and what more
can be done.

FASA did make important changes in the government’s acquisi-
tion process. The law increases the government’s use of commercial
products, reduces the paperwork burden on industry, and simplifies
the acquisition process for contracts under $100,000. Nonetheless.
the success of procurement reform depends not only on successful
implementation of FASA but also on improved agency management
and oversight of procurement procedures and practices. In addition,
there are several legislative proposals to build on last year’s pas-
sage of FASA. I am looking forward to reviewing the bill that you
are planning to introduce, Mr. Chairman.

'e are fortunate to have with us today witnesses from the Office
of Management and Budget, and from the Department of Defense
to give us their assessment of problems and progress in the imple-
mentation of FASA, and I look forward to hearing them.

Thank you, Mr. Chairman.

Mr. CLINGER. Thank you very much, Mrs. Morella.

[The prepared statement of Hon. Constance A. Morella follows:]

PREPARED STATEMENT OF HON. CONSTANCE A. MORELLA, A REPRESENTATIVE IN
ConGRESS FROM THE STATE OF MARYLAND

Mr. Chairman, I want to commend you for calling today’s hearing to review the
Implementation of the Federal Acquisit Streamlining Act of 1994 (FASA). Pas-
sage of FASA last year was the culmination of many years of work by Congress,
the executive branch, and industry,

made important changes in the Government’s acquisition process. The law
increases the Government's use of commercial products, reduces the paperwork bur-
den on industry, and simplifies the acquisition process for contracts under $100,000.

‘Nonetheless, the success of procurement reform depends not only on successful
implementation of FASA, but also on improved agency management and oversight
of procurement practices. In addition, there are several legislative proposals to build
on last year’s passage of FASA. We are fortunate to have with us today witnesses
from the Office of Management, and Budget and from the Department of Defense
rs o give us their assessment of problems and progress in the implementation of

[The prepared statement of Hon. Charles F. Bass follows:]

PREPARED STATEMENT OF HON. CHARLES F. BASS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEW HAMPSHIRE

Mr. Chairman, I would like to thank our witnesses for taking the time to testify
before us today. The Federal Acquisition Streamlining Act of 1994, or FASA, rey
resents an important step in our efforts to bring some sanity to government spend-
ing. I am therefore looking forward to the opportunity to hear from these witnesses
on how much progress the executive branch is making on carrying out the mandate
of FASA.

Both as a member of this Committee and as a member of the Budget Committee,
I am very interested in seeking new ways in which we can better streamline how
the government makes its purchases. I hope that our witnesses today will be able
to shed some light on whether we can expect FASA to be a success, in addition to
whether Congress should make further improvements to the procurement process.

Finally, I would like to give particular thanks to Mrs. Colleen Preston from the
Department of Defense for appearing today. DoD has been responsible for some of
our government’s best procurement successes, as well as some of its worst failures.
T hope that Mrs. Preston’s testimony will help illustrate what works, what doesn’t
work, and what improvements can be made.

I thank the Chairman.

Mr. CLINGER. If no other Members have any opening statements,
I would again welcome Mr. Kelman and Mrs. Preston to the wit-


9 oe

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81

Sincerely, Don Fuqua,
President, Aerospace Industries Association.
LAWRENCE F. SKIBBIE,
President, American Defense Preparedness Association.
Joun F. Mancini,
Chief Operating Officer, American Electronics Association.
Gary D. ENGEBRETSON,
President, Contract Services Association.
Dan C. HEINEMEIER,
Vice President, Electronic Industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoce,
President, National Security Industrial Association.

Bent M. CONCKLIN,
President, Professional Services Council.

8.0. Nunn,
Acting President, Shipbuilders Council of America.

CODSIA Case 13-94.4

January 31, 1995
General Services Administration
Board of Contract Appeats
ATTN: Mr. Wilbur T. Miller, Chief Counsel
18th & F Streets, NW
Washington, DC'20405

Re: Proposed Rules of Procedure of the General Services Administration Board of
Contract Appeals—Federal Register, Vol. 59, No.231, December 2, 1994

DEAR Mr. MILLER: The undersigned members of the Council of Defense and Space
Industry Associations (CODSIA) appresiate the opportunity to comment on the pro-
posed rules to revise the procedures of the GSA Board of Contract Appeals (GSBCA)
End to implement various sections of the “Federal Acquisition Streamlining Act of
1994” (The Ad, Public Law 103-358).

CODSIA waa formed in 1964 by industry associations having common interests
in the defense and space fields. The government encouraged formation of thie orge-
nization as a vehicle for obtaining broad industry reactions to new or revised pro-
curement regulations, policies and procedures. In our 30th year, CODSIA is com-
prised of nine associetions, representing some 4,000 large atid small member firms
Beross the nation.

Ta general, we have examined the subject proposed rules and support them as
proposed. subject to the following comments.

"The GSBCA does not propose to issue rules concerning Section 2354 of The Act
which authorizes the district courts to request a board of contract appeals to provide
the court with an advisory opinion on pending matters of contract interpretation
which could be the proper subject of a contracting officer’s final decision appealable
under the Contract Disputes Act. No other rule issued to date to implement The
‘Act has included coverage of this important section of the law, We believe all boards
of contract appeals should adopt a uniform rule concerning this. We recommend that
the Board adopt a rule which provides interested parties the opportunity to full
brief the Board (at least in writing and if necessary through orél presentations),
consistent with other Board rules and on.a timing schedule established by the Board
which provides the greatest opportunity for intereted pari to paricpate, coneit-
ent with the schedule set by the district court, if any. We suggest a rule substan-

ursuant to Section 10(f) of the Contract Disputes Act as amended by

of the Federal Acquisition Streamlining Act of 1994 (Public Law
103-355) a district court of the United States requests the Board for an advi-
sory opinion on the matters of contract interpretation properly pending in the
district court, the board shall promptly afford the parties before the district
court a reasonable opportunity to submit briefs and reply briefs to the Board
for its guidance in rendering the advisory opinion to the district court.



107

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60

Tas 2—DRaFTING TEAMS
CONTRACT AWARD

Team Leader: DoD Melissa Rider (AF)

Team Members: Norma Bailey-Mueller (DLA), Ron Crider (NASA), Sharon Ellis
(Navy), Paul Linfield (GSA), Jack Miller (GSA), Verlyn Richards (Army), Joyce Run-
yon (Navy), Susie Schneider (Army), Shirley Scott (GSA)

LIL: Terry Squillacote (DoD)

a

Se ppl
Sections 1003 and 1053, Approval Authority for Use of Procurement Other
Than Full and Open Competition

Sections 1005 and 1055, Acquisition of Expert Services
Sections 1011 and 1061, Source Selection Factors

Sections 1012 and 1062, Solicitation Provision Regarding Evaluation of Pur-
chase Options

Sections 1013 and 1063, Prompt Notice of Award

Sections 1614 and 1064, Post-Award Debriefings

Sections 1021 and 1071, Repeal of Requirement for SecretariaVAgency Head
Determination Regarding Use of Cost Type or Incentive Contracts

Sections 1031 and 1092, Repeal of Requirement for Annual Report on Com-

1061, Solicitation, Evaluation, and Award.
1555, Cooperative Purchasing
Section 4104(bX2), Alternatives to Payment Bonds as Payment Protections for
Suppliers of Labor and Materials
Section 7203, Merit-Based Award of Contracts and Grants
Section 10004, Data Collection Through the Federal Procurement Data Sys-

tem.
Effective Dates: Sections 1021, 1031, 1071 and 1092 are effective on date of enact-
ment.

SPECIAL CONTRACTING METHODS

Team Leader: GSA Ed Mc Andrew
Team Members: Norm Audi (HHS), Dick Higgenbotham (DLA), Tom Holubik
(AF), Bruce King (NASA), Ed Lovett (DOE), Leonard Lowentritt (GSA), Collette
McKenna (GSA), Jack O’Neill (GSA), Baerbell Prentiss (Navy), Robert Sebold (DLA),
Joe Sousa Navy)
LTL: Barry Cohen (DoD) and Matt Blum (OFPP)
ions:
Sect jons 1004 and 1054, Task and Delivery Order Contracts [OFPP Policy

a
Section 1022, Revision and Reorganization of MultiYear Contracting Author-

ity
Se 1072, MultiYear Contracting Authority
Section 1074, Economy Act Purchases [FAR case]
Sections 1503 (except (c)) and 1552, Delegation of Procurement Functions
Sections 1504 and 1553, Determinations and Decisions
Section 6002, Contracting Functions Performed by Federal Personnel

TINA

Team Leader: DoD Al Winston (Navy)

Team Members: Robert Bemben (AF), Jesse Bendahan (Navy), Bill Childs
(NASA), Mary Haskell (OSO), Jona McKey (Army), Jerry Olson (GSR), Susan Quin-
lan (DCAA), Steve Swart (DLA), Elaine eler (DOT)

LTL: Colleen Presten (DoD)

Sections:

Section 1201, Stabilization of Dollar Threshold of Applicability

Section 1202, Exceptions to Cost or Pricing Data Requirements

Section 1203, Restrictions on ‘Additional Authority to Require Cost or Pricing
Data or Other Information

Section 1204, Additional Special Rules for Commercial Items

Section 1205, Right of United States to Examine Contractor Records

Section 1206, Required Regulations

Section 1207, Consistency of Time References
A ection 1208, Exception for Transfers Between Divisions, Subsidiaries, and

filiates



56

will not sit back and wait for the winners to come back and offer
to show you some ways to save money, because they are the least
likely. I came from business and they are the least likely to want
to change the equation since the equation is working in their favor.

Mr. KELMAN. No, we will come up with some proposals so that
they can win the proposal if they come up with some good ideas.

Mr. TayLor. Thank you, Mr. Chairman.

Mr. CLINGER. Gentlelady from New York.

Mrs. MALONEY. I would like to request the implementation plan
be part of the record.

Mr. CLINGER. Without objection, so ordered.

(The information referred to follows:]

IMPLEMENTATION PLAN FOR THE FEDERAL ACQUISITION STREAMLINING ACT OF 1994
(FINAL VERSION)

ROLES AND RESPONSIBILITIES

FAR Council

Federal Acquisition Regulatory (FAR) Council, and the Deputy Under Secretary
of Defense for Acquisition (DUSDAR)) acting as an advisor to the FAR Council, (re-
ferred to herein collectively as the FAR Council) will oversee the implementation of
the Federal Acquisition Streamlining Act of 1994, resolve any interagency disputes,
decide whether to grant requests for public meetings, and approve all final rules im-
plementing the Act.

Senior Agency Procurement Executives

Senior Agency Procurement Executives will identify highly eapable people to serve
on interagency drafting teams and relieve these people of all other work responsibil
{ties during the periods they are needed to work on implementation of this Act. In
addition, each Senior Agency Procurement Executive shall establish internal proce-
dures and identify a point of contact for formally coordinating draft rules within the
allotted time period. Senior Agency Procurement Executives shall provide the name
of the focal point to the project manager.

Project and Deputy Project Manager

Captain Barry Cohen (voice 703-614-3882, fax 703-614-1690) will serve as the
project manager for implementation of the Act and will perform the following: 1)
rovide the interagency drafting teams with necessary guidance, procedures, and
formats to assure a full understanding of the overall plan; 2) track all progress to-
ward meeting established milestones and statutory dates; 3) serve as the focal point
Tor the receipt of all documentation to and from the drafting teams and the various
federal agencies; 4) upon receipt of a draft proposed rule or a draft final rule from
a drafting team, distribute the rule to the Office of Federal Procurement Policy
(OFPP) and agency points of contact for agency comments; 5) provide comments and
any alternative language developed back to the drafting teams for review; 6) keep
the FAR Council informed of all significant events, particularly any potential slip-
page in milestone schedules, as soon as they are known, and the reasons for the
slippage; 7) through the FAR Secretariat, sign and forward all necessary paperwork
to the Federal Register for the publication of rules; and 8) provide draft proposed
rules and final rules to the FAR Council for approval. Mr. Edward Loeb (voice 202—
501-4547, fax 202-501-4067) will serve as deputy project manager. He will assist
the project manager in the duties listed above, serve as liaison between the drafting
teams and the civilian agencies, and with the FAR Secretariat.

Interagency Drafting Teams

Interagency drafting teams, generally consisting of, but_not limited to 5 or 6 se-
lected people from the various federal agencies, will draft the implementing FAR
language. Each drafting team shall include. at least one member representing the
Defense Acquisition Regulations Council (DARC) and/or the Civilian Agency Acqui
sition Council (CAAC), as appropriate; a legal representative who will be responsi
for review of all rules during the drafting phase; at least one individual, a Legisle-
tive Team Liaison (LTL), who was involved in the discussions with Congress on the
legislation; and selected other people with current experience in the FAR system,
The LTL will brief the team at the beginning of the drafting process on policy issues



18

Some of the tools that we think we can use to do that are, first
of all, to change our regulatory structure. And we at DOD have just
initiated an effort, using modern technology, to come up with what
we call an “acquisition desk book.” And we are going to rewrite the
major systems acquisition rules and take them from the very
lengthy documents that they are now to a small set of mandatory
guidelines that will be in a directive and then place everything that
would be guidance or direction to the program managers—lessons
learned, and what we call acquisition wisdom, or procurement wis-
dom—in an electronic desk book that will be readily accessible so
that we can take advantage of the experiences of buyers and all
program managers all across the country.

Any time someone has utilized a procurement method that they
think will save time or money, it will be documented in the system,
and their name will be placed in the system so that people can call
and ask questions of that individual.

And, in addition to that, we are focusing a large part of our effort
on education and training of not only the acquisition work force but
what we hope will be a joint effort with industry, with our buyers,
and with our overseers, the IG and DCAA. We all need to make
sure that we understand the same rules and regulations. We are
developing a strategic plan to go out and train approximately
150,000 people in the DOD acquisition work force alone on the new

as soon as the last period for public comment has expired. We
will have approximately 30 days to go out and train these individ-
uals on these new regulations before they become effective.

Right now we have many antiquated automated information sys-
tems that are not integrated with each other. So, for example, you
might have a buyer who has prepared a solicitation on a computer,
but that computer cannot talk to the contract administration office.
So, that when we award the contract and it then goes to another
organization where it is actually administered, that organization
has to download the information, put it back up on a brand new
system. When we go to make payment, which is done by the de-
fense finance and accounting service; they have to load all the in-
formation into their computer systems. So one of our major efforts
is going to be what we call enterprise integration—that is, to estab-
lish automated systems across functional areas within DOD and to
Maximize the shared use of information.

One of our largest efforts to date has been our process action
team on electronic commerce and electronic data interchange. We
started almost 1% years ago in DOD, and really set the stage for
the Federal Government effort on what has now become the Fed-
eral electronic commerce initiative. What we are trying to do is get
to a paperless contracting system.

This process action team is one example, I believe, where people
within the system who have been working at this process for many,
many years basically worked 18, 20 hour days for 3 months in
order to come up with these recommendations.

People in the field are committed. They want change. They know
there needs to be change and despite the fact that we have devel-
oped the best weapon systems in the world; it is very clear that we
did that because of the dedication of individuals, not because of the
system within which they work. What we are trying to do now is


47

uncertainty in this town this year about the fate of various govern-
ment programs and so forth. I am not asking anybody to redo sort
of larger political things to make procurement reform easier, but
since you asked the question obviously it does make our task more
difficult.

There traditionally has been a fairly high level of turnover in the
procurement work force, and we are hoping to the extent possible
to be able to achieve the downsizing targets that we already have
and then perhaps more aggressive ones that may be coming down
the pike, as much as possible through attrition. It is obviously a
problem. There is obviously a lot of uncertainty out there. At the
same time, and I would be curious to hear Colleen’s reaction, when
I go out there and I am trying to spend as much of my time, con-
sistent with having an 11 year old and a 7 year old at home, out
visiting buying offices.

There is also, as you will see it yourself when you go out, there
is a surprising amount of enthusiasm, eagerness for change. There
are a—I will not say everybody, but there are a significant number
of folks out there who really have been feeling shackled by the sys-
tem from serving the taxpayers and are saying, finally, the political
folks, whether they be in the administration or on the Hill, finally
the political folks are listening to us and are wanting to hear our
ideas for how to make things work better.

So I think that there are a significant number of people out there
who are not letting what you are referring to get them down, but
I would not be telling the truth if I didn’t say it was a problem.

Mr. CLINGER. Mrs. Preston.

Mrs. PRESTON. Within the department, we have already taken a
substantial number of personnel reductions in DOD, and in fact as
part of the——

Mr. CLINGER. In procurement?

Mrs. PRESTON. In procurement.

in the defense management review, there were substantial cuts
taken.

I try, whenever I go out to speak to any of the groups in the work
force, to separate the two and say acquisition reform is not going
to drive personnel cuts. The personnel cuts are going to occur any-
way because we just do not have the budget, and it is only a matter
of time and any delay is making it more difficult. If you were to
ask me, would it be easier if we took the personnel cuts first before
we tried to reengineer the process, obviously, yes. Because there is
some resistance and concern about people losing their jobs. Much
like you find when industry was automating and everyone said,
well, I am going to lose my job if you bring a robot in here to do
it.

We see the same kind of savings when we go through and can
do electronic commerce, for example, in terms of the efficiency in
the process and that will mean that someone is going to lose their
job. But I firmly believe that the personnel reductions are going to
occur no matter what, and our job right now is to figure out how
we can help people continue to effectively do the work that needs
to be done with almost half the people that we had previously

loing it.


51

So when the company asked for the specs, the Navy said that
they did not have the specs, it was the responsibility of the sup-
plier to have the specs. So neither of them had the specs for the
pump. I had this vision of a carrier gradually sinking over in Spain
while the commander was trying to drive the pump.

That is probably the exception, that nobody has the specs, but
the question is in that type of situation you can see there were
multiple things that lead to these type of problems that caused a
lot of bad publicity for the Defense Department and others. Has
any of that been addressed or is there a statute of limitations on
some of this? If you go into the supply field and then you drop out
of the business does that become public information or-—

Mrs. PRESTON. Well, Congress Vas actually dealt on the issue of
rights and data over several years and initially that was one of the
proposals that there be sort of a statute of limitations on how long
you could keep your data proprietary.

We found, though, that the biggest problem is the one you men-
tioned, which is that we did not have a good handle on the tech
data that was delivered; that when you really analyzed the root
cause of the problem, it was not so much that we had so many ven-
dors, who we were stuck with one sole source and they would not
give up the rights on the data, but that the biggest problem was
repositories and we have had a long, ongoing process to digitize
technical data so we can keep it in these repositories. But we are
also looking at some other mechanisms to do that and that is to
rely on the contractor and make it a part of their contract that they
have to keep the technical data because they are the ones who
when the system specifications change on other parts, are the only
ones that are going to know that you have to change the spec on
that particular part as well.

So there has been some effort to go to a new policy of putting
it in as a contractual requirement that the contractor keep up-to-
date data and then the government will have real time computer
access to that data.

Mr. Souper. Thank you very much.

Mr. CLINGER. Thank you.

The gentleman from Mississippi, Mr. Taylor.

Mr. Taytor. Thank you, Mr. Chairman.

Mrs. Preston, I want to verify something you have on page 7.
When you are saying that the small purchase threshold of
$100,000, that covers 99 percent of your contractual actions?

Mrs. PRESTON. Yes, sir.

Mr. TayLor. And then 1 percent of all your contracts is equal to
84 percent of your dollars?

Mrs. PRESTON. Yes, sir.

Mr. TaAyYLor. That is DOD?

Mrs. PRESTON. Department of Defense only.

Mr. TAYLOR. The entire DOD acquisition budget-——

Mrs. PRESTON. The entire budget.

Mr. TayLor [continuing]. Is, if I am not mistaken, it means that
when you buy something like a C-17 or a fast sealift ship, it means
more than those pumps and paint cans and all these others, as the
hammers and things we hear about are small potatoes compared
to that.


80

CODSIA Case 13-94.3
January 27, 1995

General Services Administration
FAR Secretariat (VRS)
ATTN: Mr, Julius Rothlein
Ethics Team Leader
18th & F Streets, NW
Room 4037
Washington, DC 20405

Re: FAR Case 94-804: Procurement Integrity (Ethics)

Dear MR. ROTHLEIN: The undersigned members of the Council of Defense and
Space Industry Associations (CODSIA) appreciate the opportunity to comment on
the proposed rule to amend the Federal Acquisition Regulation (FAR) and imple-
ment Section 8301(e) enacted in the “Federal Acquisition Streamlining Act of 1994”
(FASA, Public Law 103-355) on coverage related to “Procurement Integrity.” In par-
ticular this provision of FASA excludes procurements of commercial items from the
certification requirements of the Procurement Integrity Act (PIA) which requires
that contractor employees certify familiarity with the PIA and will report violations
of the PIA. The text of the proposed rule was iesued for public comment in the Fed-
eral Register of December 1, 1994.

IA was formed in 1964 by industry associations having common interests
in the defense and space fields. The Department of Defense encouraged formation
of this organization as a vehicle for obtaining broad industry reactions to new or
revised procurement regulations, policies and procedures. In our 30th year, CODSIA
is comprised of nine associations, representing some 4,000 large and small member
firms across the nation.

‘The proposed text of the FAR rule is a straightforward implementation of Section
8301(¢) of FASA. In general, we support the [proposed change to current PAR cov-

erage but ask that the fellowing comments and concerns be incorporated as changes
to the text to the proposed rule in your draft of a final rule:

1, We ask that the words “or subcontracts”:be added to each of the revised
sections of FAR 3.104 and FAR 52 to make it clear that both contracts and sub-
contracts for commercial items are exempt from the PIA certification require-
ments;

2, We suggest that the rule would be internally consistent if all references to
commercial contracts were in the singular, such as “not required in a contract
for the procurement of « commercial item or modifications to such a eontract;”
an

3. While not part of this rule, we believe the regulation’s reference to “com-
mercial item” would benefit from the cross-reference to the definition of a com-
mercial item whenever that is created in the FAR. This cross-reference could
minimize any future confusion about whether an item is or is not a “commercial
item.

We appreciate the opportunity to comment on the proposed rule designated as
FAR Case 94-804, “Procurement Integrity.” If we may provide further information
in connection with these industry comments, please contact Elaine Guth of the Man-
facturers Alliance and CODSIA’s project officer for this FAR Case at (703) 841-


142

Let me begin our detailed comments by proceeding in rough numerical sequence
through the rule. This sequence is not a fist of priorities or of the magnitude of our
concerns: it is just an easy way for me to proceed.

Section 8.404 relates to the use of required sources of supplies and services—basi-
cally the GSA Schedules. The team may or may not be aware that the present GSA
Multiple Awards Schedule Program really has two components: the Federal Supply
Schedule for commodity type items and the Information Technology Services -
ule for those types of items. Currently, purchases under both schedules are exempt
from the set-aside requirement. In our final written comments, we will cite clear
legislative history of FASA to demonstrate that Congress intended to retain that ex-
emption. Tt only takes a few words to retain this congressional policy, but it is vital
to those businesses and agencies that utilize both schedules. We know of no reason
not to make this change and a similar change to section 19.503-1.

Our next comment focuses on the all-important area of definitions in section
19.001. Our comments fall into two different areas.

First, while this rule includes a clear application of the statutory definition of
“woman owned small business, we note that neither Congress nor the agencies are
satisfied with the differing definitions of the key terms of “small business”, “small
disadvantaged business” and even “woman-owned small business” that litter the
United States Code, the FAR and the various agency supplements. Your team did
not have the responsibility to implement section 7107 of the Acquisition Streamlin-
ing Act—which calls for the development of a uniform set of definitions (statutory
and regulatory) for these critical terms. That work, which was assigned to the Office
of Federal Procurement Policy, is underway. Regrettably, the current version of
FASA does not require that the work under that section be completed before May,
1996!

As a result, we request that the preamble to any final rule here should indicate
the Government's intent to proceed with the study required by section 7107, and
include a commitment to incorporate appropriate results into the FAR.

A second concern we have relates to the reference in this section, and throughout
the rule, to the unique definitions of “small disadvantaged business” for DoD, A
and the Coast Guard. While this statement is true, the statement is only partially
true since other Federal agencies also have unique definitions for “small disadvan-
taged businesses.” A partial listing of these definitions is included in the OFPP no-
tice of their commencement of the study of all definitions as required by section
7107 of FASA.

‘As a result, we believe that this rule should accommodate every unique difference
in the definitions by following the FAR Convention—delete this phrase throughout
this rule and leave it to each agency supplement that requires special coverage to
include their unique definitions in their supplements. As an alternative, we believe
the proposed rule could be modified to add the phrase “and possibly other agencies”
each place it appears in the rule. At least these additional words would make the
key statement more accurate and suggest to the FAR users that they consult each
agency supplement to determine whether a unique definition is in use.

‘Section 19.202-3 covers a category called “labor surplus area priority.” As the pre-
amble to the rule correctly notes, Congress explicitly and intentionally abolished the
labor surplus area set-aside priority under the Small Business Act. Yet this section
preserves a vestige of a priority—albeit a very narrow one. We know Congress re-
pealed the LSA provisions, and we strongly recommend that the small business
team repeal the entire section 19.202-3—both the current FAR coverage and the ad-
ditional lead in sentence that the team sought to include.

Our next comment relates to section 19.503-3, titled “Total Small Business Set-
Asides.” We identified three issues in this section of the proposed rule.

First, the rule fails to carry forward on the key element of the statute when the
small business reservation was raised from $25,000 to $100,000. Under the existing
tule, and the explicit language of section 4004 of FASA, the small business reserva-
tion is raised to $100,000, subject always to the so-called “rule of two”. That impor-
tant statutory qualification has been included in section 19.503-2 with respect to
total SDB set-asides, but has not been included in this section 19-503-3 relating
to total small business set-asides. The “rule of two” is an essential element of the
statutory scheme. We could not support this regulation without that qualification
included in the both sections of any final rule,

Second, both sections 19.503-2(a) and 19.503-3(a) of the rule tie the lower level
of the reservation to the so-called “micro-purchase” threshold in 13.106, although
the statute provides for the numerical threshold of $2500. Today, the two items are
synonymous; but may not be in the future. Despite our support for setting the floor
for the smaii business reservation at the “micropurchase level”, and allowing
micropurchase level to fluctuate with the benefits of future acquisition reform i



135

is intended to revise coverage in what is generally referred to as the 1989 agency-
wide nonprocurement “common rule.” The text of the notice of proposed rulemaking
was Published in the Federal Register of December 20, 1994 for public comment.

CODSIA was formed in 1964 by industry associations having common interests
in the defense and space fields. The Department of Defense encouraged formation
of this organization as a vehicle for obtaining broad industry reactions to new or
revised procurement regulations, policies and procedures. In our 30th year, CODSIA
is comprised of nine associations, representing some 4,000 large and small member
firms across the nation.

In large measure, the notice of proposed rulemaking successfully meets the major
objective in this effort which is to provide uniformity and reciprocity in suspension
and debarment actions on a government wide basis. For this, we commend you.
However, the proposed modifications in regulatory guidance do raise some issues of
‘concern which we present below.

COMBINED RULEMAKING; PRELIMINARY COMMENTS.

We note initially that, according to the summary statement provided with the no-
tice, the proposed revisions to the nonprocurement common rule are intended to re-
spond fo the joint requirements of Executive Order (E.0,) 12689 and Section 2455
of the “Federal isition Streamlining Act of 1994” (FASA, Public Law [P.L.] 103—
355). Effective on August 16, 1989, E.0. 12689 directed agencies to establish regula-
tions for reciproci government wide effect across procurement and nonprocurement
for each agency’s debarment and suspension actions. FASA was signed into law on
October 13, 1994 and, similar to the requirements of E.0. 12689, Section 2455 of
this law provides that the debarment, suspension, or other exclusion of a participant
in a procurement activity under the Federal Acquisition Regulation (FAR), or in a
nonprocurement activity under regulations issued pursuant to E.O. 12549, shall be
given reciprocal government wide effect.

To fully effectuate the dictates of these provisions, we recognize that the proposed
regulatory implementation of these provisions is in two parts: (1) proj amend-
ments to the 1989 nonprocurement common rule, referenced above and the subject
of this letter; and (2) proposed amendments to FAR Part 9, “Contractor Qualifica-
tions,” also published for public comment on the same date and the subject of @
similar, but separate CODSIA letter (copy enclosed). Clearly, the two proposed regu-
latory actions must be read in combination and, in similar manner, we ask that our
comments in response to both actions also be treated in combination.

‘SPECIFIC COMMENTS

In order to successfully implement these provisions which call for uniformity and
reciprocity in debarment, suspension and other exclusionary procedures across nu-
merous federal agencies, it is essential that there be consistency in the terms and
the scope of coverage of the rules, both internally within either the nonprocurement
“common rule” or the FAR Part 9 rule, and between the two rules. As presently
drafted, we believe that that consistency does not now exist between the changes
proposed for the common rule and proposed changes to FAR Part 9, To underscore
our concern, we note the following specifics with the proposed coverage relative to
the common rule:

Section 100, Purpose

In this particular section, the “laundry list” of terms that requires the inclusion
of all parties differs from the definition of the term “List of Parties Excluded” in

proposed “Section -105, Definitions.” This section -100) includes “per-
‘sons against which government-wide exclusions have been entered,” but that phrase
is not covered in proposed Section .105. Section -105 includes individ-

uals who have been “voluntarily excluded,” but that term is not included in Section
-100. While, admittedly, the term “voluntarily excluded” parties does not flow

directly from the imposition of governmental action, the inclusion of that term in
Section +100 would perhaps help to maintain the consistency necessary for
this rule to accomplish the required goal.
Section 105, Definitions

We suggest that, at a minimum, the proposed definition for “List of Parties” delete
the phrase “Executive Orders 12549 and 12686 and”. Those two Executive Orders
(E.0.8) provide procedural guidance to provide for the reciprocal effect of the two
“systems” (i.e., procurement and nonprocurement). The basis for debarment, suspen-
sion, or voluntary exclusion comes from exercising the authorities under each agen-
cy’s “nonprocurement” rules, or the FAR, not these E.0.s.



13

eral employees hear their names mentioned in Congressional committee hearings
only when they are being accused of wrongdoing. I want to make sure that those
who've been involved in Sightdoing”—in serving the taxpayer-start to get recogni.
tion for their efforts.

* Increasing Reliance on Commercial Practices. For many years, the government
has spent enormous time and money developing its own specifications for common
consumer items. Often, ordinary commercial cts were unable to meet every de-
tall of these specifications. ‘The bizarre result was that only suppliers producing
products specifically for the government were able to compete. Rather than having
Recess, say, to commercial brands of salad dressing, the government ended up buy
ing products such as these—paying more and not getting the benefits of quality that
had proved itself with consumer.

‘As e result of innovative procurement techniques at the Defense Personnel Supply
Center (DPSC) in Philadelphia—-which bays food, clothing, and medical supplies for
our soldiers—the government has now started making available to our military
bases ordinary commercial products guch as these, Savings of between 5 and 10 per
cent on food bought this way are being reported-—and for those lower prices we're
getting quality national brands rather than items produced specially for the govern-
ment. Furthermore, we're now getting just-in-time delivery, 60 we don't need to
gpend as much mony to eare hae items in government warehouses. Waller Reed

pital, for example, has buen able to ct ils food inventory evela in hal, clone
fa storage facility, and get rid of two refrigerated trucks. In one year at Fort Lee,
Virginia, food inventories were reduced from $585,000 to $32,000, and the facility
was able to close down its warehouse.

I would like to acknowledge before this Committee the work of Tony DiCioccio and
the Food Demonstration Program ‘Team at DPSC for making this euccess story pos
sible.

You should also note that the Air Force reduced the number of MIL-STDs and
MIL-SPECs compliance documents from 150 to 2 when it contracted for the Space-
Based Infrared System which increased performance over the existing Defense Sup.
port. Program satellite system. The Air Force now relies on international and best
Commercial practices standards far the new system.

Tam happy to acknowledge before thie Commitice the efforts of Col. Craig Weston
at the Air, Force's Space-Based Infrared Program Office for making this success
story possible.

e Using Incentives to Motivate Contractors. Thanks to an innovative procurement
technique that has allowed us to unleash the ingenuity, of the private sector, the
Santa Monica Freeway, which collapsed during the 1994 Los Angeles earthquake,
waa rebuilt in record time. Contractors competed both on price and on how quickly
they could safely resonstract the freeway. Contractors agreed to accept financial
penalties for fail ing to achieve their time commitment and were promised financial
Tewards for each day they exceeded their commitment. The result was that the ac-
tual reconstruction, originally estimated to take 104 weeks, ended up taking only
10 weeks!

T'am pleased to acknowledge before this Committee the work of Jim Bednar and
his team at the Department of Transportation in making this story the success that
it is.

* ‘Increasing Use of Purchase Cards, In October 1993, ten agencies pledged to dou-
ble their use of purchase cards to allow program offices to make purchases under
$2,500 without going through the procurement bureaucracy. On. average, the gov-
ernment saves $54 every time we bypass these extra bureaucratic steps and allow
program offices to buy direct. The government makes almost ten million purchases
Under $2,500 per year. In addition to saving money, program office vse of the pur-
chase card allows us to cut as much as several weeks off procurement leadtime. In
short, this is an example of business process re-engineering such as has been used
successfully to make private companies more competitive.

The ten agencies that made the Pledge to double their use of the purchase card
met their pledge four months ahead of schedule. ‘The government is now making
over a million transactions a year using this money-saving method. At one Customs
Service field office, the goverament was able to purchase privacy panele for an office
from a liquidator for $2,450, com; d to a low bid of $4,000 received through the
normal process, because’ the purchase card allowed them to act quickly on a “while
supplies last” offer. In other field operations, downtime out in the field has been re-
duced because ofthe ability to get quick repair of vehicles or other equipment using
the card. Scientists at the National Oceanic and Atmospheric Administration have
reported that the ability to use the card has allowed for timely repair of scientific
equipment where otherwise scientific data would have been lost or experiments in-
ternipted. The supply operation at the Pentagon was able to absorb a 40 percent


137

CODSIA Case 13-94.13

February 21, 1995
Mr. Daniel J. Tucciarone
General Services Administration
FAR Secretariat (VRS)
18th & F Streets NVV
Room 4037
Washington DC 20405

DEaR MR. TUCCIARONE: The undersigned members of the Council of Defense and
Space Industries Associations are pleased to provide comments on the proposed rule
implementing Sections 2201(a) and 2251(a) of the Federal Acquisition Streamlining
Act which as consolidation and revision of the authority to examine records.
FAR Case 94-740 applies.

In our view, the regulatory implementation of the statute broadens the govern-
ment’s access to data and expands ‘pon the record keeping requirements. Neither
of these actions were provided for by law or contemplated by the drafters of the ieg-
islation. Our comments are keyed to the specific paragraphs of the regulation:
4.703(c(D)

This paragraph needs further clarification. It requires procedures to ensure that
the imaging process preserves the integrity, reliability and security of the “original
records.” This vording seems to indicate a concern that the imaging process might
damage the original documents. The intention, however, is more likely to be that
the process preserve a reliable, secure image of the original document. If the elec-
tronic or photographic image is to be the sole official record after one year, the in-
tegrity of the new record is paramount. We suggest that subparagraph (cX1) be re-
written as follows:

(1) The contractor or subcontractor has established procedures to ensure that
the imaging process preserves an accurate image of the original record and that
the imaging process is reliable and secure so as to maintain the integrity of the
records.

52.215-2(b)

We recommend deletion of the words “or which may contain information useful
in the evaluation of the allowability of such costs.” This is a major change to the
audit clause because it extends the right to examine records to all records “which
may contain information useful in the allowability of such costs.” UEmphasis added]
Under this subjective standard nearly any record may contain useful information.
It shifts the burden of proof to the contractor to show that the records that were
not retained did not contain any useful information. Further, this language does not
appear anywhere in section 2201 of FASA. Many prior decisions on DCAA access
have established the standards used to determine government access to records. The
new standard would disturb important legal precedents.
52.215-2(c1)

Section 2201 of FASA revises 10 USC 2313 and, as revised, 2313(aX2XA) refers
to audits of records related to “the proposal”, not “development of the proposal.” The
FAR clause should repeat the wording of the statute rather than expand the lan-
guage. The use of the terms “development of” and those “discussions” related to “ne-
gotiating,” further expand the government’s access to records during audit without
a legislative basis. We recommend that these terms be deleted.
52,215-2(cK4)

The phrase—‘in the evaluation of the accuracy, completeness, and currency of the
certified cost or pricing data”—is misplaced. The text of sections 2201 and 2251 of
FASA makes it obvious that this language applies to (cX1) through (cX(4), not just
(cX4) alone. We recommend that the phrase be moved to the first sentence of para-
graph (c): *. . . shall have the right to examine and audit, for the purpose of evalu-
ating the accuracy, completeness, and currency of the certified cost or price data,
all of the Contractor's records, . ..”
52.215-2(d)(2

This paragraph addresses the creation and maintenance of documents and should
not be limited to subparagraph (d) which deals with the Comptroller General’s
rights, but rather should apply to the whole clause. Therefore it should state “this
clause” rather than “this paragraph” and should be a new paragraph (h).


55

11. 10 USC 2406—Requires contractors to make available in a timely manner ac-
cess to their cost and pric ig records for major weapon systems.

12. 10 USC 2408—Prohibits employment, for up to 5 years, of persons on DOD
contractors or first tier subcontracts if person convicted of fraud or any other felony.

13. 10 USC 2501 Note—Requires Defense to notify each prime contractor of any
substantial reduction or proposed termination in major defense programs.

14. 10 USC 2533—Statutory list of considerations that DOD must consider before
buying non American goods.

5. 10 USC 2534—A list of restrictions related to DOD procurement of items such
as multipassenger bus, chemical antidotes, valves and machine tools, carbonyl iron
powders, air circuit breakers, and sonabuoys. Specialized Buy America requirements
for these items.

16. 10 USC 2631—Requires sea transportation in US flag vessels for military

goods.

17. 15 USC 637(d)—Offerors for construction contracts in excess of $1 M, and
other contracts in excess of $ 500K, must incorporate a subcontracting plan into the
contract, which includes % goals for small business, etc.

18. 15 USC 644(d)—Priority shall be given to awarding of contracts and place-
ment of subcontracts to small business concerns within labor surplus areas or areas
of concentrated unemployment.

19. 29 USC 793—Contracts in excess of $ 10K shall contain a provision that the
contractor shall take affirmative action to employ and advance qualified individuals
with disabilities.

20. 31 USC 1352 note—Byrd amendment regarding lobbying restrictions.

21. 38 USC 4212—Contracts in excess of $ 10K shall contain a provision to take
affirmative action for disabled veterans and Vietnam era veterans.

22. 41 USC 10a-10d—Buy American Act. Requires purchase of American goods
unless not in public interest, cost unreasonable, unavailable in sufficient quantity,
or unsatisfactory quality.

USC 43—Walsh Healy Act Requires minimum wage as determined by Sec-
retary of Labor and prohibits contract employees from working more than 40 hrs/
week. Doesn't apply to purchases of materials, supplies, or equipment bought in the
open market.

24. 41 USC 422—Cost Accounting Standards Board (CASB). Establishes a CASB
to oversee accounting standards used in government contracts.

25. 41 USC 423—Procurement Integrity Act. Requires ethical conduct. Discusses
prohibited conduct by contractors and procurement officials. Provides for certifi-
cation, enforcement, and penalties.

26. 41 USC 51-58—Anti-Kick Back Act Prohibits and provides penalties for
money ete paid to improperly obtain favorable treatment in connection with a con-
tract.

27. 41 USC 701—Drug Free Workplace. Requires a drug free workplace for Fed-
eral contractors. Provides for certification of same and debarment, suspension pen-
alties if false certification.

28. 46 USC 1241(b)—Cargo Preference. Requires agencies to transport in Amer-
ican vessels at least 50% of procured, furnished or financed equipment, materials,
or commodities.

29. For the Department of Defense, the national defense authorization acts, ap-
propriation acts, and other statutory restrictions on foreign purchases restrict pur-
chase of the following goods to American goods:

P.L. 100-202, Section 8088—Polacrylonitrile Based Carbon Fibers
P.L. 101-511, Section 8041—Anchor and Mooring Chain

P.L, 102-172, Section 8011—Carbon, Alloy, and Armor Steel Plates
P.L. 102-396, Section 9108—Four ton dolly jacks

P.L. 102-484, 832—Anti friction Bearings

PLL. 103-139, Section 8090—Aircraft. Fuel Cells

P.L. 103-139, Sect 8124—Totally enclosed lifeboat survival systems
L. 103-335, Section 8023—Supercomputers

PLL.
PL. 103-335, Section 8050—Multibeam Sonar Mapping Systems
P/L. 103-335, Section 8115—Ship Propellers

P-L. 103-335, Section 8120—120 mm Mortars and Ammunition

Mr. Taytor. And I hope you also will keep—Mr. Chairman, one
last thing. I hope you also keep in mind, obviously, when six people
are bidding on something and you have, in the case of the sealift
ship, two winners, there is going to be a heck of a lot of resistance
on their part to want to change the game plans. And I hope you


2

on both government contracting officials and those who sell to
them.

The new law was developed over a long period of time and rep-
resented the coordinated bipartisan efforts of both the House and
the Senate with much participation and input from the administra-
tion and from industry sources. It reflected many of the rec-
ommendations of the Section 800 panel, a congressionally man-
dated panel of industry and government officials charged with de-
veloping recommendations to streamline and simplify the procure-
ment system. Consistent with the administration’s National Per-
formance Review, it included many reforms advocated for years to
enable the government to act more like a business in the way it
buys goods and services.

Yet, as I said on the House floor when we passed FASA, the true
impact of this new law would not be fully realized until the regula-
tions are written that implement this legislation. We left to the ex-
ecutive branch, as we often do, much of the hard work in seeing
through the goals and purposes of the new law.

We have been expecting that the regulation writers would not
only execute the letter of the law fully and promptly, but would
also carry out the spirit of what all of us, I think, intended when
we enacted FASA. This would include not just writing and revising
regulations pursuant to FASA, but looking at and attacking inter-
nal agency regulations and procedures which are contrary to the
letter and spirit of the new law.

We are here today to hear from those two individuals who have
been trusted, and rightfully so, with the important responsibility of
doing just that, the Honorable Steven Kelman, the Administrator
for Federal Procurement Policy at the Office of Management and
Budget, and Mrs. Colleen Preston, Deputy Under Secretary of De-
fense for Acquisition Reform.

We are looking forward to your testimony to outline for us your
plans for implementing this important new law, and I think it is
worth noting at this point that these are the two major players
here because we now have a coordinated procurement policy, which
we have not had in the past.

In addition to your testimony, we have asked industry and other
interested parties to submit for the record written testimony to
help us review and analyze your regulatory implementation. Since
some of the significant regulations have not been issued and not all
parties could get their written statements to us in time for this

earing today, we intend to leave the record open for a sufficient
time after the hearing to permit those who are interested an oppor-
tunity to provide their comments to us on the regulatory actions
that are in progress. We are going to follow up with you through
specific written questions, if we may, and we may from time to
time ask you to come back and give us a status report on your
progress.

The success or failure of this streamlining effort really rests
with, in large part, on your shoulders. We are going to be embark-
ing on further legislative efforts to reform and streamline the pro-
curement system, building on, I think, a very successful effort we
had last year.


72

Some examples of where this is happening, in addition to TINA, include the im-
plementation of Cooperative Purchasing regulations and the removal of an auto-
matic waiver of the small business nonmanufacturer rule for purchases under the
new Simplified Acquisition Threshold.

The Cooperative Purchasing section of FASA allows state and local governments
to use federal supply schedules upon the approval of the GSA Administrator. While
GSA appears to fe retaining the original intent that the extension of contracts be
optional on the part of the contractor, many Coalition members feel that the pro-
posed method on how GSA would be paid by state and local users is unworkable.
Although the implementing rule has not yet officially been published, preliminary
discussions the Coalition has had with GSA on the funding issue have led to this
concern.

Under the proposed plan, the additional burden of extending the schedules to non-
federal users would be borne by the users. While no Congressional appropriation
would be needed, however, contractors would be required to play the role of bill col-

lector.

The Coalition is concerned that GSA’s Office of Acquisition Policy may implement
a mechanism to self-fund Cooperative Purchasing sales that is different from that
currently being crafted by the Federal Supply Service (FSS) branch of GSA. The Co-
alition recommends that the Office of Acquisition Policy work closely with FSS offi-
cials to develop a self-funding plan for Cooperative Purchasing similar to the one
which FSS has nearly completed to self-fund their federal schedule operations. In
this way, both contractors and GSA would be able to use one system, eliminating
confusion and increasing the likelihood that schedule contractors will extend their
GSA contract to state and local government entities. This would increase GSA’s rev-
enues and decrease their reliance on direct appropriations.

Similarly, several Coalition members have expressed concern over the Small Busi-
ness Administration's (SBA) decision to do away with automatic waivers of the
nonmanufacturer rule once the new Simplified Acquisition Threshold is instituted.

Currently, the SBA grants an automatic waiver of the nonmanufacturer rule for

urchases under the $25,000 Small Purchase Procedure limit. As a result, federal
ers are free to purchase products from any small business dealer selling the
product of any domestic manufacturer. Such purchases are conducted in a timely
and efficient manner and benefit numerous small business dealers through out the
country, many of whom rely on government business for their livelihood.

The SBA has decided, however, to do away with automatic waivers once the
$25,000 limit is increased and renamed the Simplified Acquisition Threshold. As a
result of this action, agencies seeking to buy products from small business dealers
must request a waiver of the nonmanufacturer rule for each such contemplated buy.
The Coalition feels that this will significantly increase the commercial product pro-
curement cycle and impose new burdens on the government and contractors, The
SBA, too, will see a tremendous increase in their paperwork and research functions
as they will have to conduct extensive searches to determine whether or not there
is a small business manufacturer for the product requested and, if so, whether or
not it will be able to meet the age ey’s new

We believe that this decision will harm small businesses across the country and
make it more difficult for agencies to meet their small business contracting goals.

The current system has served all parties well. The original decision to grant
automatic waivers was based in part on the fact that few, if any, small business
manufacturers capable of meeting the governments needs existed for many prod-
ucts. Additionally, SSA officials at the time recognized that an automatic process
would allow agencies to get the products they needed in a more efficient way, while
still benefitting small businesses overall. The automatic waiver process in no wa!

recludes small business manufacturers that may make a given product from bid-
ing for federal requirements.

e Coalition recommends that the Government Reform and Oversight Commit-
tee discuss thi sue with its counterparts in the Small Business Committee and
the Small Busi Administration. We believe that re-instituting the automatic
waiver of the nonmanufacturer rule for purchases under the Simplified Acquisition
Threshold will benefit the maximum number of small businesses and allow the pro-
curement process to function more efficiently.

These are just a few examples of the unintended consequences that can occur
when regulators try to interpret Congressional intent. The Coalition urges the Com-
mittee to maintain its diligent oversight of the implementation process to ensure
that new burdens are not imposed when the intent is to streamline the acquisition
process,



27

that accounting system are added costs. Now, knowing what it costs the contractor
to build the product is helpful when we're negotiating in a sole-source environment,
but it doesn’t guarantee that we're getting a fair and reasonable price, because that
contractor could be {otally inefficient. What we are trying to do with the changes
as a result of FASTA, and we have these out on the street right now for public com-
ment, are changes to the regulations and the Truth in Negotiation Act, to establish
that what is critical is a determination of price reasonableness. And contracting offi-
cers should’ P through a step-by-step process of trying to determine price reason-
ableness without requesting cost and pricing data. That is the last alternative that
we want pursued because that is the most costly to the government, to industry,
and is one of the biggest inhibitors to companies selling to the US. Government.

‘Another thing that we're doing is expanding the use of integrated decision or inte-

ted product and process development teams; and we're looking at this not only
from the standpoint of a program management office or a program structure, but
also in terms of the DAB oversight and review process. OSD staff members, who
typically, in the past, have been the ones that the program manager confronted 6
months prior to the DAB, are now involved in the process up front. They are a part
of the team with the preeram manager and are sitting in on all the Service Reviews,
etc. We've just started that, but I think it’s probably one of the most positive steps
that has been taken. It doesn’t preclude that staff individual from giving the Under
Secretary of Defense (Acquisition and Technology) an independent assessment of the
program at some later point in time. And I would almost put a caveat on it to say
that no one in OSD can raise an issue if they have not brought it up to the program
manager's attention prior to the time when that program comes up for a DAB.

In conclusion, we are in an environment of change. And we are going to have to
accept that change is now a given, rather than the exception. Many people have said
that you cannot reorganize or reengineer an entity or enterprise unless it reaches
the crisis stage. We in DoD are at that crisis stage. We simply cannot continue to
conduct business the way we have in the past. We won't have the people to do it;
we don’t have the money to do it; and every dollar that we spend on that infrastruc-
ture is a dollar that we lose in terms of a person out there in the field with the
proper equipment to do their job.

ank you very much. I'll be happy to answer any of your questions.

Mrs. MorELLA. Mrs. Preston, you said in your remarks that you
are giving a 30-day training course for 150,000 people on the new
FASA regulations. Will it then become a continuing part of the pro-
curement work force training? Is it going to be a one-shot deal, or
are you going to continue it or see how it works to decide?

irs. PRESTON. Actually, what we are going to do is go out—we
have a 30-day window of time in between when the final public
comments have to be submitted and we publish a final rule before
it can become effective. And it is during that time period that we
are going to try to train all of these individuals. What we are envi-
sioning now is about a 2¥2 day course where we are going to brin,
in a whole group of people and try to train them and then sen
them out across the country to give these 2¥2 day courses. That
will only be the first of many. . .

What we have been working to do in our strategic plan, and I
have learned a lot about adult learning in the last couple of
months, is really make sure that we are targeting our message to
the right audience; that we give the right ‘oups of people the right
information so that they can better do their job, and we want to
make sure that we are doing this in partnership with our vendors,
our trading partners as well, so that we all understand what the
tules of the game are. .

In our opinion, there is no reason to hide anything that we are
doing; the more our vendors know about how it is we buy, the bet-
ter off we are going to be in terms of buying from them. .

Mrs. MORELLA. It would be very helpful for those of us in Con-
gress also to have a simplified synopsis so that we can tell our con-



70

Mrs. MALONEY. I do have a series of questions for both individ-
uals. Again, I thank you for your excellent testimony. I will submit
them in writing and thank you again for using civil servants and
giving them positive examples of how they are working to help tax-
payers, and I look forward to seeing you next week at the other

earing. Thank you.

Mr. ZELIFF. Thank you both very much. The meeting stands ad-
journed.

[Whereupon, at 4:45 p.m., the committee was adjourned.)

[Additional material submitted for the record follows:]

PREPARED STATEMENT OF THE COALITION FOR GOVERNMENT PROCUREMENT

The Coalition for Government Procurement appreciates this opportunity to submit
comments for the record on ir hearing held Rebraary 21st on the implementation
of the Federal Acquisition Streamlining Act (FASA). As you know, the Coalition
played an important role in crafting the original legislation and has closely mon-
itored the implementation of regulations that would affect Coalition members. We
support continued Congressional oversight during the implementation process.

e Coalition represents over 250 companies selling commercial goods and serv-
ices to the federal government. Together, Coalition members account for over half
of the sales of commercial items made to the federal government each year. Since
our inception in 1979, the Coalition has worked with Congress and the Executive
Branch to bring about positive change to the commercial product procurement proc-
ess. Recommendations made by the Coalition have improved things such as the
General Services Administration’s Multiple Award Schedule program. These im-
provements have benefitted both government users and contractors in saved time
and money. We look forward to continuing our work with you and other procure-
ment decision makers as changes continue to evolve in the commercial product pro-
curement arena.

The Coalition would like to comment on three broad areas affecting the implemen-
tation of the Federal Acquisition Streamlining Act; the need to ensure that all fed-
eral users understand and follow both new and existing federal procurement regula-
tions; the need to ensure that adequate time is provided for all parties to review
and comment on the proposed regulations and; the need to ensure that new regula-
tions do not impose significant new burdens on the procurement process.

While the Coalition applauds the general implementation efforts of the Adminis-
tration, we feel that these three areas must be adequately addressed so that the
government's procurement process functions as intended.

ENSURING THAT ALL FEDERAL USERS FOLLOW NEW AND EXISTING REGULATIONS

The Coalition is concerned that many federal buyers will interpret the Federal Ac-
quisition Streamlining Act in their own way. As a result, they may conduct “pro-
curement by headline” looking only at the surface portion of a particular provision
and conducting buys without waiting for the implementing regulation. When the
regulation is published it may be totally different from what the user thought it was
on the surface. Under these circumstances, too, the buyer would not be following
existing procurement rules designed to protect the government and the tax payer.

For example, a user needing $26,000 in office chairs might assume that simplified
acquisition procedures could be used. As a result, the user would place a request
for bids electronically on an on-line bulletin board, receive proposals for chairs that
looked as if they were the same as those currently in use in the agency. He could
pay for the order with his government credit card, Unfortunately, he might also
never receive his order, or be stuck with cheap chairs that do not meet his needs.

Similar problems have already occurred numerous times with existing electronic
bulletin board systems. Several Coalition members have reported unauthorized sell-
ers trying either to sell products they are not authorized to sell, or selling junk, As
a result, government money has been wasted and using agencies are deprived of the
products they need to do their job efficiently. Even though the user may have
thought he was following the new rules, in fact, this scenario violates both existing
and proposed regulations.

Existing regulations require agencies to follow the procurement priorities laid out
in Part 8 of the Federal Acquisition Regulations. The user must check with a variety
of mandatory and preferred sources, including the Multiple Award Schedules, before
making an open market purchase.



146

of the item is based on an established catalog or market price of a commercial
item sold in substantial quantities to the general public. For example—(A) The
item recently qualified for an exemption but no longer qualifies due to an un-
usual level of sales to the Government . . .” (emphasis added)

AEA still believes that the relational tests should be removed entirely. The tests
are unnecessary to implement the Truth in Negotiations Act, and they represent a
source of risk to commercial companies. If not removed, the tests will continue to
be a barrier between the Government buyer and the commercial seller. Instead, sub-
stantial quantity should be an assessment of the market characteristics and wheth-
er an offeror’s price has been tested through market acceptance.

PRICE REASONABLENESS

In the previous public comments, industry had also urged the Government, to seek
a fair and reasonable price rather than a most favored customer price. Further,
pricing examples to be supplied by the offeror should be pricing circumstances more
relevant to those of the Government. Industry believed that companies were being
exposed to undue risk in having to disclose its lowest prices and then certify or oth-
erwise represent that such disclosures were accurate, Lowest prices are singular
transactions, sometimes numbering among millions of transactions. This informa-
tion is not readily maintained by commercial companies, and even then, there is not
a commonly understood meaning of “lowest, price.” For example, how should the
company regard rebates, nonmonetary incentives, special promotions, future credits,
tradeint, national acount agreements, and mavy more types of business arrange.
ments and concessions?

The Government's proposed rule contains virtually no relief in this area, and to
some extent, is worse than the existing rules. The Standard Form 1412, “Request
for Exception to Cost or Pricing Data Requirements,” would now require an offeror
to present the following examples and represent to the best of its knowledge and
belief that the examples were accurate.

Item 1la—‘Lowest price at which sales of the offered item were made to any
customer during the period regardless of quantity.”

Item 11b—“Lowest price at which any sales of the offered item were made at
comparable quantities to any customer.

Item 11e—‘If the proposed price of the catalog item was determined on the
basis of assignment of the Government to a particular customer class, insert the
lowest price at which sales of the offered item were made at comparable quan-
tities to any customer in that class.” (emphasis added)

has a number of concerns in this area. First, AEA is concerned that the price
examples now include sales to any customer, which presumably includes even sales
made to the Government, regardless of the circumstances (e.g., adequate price com-
petition). AEA notes that this issue had been debated and resolved in connection
with the Commercial Pricing Certificate.!° At that time, the Government agreed
that Government sales would not be an appropriate benchmark for evaluating com-
mercial prices, so it is not clear why the Government finds it necessary to make this
comparison now.

Second, by asking for lowest prices, there is an implicit standard that the con-
tracting officer should seek the lowest price or, at the very least, be able to explain
its variance from the negotiated price. Although this pricing policy has been prac:
ticed by the Government before, it has since been langely discontinued in favor of
using the long-standing fair and reasonable standard. For example, although the
most favored customer pricing policy is applied in GSA's multiple award schedule
program, there is a proposed rule to change this.!! The Commercial Pricing Certifi-
cate was a most favored customer pricing policy and has been rescinded by Con-
gress, AEA urges that the requirement to submit lowest price examples be removed
and, instead, leave it to the offeror to demonstrate the reasonableness of its pro-
posed prices based on comparable circumstances, terms, and conditions.

On a related issue, was encouraged that the Government will take into ac-
count future sales and prices of items that have either not yet been introduced into
the commercial market place or not yet been sold substantial quantities. While this
is a welcomed step, the provision will likely fail because it imposes a post-award
price reduction provision as shown below.

10 Formerly FAR 15.813.
11GSA letter, “Multiple Award Schedule Procurement,” October 1, 1982. GSA issued a Pro-
posed Rule in the Federal Register (Vol. 58, No. 108), on June 8, 1993, pages 32085 to 32091,

which proposed to adopt a fair and reasonable standard.


63

Sections 6005 and 6006, Whistleblower Protections for Contractor Employees
Effective Dates: Section 600/(a) is effective on date of enactment.

COMMERCIAL CONTRACTING

Team Leader: Do Larry Trowell (AF)

Team Members: Dixie Bennett (Army), Anne Burleigh (DLA), Les Davison (GSA),
Lou Gavdio (OSD), Rob Lloyd (DOS), Eve Lyon (NASA), Ludlow Martin (Army),
Pam Pilz (Navy)

LTL: Bill Mounts (DoD), Alan Brown (OFPP)

Sections:

tr. Sections 1502 and 1551, Definitions (Partial, also Simplified Acquisition
cam

Sections 2001 and 2051, Contract Financing (Partial, also Simplified Acquisi-
tion and Contract Financing Teams)

Sections 8001, 8103, 8202, Definitions

Section 8002, Regulations on Acquisition of Commercial Items

Section 8003, List of Inapplicable Laws in FAR

Section 8101, Establishment of New Chapter in Title 10

Sections 8102 and 8201, Relationship to Other Provisions of Law

Sections 8104 and 8203, Preference for Acquisition of Commercial Items

Sections 8105, 8204, 8301, Inapplicability of Certain Provisions of Law

Section 8106, Presuimptin that Technical Data Under Contract for Commer-
cial Items are Developed Exclusively at Private Expense
j section 8802 Flexible Desdlines for Submission of Offer of Commercial
tems

Section 8303, Additional Responsibilities for Advocates for Competition

Section 8304, Provisions Not Affected

Section 8305, Comptroller General Review of Federal Government Use of
Market Research

Effective Dates: Section 8003 permits petitions to be filed within six months after
enactment.

TAB 3—SECTIONS OF THE ACT REQUIRING EITHER No REGULATION OR
IMPLEMENTATION IN REGULATIONS OTHER THAN THE FAR.

TECHNICALS—NO REGULATORY CHANGE REQUIRED

Sections 1001 & 1051, References to Federal Acquisition Regulation

Section 1501, Repeal of Policy Statement (2301 of Title 10)

Section 2452, Repeal of Requirement for Deposit of Contracts with GAO

Section 2453, Repeal of Obsolete Deadline Regarding Procedural Regulations for

CAS

Section 6003, Repeal of Executed Requirement for Report and Study

Section 7205, Repeal of Obsolete Provisions

Section 7204, Maximum Practicable Opportunities for Apprentices on Federal
Construction Projects [sense of Congress]

‘Section 7206, Repeal of Obsolete and Redundant Provisions of Law

Section 10005, Technical and Clerical Amendments

PROTESTS/DISPUTES

Section 1431, Revocation of Delegations of Procurement Authority (Protests in
Procurements of ADP)
Section 2302, Shipbuilding Claims

MAJOR SYSTEMS/TESTING

Section 1508, Repeal of Requirement Relating to Production Special Tooling and
Production Special Test Equipment . '
gporztign 2401, Clarification of Provision Relating to Quality Control of Certain

are Parts

*Section 2402, Contractors Guarantees Regarding Weapon Systems

Section 3001, Weapon Development and Procurement Schedules

Section 3002, Selected Acquisition Report Requirement

Section 3003, Unit Cost Report Requirement .

Section 3004, Requirement for Independent Cost Estimate and Manpower Esti-
mate before Development or Production

Section 3005, Baseline Description


20

responsive system that will allow us to get products we need to our
war fighters to fight whatever mission may come up.

We are dealing with uncertain and unpredictable times right
now. We have to do a number of things to achieve this goal. One
of them was accomplished last year in the Federal Acquisition
Streamlining Act, and that is an increase in the simplified acquisi-
tion threshold from $25,000 to the current $50,000. And as soon as
we can get our electronic commerce system up and running, we will
be able to increase that threshold to $100,000.

Our purchases in DOD under $100,000 account for 99 percent of
our contract actions, and yet it is only 16 percent of our dollars.
We spend the majority of our time working on small purchases that
take an inordinate amount of time. If we use simplified procedures,
we can typically get a product or service within 29 days. If we use
just the normal invitation for bids, just give me a price, it takes
us approximately 90 days. That goes up to 210 days if we have to
do any negotiation or we want to make a best value tradeoff. For
a complex services type contract, our lead time is approximately
300 days.

How can any system be responsive to its customers’ needs with
lead times like that? It also means that we are not. acquiring the
latest state-of-the-art technology, and that is something that is
very critical to us. When we went into Desert Shield and Desert
Storm, we found that people were able to do a lot of innovative
things if they were just given some freedom to do that.

Lead times are significant in that it causes us to keep inventory
in stock, something that this committee has been very aggressive
about challenging the department on. If we can utilize some of
these new procedures, we will be able to concentrate the majority
of our time on that 84 percent of our dollars that accounts for 1
percent of our contract actions.

We also have been very involved in working with the administra-
tion and working the regulatory process in the implementation of
several issues that are major impediments to the acquisition of
commercial products. Primary among them is the Truth in Negotia-
tions Act, the requirement for cost through pricing data. That is a
very significant issue for many commercial companies because they
do not have accounting systems that keep costs in a way that
would allow them to provide cost and pricing data to the govern-
ment.

If we cannot get around the requirement, in many cases the com-
panies have refused to supply to us or we have had to purchase
through other vendors. You may remember the President’s example
of the transceiver that was utilized in Desert Storm, where we
were we spent almost 6 months trying to figure out how to buy
from the contractor because they could not provide the cost and
pricing data that was required, and we finally had the Japanese
Government purchase those particular items from a United States
company for us.

As I mentioned earlier, we have been using process action teams
in the Department of Defense for a lot of initiatives. We have had
five process action teams. These are teams of individuals from the
field. They are the experts on the “front lines” who day to day are
working these processes. We have asked them to come in for a min-


37

The following laws were requested to be waived by the Administration, but were
not waived by the Federal Acquisition Streamlining Act of 1994:

10 USC 2207

Walsh-Healey (41 USC 35-45)

10 USC 2397¢

Davis Bacon

Service Contract Act

Cargo Preference

Mr. CLINGER. The gentleman from California, Mr. Horn.

Mr. Horn. Thank you, Mr. Chairman.

My first question, in essence, has partly been discussed because
what I wanted to know besides the reference in Mr. Kelman’s
statement as to the legislative package you are sending up, espe-
cially as it relates to electronic commerce, is what else do you need
to do and would you like to amend the law, any law, to get done
so that you can do it based on this experience and all the teams
you have working?

That is a most impressive recitation you have set forth, but basi-
cally I have analyzed every single law that needs some sort of
amendment or waiver by Congress so you can get the job done?
One law has just been explored. I am not quite sure what the law
is. I have heard it referred to. What is that law?

Mrs. PRESTON. It is a provision in title X.

Mr. Horn. Essentially what is the reference to it, the common
reference?

Mrs. PRESTON. It is a particular procurement integrity provision.
It is a prohibition on a contractor involvement with a government
employee. I can give you the specific cite. I don’t recall it.

Mr. Horn. Will all of this——

Mrs. PRESTON. Gratuities.

Mr. Horn. This will be part of the package coming up or are you
leaving something on the cutting room floor because nobody would
clear it or something? I want to know what else is left and, forget
it, you clear your own testimony anyhow probably.

Mr. KELMAN. That is not a fair question, is it?

(Mr Horn. What is on the cutting room floor we do not know
about?

Mr. KELMAN. First of all, I think we will be testifying before your
subcommittee next week on the administration’s package and we
will have a chance at that point to go through what is in the pack-
age. And I think it is fair to say it is a mixture of things that we,
in writing the regs on FASA, things that we realized.

In some cases, we did not realize it had not been put in, or
things we just did not realize last year, No. 1. Some are things that
we have asked for in the past and we will be asking for again this
time. And then a few additional areas we want to take up, some
streamlining changes, some areas to improve the quality of what
we buy, some efforts to look at some of the things that create an
excessive adversarial relationship between government and con-
tractors, such as some of the features of the bid protest system
right now. We will be addressing all those issues in legislation.

In terms of what, as you put it, was left on the cutting floor, Rep-
resentative Maloney asked Mrs. Preston for a list of provisions of
law that currently apply to commercial contractors, for example.
We will provide a complete and thorough list of those provisions to


57

and legislative intent, be available to answer questions from drafting team mem-
bers, and review all draft language with the team leader.

‘As amplified below (see Agency Coordination), each drafting team will have 14
calendar days to develop initial proposed FAR language to fully implement its as-
signed sections of the law and submit such language to the project manager. That
language will then be circulated by the project manager to OFPP and agency points
of contact for agency comment for a 10 day petiod. The teams will study and re-
spond to agency comments and develop a draft. proposed rule within 10 days. After
a 60 day public comment period, each drafting team will have 10 days to resolve
comments and develop a final proposed rule. The final proposed rule will be pro-
vided to OFPP and aj oy Points of contact for coordination within 10 days. All
rules will be a) proved by d e FAR Council.

Each team leader is responsible for: 1) meeting schedule milestone dates; 2) re-
solving interagency disagreements if possible; 3) securing space to conduct meetings;
4) justifying the recommended use of interim rules; 5) providing all necessary ad-
ministrative support to the team; and 6) and keeping the project manager fully in-
formed of the progress of the team. The team leader will immediately bring to the
project manager's attention any problems that may hamper the team’s ability to
meet its objectives in the alloted time.

Under the guidance of the designated team leader, each interagency draftin,
team, with the assistance of the FAR Secretariat, is responsible for: 1) drafting qual-
ity rules that consider all relevant issues including consistency with related work
being completed by other drafting teams; 2) reconciling agency and public com-
ments; 3) meeting established deadlines; 4) participating in public meetings includ-
ing preparation of detailed minutes of all proceedings; 5) providing technical advice
upon request; 6) briefing the FAR Council upon request; and 7) preparing and sub-
mitting complete and accurate committee reports and all collateral requirements in-
cluding a Paperwork Reduction Act analysis, Regulatory Flexibility Act analysis,
and Federal ‘ister notice. To the maximum extent practicable, teams will resolve
interagency and public comments in writing, with such resolutions made publicly
available.

Teams will make every effort to reach full agreement in the drafting of proposed
and final rules. The project and deputy project manager will facilitate resolution of
issues, if possible, or otherwise elevate an issue for FAR Council resolution (see
“Agency Coordination” below).

PUBLIC MEETINGS

Notice will be published in the Federal Register inviting public comment for a 60-
day period. The notice will advise interested parties that they may request a public
meeting on any topic in the public notice prior to its final implementation in a regu-
lation, provided the request is submitted in writing and received within the first 30
days of the comment period by the FAR Secretariat. The FAR Secretariat will pro-
vide a copy to members of the FAR Council and the project manager. The request
must fully support the reason for holding the meeting. The project manager will pro-
vide a copy of each request to the cognizant team leader, who will analyze the re-
quest and prepare a recommendation within 6 working days for FAR Council consid-
eration. The FAR Council, within 5 working days, will decide each request on a
case-by-case basis. If the FAR Council decides to grant such a request, it will,
through the FAR Secretariat, and within 15 calendar days of the request, publish
a notice in the Federal Register scheduling the meeting. The FAR Council will
promptly schedule meetings within the 60 day comment period to the maximum ex-
tent practicable. In the event the meeting cannot be conducted within the initial 60-
day riod allotted for submission of public comments, the public comment period
will fe extended to allow sufficient time for the meeting plus an additional 5 days.
In any event, the closing date for receipt of public comments will be at least 5 days
after the date of the public meeting. Persons or groups, other than the person or

up who requested the public meeting, may also make presentations provided
they have submitted a statement of presentation to the project manager by the date
requested in the Federal Register notice that announces the meeting and have noti-
fied the project manager of the desire to make a presentation. Team members will
articipate in the meeting as advisers to FAR Council. Minutes of the meeting will
be the responsibility of the cognizant drafting team.

AGENCY COORDINATION

The agency coordination process will include OFPP, all agencies represented on
the Defense Acquisition Regulations Council, and all agencies represented on the Ci-
vilian Agency Acquisition Council. The Administrator of OFPP will be responsible



23

other civilian agencies to make sure that we are all on the same
baseline and that we are all working toward the same ends.

Many of the problems I have mentioned today with respect to
DOD also affect the other Federal Government agencies. We are
perhaps feeling the pinch much more in Defense because of the

lramatic decline in our budget. But, clearly, it is a team effort. We
are working together. And a big part of that team is you, the Mem-
bers of Congress. In the Defense Department particularly we ap-
preciate the support and response we have gotten from Members
in assisting us in trying to improve our acquisition process. Thank
you.

Mrs. MorRELLA [presiding]. Thank you very much for that very
thorough testimony and the plans that you have for continuing. I
appreciate hearing from both of you and I know the committee

loes, too.

(The prepared statement of Mrs. Preston follows:]

PREPARED STATEMENT OF COLLEEN PRESTON, DEPUTY UNDER SECRETARY OF
DeFense, ACQUISITION REFORM

We live in changing times. Never has this statement been more appropriate than
it is today. Why? Because despite having built the best weapon systems in the
world, (thanks to the ability and dedication of the people in Dob and industry whe
were able to achieve this success not because of the system, but in spite of it), the
foundation upon which our national security strategy has been built is being shaken
to the core. Our world has changed dramatically—so much so that we are no longer
amazed at changes that would have been unthinkable even five years ago.

DoD, as an enterprise, must respond to these changes in every facet of how it ac-
complishes its mission—and the acquisition system is no exception.

T appreciate the opportunity to be here today to explain why the continuous im-
provement of the acquisition process that has been occurring within DoD on an on-
going basis is no longer sufficient; why we must now totally reengineer the system;
why we must be even bolder in our efforts to facilitate the merger of the defense
and commercial industrial bases, improve the responsiveness of our acquisition sys-
tem, and reduce its cost. I also appreciate the opportunity to explain some of our
accomplishments to date and a number of our on-going acquisition reform efforts.
Why It Is Imperative to Reengineer the Acquisition Process

Why is it imperative to reengincer the acquisition process now? Because the ac-
quisition process must be able to respond to the external changes in the world. DoD

faces new national security challenges, a drastically reduced budget, reduced influ-

ence in the marketplace, and technology that is changing faster than the system can

respond—and that technology is available to the entire world. We must design an

acquisition system that can get out in front of these changes instead of reacting to
em.

First of all—the new security challenges. You all are very aware of the fact that
we face a situation of mostly regional or limited conflicts that are often unpredi
able in nature. We must be concerned about proliferation of weapons of mass de-
struction—both nuclear and non-nuclear. We must be concerned about the possible
failure of democratic reforms in the former Soviet Union. And, we are increasingly
called upon to support new missions—humanitarian in nature, and dwarfing pre-
vious Cold War efiorts such as the Berlin airlift.

Yet, this is the 10th year of a declining defense budget. Our overall budget has
been reduced 40%, but our procurement accounts have been reduced over 65%, and
as we downsize, we take our most modern equipment and give that to a smaller
number of troops. That has a cascading effect, so that by the time we're done, we've
essentially eliminated old inventory and modernized our remaining forces at the
same time. We are at the point now, however, where we have to spend the capital
to start investing in modernization if we are to maintain our technological superi-
ority.

Improvements in technology now predominantly occur in the commercial sec-
tor—at a pace our acquisition system cannot keep up with. If we are to have access
to this advanced technology, we must be able to buy from commercial suppliers, who
are more often than not, unwilling to change their business practices to comply with



144

ments on all of the proposed contract pricing rules to the Federal Acquisition Regu-
lation (FAR) Secretariat at the conclusion of the public comment period.

BACKGROUND

The topic of commercial pricing reform is not new to either the Government or
industry. Calls for reform date as far back as the Packard Commission (President's
Blue Ribbon Commission on Defense Management) in 1986, and perhaps even be-
fore then. Numerous studies have been conducted. Congressional hearings have
been held. Much legislation has been introduced—some enacted, such as Section 824
of the National Defense Authorization Act for Fiscal Years 1990 and 1991? and
more recently, the Federal Acquisition Streamlining Act of 1994.> Finally, regu-
latory changes have been proposed, most notably the proposed rules published in
the Federal Register on September 6, 1990.4 Those * proposed Tules were intended to
implement Congress’ directives under Section 824. However, in industry's view, they
fell far short of any meaningful reform.>

Calls for commercial pricing reform have not been restricted to the Department
of Defense, either. Concerns have been raised by several industry groups about the
commercial pricing policies ado ted by other Federal ncies, especially the Gen-
eral Services Administration (GSA). AEA recognizes and supports the reform efforts
that are presently underway in these agencies. For example, as a member of the
Industry Alliance for Multiple Award Schedule Reform, AEA has been closely follow-
ing GSA’s initiatives to update their multiple award schedule pricing policies and
corresponding data collection requirements. AEA is hopeful that the commercial
pricing reforms being sought in FAR Part 15 will reach these other agencies, as
well, and make it unnecessary to have unique policies in this area.

Of course, the most significant event affecting commercial pricing policies was the
recent enactment of the Federal Acquisition Streamlining Act. This Act provided the
means for breaking through traditional barriers which have either prevented com-
mercial companies from selling their products to the Government or prevented the
Government from gaining access to important commercial technologies and capabili-
ties. Specifically, the Act increased the Truth in Negotiations Act threshold for sub-
mitting certified cost or pricing data to $500,000 (with an adjustment—provision for
inflation); added a new exception for commercial items; established a new policy on
pricing modifications to contracts for commercial items; and added a new exemption
under the Cost Accounting Standards. The accompanying Conference Report also
challenged the Administration to provide broader flexibility in the catalog or market
pricing rules.

OVERALL ASSESSMENT

Notwithstanding the important contributions of the Federal Acquisition Stream-
lining Act, industry remains disappointed with the Government’s efforts at imple-
menting any meaningful reform. As the core issue, a commercial company’s risk of
doing business with the Government have not yet been significantly reduced. If the
proposed commercial pricing rules are not substantially revised, a commercial com-
pany would be best advised to stay away from Government contracts, unless it is
willing to make a large investment in risk aversion infrastructure.

Industry’s principal criticisms over the years have not been with the Truth in Ne-
gotiations Act but rather with the Government’s regulations which implemented

is ACL. The Act’s conceptual foundations about adequate price competition, cata-
log price, and market price, are just as valid today as they were in 1962 when the
Act was passed.® That is, if there are sufficient competitive influences on price, then
a contracting officer should be able to obtain a fair and reasonable price without
having to acquire certified cost or pricin data from the offeror. Instead, industry's
criticisms have been directed at the policies imposed by the Government on
offeror to demonstrate that sufficient competitive influences on price actually exist.
Industry believes that what worked in the 1960's and 1970's will not work in the
1990's. The Act’s implementing policies on commercial pricing must be modernized,
and the proposed rules do little to accomplish this.

2 Public Law 101-189, November 28, 1989.

? Public Law 103-355, October 13, 1994.

{Bropmed Role, Federal Register (Vol. 65, No. 173), September 6, 1900, pages 26774 to 26760.

®Council of Defense and Space Industry Associations (CODSIA) letter to FAR Secretariat, No-
vember 6, 1990.

*Public Law 87-653, 1962.




44

Mr. KELMAN. Representative Thurman, let me add two short
things to Colleen’s observation. One is, I see us as trying to redirect
the focus of accountability from accountability for process, and then
you follow the bureaucratic rules and so forth to accountability for
results, which is really very much in the spirit of the Government
Performance and Results Act that was a bipartisan piece of legisla-
tion passed when you started in 1993. It was one of the first ac-
tions of the 103d Congress.

So we would like to see people rewarded for things like I saved
the government 22 percent on recompeting this contract rather
than did I go through and follow all the thousand pages of the Fed-
eral acquisition regulation, No. 1.

No. 2, just to follow up on what Colleen said, I think the greatest
challenge for all of us involved in the political process and all of
us cooperating together to make the system work better is to avoid
the easy temptation, which afflicts all of us, to get the quick hit on
a scandal or a horror story.

If you take—for example, I talked in my testimony about the
purchase card. I am sure, without knowing the specifics, I am sure,
as I am sure the sun will come up the next day, with 10 million
of these small purchases we make a year, someone, somewhere,
some time is going to go out and use this card and go and buy a
can of paint and take it home for their personal use and cheat the

overnment. And that is going to happen at some point somewhere.

‘here are a lot of controls we put in the system to prevent it but
it will happen one time. If we then react to the first time we see
somebody do that with saying, the way we have traditionally re-
acted in the past, ah, waste, fraud, and abuse, we need to end this,
we lose sight of the big picture, which is on those 10 million pur-
chases, that for each one we are making we are saving $54 in ad-
ministrative costs and we are saving weeks in lead time, we are
allowing people to take advantage of short-term liquidation sales
and so forth.

So I think the biggest challenge for all of us in this business is
going to be to show the courage and the strength, the internal
strength, to avoid the temptation to go for the quick sound bite.

Mrs. THURMAN. The sound bite.

Mr. KELMAN. Yes, that is it. It will be a challenge for all of us.

Mrs. THURMAN, Let me say quickly two things. I hope you will
take up the chairman’s and Mrs. Maloney’s recommendation about
the bill coming up on reform, regulatory reform, because it does
come to the floor I believe on Thursday. So we really do not have
much time.

And, second, to reemphasize that I hope that as you pull your
package together, it seems like over the short period of time you

ave been doing this you have in fact found that reef of laws out
there that we can help let that ship glide through there.

And last, let me say I agree with you that I hope we do not end
up putting this into a situation where one small mistake tears
down a whole system that seems to be doing a better job than
where we were before and I congratulate both of you.

Mr. KELMAN. Thank you.

Mr. CLINGER. The gentleman from I}linois, Mr. Flanagan.

Mr. FLANAGAN. Thank you, Mr. Chairman.


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62

Team Members: Cassandra Bain (EPA), Henry Bizold (OSD), Bill Hair (DFAS),
Dorothy Mills (DLA), Marion Palaza (AP), Peg Olsen (Navy), Barrington Turner

LTL: Michael Gerich (OFPP)
Sections:
Section 1073, Severable Services Contracts Crossing Fiscal Years
Sections 2001 and 2051, Contract Financing (Partial, also Simplified Acquisi-
tion and Commercial Contracting)
Section 2091, Government-wide Application of Payment Procedures for Sub-
contractors and Supplies
Section 2451, Expansion of Authority to Prohibit Setoffs Against Assignees

SIMPLIFIED ACQUISITION PROCEDURES/FACNET

Team Leader: DoD Diana Maykowskyj (DLA)

Team Members: Mary Ackerman (DOT), Barbara Danzig (VA), Karl Eichenlaub
(NASA), Kathryn Ekberg (AF), Teresa Elmendorf (GSA), Mary Kringer (AF), Kevin
OBrien (DLA), Eva Robinson (Navy), Gayle Stroman (Navy), Diane Taylor (Army)

ETL; Bill Coleman (OFPP) Fred Kohout (DoD), Micki Chen (GSA)

‘ions:

Sections 1502 and 1561, Definitions (Partial, also Commercial Contracting

eam)

Sections 2001 and 2051, Contract Financing (Partial, also Contract Financing
and Commercial Contracting Teams)

Section 4001, Simplified Acquisition Threshold Defined

Sections 4002 and 4003, Establishment of Simplified Acquisition Threshold

Section 4101, List of Inapplicable Laws in F)

Section 4102, Armed Services Acqu:

Section 4103, Civilian Agency Acq

Section 4104, (except (bX2)), Acquisitions Generally

Section 4201, Simplified Acquisition Procedures

Section 4202, Procurement Notice

Section 4203, Implementation of Simplified Acquisition Procedures

Section 4301, Procedures for Purchases Below Micro-Purchase Threshold

Section 4401, Armed Services Acquisitions—Con forming Amendments

Section 4402, Civilian Agency Acquisitions—Conforming Amendments

Section 4403, OFPP—Conforming Amendments

Section 4404, Small Business Act—Conforming Amendments

Sections 9001, 9002, 9003, and 9004, Federal Acquisition Network (FACNET)

Effective Dates: Section’ 4301’is effective on date of enactment. Requires imple-
mentation in FAR not later than 60 days alter enactment.

SMALL BUSINESS

Team Leader: GSA Victoria Moss
Team Members: Nellie Dixon (Navy), Ken Dougherty (SBA), Susan Haley (Army),
Patrick Hillar (AF), Linda Klein (GSA), Anthony Kuders (DLA), Sharon Pomeranz
(GSA), Beth Sawyer (army),
LTL: Bill Coleman (OFPP), Fred Kohout (DoD)
Sections:
Section 4004, Small Business Reservation
Section 7101, Repeal of Certain Requirements—SB Laws
Section 7102, Contracting Program for Certain SB Concerns
Section 7103, Extension of Test Program for Negotiation of Comprehensive
SB Subcontracting Plan (separate announcement]
Section 7105, Contract Goals for SDB and Certain Institutions of Higher Edu-
cation
Section 7106, Procurement Goals for SB Concerns Owned by Women
Effective Dates: Sections 7101 and 7103 are effective on date of enactment. Sec-
tion 7105, for DoD, applies to each of fiscal years 1987 through 2000.

ETHICS

Team Leader: DoD Jules Rothlein (Army)
Team Members: Deborah Erwin (GSA), Norm Lussier (DLA), Ken Wernick (Navy)
ETL: Bo McBride (DoD), Michael Gerich (OFPP)

ions:

Section 2455, Uniform Suspension and Debarment.

Section 6001, Post-Employment Rules

Section 6004, Interests of Members of Congress



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124

CODSIA Case 13-94.6

February 13, 1995

Mr. Clarence Belton
FAR Secretariat (VRS)
Room 4037
General Services Administration
18th and F Streets, N. W.
Washington, D.C. 20504

Dear MR. BELTON: The undersigned members of the Council of Defense and
Space Industry Associations (CODSIA) appreciate the opportunity to respond to the
proposed FAR revisions to various provisions of Parts 31, 37, 42, and the preserip-
tion reference language and clauses at Part 52.237.

Our comments are shown below in the same order as the proposed revisions ap-
pear in the December 13th Federal Register Notice.

31.205-6 Compensation for Personal Services
The first sentence of subparagraph (gX3) states that “, the costs of severance pay-
ments to foreign nationals employed under a service contract or subcontract per-
formed outside the United States are unallowable . . .”. (Emphasis added.) The em-
jhasized words “or subcontract” are an addition to the ianguage contained in FASA
ction 2161. which amends 41 US.C. 256, and are in addition to the language
under 10 U.S.C, 2324(e). While the words “or subcontract” do appear in Di
231.205-5(gX2Xi), they are not contained in the related DFARS clause at 252.237—
7020. If there is a compelling rationale for adding the words “or subcontract” in the
FAR implementation when they were not included in any of the related legislative
provisions, it should have been added to the “Background” section of the Federal
egister, asuance (12/13/94). Absent a compelling rationale, the words “or sub;
ion:

contract” should be eliminated from subparagraph (g}3) and the proposed ad
Solicitation and Contract Clauses at 52.237—1 and 52.237—" .

31,205-22 Legislative Lobbying Costs

The proposed rule would change subparagraphs (aX3) and (4) to read “Federal,
state, or local” each time the words “Federal or state” appears. The change is pro-
posed based on the statutory text making certain costs unallowable, found in Sec-
tion 2151 of Federal Acquisition Streamlining Act (FASA), subparagraph (eB). The
actual text language reads as follows:

“(B) Costs incurred to influence (directly or indirectly) legislative action or
any matter pending before Congress, a State legislature, or a legislative body
of a political subdivision of a State.”

The use of the term “or local” in place of “a legislative body of a political subdivi-
sion of a State.” may have broadened the language of subparagraph (B) beyond that
intended by the legislation. Depending on the structure of the “local” government,
the Proposed changes to 31.205-22 may, or may not, refer to “a legislative body of
a political subdivision of a State.” Therefore, we recommend that the specific lan-
guage in FASA Section 2151 (eXB), ie., “or a legislative body of a political subdivi-
sion of a State,” be used in revising subparagraphs (aX3) and (4) of FAR subpart
31,205-22 to incorporate the FASA change.

42.703 Policy

‘The proposed rule would change subparagraph (cX2) to require that contractin,
officers “use established final indirect rates in negotiating the final price of fixed-
price incentive and fixed-price redeterminable contracts and in other situations re-
quiring that indirect costs be settled before contract prices are established.” This
amends the current FAR preyision which states that contracting officers shall “take
into consideration established final indirect cost rates” in such negotiations.

‘The proposed change would limit the flexibility of contracting officers in firming
up prices under incentive and price redeterminable contracts. Moreover, the pro-
posed change is inconsistent with the applicable statutory provisions in 10 Use.

1324 (a) and 41 U.S.C. 256 (a) since the legislation is silent on what the contracting
officer must use as rates in such negotiations. The law only states that if a cost con-
tained in a Proposal for settlement of indirect costs is unallowable because it vio-
lates FAR or a FAR supplement, then the cost shall be disallowed.

Final indirect cost rates (frequently audit determined rates) are computed giving
consideration to the composition of the proposed indirect cost bases, the allowability
of costs in the proposed pools, and a variety of other factors which both parties brin
to the negotiation table. For example, a contracting officer, in negotiating a final
price under a price redeterminable contract, may be uncomfortable using a 35% au-



31

Mr. KELMAN. We are trying.

Mr. CLINGER. Thank you.

The gentlelady from New York, Mrs. Maloney.

Mrs. MALONEY. Thank you both for your very thoughtful testi-
mony. I would like to ask Mr. Kelman, are you in fact cutting down
on regulation and can you provide any quantitative and qualitative
assessment as to how much of the FAR will be reduced?

I loved your story about the government-regulated salad dress-
ing. It is evond the pale that our government had specifications
for this, and of course we know the story about the $500 hammer
and the ash trays. Do you have a list of these items and how much
it was costing government and how much we are saving by having
it bought off the shelf?

Every now and then I will read a story about Vice President
Gore’s activities, and I compliment his leadership on this and the
bipartisan effort that he has led in moving forward with reforms
in the procurement process, but can you give us specifics of how
much it is saving? When I read about it, it will say, oh, we are sav-
ing $100 billion. Well, how are you saving $100 billion?

‘an you break it down to us in writing; how many ridiculous
salad ressing requirements do we have, and how many more of
them are out there that need to be changed?

Mr. KELMAN. Good question. There are so many of these govern-
ment-specific specifications, whether they be MILSPECs and mili-
tary standards for defense-unique production, or whether they be
specifications for sort of common consumer items like this govern-
ment-unique salad dressing I spoke about. It is hard—there are so
many that it is hard to get a list. I have seen some printouts again
of specific examples of—we moved from a government-specified tent
for field use by soldiers and brought the price down from about
$2,000 per tent to about $1,000 per tent. They go down from there
to moving from government-specific underwear for the soldiers. We
were paying—I saw a printout we were paying $1.35 for a pair of
underwear. We reduced it down to 92 cents for a pair of under-
wear. There are a bunch of printouts that individual organizations
have developed. There are so many of these individual specs, it is
a fairly daunting task to get overall lists of all of them.

I think some of the folks who are buying these things are trying
to do a better job now that they know the system is focusing on
this issue to get better lists. It is the old story, sort of a tradeoff
between how much money you spend on developing the record
keeping versus how much time and effort you spend on actually
trying to bring about the changes. It is hard.

I gave the example before of this contract out at Artesia, NM, for
the Federal Law Enforcement. Training Center, where they are re-
ducing the cost by about 22 percent. That is only about a $7.5 mil-
lion contract. We have 20 million contract actions a year.

I share the frustration that I think is a little reflective of your
question: Could we just get one number and here is where we are
at.

Mrs. MALONEY. I think for credibility with the citizen taxpayer,
when they hear we are saving money and their tax bills go up
every year, not that I want a wonderful report in which you put
a tremendous amount of time, but if you could just break down—


7

To date, 19 interim and proposed rules have already been pub-
lished implementing FASA. The six remaining rules are being
readied for quick publication. So we have 19 out, we have 6 to go.

The most important of the remaining regulations on commercial
products and on the simplified acquisition threshold and_the
FACNET, the electronic commerce system, are just about ready to
be published in the Federal Register. I actually signed off on
this morning. They will be out shortly, and I will provide the com-
mittee, several days from now in the status report, of the four addi-
tional regulations that are not yet out.

Let me also just emphasize that the public’s opportunity to offer
input into the regulatory process has not been curtailed despite the
tight time schedule we are following. We are allowing a full 60
days for Public comments. We are having a number of public hear-
ings, and I want to make a pledge, both to you on the committee
and to members of the public who are present or listening today,
that we will take very seriously any of the suggestions for improve-
ments that are made in comments on the regulations. We want to

sroduce the best possible regulations in cooperation with the pub-
ic.

Let me move on, because while achieving successful regulatory
implementation of FASA is a very high priority, our commitment
within the administration to reinventing the procurement system
extends as Representative Morella indicated in her opening state-
ment not just to regulations but also to management practices and
what is going on in the agencies.

Our overall strategy for procurement reinvention has three goals:
No. 1, streamlining; No. 2, achieving quality and good prices for the
Government; and, No. 3, improving the partnership between Gov-
ernment and our suppliers.

The message of the NPR was to move from red tape to results
and that is the common theme of many of our efforts. We have only
been at it for a year, but I am proud to be able to state to this com-
mittee today that we are beginning to see our procurement reform
efforts bear some fruit and some results and I would like to spend
the rest of my testimony sharing some of these concrete success
stories with you.

What I would also like to do, if I could, is to acknowledge by
name some of the career Federal employees who have made these
successes possible. Too often members, career employees of the
Federal Government hear their names mentioned in congressional
hearings only in conjunction with wrongdoing. Today, I want to
have a chance to have these people’s names mentioned in conjunc-
tion with “rightdoing,” with work that they have done on behalf of
the taxpayers to give the employees recognition for their efforts.

The first example of success stories I want to talk about relates
to what all three of you said in your introductory statements, in-
creasing the government’s reliance on commercial products. For
many years, as you know, the government has spent enormous
time and money developing its own specifications for common
consumer products. The bizarre thing has been often ordinary nor-
mal every day commercial products, the kinds we often, we use
ourselves, have been unable to meet every detail of these specifica-
tions. The result has been that the only people able to bid for these


139

Mr. Rotu: .. . It_is my understanding that the GSA’s Multiple Award
Schedule program will continue to be available to Federal agencies without
change, as they are today, to acquire good and services at fair and reasonable
prices that meet the government's

Mr. GLENN: The Senator is correct.

140 Cong. Rec. S6592, S6596 (June 8, 1994).

In addition, on page 213 of the Statement of Managers of FASA, the conferees
noted that “(tJhe conferees do not intend that the increased threshold alter the cur-
rent priority among sources of supplies and services under Parts 8 and 15 of the
FAR.” Accordingly, given that the legislative history plainly reflects Cox jional
intent to maintain’ this exemption for the entire Multiple Award Schedule Program,
the language in Section 8.404 should be changed from “Federal Supply Schedule’
to “Multiple Award Schedule.”

2. Section 19.001—Definitions.

Section 7107 of FASA requires the Administrator of Federal Procurement Policy
to study, and develop uniform definitions for small business, small disadvantaged
and woman-owned small business concems. A notice of that study effort was re-
cently published in the Federal Register 60 Fed. Reg. 456 (Jan. 4, 1995), CODSIA
strongly supports this study, which includes development of government-wide defini-
tions for small business, small disadvantaged business, and woman-owned small
business, and believes that the uniform definitions developed from this study should
be incorporated into the FAR, or recommended to Congress for legislative changes.
In our view, the preamble to any final rule here should indicate the government's
intent. to proceed with the study required by Section 7107, and a commitment to
incorporate appropriate results into the FAR.

Further, we have concerns about the reference in this section (and elsewhere) that
“the definition of small disadvantaged business concern is different for DOD, Ni
and the Coast Guard; see agency regulations.” While this statement is true, the
statement is only partially true since other federal agencies (such as the Agency for
International Development and the Department of Transportation) also have unique
definitions of “small disadvantaged businesses” that affect certain of their procure-
ment programs. Although we appreciate the importance of highlighting that some
agencies may have a different statutory definition than provided for in the FAR, we
believe this rule should accommodate that difference by following the FAR conven-
tion: delete this unique phrase and leave it to each agency supplement (such as the
DFARS, or the NASA Supplement) to describe instances when the FAR would not
be applicable. Alternatively, the proposed phrase should be modified to state: “the
definition of small disadvantaged business concern is different for DOD, NASA, the
Coast Guard and possibly other agencies; see agency, supplemental regulations for
applicability and coverage.” Similar treatment should be given to the reference to
13 CFR 124 in Parts 19.001(b) and (4).

3. Section 19.202—Labor Surplus Area Priority
Given that labor surplus areas are no longer accorded an award preference by

statute, FAR paragraph 19.202-3, together with the language in the existing sec-
tion, should be deleted.

4. Section 19.301—Representation by the offeror.

Paragraph (a) prescribes the time when an offeror must certify its status. It pro-
vides that “[t]o be eligible for award as a small or a small disadvantaged business,
an offeror must represent in good faith as to its status at the time of written self
certification.”

‘To promote consistency and efficiency in the procurement process, this section
should be modified to camport with the time period for certification included in the
SBA regulations. 13 CFR 121.904 provides that “. . . the size status of a concern
(including affiliates) is determined as of the date of its written self-certification as
mall business. The concern shall certify that it is a small business for the pur-

of performing a particular contract at the time it submits its initial offer which
includes price to the procuring agency for that contract.” The language in small
business regulations should be substituted for the current draft FAR language.

5. Section 19.304—Solicitation provisions and clause.
for the reasons discussed in comment 3, above, paragraph 19.304(b) should be de-

let

6. Section 19.502—Set aside program order of precedence.
For the reasons set forth in comment 2, above, paragraph (b) of this section
should be deleted. That paragraph provides: “[slet-aside priorities of the Department


147

FAR 16.004-10120 1  prcp is based on estimated future sales and
prices, then ion should be m future price adjustment, if actual sales
and prices differ significantly from the estimated sales and prices upon which
the contract price was based.” (emphasis added)

AEA recommends that the provision be removed. First, differences in the esti-
mated volume of sales should have no bearing on the negotiated price. Second, an
open-ended lower price protection is unworkable and not customarily found in com-
mercial practice. The future price of an item will depend upon market forces and
a company’s position within that market. It should not be made relevant to the ne-
gotiation of price in the present moment. Presumably, the Government would not
accept a provision which would raise negotiated prices if the market’s demand sub-
sequently pushed prices higher.

inally in this area, is concerned with the additional data requirements that

ill be imposed on the offeror. In the previous public comments, AEA had rec-
ommended that exposure to additional information requirements be lessened. In-
stead, the proposed rule adds to the list.

Current Requirements

Supplier's marketing system (e.g., use of jobbers, brokers, sales agencies, or
distributors)
Services normally provided commercial purchasers (e.g., engineering, financ-
ing, advertising or promotion)
formal quantity per order;
‘Annual volume of sales to largest customers;
Proposed Additional Requirements
Adjustments such as rebates, credits, or trade-ins available commercially but
not available or used by the Government;
‘Additional sales inducements such as training or extended warranty periods
provided to some customers if not provided to the Government; or
Prices charged by the primary source of an item offered by a reseller. (empha-
sis adde

AEA does not understand the need to expand the Government's information re-
quirements, particularly for adjustments and inducements that will not be available
to the Government. It is inconsistent with the goals of acquisition streamlining and
only serves to increase business risk to the extent such information is covered by
post-award audit rights (discussed later).

MARKET PRICES

In its previous public comments, industry had urged the Government to broaden
the use of the market price exception and remove the requirement that market pri
data must come from sources independent of the offeror. The “sources independent ”
requirement has become the Achilles Heel of this pricing method because it is dif-
ficult to obtain adequate information from external sources about actual selling
prices and actual quantities sold. Industry, instead, had recommended that market
price be supported by any objective means which demonstrates the market's willing-
ness to accept a product price. For example, even though an offeror does not main-
tain a catalog or formal price list, there still could be going price” that the offeror
charges the general public. This should qualify as a market price so long as it could
be supporte: through objective means, such as sales orders, contracts, shipments,
invoices, etc.

‘The Government's proposed rule offers almost no reform in this area, and this is
a significant missed opportunity.

POST-AWARD AUDITS

There is little question that post-award audits represent the most serious busi-
ness risk to commercial companies, especially in the of Oversight that now
characterizes Government procurement. The level of risk is at its highest when the
Government seeks to determine, after contract award, whether the information sup-

lied by the offeror on the Standard Form 1412 or comparable documents (e.g.,
Esa’s ‘ta collection format) was accurate. Two unfortunate consequences could re-
sult: (1) the sales data was inaccurate and caused the company to pass the rela-
tional tests when it should not have or (2) the lowest price example was inaccurate
and precluded the Government from negotiating an even lower price.


46

license number on the bill from a repair shop. The license number
of the car and the guy in the file were checked to be sure it was
a license number of a government vehicle. To give you an example
of the kinds of controls and checks that will be put into the system.

Mr. FLANAGAN. That is very encouraging, because it is extremely
important not to look at the taxpayer and say, well, it is an enor-
mous administrative burden up to $100,000 to watch every pur-
chase, so we are just not going to do it any more and we will hope
there are good and honest people. That is unsatisfactory.

Mr. KELMAN. No, no.

Mrs. PRESTON. That is why we are careful to say there is a bal-
ancing. I hope I did not give yu the indication we were simply re-
Moving any of these things. It is our goal to find a more efficient
and better way to do and achieve the same goal.

Mr. FLANAGAN, Tremendous. I hope you bring forth the cutting
room floor, as Mr. Horn referred to it, legislation that you have
looked at and the other statutes that have been an impediment to
further refining this process. I will look forward to more testimony
next week.

Thank you very much.

Mr. KELMAN. Thank you, sir.

Mr. FLANAGAN. Thank you, Mr. Chairman.

Mr. CLINGER. I just have one or two questions for you and the
first is: is that salad dressing any good, the GI issue?

Mr. KELMAN. It is sealed for your protection, so I have not dared
open it yet. I don’t know. Who knows.

Mr. CLINGER. It has been child proofed, I take it.

Mr. KELMAN. It has been child proofed. The main thing about it
is that it is really sold just to the government. You have some man-
ufacturer—might be actually fine, who knows. It has not been sub-
jected to a consumer market test, but these folks are producing this
thing just to sell to a government customer, with all the extra costs
that brings about.

Mrs. PRESTON. Of course, the last time we tested, we found we
had one chocolate chip per thousand cookies. We said we just want-
ed something that was sold commercially, and it was. So for every
horror story you can find this sort of thing. We found someone who
was making catsup in their bathtub and we were precluded from
telling them that we could not buy from them. So for every horror
story, there is another on the other side.

Mr. KELMAN. I see these sort of pieces of basil or something. I
bet that is a thing in the specification saying how much basil per
ounce has to be in there.

Mr. CLINGER. About how many pinches of basil per cubic centi-
meter.

Somebody asked the question about what if you had some resist-
ance from the supplier community in terms of not doing business;
taking away my business. The bureaucracy—obviously, one of the
objectives of what we are trying to do here, hopefully, is there will
be a lot fewer purchasing agents throughout government, which
seems to me might cause them to be a little resistant to change.

Has that been a problem for you?

Mr. KELMAN. Maybe each of us can take a stab at that. Cer-
tainly, it does not make the task easier. And, obviously, all of the


6

ness table and tell you without objection your entire written state-
ment would be included in the record and you may read it or pro-
ceed as you will.

STATEMENT OF STEVEN KELMAN, ADMINISTRATOR, OFFICE
OF FEDERAL PROCUREMENT POLICY

Mr. KELMAN. I will try to summarize as best I can.

Thanks, Mr. Chairman, members of the committee. I very much
appreciate the opportunity to come here today to talk about the ad-
ministration’s efforts both to implement FASA and also some of our
broader management efforts to create a procurement system that
works better and costs less.

Mr. CLINGER. Could you turn on the microphone?

Mr. KELMAN. You heard the beginning? I talk so loud, who needs
a microphone.

Let me, if I could, please, start off by expressing my appreciation
on behalf of the administration to Chairman Clinger, to Represent-
ative Maloney, to Chairman Horn, and for the other members of
this committee for working so hard last year to make FASA a re-
ality, and this is really an example of bipartisan efforts, as you in-
dicated in your opening statement, on behalf of the public interest.

T have also been pleased to learn that you, Chairman Clinger,
and you, Representative Maloney, have agreed to make personal
visits to a government buying office to meet with contracting offi-
cers on the front line to hear their concerns—is that a vote?

Mr. CLINGER. No.

Mr. KELMAN. It is not a call; OK.

You will be going out to meet with contracting—this is not easy.
Do you have to do this all the time?

Mrs. MoRELLA, We live with it all the time.

Mr. KELMAN {continuing]. To meet with contracting officers on
the front line, to hear their concern and to demonstrate your sup-
port, as Republicans and Democrats both, for procurement
reinvention.

Over the last 25 years, the Federal acquisition system has devel-
oped into a complex burdensome maze of laws and regulations that
have made it difficult for Federal personnel to exercise prudent dis-
cretion and business judgment. And that has become both cum-
bersome, expensive to administer, and also has hindered our ability
to provide economical, timely support to taxpayers and to govern-
ment programs. By decreasing the burdens placed on the procure-
ment process, FASA has become a cornerstone of this administra-
tion’s efforts to streamline and reinvent the procurement process.

The administration has committed itself to implementing in reg-
ulation the authorities given us in FASA as quickly as possible. We
do not want to lose a single day unnecessarily of giving taxpayers
the benefits that this law provides. You gave us in Congress 330
days to develop these regulations: The President announced, when
he signed the bill last October, that we intend to beat that dead-
line. We are going to develop those regulations on an accelerated
basis by streamlining and reinventing and reengineering our own
regulatory development process.


40

Mr. KELMAN. Again, a very good question. We need to develop
various mechanisms to do that better. We have gotten started. We
are engaging in a, I like to think, very innovative cooperative pro-
gram with the Contract Management Association, which is the pro-
fessional association of both government contracting folks and in-
dustry contracting folks, It is their professional association where-
by we have now, through sort of a voluntary agreement with them,
once every month, a special feature in their magazine contract
management to share procurement reform success stories and
changes.

‘AS Mrs. Preston pointed out, DOD is planning to put on-line sort
of an electronic best practices system to allow the people in the
trenches, in operations, to get their ideas and their innovations into
the system so others with Internet access or whatever can get them
on-line. That is something coming out of DOD.

We are working to try to do a version of that governmentwide.
In fact, there was a NPR meeting last week. The report I got from
my staff was there was a lot of enthusiasm about an effort to set
up, again through the Internet, something called “Procurementnet”
that would put on-line an ability of folks involved in the procure-
ment process to both get their success stories and their ideas and
innovations across, but also to have a real time electronic conversa-
tion; a little like, again, some of the services such as America On-
line and so forth have, where, for example, a contracting officer
might say I am thinking of trying out for the first time increasing
the use of past performance in the source selection process; J am
worried about X or Y or Z. Anybody out there who has tried this
and want to give me some suggestions?

So the idea would be to allow a real time conversation over the
Internet with, among contracting folks, to share ideas and get
those ideas out.

I think your question represents something we need to work on
better and we are starting. As with all these efforts, this is a long
process. We do 20 million contract actions a year. There are about
60,000, 1102 and 1105 contracting series folks out there. We are at
the very beginning. We are excited by what we have started to do
but we realize we still have a long way to do.

Mr. Horn. Let me just suggest you might want to send every
Member of Congress a little package, say it is at the request of a
Member of Congress if you would like, which would give us a para-
graph, the 800 number, that we could use in our cable shows, in
our newsletters, in all these ways we communicate with constitu-
ents, try to keep them up to date on what the government is doing.

Also, I assume you are working through the various Chambers
of Commerce that conduct how do you access government type sem-
inars for their membership, either State government procurement.
or whatever.

My last question, the rest we can hold until next week, is this:
And that is to DOD, what specifically are you referring to, Mrs.
Preston, when you say socioeconomic factors that are considered in
the bidding and purchasing process in addition to price? What are
we talking about there?

Mrs. PRESTON. We are talking about such things as a preference
for particular business groups, such as small businesses or small


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19

to make sure that the system facilitates their making these good
judgments and making good acquisition decisions rather than them

aving to fight the system in order to acquire those best-value
weapon systems. :

We want to rely on commercial products and technology. Why?
Because we cannot support an industrial base any longer that is
defense unique. It is a simple matter of dollars. We have mergers
and acquisitions going on every day in the defense industry. Many
companies are going out of business. We are not supporting the re-
search and development efforts that we have in the past as a result
of our budget reductions, it is very difficult for us to maintain a de-
fense-unique industrial base.

It helps us if we can leverage off of what the commercial sector
is doing, and so that is one of our major goals—to establish and
maintain a united national industrial base that we can rely on for
DOD-unique goods and services, but most of all, to acquire com-
mercial products to the maximum extent possible.

We also want to rely on suppliers who are using state-of-the-art
technology. DOD used to, because of the money we spent, lead the
world in the technology-related area. Now that technology is in the
commercial sector. The basic components of every one of our major
systems are primarily electronics, computer systems and software,
and all of those areas are predominantly led by the commercial sec-
tor.

One of our problems is that because of many government-unique
rules, regulations, and policies that we have placed on the system,
many commercial companies refuse to do business with us. We no
longer have the leverage in the marketplace that we used to in
order to entice these companies. We are such a small percentage
of their marketplace, even though we are perhaps the largest cor-
poration in the world in terms of buying power. In most cases we
represent only 1 to 2 percent of any major commercial company’s
sales.

Therefore, they are unwilling to change the way they do business
just to sell to the U.S. Government. They would rather not bother
in most cases. Or they will find another way to get around the sys-
tem such as supplying the products through another contractor so
that the provisions do not apply to them.

We also are working at making sure that we have less adversar-
ial relationships with our contractors. We believe in the use of inte-
grated process teams, integrated product and process development
teams, and we are working to institute this process for all DOD
major systems.

Another initiative that we are focusing on is to establish and
maintain the most timely, flexible, responsive and efficient system,
where individuals or teams are accountable for an entire process
and can change the process where necessary. One of the comments
that we most frequently receive from individuals when we go out
in the field is “I suggested this change 2 or 3 years ago, it went
nowhere, why bother.” We want to make sure that people control
the process themselves, that we have empowered these individuals
to use the judgment and expertise that they have, given the train-
ing that they have received, to establish ‘the timely, flexible, and


14

cut_in purchasing staff thanks to the expanding use of the card from 500 actions
in FY93 to an estimated 16,000 actions in FY95.

In the recent California floods, an agreement between the Federal Emergency
Management Agency and the government’s purchase card vendor, Rocky Mountain
Bank Card System, Inc. of Denver, Colorado, provided, for the first time, for cards
to be issued on a rush 24-hour turnaround time to designated temporary disaster
workers. The results were positive: the purchases were made quickly and the need
for on-site administrative support was greatly reduced.

1 am pleased to commend before this Committee Annelie Kuhn at the Department
of Treasury and her interagency team for successfully promoting expanded use of
the purchase card.

¢ Expanding Use of Past Performance. Since the Defense Personnel Supply Center
moved several years ago to best-value procurement of clothing and textiles empha-
sizing past performance, the dollar volume of contracts that the government needed
to terminate for supplier non: performance has declined from $133 million a year to
$13 million a year. By identifying poor performers, the Federal Supply Service at
GSA improved its on-time delivery rate in one year from 92 percent to almost 96

ercent.
pene you know, OFPP is pushing hard to get all agencies to expand their use of

ast performance so that all government customers can see the quality of work done
for them go up. In January 1994, 20 Departments and agencies pledged to make
past performance a major selection criterion in the award of 60 pilot program con-
tracts, valued at over $2 billion. The Bureau of Prisons in the Department of Justice
has been so impressed with the improved quality of services it has seen under con-
tracts for halfway-house services pledged under the pilot program, that it has de-
cided to make past performance a significant evaluation factor in all future halfway-
house procurements.

I would like to acknowledge before this Committee the efforts of Paul Zebrowski
of the Clothing and Textiles Unit’s Quick Response Team at DPSC in making this
success story possible.

¢ Using Multiple Award Contracts. An article in the trade press reported recently
that Zenith Data Systems, a vendor supplying personal computers to the Air Force,
lowered the prices and increased the performance of the computers it was supplying
under its contract. That doesn’t sound too surprising, since we see such price drops
in the private marketplace all the time. Traditionally, however, the government has
Jocked itself into a contract for several years with only one contractor to buy PC's,
and prices typically didn’t go down in line with the marketplace. Now the Air
Force—and many other agencies—have begun competitively awarding such PC con-
tracts to two or more suppliers, having them compete in real time, through the life
of the contract, for the customer’s business. So we're achieving the savings we
should.

I commend before this Committee Kay Walker and the Desktop IV Team at Gun-
ter Air Force Base, Alabama for this success story.

* Increasing Use of Performance-Based Service Contracting. On the same day the
President signed FASA into law, the Administration initiated a pilot project to en-
courage the implementation of performance-based service contracting, which basi-
cally means writing contracts around the results the government wants to achieve.
Twenty-six agencies pledged to convert 87 contracts worth $1.2 billion to this meth-
odology. The first pled d contract to be awarded under this pilot program looks
promising indeed. The Department of the Treasury converted its contract for base
operating support services for the Federal Law Enforcement Training Center at
Artesia, New Mexico, to performance-based contracting methods. In the process, the
contract, which formerly reimbursed the contractor for whatever allowable costs it
submitted in its bills, was converted to a fixed priced contract. The successful bidder
proposed a price 22 percent less than the price the government was paying under
the previous contract, That's the equivalent of getting a year’s services fer free.
When factoring in inflation over the past five years, the savings rise to roughly 40
percent. The new fixed-price contract will also allow for the elimination of the time
and expense of audits, as well as other administrative savings.

I would like to acknowledge before this Committee the work of John Richardson
and his team at the Department of Treasury’s Law Enforcement Training Center
for making this story one of success.

¢ Streamlining the Award Process. Through streamlined procurement methods,
the Air Force reduced the size of its program office on a recent procurement for
wind-corrected munitions from 75 to 20 nel and the length of contractor pro-

als from several thousand pages to 215 pages. For this success story, I would
like to acknowledge Harry Schulte of the Air Force's Conventional Strike Systems
Program Executive Office.



3

Later this week I intend to introduce a bill which will be the
foundation for further procurement reforms. My bill will include
two issues which we were unable to resolve. At least as a start, we
will include two issues which we were unable to resolve to my sat-
isfaction and to the satisfaction of some others during the develop-
ment of FASA, and then I am going to be calling on you and indus-
try to help this committee develop the remainder of this legislative
package as we move through the process.

But we must ensure that our attention is not diverted from im-
plementation of FASA. Further legislative changes which com-
plement FASA are necessary, but only through the vigorous imple-
ments of FASA will the Federal procurement system work better,
work smarter, and just plain work.

And now, if I may ask Mr. Kelman and Mrs. Preston to come for-
ward, and would you mind, we have a practice in the committee
of swearing all witnesses. Is that all right with you?

Mr. KELMAN. This is fine. Do we just stand up?

No, no, you don’t need to stand up.

Mr. CLINGER, Well, I will stand up. Let’s all stand up.

{Witnesses sworn.]

Mrs. MALONEY. Mr. Chairman, I have a statement.

Mr. CLINGER. Yes, indeed. The gentlelady from New York.

Mrs. MALONEY. Thank you very much, Chairman Clinger. Mrs.
Collins, unfortunately, cannot be here and I ask that her full state-
ment be part of the record. I hope you approve; OK? May Mrs. Col-
lins——

Mr. CLINGER. Without objection, so ordered.

[The prepared statement of Hon. Cardiss Collins follows:]

PREPARED STATEMENT OF HON. CaRDISS COLLINS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF ILLINOIS

Mr. Chairman, it is indeed timely that we today assess the Administration's
progress in prescribing the regulations necessary to implement the Federal Acquisi-
tion Streamlining Act of 1994. This is because it also affords us the opportunity to
acknowledge the success of this Committee and the 103rd Congress in achieving
truly bipartisan consensus on the most sweeping procurement reform legislation in
the last ten years. Mr. Chairman, you and other Republicans now serving in the
majority on this Committee played ‘an integral role in that success. I have every con-
fidence that under your leadership, our efforts to further reform the Federal acquisi-
tion system will reflect a similarly cooperative and bipartisan intent.

The U.S, Government spends approximately $200 billion annually on civilian and
defense-related goods and services—about $800 for every man, woman and child in
the country. And, as we are all well aware, the government’s process for procuring
these goods and services has become fiscally and commercially untenable.

Revising more than 225 statutory rules and encouraging the use of innovative
procurement techniques, the Federal Acquisition Streamlining Act of 1994 (or

‘FASA”) vastly improves the procurement process and creates a more efficient, re-

nsive and uniform acquisition system. FASA enables Federal contracting agen-
cies to effectively embrace the Administration’s vision of a leaner and smarter gov-
ernment. In fact, in the words of one of our witnesses here tod: ‘ASA has become
the cornerstone of the Administration’s procurement streamlining program.”

T look forward to learning from our distinguished witnesses what progress has
been achieved toward the regulatory implementation of FASA. Clearly, the benefits
of this important legislation cannot be fully realized until the rules are in place. In
addition, I am seeking assurances that provisions of the Act that serve to further
critical socio-economic objectives remain in focus and on schedule.

‘As the custodians of the largest single purchaser in the world, the Congress—and
specifically this Committee in the House—has an obligation to ensure that the Fed-
eral government is an informed, responsible, strategic, and compassionate
consumer. I take every nuance of this obligation seriously, and anticipate playing



132

Mr. Richard Powers, Director of Financial Administration, Aerospace Industries As-
sociation, at (202) 371-8526.
Sincerely,

Don Fuqua,

President, Aerospace Industries Association.
Lawrence F. SKIBBIE,

President, American Defense Preparedness Association,
JOHN F, MANCINI,

Chief Operating Officer, American Electronics Association.
Gary D, ENGEBRETSON,

President, Contract Services Association.
KENNETH MCLENNAN,

President, Manufacturers Alliance for Productivity and Innovation.
Bert M. CONCKLIN,

President, Professional Services Council.
S.0. NUNN,

Acting President, Shipbuilders Council of America.

CODSIA Case 13-94.12

February 17, 1995
General Services Administration
FAR Secretariat (VRS)
Attn: Mr. Julius Rothlein
Ethics Team Leader
18th & F Streets, NW.
Room 4037
Washington, DC 20405

Re: FAR Case 94-801: Debarment, Suspension and Ineligibility (Ethics), Federal
Register, December 20, 1994

Dear MR. ROTHLEIN: The undersigned members of the Council of Defense and
Space Industry Associations (CODSIA) appreciate the opportunity to comment on
the proposed Tule to amend the Federal Acquisition. Regulation (PAR), Part 9, to
provide for uniform suspension, debarment and ineligibility procedures and reciproc-
be in Tpeognition for such on a government-wide basis, as required by Section 2455
of the “Fede: wisition Streamlining Act of 1994” (FASA, Public Law (P.L.) 103—
355) and other authorities. The text of the proposed rule was published in the Fed-
eral Register of December 20, 1994 for public comment.

CODSIA was formed in 1964 by industry associations having common interests
in the defense and space fields. The Department of Defense encouraged formation
of this organization as a vehicle for obtaining broad industry reactions to new or
revised procurement regulations, policies and procedures. In our 30th year, CODSIA
is comprised of nine associations, representing some 4,000 large and small member
firms across the nation.

In large measure, the proposed changes to FAR Part 9 successfully meet the
major objective in this effort which is to provide uniformity and reciprocity in sus-
pension and debarment actions on a government wide basis. For this, we commend
you. However, the proposed modifications in regulatory guidance do raise some is-
ues of concern which we present below.

COMBINED RULEMAKING; PRELIMINARY COMMENTS.

We note initially that, according to background information provided with the pro-
ule, the proposed changes to the coverage in FAR Part 9, “Contractor Quali-
ications,” are intended to respond to the joint requirements of Executive Order
(E.0}) 13689 and Section 2455 of FASA. Effective on August 16, 1989, E.0. 12689
directed agencies to establish regulations for reciprocal goverament wide effect
across procurement and nonprocurement for each agency's debarment and suspen-
sion actions. FASA was signed into law on October 13, 1994 and, similar to the re-
quirements of E.0. 12689, Section 2456 of this law provides that the debarment,
suspension, or other exclusion of a participant in a procurement activity under the
, or in a nonprocurement activity under regulations issued pursuant to E.O.
12549, shall be given reciprocal government wide effect.


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69

(7) Information from un-registered vendors will be rejected and the remaining
bids are forwarded to the designated government buyer.

(8) The government buyer will screen the offers and make an award to the
responsible offeror, who's offer is most advantageous to the government, based,
as appropriate on either price alone, or price and other factors (e.g. past per-
formance and quality considered, including the administrative cost of the pur-
chase).

Mrs. MALONEY. She mentioned earlier the problem with the tee
shirts. You went to the lowest bidder and you got a thousand tee
shirts, all of which shrunk within 24 hours.

I would like to know what exceptions do we now have to the low-
est possible bidder? And I am sure you have language that says
something like the lowest qualified bidder so that you can throw
out quacks and people that are not really going to do the job right.
But before getting into electronic commerce and everything else,
what are we doing now to screen and make these decisions in a
way that we are not purchasing tee shirts that shrink?

Mrs. PRESTON. Representative Maloney, right now we are au-
thorized to buy on the basis of best value and have been since the
adoption of the Competition in Contracting Act in 1984, which put
what we call the competitive negotiation process on an equal par
with sealed bids.

Now, some would say because there is one legislative provision
in there that there still is a preference for sealed bids. We will
come back in the reform package and recommend that that be
taken out so that there is no confusion.

The problem is administrative. It is an administrative one. First
of all, if you buy from the low bidder there is very little chance you
will get a protest because there is no exercise of judgment. If you
buy from other than the low bidder, you take a chance of getting
a protest that will hold up your procurement for a minimum of 45
days but in most cases longer than that. So, then, you have to jus-
tify why you made the decision that you made.

‘he other one is as was mentioned, just the number of procure-
ments that you get. Some of our activities have come up with inno-
vative ways to deal with that. For example, at DGSC down in Rich-
mond Defense General Supply Center, they have their preferred
vendor group and that list of people get a 10-percent price advan-
tage over everyone else. What they do, though, in order to do that
they had to set up a whole computer system to track on time deliv-
eries, et cetera, and the other parameters so that if you have been
an on time deliverer and your quality has been good, et cetera,
then you are a qualified vendor and you get this price preference.

So there are a number of different techniques that are used but,
again, it is just whether or not administratively it is more difficult
than another process.

Mr. KELMAN. Congress last year in the FASA legislation, also au-
thorized the use of past performance as a source selection factor.
So the people whose tee shirts shrunk the last time would get
downgraded if they tried to bid the next time. They would lose
points for having poor past performance.

Mr. ZELIFF [presiding]. Unfortunately, our time has expired, but
if there are any additional questions, if you would be willing to put
them in writing.


24

government unique requirements for actions or activities. We're just not a big
enough market to make it worth their while.

. n if we can figure out a way to purchase such products, the length of our
acquisition process is such that the technology is often outdated by the time we ac-
quire it, It’s no surprise to any of you, I’m sure, that our acquisition process simply
is not designed to allow us to acquire products at the pace at which technology is
changing. For example, information systems technology turns over on an average of
18 months, yet, not using Small purchase procedures, but a simple Invitation for
Bids, takes us an average of 90 days. A negotiated procurement, takes an average
of 210 days, and a complex services contract to support one of our program manage-
ment offices takes an average of 300 days. We can't even get on contract before tech-
nol is obsolete.

« In addition, we must remember that our national security strategy is founded
on the precept that we will maintain technological superiority rather than numeri-
cal superiority. We've been able to do that in the past because we have been
leader in technology. The fact of the matter is, however, with our reductions in de-
fense spending and other world changes, the majority of technological development
is happening in the commercial sector. And it is increasingly available to the entire
world. The building blocks that make up our major weapons systems are primarily
electronic in nature, and that electronic capability is too easily spread around
world. Our _pist strategy of being able to keep technology a secret, and therefore
have this advantage over our opponents, is no longer a viable strategy. The key to
winning the technology war today is to be the first to integrate. The first to be able
to integrate the technology that is already out there is the one who will maintain
the superior force.

Because the nature of this situation is so unpredictable now, the acquisition sys-
tem must be even more flexible and agile than it was in the past. Because of the
decline in the budget, affordability rather than performance of systems becomes
paramount when making those critical tradeoffs between cost, schedule, perform-
ance and reliability. Because DoD cannot maintain the infrastructure that we have
had in the past—the “tooth to nail” ratio that you hear about all the time—we can
no longer support a defense-unigue industrial base. We are going to have to rely
on commercial and dual-use suppliers who can meet DoD’s needs.

Unique Demands Placed on Contractors Who Sell to the U.S. Government

In addition, over the years many laudable restrictions and requirements have
been added to the acquisition process to ensure it is fair, prevent fraud waste and
abuse, to standardize treatment of contractors, to ensure that the government re-
ceives a fair and reasonable price when buying products that are not competitively
available, to check the Rovernment’s demands upon its suppliers, and to further s0-
cioeconomic objectives. The problem is that all of these demands, while valid goals
of our acquisition process, encrusted upon each other have become a reef that sur-
rounds the Pentagon, and most of our federal government—almost challenging sup-
pliers to find a way to penetrate the reef without risking everything. That reef poses
a particular barrier to the acquisition of commercial products and state-of-the-art
technology, and increases our costs.

Industrial Era Bureaucracy in an Information Age

In addition, our internal DoD acquisition systems and acquisition organizations
evolved over time. But they have not been able to keep up with changes in the world
around us. They are designed to respond to a different time and purpose. Essen-
tially, what we have is an industrial-era bureaucracy that was created and was re-
sponsive to the needs we had in the past—a very hierarchical structure, with mini-
mal cross-training requirements because we set out to make People experts in cer-
tain areas. We are now learning that when competition is based on time, not effi-
ciencies of scale, that we can no longer keep that type of management structure—
we have to break down the walls, We have to, for example, use integrated cross-
functional teams, because the hand-offs that occur between functional experts inher-
ently cause errors and waste time. Time we can no longer afford.

System is Risk Averse

Probably the biggest problem we face, however, is that the system now has few,
if any, incentives for acquisition personne] to be’ innovative or to take reasonable
risks. If I had to identify any one critical problem that we must solve as we go
through the process of acquisition reform, it is the lack of ability to reward and pro-
vide incentives for people to make judgments and to take reasonable riske—because
our risk-averse system right now is killing us.

‘The price we are paying to make sure that our system is perfect, and to promote
social goals in every one of our contracts, is too high. No, we do not want to abandon



143

tives, the Congress did not. agree with us or others, and fixed the floor at $2,600.
The rule should not create future confusion where none now exists,

Finally, there has been some confusion in our industry about the relationship be-
tween the small business reservation established under section 4004 of FASA and
the requirements for FACNET established under section 4201 of that same act for
“simplified acquisition threshold” purchases. Notwithstanding the legal questions
about the mandatory linkage between the small business reservation and FACNET,
we believe the draft regulations should be revised to reflect that linkage: that is,
no small business reservation for contracts between $50,000 and $100,000 if the
agency has not met its obligations under at least “interim FACNET” as that term
is defined in section 4201.

We next comment on section 19.704—subcontracting plan requirements. The pro-
posed rule has carried without change the current regulations on master sub-
contract plans—and states that the plans will be considered “current” for only one
year at a time. To the FAR Council’s credit, last September 8, the FAR Council pub-

lished a notice of proposed rulemaking that would extend the life of these master
subcontracting plans for three years, unless changes occurred before that period of
time that necessitated a revision to the plan. Several of the CODSIA associations
commented favorably on that proposal, although CODSIA itself did not comment on
that proposal. We believe your team should adopt at least that September 8 Paar
posal ‘ing master subcontracting plans good for a three year period when a final
rule is written here; if you want to truly embrace the concepts of acquisition stream-
lining, there is no reason to put any time limit on the effectiveness of these master
subcontracting plans—unless there has been a change of business circumstance that
‘ires revision.

‘inally, section 42.302 of the proposed rule modifies the existing laundry list of
responsibilities for those in contract administration. Since the Congress has abol-
is bor surplus area set-asides for the future, contract administration personnel
have an obligation to ensure compliance only with contractual requirements for LSA
awards that predate FASA. We recommend a modification of the proposed coverage
in 42.302 to reflect the historical nature of these obligations.

Thank you again for providing CODSIA with the opportunity to present these
views. | would be happy to try to answer any questions you may have.

PREPARED STATEMENT OF RICHARD J. WALL, ERNST & YOUNG, ON BEHALF OF THE
AMERICAN ELECTRONICS ASSOCIATION

INTRODUCTION

The American Electronics Association is comprised of 3,000 U.S. high technology
companies ranging from small to large businesses. The member companies are lo-

in 44 different states and span the breadth of the electronics industry, from
silicon to software, microelectronics to major weapons systems, all levels of comput-
ers, communications networks and systems engineering and integration. AEA was
founded over 50 years ago by David Packard along with the top 15 technology firms
in the Silicon Valley.

Many of AEA’s member companies support the Government's information systems
requirements. The market for federal information systems is estimated to be worth
over $26 billion in Fiscal Year 1995. Additionally, the U. S. Government is the larg-
est single buyer of electronics in the world. Since technologies are rapidly and con-
stantly improving, a more streamlined Government procurement system is required
for the Government to be able to buy the latest commercial technologies available,
For the reasons, improvements to the Federal Acquisition Regulations, regarding
the Truth in Negotiations Act, must occur so the Government can invoke true com-
mercial market. buying practices.

AEA’S STATEMENT ON PROPOSED COMMERCIAL PRICING RULES (FAR CASE 94~721)

AEA is pleased to present oral comments to the Federal Acquisition Regulatory
Council on the Government’s proposed rules on contract pricing, which were pub-
lished in the Federal Register on January 6, 1995.1 For purposes of this statement,
AEA’s comments will be limited to the proposed rules on commercial pricing. This
includes prices based on adequate price competition, catalog or market price, and
the new additional exception for commercial items. AEA will submit written com-

Proposed Rule, Federal Register (Vol. 60, No. 4), January 6, 1995, pages 2282 to 2299.


10

Now the Air Force and many other agencies have begun competi-
tively awarding such PC contracts to two or more suppliers, which
allows them to compete in real time through the life of the contract
for the customer's Business. So we are achieving the savings that
we should be. And I would like to commend before this committee
Ms. Kay Walker and the Desktop 4 team at Gunter Air Force Base,
AL, for this success story.

Last two.

Increasing the use of performance-based service contracting. On
the same day the administration or the President signed FASA into
law, the administration initiated a pilot project to encourage the
use of performance-based service contracting which basically means
writing contracts in terms of the results the government wants to
achieve.

The first contract to be awarded under this pilot program was
just awarded recently by the Treasury Department, and Treasury

as converted a contract for base operating support for the Federal
Law Enforcement Training Center at Artesia, NM, two perform-
ance-based contracting methods.

In the process, the contract, which formerly reimbursed the con-
tractor for all the allowable costs they submitted in their bills, was
converted to a fixed price contract. And this was the first contract
awarded by the new method. The successful bidder proposed a
price 22 percent less than what the government was paying pre-
viously, which means that over the life of this 5-year contract we
are going to be getting a whole year of contract performance for

ee.

I would like to acknowledge before this committee the work of
John Richardson and his team at the Department of Treasury’s
Law Enforcement Training Center for making this success story.

Last example.

Streamlining the award process. Through streamlined procure-
ment methods, the Air Force reduced the size of its program office.
On a recent procurement for wind-corrected munitions from 75 to
20 people and the length of contractor proposals—all the money
contractors have to spend on these proposals—from several thou-
sand pages to 215 pages.

For that success story, I would like to acknowledge Harry
Schulte of the Air Force’s conventional strike systems program ex-
ecutive office.

Similarly, NASA has developed procedures to simplify award of
contracts up to $500,000. They have been able to reduce the size
of the typical solicitation from 70 pages to 7 to 10 pages. And to
reduce the size of the resulting contract from 40 pages to 10 to 15
pages. Such documents are far less intimidating to industry and
are encouraging more interest in bidding on NASA work.

I would like to acknowledge the work of Lydia Butler at the Mar-
shall Space Flight Center in Huntsville, AL, for helping make this
program the success that it is.

jose are just some of the examples. In the interest of time, I
have only developed some of them from the files that is growing on
this.

Mr. Chairman, Representative Maloney, the message of reform is
being heard. As you can see, our efforts are under way. We have


141

advantaged business concerns is different for DOD, NASA and Coast Guard, see
agency supplements.”

13. Section 42.302—Contract administration.

For the reasons discussed in comment 3, above, the term “labor surplus area con-
tractual requirements” in paragraph (55) should be modified to provide “labor sur-
plus area contractual requirements existing before October 13, 1994.”

14. Section 52.219-01—Priority for Labor Surplus Area Concerns.

For the reasons discussed in comment 3, above, this section should be deleted.

We appreciate the opportunity to comment, on the proposed rules on Small Busi-
ness. If we may provide further information in connection with these industry com-
ments, please contact Ed Schiff of the National Security Industrial Association and
CODSIA’s project officer for this matter at (202) 775-1303.

Sincerely,
Don Fuqua,
President, Aerospace Industries Association.
LAWRENCE F. SKIBBIE,
President, American Defense Preparedness Association.
Dan C. HEINEMEIER,
Vice President, Electronic Industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoca,
President, National Security Industrial Association.

PREPARED STATEMENT OF ALAN CHVOTKIN, CORPORATE DIRECTOR OF GOVERNMENT
RELATIONS AND SENIOR COUNSEL, SUNDSTRAND CORPORATION

Thank you for the opportunity to make this statement on behalf of the Council
of Defense and Space Industry Associations—CODSIA. At present, nine associa
tions, representing more than four thousand member companies, both large and
small, are members of CODSIA. My name is Alan Chvotkin, and I am the corporate
director of government relations and senior counsel for Sundstrand Corporation.

We have been actively involved in the development of contracting rulemaking for
and about small business almost since CODSIA was formed in 1964. Of course, we
have been intimately involved in commenting on applicable regulations from the en-
actment of P.L, 95-507 in 1978, through the enactment of the Federal Acquisition
Streamlining Act last October.

We are pleased to offer this statement on the proposed regulations implementing
four sections of the Federal Acquisition Streamlining Act. As we continue our de-
tailed review of the rule and the comments from today’s public hearings, we will
be submitting further detailed written comments by March 7, in response to the
January 6 Federal Register request for comment, as amended.

Before delving into the substance of the rule, we do have a concern about the seg-
mented nature of the rulemaking under FASA affecting small business that has
made it difficult for us and others to offer comprehensive comments on the imple-
mentation of the statute. As the team knows all too well, the implementation of
even the small business portion of the statute has been divided into several regu-
latory actions—some of which have already been issued and some important ones
which have not yet been published for review and comment. In addition, there is
other rulemaking taking place by the FAR agencies, by the Small Business Adminis-
tration and by the Office of Federal Procurement Policy, for example, that could
have a significant impact on any final rule implementing these provisions.

As a result, it is difficult to assess the full impact of any single rule or set of rules,
and we believe that, to the maximum extent practicable, you should leave the record
open for a reasonable period of time after all of the regulations have been published
for any comments that the public may have that may cut across two or more of the
individual rules that. are published.

Before focusing on the specific suggestions for change in the proposed rule, and
on behalf of CODSIA, let me compliment the small business team for and the FAR
Council for the timely action in preparing this proposed rule and for the content of
it. By and large, CODSIA associations, and our member companies, believe that the
team has fairly implemented the law and adhered to the goal of streamlining and
simplifying the Federal Acquisition System. But we still have some comments!


29

ordinated so they can sit down together and work through some of
these problems.

So in taking less time, it does not at all mean that we are sac-
rificing quality, I do not think.

Mrs. MorELLA. I am delighted to hear this kind of enthusiasm
and the teamwork that you mentioned, and also what Mrs. Preston
mentioned in terms of teams. Would you like to respond to that?

Mrs. PRESTON. Yes, if I may, please. I would just like to elabo-
rate a little on what Dr. Kelman said, because we in DOD initially
proposed the structure on how to do the regulatory reform effort,
and we are very conscious of the fact that what had happened in
the past is that there was a serial effort where our individuals in
the department, and I am sure in the civilian agencies as well,
worked on regulations as an adjunct to their normal job. They par-
ticipated in weekly or biweekly meetings as necessary, and worked
on the regulations somewhat sporadically through a committee
process.

Then, after it went through the Department of Defense, they
would send a regulation over to the civilian agency council. Their
council would do the same thing, starting all over again from a
clean sheet of paper, and then the two groups would meet together
and try to resolve their issues and develop a final package. That
is the old serial process.

What we have done is completely sidestepped that by going to
these integrated teams, as was mentioned, and also by putting peo-
ple on the effort full time. This has not been easy for anyone in the
department, as we are taking some significant downsizing of our
personnel, and I think we owe a lot to all of the individuals who
participated on these regulatory drafting teams throughout the
government. They have been putting in some long, hard hours, full
time, weekends, everything, to make sure they could get the regu-
lations out as fast as possible for public comment.

They are very attuned to listening to what the public has to say.
It is a whole new way in which they are approaching the regu-
latory process, and I think people should realize that.

Mrs. MorELLA. Again, I am very excited that people are cooper-
ating beautifully and you have these task forces and teams that are
established. I wanted to thank you also, Dr. Kelman, for mention-
ing Federal employees. I represent a great number of them and I
know they do not often, be they civilians or in the military, get the
kind of recognition that I think they deserve.

T have a few other questions, I know that Mrs. Maloney does too,
but I know Mr. Chrysler will be leaving and she has been willing
to defer to Mr. Chrysler, who is obviously from Michigan, for any
comments he might have.

Mr. CHRYSLER. Thank you, Connie.

A major focus of FASA was to encourage the government to uti-
lize commercial products and services, where appropriate. What
have you done to ensure that those experiences in commercial buy-
ing practices have participated in drafting the regulation for both
government and industry?

Mr. KELMAN. I think it is fair to say that many of the people in-
volved in buying commercial products are involved in the regu-
latory writing team. I would add that Mrs. Preston and I have just




140

of Defense, the National Aeronautics and Space Administration, and the Coast
Guard are set forth in the respective agency FAR Supplements.”
7. Section 19.503-1—Requirements for setting aside acquisitions.

For the reasons discussed in comment 1, above, the phrase “multiple award Fed-
eral Supply Schedule contracts” appearing in the last line should be replaced with
the term “Multiple Award Schedule contracts.”

8. Section 19.503-2—Total Small Disadvantaged Business (SDB) set-asides.

For the reasons discussed in comment. 2, above, paragraph (e) should be deleted
That paragraph provides: “{s]mall disadvantaged business set-aside requirements
and procedures for DOD, NASA and Coast Guard are different and are set forth in
agency supplements.”

9. Section 19.503-3—Total small business set-asides.

The draft regulations have omitted the rule of two for total small business set-
asides under $100,000. The rule of two is expressly required by FASA, which pro-
vi

Each contract for the purchase of goods and services that has an anticipated
value freater than $2,! but not greater than $100,000 shall be reserved ex-
clusively for small business concerns unless the contracting officer is unable to
obtain offers from two or more small business concerns that are competitive with
market prices and are competitive with regard to the quality and delivery of the
goods or services being purchased.

Pub. L. No. 103-355, §4004, 108 Stat. 3243, 3338 (1994) (emphasis added).

Although included in Section 19.502—3 for total small disadvantaged set-asides,
the draft regulations have failed to include the language that appears in italics in
this section. The draft regulations must be changed to include the “Rule of Two”
language required by the statute.

In addition, the draft regulations in this section and in 19.502-3 provide that
“each acquisition of supplies or services that has an anticipated dollar value exceed-
ing the micro-purchase threshold in 13.106” shall be set-aside for small businesses.
In order to faithfully follow the statutory language, the phrase “the micro-purchase
threshold in 13.106” should be replaced with the term “$2,500.”

‘The draft regulations must also be changed in another important respect to com-
ply with FASA. In their nt form, the draft regulations fail to link set-aside pro-
curement between $50, ‘and $100,000 to agency implementation of interim
FACNET capability. This important statutory goal is enunciated in Title IV of the
Act. Section 4004 in Title establishes the set-aside threshold, which applies to
purchases with an anticipated value between $2,500 and $100,000. Section 4201—
also in Title IV—is the principal statutory source for the procedure to be followed
for a procurement that falls within the simplified acquisition threshold. Signifi-
cantly, however, section 4201 expressly conditions the use of those procedures for

urchases between $50,000 and $100,000 to a certification that a procuring activity
s implemented an interim FACMET capability.” Nonetheless, the regula
tions entirely disregard the interplay between sections 4004 and 4201. Rather, the
draft regulations set aside all procurements between $2,500 and $100,000, without
regard to the procuring activity’s FACNET capability. Accordingly, the draft regula-
tions should be revised to reflect the link between set-asides of procurements be-
tween $50,000 and $100,000 and FACNET capability.
10. Section 19.505—Rejecting Small Business Administration recommendations.

For the reasons discussed in comment 2, above, paragraph (g) should be deleted.
Taal paragraph provides: “procedures for reecting SD set-aside recommendations
are different for DOD, Ni and Coast Guard and are set forth in agency supple-
ments.”

11. Section 19.704—Subcontracting plan requirements.
CODSIA members believe that the continuation of the current one year term of
master plans included in paragraph (b) is too short a period, On September 8, 1994
the Civilian Agency Acquisition Council and the Defense Acquisition Regulations
Couneil proposed.a draft rule extending the life of master subcontracting plans for
3 years. 59 Fed. Reg, 46385, 46386 (1994), We believe that master plans should con-
tinue in effect indefinitely and should be revised only when a change in business
circumstance requires revision.
12, Section 19.1100—Policy.
For the reasons discussed in comment 2, above, the last sentence of this section
should be deleted. That sentence provides: ‘felvaluation preference for small dis-



91

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a long way to go but they are under way. Let me emphasize that
some of the success stories that I am outlining to you began under
the previous administration, which shows, illustrates very well, I
think, that the job of making government work better and cost less
is a fully bipartisan effort.

The Congress can count on the continuing support of the admin-
istration for working to the very, very best of our ability to really
make procurement streamlining and procurement reinvention
work, and we know that we can continue on your efforts as well.

We are going to be submitting, as you know, very shortly an ad-
ministration procurement reform package for 1995 emphasizing our
themes of streamlining, quality and partnership, and we look for-
ward to working with the committee to make this a reality.

Thank you very much.

Mr. CLINGER. Thank you, Mr. Kelman, for your excellent testi-
mony, and we do indeed look forward to working with you and look
forward to receiving the legislation which you are presently prepar-
ing and working with you as we move forward.

[The prepared statement of Mr. Kelman follows:]

PREPARED STATEMENT OF STEVEN KELMAN, ADMINISTRATOR, OFFICE OF FEDERAL.
PROCUREMENT POLICY

Mr. Chairman and Members of the Committee, I appreciate the opportunity to ap-
pear before you today to discuss the Administration’s efforts to implement the Fed-
eral Acquisition Streamlining Act of 1994 (FASA), as well as our broader manage-
ment efforts to create a procurement system that works better and costs less. FASA,
which incorporates many of the recommendations of the Vice President’s National
Performance Review (NPR), is, in my view, the most significant piece of procure-
ment legislation in over a decade.

I would like to start off by expressing my appreciation to you, Chairman Clinger,
as well as to Representative Maloney and the other members of this Committee, for
working so hard to secure passage of FASA during the last Congress, and for the
bipartisan cooperation we have achieved in the public interest. I am pleased to learn
that Chairman Clinger and Representative Maloney have agreed to make personal
visits to a government buying office to meet with contracting officers on the front
line to hear their concerns and demonstrate support for procurement reinvention.

Over the last 25 years, the federal acquisition system has evolved into a complex
and burdensome maze of laws and regulations that have made it difficult for federal
personnel to exercise prudent discretion. This system has become both cumbersome
and expensive to administer and thus has failed to provide timely, economical sup-
port to government programs and taxpayers: By decreasing the burdens on the pro-
curement process and increasing the faith placed in our contracting officials’ ability
to make sound professional business judgments on behalf of our taxpayers, FASA
has become the cornerstone of the Administration’s procurement streamlining pro-

‘am.
e you should know that we have already begun to take advantage of those authori-
ties that became effective upon FASA’s enactment. Two such provisions—one which
permits the conduct of procurements under $2,500 (“micro-purchases”) as a virtual
paperless transaction, and another which creates a consistent $500,000 threshold for
the irement to submit cost and pricing data—are important facets of our
streambning program. The micro-purchase authority is helping to facilitate the
widespread use of commercial bank cards—what we call purchase cards—which is
making these purchases quick, easy, and inexpensive, as they should be. The
$500,000 threshold for the submission of certified cost and pricing data is an impor-
tant step in lessening the burden of government-unique requirements on the con-
tracting process.

Most of FASA’s benefits cannot be realized until implementing regulations are in
place. This afternoon, I would like to discuss the Steps we are taking to meet this
goal. I would also like to share with you a few examples of how some of our ongoing
management initiatives to reform the procurement process are already showing
positive results. Finally, I would like briefly to mention what we are doing to meet







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65

Section 2454, Codification of Accounting Requirement for Contracted Advisory and
stance Services

Section 3063, DoD Acquisition of Intellectual Property Rights
Section 3067, Disbursement of Funds of Military Departments to Cover Obliga-
tions of Another Agency of DoD
Section 6008, Cost Savings for Official Travel
Section 6009, Prompt Resolution of Audit Recommendations
SMALL BUSINESS

Section 7104, Small Business Procurement Advisory Council

Section 7107, Development of Definitions Regarding Certain SB Concerns
Section 7108, Functions of OFPP Relating to SB

Section 7201, Acquisition Generally—Socioeconomic Laws

LABOR (KELMAN LETTER TO DOL)

Sections 7301, 7302, 7303, 7304, and 7305, Community Volunteer Act of 1994
Section 7306, Report (Volunteer Act)

MISCELLANEOUS

Section 5091, Vendor and Employee Excellence Awards

Section 6007, Comptroller General Review of Provision of Legal Advice for Inspec-
tors General

Section 10001, Effective Date and Applicability

Section 10003, Evaluation by Comptroller General

ACQUISITION MANAGEMENT (ROUND II FAR COUNCIL)

Team Leader: GSA
Sections:
Section 1093, Discouragement of Nonstandard Contract Clauses
Section 5092, Waiting Period for Significant Changes Proposed for Acquisition
Regulations
Section 5093, Sense of Congress on Negotiated Rulemaking
Effective Dates: Sections 5092 and 5093 are effective on date of enactment.

Mrs. MALONEY. And we have received, and I am sure you have,
too, responses from the private industry on the regulations and,
again, would their responses be part of the record?

T have ones that tie into one of your statements. And Mrs. Pres-
ton and you testified that you anticipate commercial suppliers will
resist conforming te the Truth in Negotiations Act, TINA, and the
requirements of FASA, and how does DOD envision complying with
the intent of Congress given this resistance?

T have one letter here where they have outlined all the problems
they see in TINA. Could you comment further on that?

Mrs. PRESTON. Yes. We have tried to be very forward thinkin,
in terms of the approach to TINA. We had a meeting last weel
where industry expressed some concerns and we have set up a
Brocess for the group that drafted that regulation to meet with in-

lustry.

It the intention of the administration to ensure that TINA not
be applied in any instance in which we can in some other way,
shape, or form figure out whether the price is fair and reasonable.
And. that was our goal.

I think industry made some very good comments at the meeting,
and we understand some things we thought were helpful, they did
not view as helpful. So we obviously need to go back to the drawing
board to some extent on that and we will be working that over the
next couple of months. TINA is a big impediment to doing business
with the government and we want to make sure that we remove
that impediment in every instance that we can.


71

Had the user followed these guidelines, he would have been able to purchase com-
mercial chairs from the schedules that have been certified to meet all commercial
and government safety specifications from authorized contractors at competitive
prices. The chairs would have been delivered on time and, if there was a problem,
redress would have been readily available.

The Committee Report accompanying the Simplified Acquisition Threshold portion.
of the Federal Acquisition Streamlining Act retains the requirement for government
users to consult mandatory and preferred sources of supply. The Committee recog-
nized the importance of retaining fundamental safeguards and the need to ensure
that the government gets a good deal.

The Coalition supports this langua as well, but feels that agency procurement
officials need to be better educated about the continuation of this requirement and
the reasoning behind it. Without clear guidance, well-intentioned procurement offi-
cials may illegally commit government funds to purchase goods of questionable qual-
ity.

‘We strongly recommend that Administration officials issue a government-wide
statement and hold training courses to clarify that existing rules must still be fol-
lowed and that, even under the new rules, certain steps must still be taken before
simplified acquisition or micro-purchase procedures can be used.

ENSURING THE ADEQUATE TIME IS TAKEN BEFORE REGULATIONS BECOME EFFECTIVE

While the Coalition understands the Administration’s desire to implement FASA
in a timely manner and not let reform languish, we feel that moving too quickly
can, and has, caused problems in the regulation writing process. We feel that it is
important to note that the Federal Acquisition Streamlining Act was several years
in the making. Proposals were amended countless times and various provisions were
added and deleted depending on shifting political winds. All parties were given sub-
stantial time to comment on various bills.

The fine result of this multi-year process was the Federal Acquisition Streamlin-
ing Act. FASA is @ complex amalgam of procurement change. It has potentially dra-
matic implications for the future of the government’s acquisition of commercial prod-
ucts. Adequate time should be spent on the crafting of regulations, therefore, to im-
plement this change and ensure that the original intent of the legislation is carried
out, All affected parties should have an ample opportunity to provide their com-
ments. The Coalition believes that Congress should play an important role in this

process.

Additional care should also be taken to allow both government contracting offi-
cials and contractors time to absorb the changes and assess what they mean for
their individual missions. Moving too quickly may leave some people on both sides
unsure of what they are supposed to be doing and result in harm to the Acquisition
process until all of the fallout can be gauged.

‘An example of how too quick a pace can be harmful can be seen in the Proposed
Rule implementing the Truth In Negotiations Act (TINA) changes. The intent of this
part of FASA was to substantially streamline the certifications and data submission
requirements commercial product contractors must now encounter when seeking a
government contract. The Proposed Rule, however, falls far short of this intent and
would not result in any substantial changes for contractors over the status quo. In
fact, several of our members have reported that the proposal could increase their
data submission burdens and increase their exposure to audit.

Had all parties been able to work with the drafters of this regulation, the Pro-

d Rule could have been originally written to more accurately reflect the original
intent of the legislation. As a result, however, the final rule will now be imple-
mented much later than it otherwise might have been if a slower, more inclusive,
pace had been taken by those writing this regulation.

The Coalition urges the Committee to work with the teams writing the various
FASA implementation regulations to ensure that this occurrence is not repeated for
other provisions.

ENSURING THAT NEW REGULATIONS DO NOT IMPOSE SIGNIFICANT NEW BURDENS ON
THE PROCUREMENT PROCESS

In addition to the unintended potential new burdens of the proposed TINA regula-
tions, the Coalition is also concerned that the implementation of other regulations
may impose unintended new burdens which will hamper, instead of help, the gov-
ernment’s commercial product procurement process. The intent of the Federal Ac-
quisition Streamlining Act was to make it easy for the government to buy commer-
cial products at competitive prices. Some of the regulations being contemplated or
issued, however, do not seem to follow in the spirit of the original legislation.


16

‘As my discussion of EC demonstrates, reform is not easy. Fortunately for the tax-
payer, we're working together on this one. The Congress can count on the continued
support of the Administration for reinventing procurement. We know we can count
on your support for our efforts as well. Very shortly, the Administration will be
transmitting to this Committee its legislative proposal for a new round of initiatives
to promote streamlining, quality, and partnership. We look forward to on our initia-

ives.

This concludes my prepared remarks. I will be happy to answer any questions you
may have.

PROCUREMENT REFORM IN ACTION
SUCCESS STORIES

Increasing Reliance on Commercial Practices
Contact No. 1: Tony DiCioccio
Orga ization: Defense Personnel Supply Center, DLA
Telephone: 215-737-2900
Contact No. 2: Col. Craig Weston

nization: The Space-Based Infrared Program Office, AF

Telephone: 310-363-0276

Using Incentives to Motivate Contractors
Contact: Jim Bednar
Organiz ion: Federal Highway Administration, DOT
Telephone: 202-366-2048

Increasing Use of Purchase Cards
Contact: Annelie Kuhn
Organization: Department of Treasury
Telephone: 202-622-0203

Expanding Use of Past Performance
Contact: Paul Zebrowski
Organization: Defense Personnel Supply Center, DLA
Telephone: 215-737-3000

Using Multiple Award Contracting
Contact: Kay Walker
Organization: Directorate of Contracting, Standard System Group, AF
Telephone: 205-416-1781

Increasing Use of Performance-Based Service Contracting
Contact: John Richardson
Organization: Law Enforcement Training Center, Department of Treasury
Telephone: 912-267-2243

Streamlining the Award Process
Contact No. 1: Harry Schulte
Organization: The Conventional Strike Systems Program Executive Office, AF
Telephone: 703-695-8343
Contact No. 2: Lydia Butler
Organization: Marshall Space Flight Center, NASA
Telephone: 205-544-0304

Mr. CLINGER. Mrs. Preston.

STATEMENT OF COLLEEN PRESTON, DEPUTY UNDER
SECRETARY OF DEFENSE, ACQUISITION REFORM

Mrs. PRESTON. Thank you, Mr. Chairman, Representative
Maloney, members of the committee. It is certainly my pleasure to
be here today representing the Department of Defense and to tell
you as the buyer of approximately——.

Mr. CLINGER. Turn your microphone on.

Mrs. PRESTON [continuing]. As the buyer of approximately 75
percent of the Federal Government’s goods and services, we cer-





21

imum of 3 months, some 4 and 5 months. They have been doing
their own jobs back in their offices as well because there are no re-
placements for them, as well as working these process action
teams.

I cannot tell you how dedicated these individuals are. I can tell
you that at least in two instances people had to be removed by am-

ulance for exhaustion and taken to the hospital. That is how
much they want acquisition reform. That is what they are willing
to do to make sure that we understand and appreciate what they
need out there in the field because they are committed to doing
their job, and they know that right now they do not have the tools
to do that. They know what they are. They know what changes are
necessary.

As I mentioned, we have had five of these teams. The first was
on electronic commerce and electronic data interchange [EC/EDI].
We then had one on military specifications which resulted in the
Secretary of Defense mandating that there will be no use of mili-
tary specifications unless no other alternative exists, and setting a
very high approval level in order to use one even if that determina-
tion is made.

We have had two process action teams complete their work in
the last couple of weeks, one on contract administration and one
on the procurement process. They have been looking at streamlin-
ing our internal processes by making sure that any oversight and
review is value added, that the people who participate in that proc-
ess are contributors, not inspectors or critiquers, and we have had
one final process action team and that is on oversight and review
of our major systems acquisition process. And we are now working
out the final recommendations in that area.

One of our final goals is to better balance what is the primary
mission of the acquisition process, and that is to meet our war
fighters’ needs, our customers needs in the case of the other depart-
ments, and to do that while still complying with the socioeconomic
requirements that we have established as a Nation; that the de-
partment and the administration are very much in support of, sup-
port of small business goals, and support of many of the other so-
cioeconomic provisions, but doing it in a way that makes the most
sense, where we get the best return on our investment.

We got much relief from FASA last year in increasing the thresh-
old for which these laws would apply, but, in addition, there were
several that were retained with respect to commercial companies
that we would like to see some relief on and believe that the cost,
of compliance with these rules and regulations far outweighs any
benefit that we can gain. We would like the opportunity to prove
to Congress that we can do a much better job of attaining these
goals if we can do it and concentrate on it when we are talking
about the bigger dollar procurements where we are not buying
from commercial companies.

Finally, we are going to have to define some performance-related
measures of success. Our system right now judges success in terms
of compliance with regulations. If you met the rules and regula-
tions, you have done a good job. That is not what we want to see
in our future acquisition system. We want to see individuals who
are committed to performing successfully, and in doing so, we want


50

bank, because an average firm simply does not have the resources
to track it.

If there was at the beginning, some kind of order before you set
up an assembly line or buy the equipment, it would be helpful to
see not only what the current is but what the historical pattern is
on that item.

Mrs. PRESTON. I think that is something that will be solved by
going on the electronic commerce system because companies have
to understand that they are still going to have to market. The gov-
ernment cannot be there to Provide them every single piece of data
they need to know to be able to run their business. I don’t think
it is unreasonable to ask a company that gets into the business to
look at past procurements or to study their market before they do
that.

Our obligation should be to make that information available in
the easiest way we can, and when we get our electronic commerce
system they will be able to look over a period of time through those
various acquisitions.

Mr. SOUDER. I would comment that in this case it is to the gov-
ernment’s benefit to get more competition, and that in the private
sector I cannot imagine a contract where you would bid and you
could not just at the tip of your tongue say how many did you buy
over the last 2 years, what was the average price paid, how many
months did you do that. That is information that comes from the
person seeking the bids to try to drive the price down not some-
thing that is necessarily the job of the supplier to go get.

I agree with you, the easier you can make it, and I am sure it
has advanced quite a bit, and that will help. I am just s sting
that sometimes we think in terms that it is up to the suppliers to
figure this out, and if we made it easier for them, we would drive
the bids down.

That is what happened in a lot of the things that were over-
priced. It was one or two sole sources who knew all the inside infor-
mation, how the stuff was written. I have an MBA and I could not
figure out how half the stuff was written and there were certain
consultants who could not. You had to go to specialist consultants
to figure out how the bids were written.

I have a secon

Mrs. Preston. I understand the point. Thank you.

Mr. Souper. I have a second question, too. I realize this is an
extreme case but it leads to another type of a problem and that is
the privileged information on sole source bidders.

We had a pump that was requested by a naval aircraft carrier.
One pump, which is how you get problems in the first place. No-
body was bidding. A company in Fort Wayne, which is the second
biggest pump supply company decided to bid. They asked for the
specifications for the pump and the Navy said it was privileged in-
formation for the person who had previously built the pump. So
there were no designs for what kinds of pump they needed.

Then they said, well, give us a number of the company, it is
probably our competition, they will probably free up the informa-
tion because they are no longer in the Federal supply business. It
turned out they were the company, the one in Fort Wayne.




33

Item 3—Syringe and Needle

Two military specifications (MIL-N-36157 and MIL—S-36124) were replaced by
a CID (A-A-54773). The last buy to the MILSPEC in 1992 was at a price of $5.45
per 100 syringes; the first buy to the CID in 1993 was at $3.47 per 100.

Item 4—Men Trousers

The military specification (MIL-T-41834) was replaced by a CID (A-A—55086) in
1994. The last buy to the MILSPEC in 1993 was at an item price of $13.60; the
first buy to the CID was in 1993 $12.97. The quantity of the last buy was 89,280
for a total savings of $56,000.

Item 5—1000 and 1300 CC Motorcycles

The military specification (MIL-M-1320) was replaced by a CID (A-A-52165) in
1991. The cost under the MILSPEC and CID are not comparable because the Army
changed models at the same time. Also specific customizing is included depending
on whether the bike is used for patrol, messenger, etc.

Mrs. MALONEY. We had a hearing recently, and I want to get an
answer to this, it was on H.R. 450, which would be a termination
of all Federal regulation. It will be on the floor this week. It was
reported out by this committee last week and it imposes a morato-
rium on certain regulatory action. I would like to ask both of you
what, if any, will be the impact of this legislation on the issuance
of the implementation regulations?

Mr. KELMAN. Well, we are—the administration is somewhat con-
cerned. We are concerned about the regulatory moratorium as a
whole and the administration is on record on this. But we are con-
cerned specifically, although there are some efforts in the morato-
rium bill as it has been introduced to try to carve out some excep-
tions for procurement, we are afraid that the exceptions are not
written strongly and clearly enough to take us away from the pos-
sibility of litigation and more full employment for lawyers.

For example, the bill language, as written, talks about competing
loans, grants, benefits, or contracts. However, the regulations that
we are doing under FASA are not themselves contracts. They are
regulations about contracts. And we are somewhat worried that the
language, as written, could subject us to court challenges, and,
again, it is a full employment for lawyers kind of situation.

Second, there is an exemption in the language as written for reg-
ulations that streamline. And, of course, that is the brunt of the
regulations in FASA. However, any time you streamline a process
when you take away, let’s say, three forests of underbrush, you
sometimes want to leave something in the system and you may re-

lace sort of the three forests of underbrush with one very simple
little tree that was not there before, just to use an analogy. That
tree that you are replacing the three forests of underbrush with
could again be interpreted in judicial review as being something
that did not streamline but that, quote, added on a new regulation.

So I guess I would say two things, Representative Maloney. One
is that, as you know, the administration is concerned that this ap-

roach is too much in general of a blunderbuss approach toward re-
Forming the regulatory process. We think reform is necessary but
we are not convinced that this is the best way to do it.

In procurement, specifically, we are afraid that the language, as
written, although it seems to be attempting to exclude procurement
regulations from the onus of this moratorium, we are afraid that
some, excuse me for saying this, clever lawyers could try to, could


133

To fully effectuate the dictates of these provisions, we recognize that the proposed

regulatory implementation of these provisions is in two parce: (1) proposed amend-

ents to the 1988 agency-wide nonprocurement “common rule,” also published for
yublic comment on December 20, 1994 and the subject of a similar, but separate
ODSIA letter (copy enclosed); and (2) proposed amendments to FAR Part 9, “Con-

tractor Qualifications,” referenced above and the subject of this letter. Clearly the

two proposed regulatory actions must be read in combination and, in similar man-

ner, we ask that our comments in response to both actions also be treated in com-
ination.

SPECIFIC COMMENTS

In order to successfully implement these provisions which call for uniformity and
reciprocity in debarment, suspension and other exclusionary procedures across nu-
merous federal agencies, it is essential that there be consistency in the terms and
the scope of coverage of the rules, both internally within either the nonprocurement
“common rule” or the FAR Part 9 rule, and between the two rules. As presently
drafted, we believe that that consistency does not now exist between the changes
proposed for the common rule and proposed changes to FAR Part 9. To underscore
our concern, we note the following specifics with proposed coverage which modi-
fies FAR Part 9:

Section 9.401, Applicability.

1. It is fundamental to this FAR rule, and the related “common rule,” to ensure
that the reciprocal effect is given to only comparable enforcement. There are signifi-
cant substantive differences between a suspension action and a debarment action,
and the “reciprocal effect” ranted by other federal agencies to the actions of a sin-
gle agency should be pare lel. For example, a suspension by one agency for a er
curement “violation” should operate as no more and no less than a suspension from
nonprocurement benefits by other federal agencies. Under the common rule, the use
of the term “an exclusion” could be applied in a manner that arbitrarily imposes
greater or different burdens on a person by a secondary agency than the burden im-
posed by the initiating agency. To protect against such inconsistency, we recommend
that two changes be incorporated int section: (a) that the phrase “debarment
or suspension” in the first sentence should be changed to “a comparable action” and
(b) that the phrase “as an exclusion” in the second sentence be changed to “as a
comparable action.” (We suggest similar changes in our comments to the
nonprocurement common rule.)

2. In the last sentence of the first paregrarh, as a point of clarification, we sug-

st that the phrase “imposed under this subpart” be followed with the words “after
[the effective date of the rule].”

Section 9.403, Definitions.

In the definition given for “Nonprocurement Common Rule,” we recommend delet-
ing the phrase “under Executive Order 12549” as it appears to be surplusage.
Section 9.404, List of Parties Excluded.

In this subsection, there is a reference to the list that is maintained by the Gen-
eral Services Administration (GSA) of parties that are “debarred, suspended, pro-
posed for debarment, or declared ineligible by agencies or by the General Accountin,

fice.” This is the only place in either the proposed FAR rule or the propose
changes to the common rule that a reference is made to the General Accounting Of-
fice (GAO). For purposes of consistency, we recommend that either the reference to
GAO appear in the text of both proposed rules (FAR and nonprocurement. commen
rule) or deleted from the language of this proposed rule.

Reciprocal Application

An extremely important issue is raised by the proposed rule with regard to reci
rocal application between the FAR coverage and the nonprocurement common rule
coverage. Under existing FAR Section 9.405, a contractor who is “proposed for de-
barment” is excluded from receiving contracts. By contrast, under the existing
nonprocurement common rule, a “notice of proposed debarment” does not operate to
exclude persons from receiving “nonprocurement transactions” (as that term is used
in the revised FAR Section 9.403 definition). Thus, the “proposed for debarment”
status under the FAR rule is given full reciprocal effect, but the “notice of proposed
debarment” status under the common rule is given no recognition under the FAR
Tule. To avoid this inconsistency and imbalance between the two rules, the FAR cat-
egory of “proposed for debarment” should be excluded from the actions that are
given reciprocal effect under the common rule.



17

tainly, in DOD, appreciate the need for reform, and I will, today,
be talking about what exactly it is that we are attempting to do
to realize these reforms.

In my statement I have gone through an analysis of why it is
that the Department of Defense feels that acquisition reform is so
critical. I will not reiterate that now but rather talk to you about
how we expect to proceed from here and the actions we have taken
so far.

The primary mission of the acquisition system in DOD is of
course to meet our war-fighter’s needs—we must never forget that
the customer’s needs are paramount. Our goal in DOD is to become
the world’s smartest buyer, continuously reinventing and improv-
ing the acquisition process while taking maximum advantage of
emerging technologies that enable business process reengineering.

‘We will procure best value goods and services by buying from
world class suppliers, predominantly in the commercial. market-
place. We will deliver on a timely basis, efficiently and effectively,
by reinventing the acquisition system to make DOD a world class
customer. And because we are buying on behalf of the U.S. tax-
payer, we will do so by using strategies and methods that are fair,
open and efficient, protect the public trust, and are supportive of
the Nation’s socioeconomic policies, and that foster the develop-
ment of an integrated national industrial base as opposed to a de-
fense and commercial industrial base. We expect that this indus-
trial base will be composed of globally competitive U.S. suppliers
predominantly making commercial items.

We will do so by balancing the restrictions to prevent abuse of
the process and the gains to be achieved by socioeconomic goals,
with the cost of compliance with those efforts. We believe that the
Federal Acquisition Streamlining Act gave us the tools that we
need to change many parts of the system. Of course, there are still
several things that we would like to see this year and we have
been working with the administration to bring forward those pro-
posals to you. They will be included in the administration’s pack-

age.

Let me talk to you a little bit about the difference between the
system that we have now versus what we would like to see in
terms of an acquisition process.

In the existing system, there is a reluctance to change. Rules and
practices are established to address every single contingency that
might occur, and because people are so worried about being second-
guessed by the IG, by the GAO, by Congress, and by the public,
people have a tendency to be risk averse. They will not take the
chance, even when they know it is the right thing to do, of using
innovative procedures, et cetera, because of the fear of that second-
guessing or recriminations if something goes wrong.

The system we want to see in the future is a system where we
have totally reengineered our business processes, where we have a
continuous learning environment, where change is the constant
rather than an exception, and where there are incentives for people
to innovate and to use techniques that we would use ourselves in
going out and buying goods and services. And to manage risk rath-
er than to avoid it.


61

Section 1209, Coverage of Coast Guard and NASA for Interest and Payments
on Certain Payments
Section 1210, Repeal of Superseded Provision (Truth in Negotiations)
Section 1251, Revision of Civilian Agency Provisions to Enure Uniform Treat-
ment of Cost or Pricing Data
Section 1252, Repeal of Obsolete Provision (41 U.S.C. 253e)
Effective Dates: Sections 1201 and 1251 are effective on date of enactment.

PROTESTS/DISPUTES.

Team Leader: DoD Craig Ho (army)
Team Members: Ralph Beste fano (GSA), Hugh Long (AF), Bobby Melvin (Army),
Donna Scott (Navy)
TL: Terry Squillacote and Matt Blum

Sections:
Sections 1015 and 1065, Protest File
Sections 1016 and 1066, Agency Actions on Protests
Section 1401, Protest Defined
Section 1402, Review of Protests and Effect on Contracts Pending Decision
Section 1403, Decisions on Protests
Section 1404, Regulations
Section 1432, Authority of GSA Board of Contract Appeals
Section 1433, Periods for Certain Actions
Section 1434, Dismissals of Protests
Section 1435, Award of Costs
Section 1436, Dismissal Agreements
Section 1437, Matters to be Covered in Regulations
Section 1438, Definition of Protest
Section 2301, Certification of Contract Claims
Section 2351, Contract Disputes Act Improvements
Section 2352, Extension of Alternative Dispute Resolution Authority
Section 2353, Expedited Resolution of Contract Administration Matters
Section 2354, Authority for District Courts to Obtain Advisory Opinions from

Boards of Contract Appeals in Certain Cases
Effective Dates: FAR coverage cannot be done until] GAO and GSBCA finalize
their versions of changes to their own rules.

AUDIT

Team Leader: DoD Daniel Tucciarone (DCAA)
Team Members: Timothy Brown (AF), Joel Grover (GSA), Kirk Moberley (DCAA),
Paul Mitchell (DCAA), Richard Powers (HHS)
LTL: Terry Squillacote (DoD)
Sections:
Section 2201, Consolidation and Revision of Authority to Examine Records of
Contractors
Section 2251, Authority to Examine Records of Contractors

COST PRINCIPLES

Team Leader: DoD Clarence Belton (Navy)

Team Members: William Dunn (EPA), Rix Edwards (DLA), Glenn Gulden (DLA),
Paul Schill (AF), Terry Sheppard (DOE), Dale Siman (Army), Hirschell Clyde Wray
¢
LTL: Michael Gerich (OF PP)

Sections:

Sections 2101 and 2151, Allowable Contract Costs
1 Section 2191, Travel Expenses of Government Contractors [GSA Travel Regu-
lations?
Section 2192, Revision of Cost Principle Relating to Entertainment, Gift, and
Recreation Costs for Contractor Employees
Section 7202, Prohibition on Use of Funds for Documenting Economic or Em-
loyment Impact of Certain Acquisition Programs

Effective Dates: Section 2191 is effective on date of enactment. Section 2192 re-

quires revision of FAR 31.305-14 NLT 90 days after enactment.

CONTRACT FINANCING/PAYMENT
Team Leader: DoD John Galbraith (OSD)


130

CODSIA Case 13-94.10

February 16, 1995
FAR Secretariat (VRS)

ATTN: Ms. Beverly Fayson

General Services Administration

Room 4037

18th & F Streets, N.W.

Washington, D.C. 20405

Dear MS. Fayson: The undersigned members of the Council of Defense and Space
Industry Associations are pleased to comment on the proposed rule that establishes
FAR requirements for the imposition of penalties in instances where unallowable
costs are found in final indirect cost proposals, or in the final statement of costs in-
curred or estimated to be incurred under a fixed-price incentive contract. Penalties
would apply to all contracts in excess of $500,000, except fixed-price contracts with-
ut cost incentives or any firm fixed-price contract for the purchase of commercial

items.

There appear to be a number of inconsistencies in the proposed FAR coverage.
The new subpart 31.110 reads as follows:

“Certain contracts require certification of the indirect cost rates proposed for
progress or billing purposes. If unallowable costs are included in final indirect
cost settlement proposals, penalties may be assessed. See 42.703-2 and 42-709
for administrative jures regarding the certification and penalty assess-
ment provisions and for related contract clause prescriptions.’

The above-referenced paragraph begins by referencing the need to certify in cer-
tain contracts “only” indirect cost rates proposed for “progress and billing purposes.”
The statements following that beginning sentence note that penalties may be as-
sessed if unallowable costs are included in “final indirect cost settlement proposals.”
‘There is no reference to penalties being imposed when unallowable costs are found
in rates proposed for “progress or billing purposes.” Then the last sentence in the
paragraph refers the reader to 42-703-2 and 42-709 for administrative procedures
rey ling the certification and penalty assessment provisions. (Emphasis added.)

referenced and proposed new "AR 42-709 (a) states that . . . “It covers the

assessment of penalties against contractors which include unallowable indirect costs
in (1) Final indirect cost rate proposals, or (2) The Final statement of costs incurred
or estimated to be incurred under a fixed-price incentive contract. . . .” This para-

aph makes no mention of penalties for the inclusion of the allowable indirect costs
In rates proposed for “progress or billing purposes.” Nevertheless, the proposed
clause prescribed to be used in 42.709-6, i.e., 52.202-00 (Penalties for Unallowable
Costs), states in paragraph (a) that a “proposal” means “either (1) A final indirect
cost rate pro sal submitted by the contractor after the expiration of its fiscal year
which () Relates to any nt_ made on the basis of billing rates or (ii) Will be
used in negotiating the final contract, price; . . . .” In the solicitation and contract,
clause, then, there is a nebulous reference to penalties in a proposal for “billing
rates” containing unallowable costs even though the provision (42~709) prescribing
the use of the clause makes no reference to penalties for unallowable costs in billing
rate proposals.

When the regulation writers consider correcting what appear to confusing incon-
sistencies in the proposed coverage, they should note the points that we made in
providing comments on FAR Case 94-752, Contractor Overhead Certification. Sec-
tion 2151 (h) of FASA does not include a requirement for the certification of indirect
“billing rates.” Accordingly, the final coverage in both FAR Cases should eliminate
any references to “billing rates.”

Iso, in the proposed 42.709-2(aX3) and 42.709-2(bX3), the same responsibilities
are assigned to the contracting officer and the contract auditor for “referring the
matter to the appropriate criminal investigative organization . . . , if there is evi-
dence that the contractor knowingly submitted unallowable costs.” ‘To avoid confu-
sion and duplication, it is recommended that (bX3) be amended to add the following
sentence:

“The referral actions should be coordinated with the Contracting Officer, ex-
cept in cases when the audit matters normally involve only contract audit staff,
e.g., establishment of auditor-determined rates.”

In addition, in the same aforementioned subparagraphs, the drafters of the pro-
posed regulation should refrain from using phrases such as the “appropriate crimi-
nal investigative organization.” Use of this language prejudges the intentions of the
person(s) involved in preparation of cost proposals: We suggest that the wording be
changed to the “appropriate organization,” or at a minimum, to the “appropriate in-
vestigative organization.”



114

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4

a significant role in this and all Committee proceedings addressing procurement re-
form issues.

Mrs. MALONEY. Very well.

Mr. Chairman, the Federal Government spends over $200 billion
a year on procurement, that is $800 for every American taxpayer
spent on goods and services. There are few areas of the Federal

ernment that are more important for controlling spending and
better managing our limited resources.

I thank you for holding this hearing to ensure the timely and ac-
curate implementation of this law. This law, when fully imple-
mented, will simplify and streamline the Federal procurement
process while ensuring its fairness, accountability, and integrity. It
will reduce paperwork, especially for contracts under $100,000, and
will encourage the Federal Government to buy commercial products
at the fairest prices. It will also Strengthen the protest and over-
sight process, improve the integrity of the procurement process
and standardized the procurement code by eliminating obsolete and
redundant laws. In other words, by allowing government to cut red
tape and purchase products off the shelf instead of following de-
tailed specifications, we will hopefully get rid of the so called $500
hammers.

The Federal Acquisition Streamlining Act incorporated several of
Vice President Gore’s National Performance Review recommenda-
tions, such as providing for multiyear contracts, promoting excel-
lence in vendor performance, and allowing State and local govern-
ments to use Federal supply services.

The law included a 5 percent procurement goal for women-owned
and minority-owned businesses. Procurement by women-owned and
minority-owned businesses has been unacceptably low for far too
long, and the inclusion of this goal was a clear indication of Federal
support for equal opportunity for women and minority business
owners.

I would like to commend the chairman for all of his hard work
on this act and for his continuing bipartisan approach on the issue
of procurement reform. Without your determination and hard work,
enactment of the Federal Acquisition Streamlining Act would not
have been possible. Hopefully further improvements to the Federal
Government's procurement system can be achieved in the same bi-
partisan spirit.

Thank you, Mr. Chairman.

Mr. CLINGER. Thank you very much, Mrs. Maloney, and I believe
the gentlelady from Maryland, Mrs. Morella, has a statement.

Mrs. MORELLA. Thank you, Mr. Chairman.

Very briefly, I want to also thank you for calling today’s hearing
to review the implementation of the Federal Acquisition Streamlin-
ing Act of 1994. Passage of FASA last year was the culmination of
many years of work by Congress, the executive branch, and indus-
try. When it passed, I held a procurement conference in my dis-
trict, in Montgomery County, MD. When I mentioned some of the
highlights of this legislation, there was a resounding applause. Peo-
ple were so looking forward to having us come to grips with this
problem.

I was not on the committee last year when you held the hear-
ings, but, again, I commend the committee for passing it and look


93

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38

you. They are not all in the administration’s package, but as per
your request we will provide that list to you.

Mr. Horn, Good.

[The information referred to follows:]

Many of the provisions that were left on the cutting room floor are represented
in the Administration’s new bill including the revision to the bid protest system.
The NPR recommendations that were not addressed in either FASA or the new bill
are:

PROCO7.1: Repeal statutory limitations on subcontracting that requires con-
tractor to perform significant portion of the work under a federal contract.

PROC12.2: Allow federal agencies and state/local governments to enter into
cooperative agreements for goods and services.

PROC20.1: Amend the Resource Conservation and Recovery Act to facilitate
buying recovered materials.

Mr. Horn. Let me just now concentrate for a little while on the
electronic commerce portion of your testimony, Mr. Kelman.

In terms of sending out requests for bids, receiving quotes, so
forth, are you talking strictly within the Federal establishment or
are you also talking within the private sector in terms of this link-
age?

Mr. KELMAN. We send out bids to the private sector. It is the pri-
vate sector, obviously, that is selling to us.

Mr. Horn. Right.

Mr. KELMAN. We send out requests for quotes to any small busi-
ness that signs up to participate in any one of about, oh, 20, 30
large number of value-added things, just to get a service where
they can learn about these bids. And then just using a PC or a
modem they can then bid on the business.

I think at some point, as the Internet develops and as particu-
larly security on the Internet develops, this system may migrate
into using the Internet as a vehicle. But, no, the bids go out, or the
request for quotes go out to the private sector so they can bid on
them.

Mr. Horn. You have labeled the group I am concerned about, the
small business. To what degree are they electronically wired? You
imply there are—service organizations are developing which small
business can feed into and would share those with them, but the
average mom and pop store that is not electronically up to speed
is not going to have access to this system; is that not correct?

Mr. KELMAN. Fair question. What a business would need is one
PC and a modem and, of course, you know today most PC’s or
many PC’s you buy come with a modem. That is all you need to
hook into the system. From then on, it is like signing on to Prodigy
or America Online, one of the services. Those are value-added serv-
ices. Sign up for one of those services and this will hook you into
your PC and you will get PC access.

Mr. Horn. Are you working with groups such as the National
Federation of Independent Businesses to get the word out about
this system? Because they have thousands of members, and I
would think that would be a helpful group for you to work with.

Mr. KELMAN. Both the SBA, Small Business Administration, and
the Department of Defense are working not only with NFIB, but
will be working with other trade associations to get the word out
in any way we can.


125

dited G&A rate following the establishment of audited rates for both of the two pre-
vious years fiscal years of 25%. The higher audited rate (35%) may be due exclu-
sively to a declining contract workload rather than allowable indirect cost increases
and the Contracting Officer may be inclined to offer a lower rate for price redeter-
mination purposes because he/she believed that the contractor had not exerted
enough effort to reduce indirect costs commensurate with base declines. If the pro-
posed revision is incorporated into subparagraph (cX2), the Contracting Officer will

ave no choice but to use the higher audit determined rate. Since the current FAR
coverage is consistent with FASA in that it provides Contracting Officers with flexi-
bility in the use of final indirect cost rates in negotiating final prices under flexibly
priced contracts, we recommend no change.

If you should wish to discuss any of the above comments and recommendations,
lease contact Mr. Richard Powers, Director of Financial Administration, Aerospace
Industries Association, at (202) 371-8526.

Sincerely,
N Fuqua,
President, Aerospace Industries Association.
LAWRENCE F. SKIBBIE,
President, American Defense Preparedness Association.
JOHN F. MANCINI,
Chief Operating Officer, American Electronics Association.
Gary D. ENGEBRETSON,
President, Contract Services Association.
Dan C. HEINEMEIER,
Vice President, Electronic Industries Association.
KENNETH MCLENNAN,
President, Manufacturers Alliance for Productivity and Innovation.
James R. Hoce,
President, National Security Industrial Association.
Bent M. CONCKLIN,
President, Professional Services Council.
S.0. NuNN,
Acting President, Shipbuilders Council of America.

CODSIA Case 13-94.7

February 9, 1995
Mr. Clarence Belton
FAR Secretariat (VRS)
Room 4037
General Services Administration
18th & F Streets, N. W.
Washington, D.C. 20405

DEAR MR. BELTON: We appreciate the opportunity to respond to the proposed revi-
sions to FAR Subpart 31.205—46, Travel Costs (FAR Case 94~753).

We strongly disagree with the proposed changes because they are inconsistent
with the intent of Congress in repealing Section 24 of the Office of Federal Procure-
ment Policy Act (41 U.S.C. 420).

As noted in the Background Section of the Federal Register issuance of the pro-
posed revisions, the intent of Congress in enacting the Federal Acquisition Stream-

lining Act of 1994 (FASA) was to streamline the acquisition process and minimize
burdensome Government-unique requirements. The Streamlining Act repealed the
above-referenced provision in the OFPP statute that essentially established for Fed-
eral contractors the per diem rates in the Federal Travel Regulations (FTR) or the
Joint Travel Regulations (JTR) as the basis for determining the reasonableness of
a contractor employee's cost of travel (hotel and meals).

The Section 800 Panel Report advised Congress that limiting reimbursement of
contractors’ travel to rates applicable to travel of Federal employees was unreason-
able and unrealistic. Hotel rates available to Federal employees are rarely available
to contractor employees and the same is true of Federal employee statelcity tax ex-
emption certificates that most hotels honor. The result is significantly higher lodg-
ing costs for contractor employees, with taxes alone adding as much as ten percent
to the hotel charges.




41

and disadvantaged businesses. In some cases there are price dif-
ferentials that are applied on those procurements. We are talking
buy American restrictions; and things like cargo preference require-
ments. There are a number of things which do not necessarily af-
fect price but which would affect the costs of a supplier—we would
not directly see it in the price as an additional add-on, but we
would see it in the ultimate cost of the product or the price to us
if a company had to comply with those rules.

Mr. Horn. Now, are you going to make recommendations in any
of these areas as to waivers that the law ought to grant you or
what?

Mr. KELMAN. In some cases we will, in some cases we will not.
It is a—there is a balancing, as Mrs. Preston indicated in her testi-
mony, between those objectives that certainly in the past Congress
has endorsed and procurement and procurement reform issues. As
I indicated to Representative Maloney in responding to her ques-
tion, we will provide the committee a list of all such provisions for
your consideration.

Mr. Horn. Good. Well, I thank you both. You are both excellent
witnesses and we appreciate the work you are doing to implement
Mr. Clinger’s and Mr. Conyers’ very successful bipartisan legisla-
tion. Thank you.

Mr. CLINGER. Gentleman’s time has expired. The gentlelady from
Florida, Mrs. Thurman.

Mrs. THURMAN. Thank you, Mr. Chairman. I, too, want to let
both our witnesses know that I am guite impressed. Only being
here in my second term, this is probably one of the more enjoyable
hearings we have had, to know that things are working a little bit
better than we were, and particularly I think it was good to hear
about real people out there on the real line doing some really good
things.

Let me ask some information, though. In some of the comments
today, we have been talking about how small businesses get this
information. How are your agencies in your different States getting
this information and what are they getting built in to make sure
they can, do the same things that we might think of here inside the

eltway?

Mr. KELMaN. That, again, ma’am, as I indicated in my response
to Congressman Horn, is a very, very big challenge. As Mrs. Pres-
ton indicated in her testimony, the Defense Department will be un-
dertaking a very aggressive training program. We are going to do
everything we can. I am not sure where you are from exactly in
Florida. Last Friday I was down in Orlando and visited Patrick Air
Force Base and the Kennedy Space Center and we were talking
with contracting folks there and it was interesting because it was
sort of on the one hand/other hand story. On the one hand, there
was certainly a lot of knowledge about the ideas of reinventing pro-
curement, a real compliment to streamlining, a number of exam-
ples they pointed out to me of ways they have cut back on red tape,
saved on administrative expenses and so forth and they are very
proud of a lot of the things that they are doing, particularly in the
area of commercial launch services.

On the other hand, they were not that familiar with a lot of the
specific details of FASA, of what is going in the process, of what