69–010 

Calendar No. 308 

114TH CONGRESS REPORT " ! SENATE 2d Session 114–416 

SMALL CONTRACTORS IMPROVE COMPETITION ACT OF 

2015 

DECEMBER 20, 2016.—Ordered to be printed 

Filed, under authority of the order of the Senate of December 10 (legislative day, 

December 9), 2016 

Mr. VITTER, from the Committee on Small Business and 

Entrepreneurship, submitted the following 

R E P O R T 

[To accompany S. 2139] 

The Committee on Small Business and Entrepreneurship, to 

which was referred the bill (S. 2139) to amend the Small Business 

Act to prohibit the use of reverse auctions for the procurement of 

covered contracts, having considered the same, reports favorably 

thereon with amendments and recommends that the bill (as 

amended) do pass. 

I. INTRODUCTION

The Act (S. 2139) was introduced by Chairman David Vitter and 

Ranking Member Jeanne Shaheen on October 6, 2015. 

The Act amends the Small Business Act to prohibit the use of reverse auctions for the procurement of covered contracts. 

Senator Cardin offered an amendment to the bill to provide for 

an increase from 70 percent to 90 percent to the Small Business 

Administration’s (SBA) guarantee to sureties in the Preferred Program which enables sureties to issue, monitor, and service bonds 

without prior approval by the SBA. 

II. HISTORY (PURPOSE & NEED FOR LEGISLATION)

A reverse auction is an auction between a group of offerors who 

compete against each other by submitting offers for requirement 

when those offerors have the ability to submit revised offers with 

lower prices throughout the course of the auction. Reverse auctions 

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first gained popularity in the late 1990s, as Internet-based technologies allowed potential vendors to underbid each other in real 

time. Since then, they have grown to account for nearly 1 percent 

of federal prime contract dollars awarded each fiscal year. When 

used properly, reverse auctions are an important tool that may 

benefit taxpayers and contracting agencies. However, when used 

inappropriately, reverse auctions may place taxpayers, warfighters 

and small businesses at risk. 

While the Office of Federal Procurement Policy (OFPP) has been 

promising guidance on the use of reverse auction procurements 

since 2000, to date no guidance or regulations have been forthcoming, meaning that over $828 million in procurements are 

awarded using a methodology never mentioned in the Federal Acquisition Regulation or in Statute. Instead, OFPP and the Office of 

Management and Budget have encouraged the use of reverse auctions without offering guidance on how to best use this methodology. 

III. HEARINGS & ROUNDTABLES

The House Committee on Small Business has held four hearings 

documenting abuses of reverse auctions, including a joint hearing 

with the House Committee on Veterans Affairs. These hearings 

documented that the misuse of reverse auctions put agency requirements at risk, denied small businesses the opportunity to fairly compete, and wasted taxpayer dollars. The GAO report titled 

‘‘Reverse Auctions: Guidance is Needed to Maximize Competition 

and Achieve Cost Saving’’ published December 9, 2013 confirmed 

these findings. 

IV. DESCRIPTION OF BILL

This bill creates a new section of the Small Business Act to limit 

the use of reverse auctions when using small business contracting 

authorities. 

Specifically, the provision requires training of contracting officers, and prohibits the use of reverse auctions for sole source contracts or contracts with inadequate competition. It also states that 

when reverse auctions are used, technical acceptability of offers can 

be rated only either technically acceptable or unacceptable. This 

provision requires that the government communicate honestly with 

bidders regarding the ranking of offers, as some reverse auctions 

have misled offerors regarding the status of bids. The bill also 

makes it clear that when using a third-party reverse auction service, the government must still follow all of the normal procurement 

rules, as there are cases where a third party provider is excluding 

companies from competing or using third party data to inform responsibility determinations. 

Finally, the provision states that reverse auctions may only be 

used for contracts other than contracts for construction, goods used 

to protect people from bodily harm, and technical goods and services. 

The Cardin amendment provides for an increase from 70 percent 

to 90 percent to the SBA’s guarantee to sureties in the Preferred 

Program which enables sureties to issue, monitor, and service 

bonds without prior approval by the SBA. 

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V. COMMITTEE VOTE

In compliance with rule XXVI(7)(b) of the Standing Rules of the 

Senate, the following vote was recorded on October 7, 2015. 

A motion to adopt the Small Contractors Improve Competition 

Act, a bill to amend the Small Business Act to prohibit the use of 

reverse auctions for the procurement of covered contracts as 

amended by the Cardin amendment, was approved unanimously by 

voice vote with the following Senators present: Vitter, Scott, Fischer, Gardner, Ernst, Enzi, Shaheen, Cantwell, Cardin, Booker, 

Hirono, and Peters. 

VI. COST ESTIMATE

In compliance with rule XXVI(11)(a)(1) of the Standing Rules of 

the Senate, the Committee estimates the cost of the legislation will 

be equal to the amounts discussed in the following letter from the 

Congressional Budget Office: 

FEBRUARY 16, 2016. 

S. 2139 would change the collateral requirements for surety 

bonds on federal construction projects and allow the Small Business Administration (SBA) to guarantee a larger portion of certain 

surety bonds. Surety bonds provide financial guarantees that contracts will be completed according to mutual, agreed terms and 

that the bond will cover any loss if a contract is not completed. In 

addition, S. 2139 would prohibit the federal government from using 

reverse auctions to obtain design and construction services. In a reverse auction, a buyer seeking a good or service solicits bids, multiple sellers offer bids, and the seller with the lowest bid wins the 

competition. 

Under current law, contractors working on federal construction 

projects are required to insure their performance using surety 

bonds. Based on information from the General Service Administration (GSA), private contractors, and bond providers, CBO expects 

that provisions of S. 2139 that would change some collateral requirements would not affect the cost of procuring construction services. CBO also estimates that provisions of the bill that would raise 

the portion of certain surety bonds that the SBA can guarantee 

from 70 percent to 90 percent would not have a significant effect 

on discretionary spending because we expect the agency would increase fees to cover any additional guarantee costs. 

CBO also reviewed information on the use of reverse auctions in 

government procurement contracts by the Army Corps of Engineers, and GSA. Those agencies have found that using this type of 

reverse auction in complex procurements does not consistently result in lower procurement cost than would result from other methods such as sealed bids or negotiated procurements. Those agencies 

generally do not use reverse auctions to obtain such services. 

A memorandum from the Office of Management and Budget 

dated June 1, 2015, reviews the benefits of reverse auctions and 

builds on the guidance from the Office of Federal Procurement Policy to advise agencies and contracting officers on the use of reverse 

auctions. Consequently, CBO estimates that implementing S. 2139 

would not result in agencies making significant changes in their 

typical contracting process and thus would not have a significant 

effect on the federal budget. 

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Enacting the bill could affect direct spending by agencies not 

funded through annual appropriations; therefore, pay-as-you-go 

procedures apply. CBO estimates, however, that any net increase 

in spending by those agencies would be negligible. Enacting S. 

2139 would not affect revenues. 

CBO estimates that enacting S. 2139 would not increase direct 

spending or on-budget deficits by more than $5 billion in any of the 

four consecutive 10-year periods beginning in 2027. S. 2139 contains no intergovernmental or private-sector mandates as defined 

in the Unfunded Mandates Reform Act and would impose no costs 

on state, local, or tribal governments. 

The CBO staff contact for this estimate is Matthew Pickford. 

This estimate was approved by Theresa A. Gullo, Assistant Director for Budget Analysis. 

VII. EVALUATION OF REGULATORY IMPACT

In compliance with rule XXVI(11)(b) of the Standing Rules of the 

Senate, it is the opinion of the Committee that no significant additional regulatory impact will be incurred in carrying out the provisions of this legislation. There will be no additional impact on the 

personal privacy of companies or individuals who utilize the services provided. 

VIII. SECTION-BY-SECTION ANALYSIS

Section 1. Short title 

This bill may be call the Small Contractors Improve Competition 

Act of 2015. 

Section 2. Limitation on reverse auctions 

Section 2 provides a Sense of Congress and adds a section to the 

Small Business Act (the Act). 

Section 2(a)—Sense of Congress 

The Sense of Congress provides that reverse auctions for commercially available commodities are a useful tool in federal procurement and, when used appropriately, may increase competition, 

save money and increase opportunities for small business participation. 

Section 2(b)—Limitations on reverse auctions 

Section 2(b) creates a new section 47 of the Act which addresses 

the use of reverse auctions that conducted using the set aside or 

sole source authorities provided by the Act. 

Section 47(a)—Definitions 

The new section 47(a) provides definitions: 

Paragraph (1) defines the term ‘‘contracting officer’’ to have the 

meaning typically provided in contracting, as found at 41 U.S.C. 

§ 2101. 

Paragraph (2) defines the term ‘‘covered contract’’ to mean one of 

three categories of contracts. The first is a contract for design and 

construction services, which is further defined in paragraph (3) to 

include a variety of design and construction activities derived from 

the Brooks Act, the Federal Property and Administrative Services 

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Act, and the Federal Acquisition Regulation. The second category 

of covered contracts is contracts for protective equipment, such as 

body armor, since price is not the only factor in the award of these 

goods. The third category of covered contracts are contracts for 

goods and services when the contract is awarded using a best value 

method of award, rather than contracts awarded simply based 

upon price. This recognizes that a reverse auction is well suited to 

obtaining the lowest price, but is not designed to help a contracting 

officer assess the technical advantages of one product versus another. 

Paragraph (3) defines the term ‘‘design and construction services’’ 

to include a variety of design and construction activities derived 

from the Brooks Act, the Federal Property and Administrative 

Services Act, and the Federal Acquisition Regulation. 

Paragraph (4) defines the term ‘‘responsible source’’ to have the 

meaning typically provided in contracting, as found in 41 U.S.C. 

§ 113. 

Paragraph (5) defines the term ‘‘reverse auction’’ for purposes of 

federal procurement. In a normal auction, multiple potential buyers bid up the price of an item by competing against each other to 

obtain the item. In a reverse auction, multiple potential sellers bid 

down the price of a good or service by competing against each other 

to sell the good or service. Thus, the term is defined as an auction 

between a group of offerors who compete for a contract, task order 

or delivery order by submitting multiple, revised offers each with 

a lower price. 

Section 47(b)—Prohibition on using reverse auctions 

The new Section 47(b) provides that in the case of a covered contract, the contracting officer may not use a reverse auction if the 

award is made pursuant to one of six enumerated sections of the 

Act. These are: § 8(a) (socially and economically disadvantaged 

business program); § 8(m) (women-owned small businesses and economically disadvantaged women-owned small business program); 

§ 15(a) (small business set asides); § 15(j) (small business reserve); 

§ 31 (HUBZone program); or § 36 (service-disabled veteran-owned 

small business program). 

Section 47(c)—Limitations on using reverse auctions 

In cases where reverse auctions are not prohibited by section 

47(b) but use § 8(a), § 8(m), § 15(a), § 15(j), § 31, or § 36 to make the 

award, the new section 47(c) institutes six limitations. These are as 

follows: 

Paragraph (1) requires that the decision to use a reverse auction 

and determine the evaluation criteria for award, eligibility of vendors, and the selection of an awardee must all be made by a contracting officer, not a program officer or a contractor. 

Paragraph (2) requires that a contracting officer using reverse 

auctions must have been trained on the use of reverse auctions. 

The required training should be similar to that already provided by 

the Department of Defense in response to § 824 of the Carl Levin 

and Howard P. ‘Buck’ McKeon National Defense Authorization Act 

for Fiscal Year 2015 (Public Law 113–291; 127 Stat. 3436). 

Paragraph (3) requires that federal agencies not award contracts 

using reverse auctions if only one offer is received or if offerors 

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aren’t given the ability to revise their bids. GAO found that in over 

one third of reverse auctions, there is only one bidder or one round 

of bids, which effectively negates the benefits of a reverse auction. 

(GAO–14–108 Reverse Auctions at 22). 

Paragraph (4) requires that agencies using reverse auctions determine that the item or service is technically acceptable, but not 

further differentiate between the technical capabilities of offerors. 

In cases where a contracting officer needs to differentiate technical 

capabilities of offerors, other procurement methods allow this to 

happen more transparently. 

Paragraph (5) requires that agencies may not mislead contractors 

as to whether they have the lowest offer. As companies cannot mislead contractors on any element of a bid, the government should 

also not mislead offerors. 

Paragraph (6) limits the use of third-party reverse auction providers to functions that are not inherently governmental. This 

means that the government may not use third-party past performance or financial responsibility information when making an award 

unless the information is collected and shared in accordance with 

current statutes, such as § 8(b) of the Act or 41 U.S.C. § 1126. It 

also means that disputes between offerors and third-party reverse 

auction providers must be settled privately, and that the reverse 

auction provider may not use access to government contracts as leverage. The provisions in paragraph (6) have been the subject of 

numerous bid protests, which have held that the government cannot contract around federal procurement laws. 

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