STREAMLINING

Co DEFENSE ACQUISITION LAWS

EXECUTIVE SUMMARY:

N - REPORT OF THE DOD ACQUISITION LAW ADVISORY PANEL

I!

0L-T
Published by the Defense Systems Management College Press for the

Department of Defense Acquisition Law Advisory Panel.
STREAMLINING

DEFENSE

ACQUISITION

LAWS

EXECUTIVE

SUMMARY:

REPORT OF THE

DOD ACQUISITION LAW

ADVISORY PANEL

MARCH 1993

9) 93-12320
For %ale by the U.S. Government Printing Office

Superintendetnt cflDocuments. Mail Stop: SSOP. Washington. DC 2("02-'0128

ISBN 0-16-041750-3
TABLE OF CONTENTS

1. INTRODUCTION

Background .............................................................................................. I

Strategic Changes ....................................................................................... 2

Goals and Objectives.................................................................................... 4

Approaches ............................................................................................... 6

An Overview.............................................................................................. 6

II. COMMERCIAL ITEMS....................................................................... I.......... 9

Background.............................................................................................. 10

Accounting Systems................................................................................. 11

Specifications and Standards ...................................................................... 11

Rights in Technical Data ............................................................................ 12

Socioeconomic Legislation ......................................................................... 12

The DOD Acquisition Challenge in a Time of Build-Down..................................... 12

Panel Recommendations .............................................................................. 14

Definition of Commercial Items: 10 U.S.C. § 2302 ............................................. 14

Single Definition vs. Multiple Definitions ....................................................... 15

Property vs. Services ................................................................................ 15

Ancillary Services.................................................................................... 16

Modified Products................................................................................... 16

New Products; Combinations of Products; Products Sold in Small Quantities

to the General Public............................................................................... 16

Items Produced by "Dual-Use" Manufacturers................................................. 17

Existing Sources; Nondevelopmental Items .................................................... 17

Policy; 10 U.S.C. § 2301.............................................................................. 17

Procurement Planning; 10 U.S.C. § 2325 ......................................................... 18

Regulations ......................................................................................... 18

Precedence; Exemptions ............................................................................ 19

Pricing of Commercial Item Contracts; Audit; Remedies..................................... 20

III. SIMPLIFIED ACQUISITION THRESHOLD and SOCIOECONOMIC LAWS .............. 23

Simplified Acquisition Threshold ........................... ....................................... 23

Socioeconomic Laws ................................................................................... 27

A Consolidated Socioeconomic Chapter in Title 10............................................ 27

Labor and Equal Opportunity ..................................................................... 28

Small and Disadvantaged Business............................................................... 29

IV. CONTRACT MANAGEMENT ....................................................................... 31

Contract Formation .................................................................................... 31

Congressiona', 'Defense Procurement Policy .................................................... 32

Definitions.................................................... ..............................-. 32

Competitive Statu'W ................................................................................ 32

Truth in Negotiations Act.......................................................................... 35

iii
Research and Developm ent ................................................................................................ 37

Other Related Statutes .......................................................................................................... 37

Procurem ent Protests ..................................................................................................................... 38

GAO Protests .............................................................................................................................. 38

GSBCA Protests ......................................................................................................................... 38

Judicial Protests .......................................................................................................................... 39

Panel Recom m endations ..................................................................................................... 40

Disappointed Offerors Should Have Reasonable Access to the Reasons

for Adverse Agency Action ............................................................................................... 40

Contracting Officers, Like Other Government Officials, Are Entitled to

a Presum ption of Regularity for Their Actions ............................................................ 41

Protests Should Be Resolved in a Fair, Expeditious and Efficient Manner .................. 41

Overlapping, Duplicative, and Conflicting Protest Procedures Should Be Elimainated. .42

Single Protest Forum ............................................................................................................ 43

Contract Adm inistration .......................................................................................................... 44

Contract Paym ent ........................................................................................................................ 44

Cost Principles ............................................................................................................................. 44

Contract Audit and Access to Records .............................................................................. 45

Cost Accounting Standards .................................................................................................. 45

Administration of Contract Provisions Relating to Price, Delivery,

and Product Quality ............................................................................................................ 45

Claim s and Disputes ............................................................................................................... 46

Extraordinary Contractual Relief ......................................................................................... 46

V. DEFENSE TECHNOLOGY and INDUSTRIAL BASE .......................................................... 49

Exports and Internatioral Cooperation ................................................................................. 49

DOD Com m ercial and Industrial Activities .......................................................................... 51

VI. INTELLECTUAL PROPERTY and STANDARDS OF CONDUCT .................................... 53

Intellectual Property ....................................................................................................................... 53

The Panel's Approach to the Technical Data Problem ..................................................... 54

Recom m endations on Technical Data ................................................................................. 55

Technology Transfer ............................................................................................................... 56

Recommendations on the Competitiveness of U.S. Companies .................................... 57

Recommendations on Government Use ot Private Patents, Copyrights,

and Trade Secrets .............................................................................................................. 57

Standards of Conduct ..................................................................................................................... 58

False Claim s and Qui Tam .................................................................................................. 58

Contract Disputes W hen Fraud Is Alleged ...................................................................... 59

Ethics Laws .................................................................................................................................. 59

Other Integrity Issues ............................................................................................................ 60

VII. OTHER STATUTES ..................................................................................................................... 63

M ajor Systems Statutes ............................................................................................................. 63

Testing Statutes ............................................................................................................................... 64

iv
Service Specific Laws ..........................................................

65

Fiscal Statutes ...............................................................

65

Fuel and Energy-Related Laws ....................................................

66

The Brooks Act and the Warner Amendment ..........................................

66

VIII. CONCLUSIONS .............................................................67

A PPEN D IX : ....................................................................

69

Recommendations for Amendment or Repeal of Statutory Provisions ............................

69

Commercial Items: Statutes Recommended for Exemption ...................................

81

Commercial Items: Statutes Recommended for Amendment or Repeal ........................... 84

DOD Prime Contract Actions by Size: FY 1991 ...........................................

87

Statutes to be Retained but Not to be Implemented by Contract Clause .......................... 88

Statutory Exemption for Contracts Under $100,000 ........................................

89

D)TIC Q;Lw

Aooession For *

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Distribution/

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v .
DEPARTMENT OF DEFENSE

DEFENSE SYSTEMS MANAGEMENT COLLEGE

OFFICE OF THE COMMANDANT

FORT BELVOIR, VIRGINIA 22060- 5426

This document summarizes the Report of the Department of Defense Acquisition Law Advisory Panel which

was transmitted onJanuary 14,1993, to the congressional defense committees, as directed by§ 800, Public Law

101-510. Entitled Streamlining Defense Acquisition Laws, the Report consisted of over 1,800 pages, reflecting the

results of more than 16 months of intense effort by the Panel to fulfill the requirements of its charter. This

monumental study presented the Panel's recommendations on over 600 statutes - each affecting the defense

acquisition process in some way - that were selected for review. The Panel members, while proud of the

effort which produced this Report, also recognized the need for an additional publication to highlight their

principal findings and recommendations for the diverse and often divergent communities who are important

stakeholders in defense and other government procurement matters.

This executive summary is intended to meet that need. It reflects the Panel's fundamental goals and

objectives, both in conducting the study and in presenting their recommendations for specific and farreaching changes in the acquisition laws. It also underlines the Panel's consistent concern in addressing

defense acquisition as a coherent system. Most importantly, however, the executive summary has been

written in a way which highlights the Panel's Report but is in no way intended to replace it. It is important

that the reader take advantage of the extensive references to the Report included in the summary, both for

the definitive statements of the Panel's recommendations and as the basis for considering actions in response

to tho-e recommendations. It is also important to point out that neither the Report nor this summary represent

official positions of the U.S. government or the Department of Defense.

Let me emphasize to every reader my personal pride in the extremely dedicated work of our Panel members,

as well as the joint military and civilian staff assembled at the Defense Systems Management College, who

supported them with great professionalism and dedication. I also want to express on behalf of the Panel our

particular thanks to Lieutenant Colonc! Kenneth Allard, U.S. Army, for his efforts in preparing and editing

this summary. We are also grateful for the assistance provided to those efforts by the task force and DSMC

staff members listed on page ix.

While the Panel's recommendations will certainly provoke spirited debate as well as thoughtful consideration, there should be no doubt that all who have been associated with this effort have done their utmost to

provide the Congress with their best judgments on these difficult and complex issues. To quote from the

Introduction to our Report, we hope that those recommendations will contribute to the development of a

more efficient procurement system, "one that is capable of meeting any future challenge to American national

security."

W. L. Vincent

RADM, USN

Chairman, DOD Advisory Panel

on Streamlining and

Codifying Acquisition Law

vii
PANEL MEMBERS

Pete Bryan

Director, Contract Policy & Administration

Office of the Secretary of Defense

Allan Burman

Administrator for Federal Procurement Policy

Anthony Gamboa

Deputy General Counsel

Department of the Army

Jack Harding

Vice President, Contracts, Raytheon Corporation

LeRoy Haugh

Vice President, Procurement & Finance

Aerospace Industries Association

Thomas J. Madden

Partner, Va'nable, Baetjer, Howard and Civiletti

Ralph Nash, Jr.

Professor of Law

George Washington University

F. Whitten Peters

Partner, Williams and Connolly

Gary Quigley

Deputy General Counsel

Defense Logistics Agency

Major General John D. Slinkard, USAF

Deputy Chief of Staff for Contracting

Headquarters, Air Force Materiel Command

Rear Admiral W. L. Vincent, USN

Commandant

Defense Systems Management College

Robert D. Wallick

Partner, Steptoe & Johnson

Harvey Wilcox

Deputy General Counsel

Department of the Navy

ix
TASKEORCE

Executive Secretary

Donald M. Freedman (DSMC)

Task Force Directors

*C. Kenneth Allard, LTC(P), USA (DSMC) *Thomas J. Dolan, Jr. (ONR) *Susan P. McNeil, Col, USAF

Task Force Members

JoAnne L. Barreca (DLA)

*Benjamin B. C. Capshaw, LCDR, USNR (DSMC)

James Cohen, Lt Col, USAF

*Stuart A. Hazlett (SAF-AQC)

Barry Kline (AMC)

C. Jean Kopala, Maj, USAF (DSMC)

William E. Mounts (Contract Counsel)

Karen O'Brien, CPT, USA (DSMC)

Michael J. Renner, Lt Col, USAF

Michael Rose, Lt Col, USAFR

Diane M. Sidebottom (DLA)

James Wayne Skinner (NAVSUP)

Jack L. Soesbe, MAJ, USA (DSMC)

Theresa M. Squillacote (DSMC)

Jerry Stahl (AMC)

Donald J. Suda (DLA)

*Bruce N. Warner (DSMC)

Administrative Staff

Wilma J. Frey (DSMC)

Laura J. Neal (DSMC)

Linda L. Snellings (DSMC)

Megan A. Weaver (DSMC)

'Denotes Task Force members who assisted in the production of the Executive Summary. The Panel

also recognizes the following DSMC staff members for their contributions to this effort: Robert W.

Ball, Greg T. Caruth, and Francis N. Scavotto.

xi
I

INTRODUCTION

Background financial and ethical integrity" of defense procurement programs; and "protect the best interHundreds of individual laws create the under- ests of the Department of Defense." Finally, the

pinningsofthedefenseacquisitionsystem. Large panel was asked to "prepare a proposed code of

and small, significant and trivial, new and old, relevant acquisition laws." 2

these laws emanate from the fundamental Constitutional responsibility of the Congress "To Maintaining a fair, efficient, and open system of

raise and support Armies (and) .... To provide defense procurement has been a fundamental

and maintain a Navy." With the passage of the public policy since the earliest days of the ReNationalDefense Authorization Act for FY 1991, public, as well as a specific congressional goal

Congress declared that the time had come to since DOD was created by the National Security

start the process of rationalizing, codifying, and Act of 1947. In the decades that followed, six

streamlining this body of laws. Section 800 of major executive branch commissions separately

that Act directed the official responsible for ad- examined the perennial problem of defense

ministering DOD acquisition law and regula- management. One of them, the President's Blue

tion - the Under Secretary of Defense for Ac- Ribbon Commission on Defense Management

quisition - to appoint an advisory panel of headed by David Packard, provided a compregovernment and private-sector experts. Under hensive analysis of the major problem areas

the leadership of the Commandant of the De- affecting defense management. It also made a

fense Systems Management College,1 this panel specific recommendation to recodify the federal

was to review all laws affecting DOD procure- laws governing procurement:

ment, "with a view toward streamlining the

defense acquisition process," and to issue a re- ... the legal regime for defense acquisition

port for transmission by the Secretary of Defense is today impossibly cumbersome.... At

to the Congress in January 1993. The report was operating levels within DOD, it is now

to be a practical plan of action for moving from virtually impossible to assimilate new legpresent law to an understandable code, and was islative or regulatory refinements

to contain specific recommendations to Con- promptly or effectively. For these reasons,

gress to: eliminate any laws "unnecessary for we recommend that Congress work with

the establishment of buyer and seller relation- the Administration to recodify Federal

ships in procurement;" ensure the "continuing laws governing procurement into a single,

1 The Defense Systems Management College is a DOD educational institution which has, since 1971, trained prgram

managers and program executives from the uniformed services, defense industry, and other branches of the federal

government.

2 Pub. L. No. 101-510, § 800,104 Stat. 1587. See H.R. CONF. REP. NO. 923,101st Cong., 2d Sess. 107 (1990) to accompany

H.R. 4739 (National Defense Authorization Act for FY 1991).
consistent, and greatly simplified procure- Strategic Changes

ment statute.3

The e uthorization of the Panel took place in the

Although the Packard Commission's recomman- midst of fundamental changes in the internadations attracted wide public attention, they tional Fecurity environment, highlighted by the

failed to prompt the sweeping legislative changes unification of Germany, the transformation of

that many had thought T. 3sible. A 1988 con- Eastern Europe, and the breakup of the Soviet

gressL, nal report noted that the Packard Union. These strategic changes had profound

Commission's status as the sixth major study of implications foi the American defense esfabdefense acquisition over four decades meant lishment. Not only could U.S. military forces be

that it was merely the latest to address continu- reduced, but sorre of the money spent on deing problem areas in defense procurement. As fense could be redirected toward other national

House Armed Services Committee Chairman priorities. Those changes in turn had equally

Les Aspin stated in his foreword to the report, profound implications for the Panel. The dra-

"Perhaps the next executive commission on matic reductions in defense spending were sufacquisition should be created, not to propose ficient by themselves to create a presumption

the reforms, but to implement them."4 In June that the acquisition system of the future would

1989, Secretary of Defense Dick Cheney set forth demand better management by fewer people of

just such a plan in his Defense Management far fewer tax dollars. "Better" in this case was

Review (DMR), an ambitious effort not only to far t it simler, e i th r i le ,

implement the recommendations of the Pack- synonymous with the simpler, more flexible,

ard Commission, but to provide a framework and more responsive procedures needed to

for continuing improvements in Pentagon ac- match the sweeping personnel reductions and

quisition practices. 5 This executive-legislative management realignments that had become the

branch partnership was implicitly recognized by order of the day. In its review, therefore, the

the Senate in approving the legislation which Panel had a clear obligation to seek out legislaauthorized the formation of the "Advisory Panel tive reforms which would enable both governon Streamlining and Codification of the Acquisi- ment and industry to operate more efficiently

tion Laws" (hereafter, the Panel). with reduced budgets.

The Packard Commission and Secretary Other major influences upon the Panel's delibCheney's Defense Management Review erations were the changes occurring in the derepresent the most recent efforts to promote fense industrial base. A study by the Air Force

efficiency inGovernment procurement prac- Association noted that the industrial basewhich

tices. The purpose of this Advisory Panel suppored Operation Desert Storm

will not be to plow the same ground as

previous studies; rather, it will be to take the ... no longer exists. Even as the nation

general principles set forth in these studies watched the war on television, the compaand prepare a pragmatic, workable set of nies that produced che impressive weaprecommended changes to the acquisition ons were releasing workers, closing plants,

laws.6 and searching for nondefense business. 7

3 A Quest for Excellence: Final Report by the President's Commission on Defense Management 55 (June 198,S).

4 Defense Policy Panel and Acquisition Policy Panel of the HR. Comm. on Armed Services, 100th Cong., 2d Sess., Defense

Acquisition: Major U.S. Commission Reports (1949-1988) (Comm. Print 1988), vii.

5 U.S. Dep't of Defense, Defense Management Report to the President by Secretary of Defense Dick Cheney (1989).

6 S. REP. NO. 384, 101st Cong., 2d Sess. 819 (1990) to accompany S. 2884 (National Defense Authorization Act for FY

1991).

7 Air Force Ass'n., Arlington, Va., Lifeline Adrift: The Defense Industrial Base in the 1990's i (1991).

2
This exodus from the defense marketplace was Although these costs have customarily been

notduesolelytothedownturnindefensespend- measured in both time and monov. they also

ing: impede technological innovation. Ironically, it

is technological sophistication which has charFirms, particularly subcontractors and sup- acterized American weapons development for

pliers of system components, are moving more than a generation, and is an essential comfrom defense to the commercial market, ponent of our continued military superiority. It

where the profits are better and where busi- is also important to remember that these laws

ness is conducted in a more stable, less are part of a system that has been successfully

adversarial manner.8 applied for almost a half century to procure the

weapons and materiel used by American armed

Two congressional studies completed in the af- forces in actual combat in Korea, Vietnam, and

termath of the Gulf War simultaneously praised the Persian Gulf, as well as a host of Cold War

the performance of U.S. weapons systems but confrontations. By the early 1990s, however,

cited the burden of regulatory controls imposed this record of success could not completely offthrough the DOD acquisition system as an im- set a growing concern among lawmakers and

portant factor in the decline of the industrial procurement experts who worried about the

base.9 system's ability to respond to future scientific

challenges. For one thing, the procurement proWhil. he Panel's charter called for legislative cess typically operated at a far slower pace than

rather than regulatory reform, there is an impor- the technological developments it sought to captant linkage, often missed in public and con&,es- ture. Worse yet, it imposed bureaucratic resional criticism of DOD contracting methods: quirements which were so unique and intrusive

many of the regulations which impose the most (e.g., cost accounting standards) that many conburdensome controls are specifically mandat- tractors totally separated their government and

ed by statute.1 This "missing link" between law commercial production facilities. These barriers

and regulation was addressed in a study spe- not cnly added to the costs of doing business

cially prepared for the Panel by the American with the government, but they also "walled off"

Defense Preparedness Association (ADPA). It the rapid advances being made in commercial

found that acquisition laws represented the apex research and development from easy exploitaof a "cascading pyramid" of restrictive regula- tion and use in military systems.

tions, overly detailed military specifications, and

common procurement practices that typically A particularly vivid example of this barrier ocadded 30-50 percent to the costs of doing busi- curred during the Gulf War. According to a

ness with the Department of Defense.11 story cited by Donald A. Hicks, a former Under

8 Id.

9 Office of Technology Assessment, U.S. Congress, Redesigning Defense: Planning the Transition to the Future U.S. Defense

Industrial Base, OTA-ISC-500, (1991); H. R. Comm. on Armed Services, 102d Cong.. 2d Sess., Future of the Defense Industrial

Base, Report of the Structure c" 'T.S. Defense Industrial Base Panel (Comm. Print 1992).

10 One notable exception to the usual "missing link" between law and regulation was provided by the report of a 1992

congressional panel studying the industrial base which charged that "Defense Department provisions requiring

compliance with Government Cost Accounting Standards and the Truth in Negotiations Act are serious impediments to

commercial companies wishing to sell to the department." H.R. Comm. on Armed Services, 102d Cong., 2d Sess., Future

of the Defense Industrial Base, Report of the Structure of U.S. Defense Industrial Base Panel 13 (Comm. Print 1992).

11 George K. Krikorian, presentation to the Acquisition Law Advisory Panel, Ft. Belvoir, Va. (June 3,1992). See also Mr.

Krikorian's statement before the Ho ,se Armed Servites Committee Subcommittee on Investigations, July 22, 1991, and

his article, DOD's Cost Premium Thirty to Fifty Percent, National Defense (Journal of the American Defense Preparedness

Association) 12-13 (Sept. 1992).

3
Secretary of Defense for Research and Engineer- bills that it too is concerned with this objective.

ing, the U.S. Army placed an emergency order Unfortunately, this guidance has not reduced

for 6,000 commercial radio receivers, waiving all the barriers to commercial access. The impedimilitary requirements and specifications. Be- ments to commercial-military integration, therecause of the urgency of preparations for war - fore, became a topic of continuing interest to the

as well as the ever-present threat of second- Panel, typifying in many ways the overriding

guessing once that urgency had faded - no need tostreamlinethedefenseprocurement laws

responsible procurement official could be found in a new era of fiscal austerity and great strategic

who would waive the requirement for the com- uncertainty. 13

pany to certify that the Army was being offered

the lowest available price. Since the radio was Goals and Objectives

widely marketed and any misstatement might

constitute a felony, no company official would At their first meeting, the Panel members agreed

make this certification. The mpasse was re- that their congressionalcharter(Public Law 101-

solved only when the Japanese government 510, section 800) provided the following goals as

bought the radios without a price certification, the basic framework for their efforts:

donated them to the U.S. Army, and credited the

purchase against Japan's financial contribution * Streamline the defense acquisition process

to Operation Desert Storm. 12 and prepare a proposed code of relevant

acquisition laws.

The Gulf War demonstrated the devastating

tactical effect of sophisticated weaponry of all 0 Eliminate acquisition laws that are unneceskinds, particularly when precision munitions sary for the establishment and administrawere coupled with advanced command and con- tion of the buyer and seller relationships in

trol systems. If these developments truly repre- procurement.

sent what many observers referred to as a "military technological revolution," then the innova- * Ensure the continuing financial and ethical

tions needed to hone the American combat edge integrity of defense procurement programs.

will increasingly depend on developments in

the commercial sector. A number of public and 0 Protect the best interests of DOD.

private studies have documented the need for

more effective integration of commercial and During several of its initial meetings, the Panel

military technology. Theseanalyseshavepointed heard testimony from a wide variety of experts

out that this linkage is not only needed to ensure representing government, the military, and ina stable, viable defense industrial base as gov- dustry. General officers from the military serernment spending is reduced, but is equally vices, as well as senior civilian executives repreimportant to ensure a wartime surge capability senting such key procurement elements as the

as traditional defense plants are eliminated. Defense Logistics Agency, were also invited to

Recognizing this trend, Congress has given clear testify as the Panel sought to identify the most

guidance in a series of defense authorization critical problem areas. Private-sector groups,

12 Donald A. Hicks, "Requirements for a Viable Defense Industrial Base," Speech to the Economist Conference on Defense

Spending Retrenchment, London, UK (Oct. 21, 1991).

13 H.R. Comm. on Armed Services, 102d Cong., 2d Sess., Future of the Defense Industrial Base, Report of the Structure of U.S.

Defense Industrial Base Panel 13-16 (Comm. Print 1992). See also two reports by the Center for Strategic and International

Studies, Deterrence in Decay: The Future of the U.S. Industrial Base, Washington, D.C. (May 1989), and Integrating Commercial

and Military Technologies for National Strength: An Agenda for Change, Washington, D.C. (March 1991). For a DOD

perspective, see Robert B. Costello, Bolstering Defense Industrial Competitiveness. Report by the Under Secretary of Defense

(Acquisition) to the Secretary of Defense (July1988).

4
such as the Council of Defense and Space Indus- methodology should be reserved to the acquisitry Associations, the American Bar Association, tion regulations.

and the U.S. Chamber of Commerce, were also

contacted during this phase of the review. Al- (2) Acquisition laws should promote financial

though individual perspectives varied, therewas and ethical integrity in ways that are:

surprising agreement on the burden placed upon (a) Simple and understandable;

the acquisition community by the increasingly (b) Not unduly burdensome; and

complex web of procurement laws. Many of (c) Encourage sound and efficient procurethese viewpoints were summarized in a timely ment practices.

article by Professor William E. Kovacic of George

Mason University: (3) Acquisition laws should establish a balance between an efficient process and

The perceived imperative to embrace im- (a) Full and open access to the procurement

mediate statutory cures for apparent (pro- system; and

curement) deficiencies in the 1980s inspired (b) Socioeconomic policies.

several enactments of sweeping scope and

questionable draftsmanship. . . . Once (4) Acquisition laws should, without alteradopted, such enactments typically resist ation of commercial accounting orbusiness pracsubsequent retrenchment, as any suggested tices, facilitate:

ex post weakening of requirements usually (a) Government access to commercial techis successfully attacked by advocates of the nologies; and

original legislation as an unwarranted dilu- (b) Government access to the skills availtion of congressional efforts to discourage able in the commercial marketplace to develop

fraud and otherwise improve procurement new technologies.

performance. There is, in effect, an upward

statutory ratchet in procurement regulation (5) Acquisition laws should, without requirthat ensures that regulatory commands be- ing contractors to incur additional costs, facilicome ever more restrictive.1 4 tate the purchase by DOD or its contractors of

commercial or modified commercial products

In the early months of the Panel's activities, its and services at or based on commercial market

members sought to amplify their original goals prices.

and to identify more specific criteria to guide

their recommendations for statutory change. The (6) Acquisition laws should enable companies

key to this effort was a broadly based pattern of (contractors or subcontractors) to integrate the

outreach activities, all aimed at ensuring a re- production of bothcommercialand governmentview process that was open to the widest pes- unique products in a single business unit withsible variety of public access and comments. out altering their commercial accounting or

Through these efforts, the Panel was able to business practices.

establish from its inception a remarkably freeranging dialogue with both the acquisition com- (7) Acquisition laws should promote the demunity and the general public. One of the first velopment and preservation of an industrial

concrete results of that dialogue was the Panel's base and commercial access to governmentagreement on the 10 objectives that would help developed technologies.

to guide its review:

(8) Acquisition laws should provide the means

(1) Acquisition laws should identify the broad for expeditious and fair resolution of procurepolicy objectives and the fundamental require- ment disputes through uniform interpretation

ments to be achieved. Detailed implementing of laws and implementing regulations.

14 William E. Kovacic, Regulatory Controls as Barriers to Entry in Government Procurement, 25 POLICY SCIENCES 3!(1992).

5
(9) Acquisition laws should encourage the Panel as a whole. In reviewing the major statexercise of sound judgment on the part of acqui- utes, the working groups typically began the

sition personnel. process with a legislative history and a literature

search. Building upon the wide public contacts

(10) Acquisition laws should, when generat- that had already been established, they solicited

ing reporting requirements, permit as much as comments from the acquisition community and

possible the use of data that already exists and is other interested parties, often through the use of

already collected without imposing additional Federal Register notices or questionnaires. Minadministrative burdens. utes of Panel meetings, legislative abstracts, and

various position papers were also distributed

Approaches through the extensive mailing and telefax lists

that were eventually developed by each workBefore these goals and objectives could be ap- ing group and the Panel as a whole. Specific

plied to the task of streamlining, it was necessary inputs were also obtained from departmental

to define the universe of laws affecting defense staffs, trade associations, and governmental

acquisition. From a number of sources, the agencies with particular expertise, such as the

Panel initially identified over 800 provisions of Air Force Contract Law Center. Where approlaw that appeared to have some relationship to priate, public meetings on issues being examDOD acquisition, a number that was gradually ined by the working groups were also held to

narrowed through several detailed reviews, ensure that a wide range of opinions was considEven after this screening, however, the Panel ered. Similarly, when specific issues were schedwas left with a universe of over 600 DOD-related uled for discussion at Panel meetings, interested

procurement laws that it was required to review groups from both the public and private secin line with its congressional charter. Those tors were routinely invited to speak15 This dianumbers highlighted the importance of ap- logue between the Panel, the acquisition comproaching defense acquisition as a coherent sys- munity, and the general public was especially

tem. To facilitate a systemic approach and to important in framing recommendations. The

divide the labor of reviewing so many statutes, tentative decisions reached throughout this prothe Panel established working groups covering cess were then reviewed in toto by the Panel at

six major functional areas: contract formation; the conclusion of its deliberations. This "last

contract administration; Service-specific and look" was intended to ensure that the individual

major systems statutes; socioeconomic require- decisions made over many months were consisments, small business, and simplified acquisi- tent with one another - and with the Panel's

tion; standards of conduct; and intellectual prop- goals and objectives.

erty. In addition, two ad hoc working groups

addressed commercial procurement and inter- An Overview

national defense cooperation.

The Panel's Report was transmitted to the deEach functional working group consisted of two fense committees of the Congress on January 14,

Panel members, one from the public sector and 1993, by the Deputy Secretary of Defense. Of

one from the private sector. They quickly be- more than 600 laws reviewed by the Panel, alcame the focal points for research and analysis, most 300 were recommended for repeal, delereviewing the laws assigned to them and pre- tion, or amendment. That remarkable total reparing recommendations for decision by the flected the fact that, throughout its work, the

15 Examples included: the National Association of Minority Business when theSmall Business Act was under discussion;

the Management Reviews Division of the General Services Administration during discussion of the Brooks Act; an

industry coalition, the Integrated Dual-Use Commercial Companies, during several discussions of commercial products

and services; and the General Accounting Office during discussions of protests.

6
Panel concentrated on changes that would plify contract management for both the Destreamline the defense procurement process in partment and its qitppliers.

the 1990s, when dollars are expected to be fewer,

work forces smaller, and superpower security There is no question that the reforms recomthreats less urgent. The Panel's initiatives in mended by the Panel would have the greatest

three areas are of particular importance: effect were they to be passed as a comprehensive

package. However, even the enactment of the

Streamlining: Addressing the Panel during major recommendations outlined in this sumoneof its early meetings, SenatorJeff Bingaman mary would make significant progress toward

suggested that there had been an unfortunate the goal of streamlining and simplifying the

tendency in recent years for statutes to be defense acquisition system. While the improveenacted without a clear view as to their ulti- ment of that system was the primary focus of the

mate effect upon the acquisition system. His Panel, its members fully recognized the imporchallenge to the Panel, echoed by many other tance of seeking government-wide consistency

observers, prompted a concerted effort to con- in procurement matters. Therefore, they hope

solidate and simplify statutes in every area of that their recommendations can serve as a

itsreview. Thedetailedchangesrecommended baseline for parallel changes in the legislative

for almost 300 statutes would result in a stream- underpinnings of civilian agency acquisition.

lined system of acquisition laws, more easily

understood, administered, and implemented. The summary of the Panel's Report contained in

the following pages is intended to give the reader

Commercial Items: The Panel recommended an overview of the Panel's approach to key

significant legislative changes in order to im- acquisition issues as well as specific information

prove the Department's access to commercial on the most important sources used by the Panel

technologies. Those recommendations are in many of these areas. In this overview, howreflected not only in the Panel's analysis of the ever, those key issues are presented in an order

basic procurement statutes, such as the Truth which differs from that used in the Report. To

in Negotiations Act (TINA) and the Competi- avoid any confusion, the Executive Summary

tion in Contracting Act, but they are also ad- includes references to the Report, usually by

dressed in an entire chapter of its Report both chapter and subchapter, as an aid to the

highlighting the extensive reforms needed to reader in referring to that document for more

enhance the acquisition of commercial items, definitive statements of the issues outlined here.

both as end-items and as components of DOD

systems. This summary begins with a section discussing

the Panel's findings on commercial items, in

Simplified Acquisition: There is a clear need many ways the centerpiece of its efforts. Two

to trim the Department's administrative over- closely-related areas follow in section III: a new

head, not only to reduce costs and cope with "simplified acquisition threshold" and, because

change but also to anticipate the effects of that initiative shaped the Panel's approach to

current and planned personnel reductions on this area, its recommendations on socioeconomic

the acquisition work force. The Panel deter- laws. Section IV, Contract Management, summined that the creation of a new "simplified marizes two chapters of the Panel's Report and

acquisition threshold" - initially to be set at documents the critical role played by the stat-

$100,000 - would streamline more than 50 utes governing contract formation and adminispercent of all DOD contract actions over tration in all procurement functions. The Panel's

$25,000, while affecting less than five percent findings on statutes pertaining to the defense

of its contract dollars. Integral to these recom- technology and industrial base are presented in

mendations is a continued preference for small section V. Two critical acquisition issues are

business, as well as measures needed to sim- grouped under section VI - intellectual prop7
erty and standards of conduct. In section VII, the Panel's work and its conclusions on the futu re of

Panel's findings on several important groups of the acquisition reform process. Six tables are

statutes are presented, including those unique presented in the appendix, the first of which

to major systems and testing. The final section summarizes the Panel's significant recommenpresents both the constraints which affected the dations for statutory amendment or repeal.

8
II

COMMERCIAL ITEMS

The Panel's recommendations dealing with the within the defense procurement community has

acquisition of commercial pi oducts and services been cited as a factor, recent congressional and

clearly could have a significant impact, not only executive branch studies, expert commentary,

on what DOD buys, but how it buys, what it and testimony before the Panel identified propays, and the base of potential defense suppli- curement statutes (and implementing regulaers. The DOD uses many commercial products, tions) themselves as a major barrier to greater

butis prevented by numerous statutory require- use of commercial items. The Panel has rements from buying those products like any other sponded by proposing:

customer. Despite congressional encouragement

to acquire commercial products whenever pos- * Stronger policy language favoring the use of

sible, DOD's success has been limited. The Panel commercial and nondevelopmental items in

determined that it was critical to reduce the 10 U.S.C. § 2301;

barriers that make it virtually impossible for the

DOD to act more like a commercial buyer. These 0 A new definition of commercial items in 10

reforms would make it possible not only to draw U.S.C. § 2302;

new firms to the defense market, but they would

also enable some firms which must now main- 0 An expanded exemption for "adequate price

tain separate facilities and accounting systems competition" in the Truth in Negotiations Act,

to integrate their commercial and military pro- 10 U.S.C. § 2306a, which applies to commerduction. Those changes will permit DOD to

fulfill its requirements at lower costs - thus cial items, and relief from inappropriate re- saving increasingly scarce taxpayer dollars. quirements for cost or pricing data when a

competitively awarded contract for commerIn addition to other proposals throughout its cial items or services is modified.

Report to facilitate commercial-military integration, the Panel proposes a comprehensive new New exemptioncito tehnicalsdatanrequire

approach to the acquisition of commercial items, ments in commercial item acquisitions in 10

both as end-items and as components in de- U.S.C. § 2320;

fense-unique products. In so doing, the Panel e A new structure for "Buy American" restricdrew upon legislative initiatives over the past tions in a proposed new chapter on Defense

decade and attempted to incorporate the lan- Trade and Cooperation; and

guage and concepts of those laws. Existing law

has not, however, been successful in achieving * A new subchapter for commercial item acquithe benefits of commercial-military integration sitions which: creates a revised rule structure;

and has not resulted in broad use of commercial provides for exemptions from statutes that

items in DOD systems. The reasons for this are create barriers to the use of commercial items;

complex. While opposition to commercial items and includes provisions on pricing, documen-
tation, and audit rights tailored for commer- Beginning in 1989, Congress directed DOD

cial item acquisitions. 16 to issue streamlined regulations governing commercial products and to rescind conflicting and

BACKGROUND inconsistent regulations.1 8Although this legislation is the basis for Parts 210 and 211 of the

For at least 20 years, the idea has been advanced Defense Federal Acquisition Regulation Supplethat DOD could benefit from broader use of ment (DFARS), even the "simplified" contract

commercial items. In 1972, for example, the described in DFARS Part 211 mandates the use

Commission on Government Procurement urged of over 100 provisions as opposed to the handful

that commercial products replace government- of terms and conditions typically found in comdesigned items to avoid the high cost of devel- mercial items contracts. Most recently, the Naoping unique products. Congressional direc- tional Defense Authorization Act for FY 1993

tion to acquire commercial products dates to at mandated the modification of DOD acquisition

least 1984, when the Competition in Contracting policy to encourage integration of the civilian

Act (CICA) was enacted, requiring federal agen- and military industrial base.19

cies to "promote the use of commercial products

whenever practicable." CICA also provides a While the course set by Congress since 1984 is

statutory basis for multiple award schedule con- plain, none of the legislation passed to date has

tracting, which has become a primary method actually caused or permitted significant increases

for government purchase of commercial prod- in the procurement of commercial items by DOD.

ucts. In addition, in the Defense Procurement The reasons for the shortfall include:

Reform Act of 1984, Congress mandated that

DOD use "standard or commercial parts" when e A uniform definition for commercial items

developing or acquiring defense-specific prod- has not been legislated. Instead, a number of

ucts "whenever such use is technically accept- conflicting definitions have been impleable and cost effective." mented in regulation.

In June 1986, the President's Blue Ribbon Com- e The Truth in Negotiations Act (10 U.S.C. §

mission on Defense Management (the Packard 2306a)hasnotbeenchanged, a statute which

Commission) again emphasized the benefits to greatly impedes commercial buying.

DOD of using commercial items: lower costs

and shorter lead times in fielding new products @Commercial acquisition has not been

and systems. The Commission urged DOD to exempted from socioeconomic laws, trade

adopt policies allowing it to "make greater use restrictions, executive orders, and impleof components, systems, and services available menting regulations, or from the special cer-

'off-the-shelf'" and to develop "new or custom- tification and record-keeping requirements

made items only when it has been established in connection with procurement integrity,

that those readily available are clearly inad- costing, audit, and other requirements: all of

equate to meet military requirements." 17 these mandates require a commercial

16 See Chap. 1.1 of the Panel's Report (hereafter, the Report) for its recommendations on 10 U.S.C. §§2301 and 2302; Chap.

1.3 for 10 U.S.C. § 2306a; Chap. 5.1 for 10 U.S.C. § 2320; Chap. 7.1 for the Buy American Act; and Chap. 8, generally, for

commercial item acquisitions.

17President s Blue Ribbon Commission on Defense Management, Final Report: A Quest for Excellence 60 (1986) [hereafter "the

Packard Commission Report"].

18 National Defense Authorization Act for FYs 1990 and 1991, Pub. L. No. 101-189 § 824(b)(1), 103 Stat. 1352,1505 (1989).

19Pub. L. No. 102-484, 4211, 106 Stat. 2315, 2662 (1992), enacting 10 U.S.C. § 2501(c).

10
company to fundamentally alter the way it peated testimony that mandatory, governmentconducts business if it desires to sell to DOD. unique business methods and systems in four

areas create the greatest barriers: accounting

In sum, many critics have consistently faulted systems; specifications and standards; rights in

DOD's practices and regulations for constricting technical data; and government-specific statthe flow of commercial products, while often utes that mandate fundamental changes in busifailing to recognize that ever-increasing legisla- ness practices.

tive requirements have placed special burdens

on companies solely because they contract with Accounting Systems

the federal government.

One of the most expensive and disruptive reRecent studiesofDODacquisitionpracticeshave quirements involves mandatory adherence to

uniformly concluded that the myriad of federal cost principles and accounting standards enulaws and regulations applicable only to federal merated in statute, in the Federal Acquisition

- and particularly DOD - contractors has cre- Regulation ( FAR), and by the Cost Accounting

ated a significant barrier to the entry of commer- Standards Board (CASB). Where the governcial firms into federal contracting. A 1990 report ment contracts on a reimbursement or complex

on 20 case studies of how commercial compa- incentive basis, there is a bona fide need for a

nies sell to the federal government reached the uniform, specialized accounting system which

following conclusions: protects the government from the imposition of

unreasonable charges. Indeed, this unique sysIn general, the greater the commercial sales tem of regulation arose precit ly because Generbase [a company has], the more likely [a ally Accepted Accounting I inciples (GAAP)

company] will either separate [its] commer- have little to say about recording, reporting, and

cial and military operations or abstain from allocating costs actually incurred. Therein lies

military business. Companies such as IBM, the problem: Companies that do not sell to the

Motorola, Boeing, Hewlett-Packard, Digi- federal government keep their books in accortal Equipment Corporation (DEC), and Intel dance with GAAP and, if required to meet govfall into this category. 20 ernment cost accounting requirements, would

have to implement a completely separate acIn the past, the minimal use of commercial items counting system at great expense.

by DOD has often been attributed to the

Department's reluctance to use its existing statu- Specifications and Standards

tory authority. However, the proliferation during the 1980s of laws applicable only to federal The specification and standard problem - overcontractors created legislative barriers to greater specification and detail enforced by large numdefense procurement of commercial items, pri- bers of auditors and inspectors - arises without

marily because these statutes require govern- clear delineation from statutes, regulations, good

ment contractors to adopt unique and expensive intentions, practice, and habit. The problem for

business practices on pain of extraordinary civil a commercial company, as with governmentand criminal penalties. The Panel heard re- unique accounting principles, is that compli2 0Center for Strategic and International Studies, Integrating Commercial and Military Technologies for National Strength 15

(March 1991) [hereafter CSIS Study] 15. A 1990 workshop at DSMC on "Why Firms are Leaving the Defense Market"

confirms the CSIS conclusions. Industry participants in the study identified 34 major reasons why firms had left or were

planning to leave the defense market. Among these reasons were: criminalization of the procurement process; audit

procedures inconsistent with those typically used by industry; inappropriate overlays of defense-unique requirements

on commercial products; inappropriate application of regulations, specifications, and standards; excessive costs of doing

business with DOD; technical data rights; proliferation of regulations; and unnecessary calls for cost or pricing data.

11
ance with government standards often requires ment-unique products - and perhaps unobjeca departure from commercial practices, not to tionable for this purpose - have been allowed

mention the company's own processes which to remain as barriers. Now that the defense

have led to commercially successfuIl products. buildup of the 1980s has turned into the buildTo the extent that DOD standards are out-of- down of the 19903, defense procurement policy

date or out of touch with commercial practice, must be reshaped to ensure the long-term goal of

the cost of compliance increases, retaining an adequate defense technical and industrial base. Declining purchases of defenseRights in Technical Data unique products mean higher unit costs, declining profits, and lost jobs in many defense-speCommercial vendors fiercely protect proprietary cific industries. At the same time, the high cost of

information. Under current statues and regula- doing business with the government is causing

tions, DOD is allowed to obtain a substantial companies to leave the defense market - or

portion of the very technical know-how and never to enter at all.

proprietary data that is the lifeblood of modern

enterprise. Vendors cannot be assured that their In this environment, continued reliance by DOD

proprietary rights will be protected. Increas- on defense-unique products can only mean

ingly, commercial companies will not sell their higher costs and loss of industrial base for DOD.

best technologies to DOD because they simply One of the principal solutions for this dilemma is

will not put their proprietary data at risk. to encourage DOD agencies to use commercial

products to the maximum extent possible. This

Socioeconomic Legislation approach promises:

A buyer in the commercial marketplace seldom * Lower prices through greater competition;

if ever insists that a seller change its hiring,

promotion, compensation, benefits, subcontract- 9 Lower prices through lower costs typically

ing, or transportation practices as a condition of associated with high-volume commercial promaking a sale. But the federal government does duction;

this as a matter of course in almost every contract

it awards. The problem is not that any particular e A broader industrial base, because the base is

requirement is so onerous as to dissuade compa- maintained not just by DOD, but by the nanies from dealing with the federal government: tional economy as a whole;

but when a combination of frequently changing

requirements is levied on contractors - some 9 Increased surge capacity, because DOD needs

inconsistent with others, most requiring audit can be met by diverting supplies that would

and the generation of reports, and all inconsis- ordinarily go to the civilian market, rather

tent with commercial practice - the burden on than by building or rehabilitating defense

commercial companies is great. plants to build defense-unique products;

THE DOD ACQUISITION CHALLENGE *Greater access to cutting-edge technologies,

IN A TIME OF BUILD-DOWN which typically emerge in the commercial

marketplace before they do in defense indusPrevious efforts to promote the government's tries.

use of commercial products suggest good intentions that have failed to bear fruit - primarily Moreover, even if DOD spending and the debecause none of those efforts have created a fense technical and industrial base were not

complete statutory and regulatory structure for declining, using more commercial items would

buying commercial products. Instead, statutes, still make sense for two reasons. First, commerand regulations designed for buying govern- cial items tend to be much less expensive than

12
their defense-unique counterparts. Second, sion was eight times higher per dollar of sales,

commercial items now tend to be more techni- and twice as high as a percentage of total

cally advanced than defense-unique products, personnel, as the commercial division (see chart

primarily because the pace of introduction of below).

new commercial items generally exceeds the

fielding of new military products. CSIS also found that at Pratt & Whitney, 52

people were employed solely to accommodate

While cost comparisons are difficult, several government auditors' requests for reports, at a

recent studies have concluded that current pro- total cost to the government of $13 million annucurement policies drive defense industry over- ally (for government and contractor personnel).

head far above that which is required in com- Similarly, General Electric reported that it remercial companies. For example, the Office of quired two full-time employees to handle the

Technology Assessment reports studies show- administrative load created by each government

ing that the entire regulatory regime adds 10 to representative assigned to its engine programs,

50 percent to the cost of doing business with the for a total administrative cost of $3 million per

government, an amount equal to tens of billions year.22

of dollars annually. 1 The Center for Strategic

and International Studies (CSIS) reported on a A study conducted by the ADPA at the request

case study of a company which performed both of the Panel found that: "the Department of

military and civilian contracts, and concluded Defense pays a remium from 30 to 50% more

that the military division of the company had for products than the same or similar items sold

higher product costs because the number of to a commercial enterprise. In some cases, the

administrative personnel in the military divi- costs may be 100% higher." 23

Number Number Per Billion

Personnel in Military vs. Commercial Divisions Commercial Military Total Commercial Milita

Annual Sales ($ Billions) $10 $4 $14

Administrative Personnel 3,842 9,979 13,821 384 2,495

Engineering 7,557 13,605 21,162 756 3,401

Manufacturing 25,548 18,306 43,854 2,555 4,577

Quality Control 2,835 2,583 5,418 284 646

Facilities 2,177 3,038 5,215 218 760

Logistics 1,696 1,399 3,095 170 350

Computing 1,211 5,425 6,636 121 1,356

Other 170 629 799 17 157

Total 45,036 54,964 100,000 4,505 13,742

Ratio of Admin. to Total Employment 9% 18% 14%

2 1 U.S. Congress, Office of Technology Assessment, Holding the Edge: Maintaining the Defense Technology Base 9-10,13-14,

172-177 (1989).

22CSIS Study, 19-29, 24.

23George K. Krikorian, presentation to the Acquisition Law Advisory Panel, Ft. Belvoir, Va. (June 3, 1992). See also Mr.

Krikorian's statement before the House Armed Services Committee Subcommittee on Investigations, July 22, 1992, and

his article, DOD's Cost Premium Thirty to Fifty Percent, National Defense (Journal of the American Defense Preparedness

Association) 12-13 (Sept. 1992).

13
The second reason for "buying commercial" is lo of national defense to buy commercial items in a

gain access to modern technology. In many specific instance. The Panel recommends that

fields, DOD is no longer the primary technology this flexibility be provided in regulations rather

driver in the U.S. economy. The ADPA and CSIS than attempting to define those specific circumstudies found, for example, that all of the indus- stances by statute.

trial firms surveyed had established separate

divisions to perform DOD work because the

costs imposed by DOD regulations would other- PANEL RECOMMENDATIONS

wise have jeopardized their commercial business. As a result, research and development The commercial item statute proposed by the

efforts were not performed in the same organi- Panel consists of a new, core subchapter to be

zation. Whenever research and development added toChapter 137of Title 10of the U.S. Code,

conducted by each division had "spin-offs" for plus specific amendments to other existing secthe other, it was usually the commercial division tions of Title 10. The new and amended provithat created new technologies which were then sions are intended to work together as a single

transferred to the military division, piece of legislation, although some portions,

such as rights in technical data and "buy AmeriWhile there are many reasons why DOD should can" preferences, are implemented by amendbuy commercial products and components, it is ments to existing chapters dealing with those

also evident to the Panel that there are many topics.

legitimate reasons why DOD cannot purchase

commercial items to the same degree and in Definition of Commercial Items:

precisely the same way as commercial compa- 10 U.S.C. § 2302

nies. Some of these include: 24

The Panel spent a great deal of time drafting a

* Some items simply do not have commercial commercial item definition and conducted excounterparts; e.g., nuclear submarines, tensive reviews of its work in open sessions with

fighter aircraft, and tanks. spokespersons for many interested segments of

the public, as well as representatives of various

*The DOD, like any large organization, must government agencies (both within and outside

have some uniformity and consistency in the DOD). The definition adopted by the Panel,

equipment it uses, to promote efficiency and which is an addition to the general definitions in

to reduce training and fielding costs. 10 U.S.C. § 2302, is as follows:

" The DOD's systems in some cases require (5) The term "commercial item" means

greater performance or reliability in more

adverseconditions than those typically avail- (A) Property, other than real property,

able in the commercial market. which: (i) is sold or licensed to the general public

for other than government purposes; (ii) has not

" The DOD may require a level of secrecy been sold or licensed to the general public, but is

about its requirements and acquisition pro- developed or is being developed primarily for

grams that is inconsistent with commercial use for other than government purposes; or (iii)

buying practices. is comprised of a combination of commercial

items, or of services and commercial items, of

Because of such factors, DOD must have flexibil- the type customarily combined and sold in comity to determine whether it is in the best interest bination to the general public;

2 4 See Chap. 8, pp. 14-15, of the Report for a more complete list.

14
(B) The term "commercial item" also in- Single Definition vs. Multiple Definitions

cludes services used to support items described

in subparagraph (A), such as installation, main- The Panel determined that ease of administratenance, repair and training services, whether tion requires a single definition for commercial

such services are procured with the commercial items to be used ,niformly throughout DOD.

item or under a separate contract; provided such From the outset, one of the Panel's objectives in

services are or will be offered contemporane- defining a commercial item was to be able to

ously to the general public under similar terms exemit items so defined from the reach of those

and conditions and the government and com- statutes and implementing regvlatiens which

mercial services are or will be provided by the have created barriers to the acquisition of cornsame work force, plant, or equipment; mercial items.

(C) With respect to a specific solicitation, an Property vs. Services

item meeting the criteria set forth in

subparagraphs (A) or (B), if unmodified, will be After surveying the statutory barriers to broader

deemed to be a commercial item when modified use of commercial items, the Panel concluded

for sale to the government if the modifications that statutes primarily create barriers to the acrequired to meet government requirements (i) quisition of manufactured products. In general,

are modifications of the type customarily pro- statutes create barriers because they disrupt esvided in the commercial marketplace or (ii) tablished manufacturing methods, sources of

would not significantly alter the inherent non- supply, and personnel practices. For example,

governmental function or purpose of the item in commercial companies generally try to establish

order to meet the requirements or specificetions long-term supplier and subcontractor relationof the procuring agency; ships, and often have a supplier and subcontractor base in place well before the first unit of a

(D) An item meeting the criteria set forth in commercial item is manufactured. As a result,

subparagraphs (A), (B), or (C) need not be the requirement that government contractors

deemed other than "commercial" merely be- establish subcontracting plans cannot be implecause sales of such item to the general public for mented at all with respect to shipments from

other thansgovernmentalmtsethe geaesmallubortion inventory and can be implemented only with other than governmental use a;e a small portion great difficulty and disruption in order to fulfill

of total sales of that item; and a specific DOD contract. By contrast, these statutes do not create the same type of barriers to the

acquisition of commercial services. With some

criteria in subparagraph (A) even though it is exceptions, companies that sell commercial serproduced in response to a government drawing vices to DOD appear to be able to comply with

or specification; provided, that the item is pur- statutes governing service contra,..ors, such as

chased from a company or business unit which the Service Contract Act 25 and the Vietnam Era

ordinarily uses customer drawings or specifica- Veterans Readjustment Act,26with less disruptions to produce similar items for the general tion to existing practices. Moreover, smaller

public using the same work force, plant, or equip- companies, which may have the greatest diffiment. culty in complying with unique statutory reIn crafting this commercial item definition, the quirements, should become largely exempt from

such statutes under the Panel's proposed sirn- Panel made a number of important choices: plified acquisition threshold amendments. 27

2541 U.S.C. § 351-358.

2

638 U.S.C. § 4212.

2 7

See the "simplified acquisition threshold" of this summary as well as Chap. 4 of the Report.

15
Ancillary Services reality. Today, a commercial buyer can often

buy a modified commercial product from a

Although the Panel decided to cover primarily commercial vendor if the cost of the modifica-

"property" within the commercial item tion is not great compared to the cost of the

definition, it agreed that some types of services commercial item or to the value of the contract.

ancillary to the accuisition of property also Because DOD will often be a "large buyer" and

had to be included within the definition of a will often have somewhat unique needs, DOD

commercial item to avoid creating barriers to should ha' e the same flexibility as a commerthe acquisition of the commercial items them- cial company to obtain modifications that

selves. Industry groups advised the Panel that would be available to, for example, a Fortune

commercial products are typically installed, 100 company.

maintained, and repaired by workers in commercial companies whose business practices New Products; Combinations of Products;

will not comply with contract-specific statu- Products Sold in Small Quantities to the

tory and regulatory restrictions. A similar General Public

argument was made for training services,

which would use the same material, instruc- The Panel extended the concept of "commertors, and classrooms regardless of whether a cial item" to new products and to products not

product is sold to the government or sold yet sold to the general public in order to ensure

commercially. Again, the argument was that it that the government is not foreclosed from

made no sense - and indeed created a barrier buying "cutting edge" technology simply beto the acquisition of commercial items them- cause it is an early, major buyer of that technolselves - to require a commercial company to ogy. The purpose of this provision is to enchange its classrooms or its sources of repair courage the acquisition of new technology from

parts, or to comply with the Service Contract the commercial sector rather than "growing it

Act, as a condition of accepting a government in-house." Moreover, given the long lead times

contract for the performance of what would frequently faced in the government procureotherwise be a service provided to the general ment cycle, it will often be essential to make

public. The Panel accepted this argument, but purchases at the cutting edge o technology in

imposed the additional requirement that to order to ensure that an itenL is still current

enjoy commercial item status, such ancillary technology by the time it is fielded. In addiservices had to be offered contemporaneously tion, the Panel expressly defined a system made

to the general public under similar terms and out of a combination of commercial items as a

conditions. This ensures that there must be commercial item so long as the combination

some reasonable expectation that the service was of the sort that would be made for a

provided to DOD will also be provided to the nongovernmental buyer. The purpose of this

general public. A gap of a few months might provision was to allow DOD to contract for

be reasonable, but a gap of several years be- systems, such as personal com, uter systems,

tween the date the service is offered to DOD which typically are sold commercially as sysand the date it is offered to the general public tems even though product! from various venwould not be. dors may be assembled or integrated by yet

another vendor before the sale takes place. The

Modified Products Panel's definition covers combinations of commercial items even if the precise system being

Past practice has limited commercial acquisi- ordered by DOD had not been assembled betion to "off-the-shelf" items or "minor modifi- fore and sold commercially. Finally, the Panel

cations" of off-the-shelf items. The Panel con- wanted to be clear that DOD is not to be

cluded that such a narrow policy on modifica- precluded from buying an item as a commertions does not recognize current commercial cial product simply because some arbitrary

16
percentage of sales has not been made to the itemsand ascomponents, it recognizesthat widegeneral public. 28 spread use of commercial items will create a

transition problem for businesses that are toItems Produced by "Dual-Use" day supplying the DOD-unique products that

Manufacturers will be supplanted by commercial items.

Accordingly,the Panel has provided that

As the defense budget shrinks from its 1986 nondevelopmental items and existing sources of

high, it is clear that DOD demand alone will be supply will ordinarily be permitted to compete

inadequate to sustain the current size and surge for DOD's procurement dollars on an equal

capacity of today's defense-unique industrial footing with commercial replacements. In addibase. 29 Therefore, if there is to be an ade- tion, the Panel has specifically provided that

quate industrial base, DOD must be able to draw current policy on set-asides for small, minority,

on both defense-unique and commercial corn- and small disadvantaged businesses will not be

panies for the products it needs. As a first step disturbed by the new statute. As a result, small

toward integration, the Panel recommends a businesses which today supply ma: y defenseproposed section 10 U.S.C. § 2302(5)(E), which is unique articles for which there are commercial

intended to remove barriers to the use of corn- equivalents should continue to have a market

mercial rocesses, such as the manufacture of for their products.30

paint or castings, which frequently are used to

produce a product to the specifications of the Policy; 10 U.S.C. § 2301

buyer. The Panel felt that the same concern for

removing barriers to commercial-military inte- Since 1984, CICA has provided that it is the

gration - which justified removing barriers to policy of Congress that DOD must "promote the

the acquisition of commercial items - also re- use of commercial products whenever practiquired regulatory and statutory relief to a sup- cable." However, the Panel determined that the

plier of commercial processes to nongovernmen- policy statement in CICA needed to be amended

tal buynrs. Otherwise, a commercial manufac- to reflect more acr, irately the policies needed to

turer would frequently be required as a condi- guide defense procurement in the post-Cold

tion of accepting a government order to change War era of fiscal restraint. This was accomits fundamental manner of doing business when plished in three ways. First, to promote comthe need is for greater development of flexible mercial-military integration, section 2301 would

manufacturing in integrated facilities. be amended to emphasize that commercial items

shall be used by DOD whenever practicable,

Existing Sources; Nondevelopmental Items both as end-items and as components. Second,

to cut the costs of defense-unique procurement,

While the Panel's emphasis has been on promot- when commercial items are not available or do

ing the use of commercial products both as end- not meet DOD's requirements, the Panel would

281n recommending the adoption of 10 U.S.C. § 2302(4)(D), the Panel rejected the percentage of sales tests currently used

for the catalog pricing exemption under TINA as tests relevant to commercial item acquisition policy.

2 9

See, e.g., Report of the Structure of U.S. Defense Industrial Base Panel of the Comm. on Armed Services of the House of

Representatives, Future of the Defense industrial Base 1-2, 16 (April 7, 1992).

30See the "socioeconomic laws" section of this summary and Chap. 4 of the Report for its r(commendations concerning

small and small disadvantaged businesses. The intent of those recommendations is to shelter small businesses furnishing

government-unique products from competitive pressure until they can move into commercial markets. The Panel also

recognizes that, in the past, Congress has objected to regulatory changes that would replace existing small business

sources with commercial companies. See, for example, the Defense Authorization Act for FYs 1990 and 1991, Pub. L. 1(11 -

189, and H. Conf. Rep. No. 101-331 101st Cong., 1st Sess. 613 (1989). The Panel's recommended approach will allow

existing suppliers to comete against new suppliers of commercial items.

17
require DOD to use suitable nondevelopmental tends by this that commercial items should beitems prior to developing unique defense goods. come the norm, not the exception for end-items

Finally, the Panel would amend section 2301(b)(5) other than those unique to DOD's war-fighting

to prohibit regulations which needlessly inter- role. This will require agencies to perform marfere with the acquisition of commercial and ket research, to look diligently for commercial

nondevelopmental items. items in the early stages of the procurement

process, and to use commercial items, including

Procurement Planning; 10 U.S.C. § 2325 modified commercial items, when these will

meet the minimum needs of the agency. In

Section 2325 in Title 10 requires DOD to develop determining the needs of DOD, the Panel inits acquisition requirements to ensure the maxi- tends that DOD have latitut.e to select a defensemum use of commercial and nondevelopmental unique acquisition plan when required by, for

items. 31 Since commercial and nondevelop- example, industrial base or security concerns.

mental items are required to t'e used only "to the However, the authority to reject commercial

maximum extent practicable," it is obviously items on public interest or national defense

essential that DOD's requirements not be drawn grounds should be exercised very sparingly and

insuchawaythatonlydefense-uniqueproducts at a level above that of the contracting officer.

can meet them. The Panel has therefore suggested amendments to section 2325 which would The Secretary of Defense is required to draft

require DOD to: uniform terms and conditions for various types

of procurements and to establish an administra-

* Define its requirements so that commercial tive structure under which standard terms and

and other nondevelopmental items may be conditions could be varied if authorized by approcured to fulfill those requirements; and propriate authority. The Panel recommends

this structure for two reasons.

" Prior to acquiring a defense-unique item, to

perform market research to determine whether First, DOD must have some means to control the

commercial or nondevelopmental items, or actions of far-flung contracting activities. The

modified commercial or nondevelopmental only practical way to achieve this control is for

items, can be used in place of a defense-unique DOD to mandate standard terms and conditions

item. that are to be used in the ordinary course of

business.

Regulations

Second, DOD must have the flexibility at an

A proposed new subchapter of Title 10 imple- appropriatelevelofauthoritytomodifyorwaive

ments the general guidance of section 2301 with standard terms and conditions if the need for, or

directions to the Secretary of Defense to issue value of, a commercial item outweighs the benregulations governing the procurement of three efit of trading on the standard DOD form. The

types of items: commercial end-items; commer- principal problem DOD faces today in buying

cial components; and nondevelopmental items. commercial items and in attracting commercial

companies as sellers is DOD's inability to waive

With respect to end-items, the Panel's recom- terms and conditions imposed by statute, execumendation mandates that DOD acquire com- tive order, or regulation. The Panel recommercial end-items "whenever commercial items mends exempting commercial item acquisitions

will satisfy the needs of DOD." The Panel in- from many of the statutes that today impede the

3 1 Nondevelopmental items are defined in 10 U.S.C. § 2323(d) to include "any item of supply that is available in the

commercial marketplace." See Chap. 1.2 of the Report.

18
acquisition of commercial items. This does not Precedence; Exemptions

mean, however, as some industry comments

have suggested, that DOD must never ask for a The proposed new commercial items subchapter

term or condition that falls outside current com- exempts procurements of commercial items from

mercial custom. Today, however, DOD is in the those statutes which appeared to the Panel, after

unhappy position of asking for any number of reviewing recent industrial base literature and

unique terms and conditions that are extremely holding lengthy discussions with industry and

expensive for commercial sellers to implement, government representatives, to create barriers

while at the same time being constrained by to the use of commercial items. In addition, it

statutory requirements from offering sustained establishes a rule of construction intended to

purchases of an item from one particular source. prevent inadvertent repeal and defines the relaThis is a "lose-lose situation" for commercial tionship of commercial item acquisition to simsellers. Nonetheless, it was apparent from in- plified acquisition procedures and set-asides.

dustry comments that some commercial sellers

would be prepared to accept some government- Many comments made to the Panel suggested

specific terms and conditions on some orders, that the best method for facilitating the acquisiand that the willingness (or ability) of sellers to tion of commercial items was to exempt comcomply with government-specific terms and con- mercial acquisitions from all laws, other than

ditions will differ by industry, by company, and laws requiring full and open competition, that

by the size of the order. Accordingly, the Panel are not generally applicable to U.S. companies.

found no reason to prohibit DOD absolutely While the Panel used this concept as one guide to

from negotiating for unique terms and condi- identify statutory barriers to the use of commertions if an appropriate level of contracting au- cial items, it did not believe it was necessary or

thority thought this should be done. appropriate for DOD to give up all contractunique socioeconomic, ethics, and regulatory

With respect to components, the Secretary is policies as a condition of obtaining commercial

given authority to regulate the flow down of items. Accordingly, the Panel used as additional

government-unique clauses to vendors of com- cteria for exemptions such considerations as (i)

mercial components. How this should be done whether compliance with a statute was practical

will depend heavily on the nature of the end- if a commercial item was purchased out of initems being procured, and has been left to the ao if e tempas ce out oinSecretary to determine. Nonetheless, the Panel ventory; (ii) whether compliance would disrupt

stated its preference that manufacturers of com- sources of supply, personnel practices, and busimercial components should be as free as pos- ness methods that would typically be in place in

sible from government regulation inconsistent a company which served primarily the commerwith commercial practices, while recognizing cial market; and (iii) whether compliance with a

that prime contractors supplying government- contract-uniquerequirement would impose subunique items will have good reason to want to stantial expense on a "typical" commercial comflow down some government-unique clauses to pany.

subcontractors. For example, if the prime contractor must accept a government-unique war- In fashioning exemptions, as discussed above,

ranty, the prime contractor will doubtless want the Panel is not recommending the abandonequivalent warranty protection from its suppli- ment of policies underlying laws to which exers regardless of whether they supply defense- emptions have been applied. However, the

unique or commercial parts. Accordingly, the Panel believes that many of the policies today

Panel did not foreclose some regulation of com- imposed on contractors in a government-unique

mercial component manufacturers. Ontheother manner are also implemented in substantially

hand, sources of government-unique products the same way in statutes of general applicability.

should not be allowed to pass down willy-nilly In many cases, these policies should not be imall contract clauses they must accept. plemented contractually because the costs of

19
government-specificcontractual implementation for the commercial market using the same or

outweigh the benefits. Alternatively, there may similar production processes and (2) exempts

be ways to tailor the implementation of policies contract modifications to contracts awarded

to avoid substantial impacts on commercial op- under the expanded definition of adequate price

erations. competition or under catalog or market pricing.

Second, the Panel recommends a section on pricThe Panel took three different approaches to the ing in its proposed new subchapter of Title 10.

implementation of exemptions. First, the Panel By far the largest portion of commercial items

drafted a new commercial items subchapter for acquisitions will be able to be conducted through

Title 10, which contains provisions which re- competition as defined in 10 U.S.C. §§ 2302 and

place or supplement existing law. Second, the 2304 and in section 4 of the Office of Federal

Panel drafted exempting language in the body Procurement Policy Act (41 U.S.C.§403(6))oron

of a statute itself. Third, the Panel listed the the basis of established catalog or market prices

remaining exemptions in the proposed new as defined in the FAR (FAR 15.804-3(c)). In these

subchapter. Table II in the appendix summa- cases, the proposed subsection provides that the

rizes the reasons for each such listed exemption. contracting officer may presume that the price in

Table III in the appendix identifies those statutes the most advantageous offer, or a price based on

for which exemptions or amendments would be established catalog or market prices, is fair and

required if other recommendations of the Panel reasonable absent information to the contrary.

are not adopted. The proposed section does, however, require

the contracting officer to perform some "due

Pricing of Commerciai Item Contracts; diligence" prior to award when the price is

Audit; Remedies based on catalog or market prices. Where competition or established catalog or market prices The Panel was told repeatedly that companies are not available, the Panel mandates that the

which primarily sell to the commercial market- contracting officer use price analysis to deterplace do not have accounting systems that will mine the reasonableness of a price and provides

permit them to supply cost or pricing data as that the contracting officel may request "docurequired by TINA. Because of the high cost of mentation" from offerors to assist in such analyimplementing a government-specific account- sis. If, however, the reasonableness of a proing system, commercial companies will often posed price cannot be established through price

forego doing business with DOD rather than analysis, the provisions of TINA again apply to

implement a cost accounting system that would the acquisition. The Panel emphasizes that unpermit them to comply with TINA. Thus, if der the combined authorities of its proposed

DOD is to be able to acquire commercial items section and TINA, a contract will not be awarded

for which there is not adequate price compcti- unless the government can establish the reasontion as that concept is currently defined in TINA ableness of the contract price by some means.

and implementing regulations- such as a modified commercial item or cutting-edge technol- The Panel has intentionally referred to the inforogy protected from direct competition by patent, mation to be supplied by an offeror in support of

copyright, or trade secret - appropriate relief price analysis as "documentation" and not "data"

from TINA had to be found. to emphasize that its proposal does not authorize the contracting officer to ask for cost or

The required relief is given in two ways. First, pricing data as defined in TINA and its implethe Panel recommends amendments to TINA menting regulations. What is intended is that

itself that (1) expand and clarify the exemption the contracting officer can ask for information

for adequate price competition when applied to that an offeror may have on hand as part of its

items (and services) purchased from a business ordinary commercial operations. After discusunit which produces the same or similar items sions with industry, the Panel concluded that

20
most vendors of commercial items can provide Finally, to make effective the government's right

some form of documentation that would materi- to receive a price reduction for inaccurate docually assist a contracting officer in determining mentation, the Panel has provided for access to

that a price is reasonable using price analysis. the offeror's books and records in those situaOn the other hand, it is frequently difficult, tions in which documentation has been proparticularly in a large or far-flung organization, vided. This subsection is intended to replace all

for an offeror to have sufficient information to be other existing audit rights (including those in 10

able to certify that documentation is representa- U.S.C. §§ 2306a and 2313). The Panel received

tive of all sales by the offeror or that the price testimony from industry that vendors of comoffered is the !owest offe ed to any commerciai mercial items will not ordinarily retain, for their

customer for sales on similar terms and condi- own purposes or for any great length of time, the

tions. The Panel has expressly refrained from sort of documentation to be supplied under

requiring any representation that documenta- proposed subsection 2xx5(b). Indeed, industry

tion furnished is complete or that a price offered argued that any audit right should terminate

to the government is the lowest offered to any with award of a contract. On the other hand, the

other customer. If, however, an offeror is un- Defense Contract Audit Agency (DCAA) and

willing or unable to provide a sufficient basis for GAO both commented that it would not be

a determination of price reasonableness, and the practical to audit a reasonable number of comcontracting officer cannot find other informa- mercial item contracts if the audit right expired

tion supporting a conclusion that price is reason- with award. The GAO suggested that audit

able, then TINA applies, should be available up to three years after award

or one year after final payment. The Panel

For the sake of parallel treatment to TINA, the believes that one year after award is a reasonable

Panel recommends a new subsection that cre- compromise between the needs of DOD and

ates a contract remedy applicable when an offeror current industry practice, especially since the

"knowingly or negligently" provides inaccurate number of commercial item contracts awarded

documentation. This remedy is not intended to annually under subsection 2xx5(a)(2) should be

replace existing contract fraud remedies or small. Moreover, in many commercial items

criminal penalties for false claims and false state- contracts, the period for audit permitted by subments.3 2 Instead, it is provided because the section 2xx5(d) may not be very different from

government should have no less a remedy than GAO's suggestion of one year after final paya private buyer when a contract price is based on ment. Absent a compelling demonstration by

fraud or negligent misrepresentation and in DCAA or GAO that audit resources cannot be

recognition of the fact that circumstances may made available within a year after award, the

make a contractual remedy more appropriate period available for audit should not be exand useful than the full panoply of sanctions for tended. 34

fraud.33

32E.g., 18 U.S.C. §§ 287 and 1001 and the Civil False Claims Act, 32 U.S.C. § 3279.

33GAO commented that the Panel should extend the right to renegotiate contract price to circumstances in which

documentation is inaccurate through no fault of the offeror. The Panel rejected this suggestion as (a) inconsistent with

private commercial law and (b) inconsistent with the thrust of the Panel's purpose of fostering civil-military integration

by facilitating transactions based on existing commercial practices in which price-related data is not collected for the

purpose of certifying accuracy to the government. The massive criminal sanctions applicable to offerors should ensure

reasonable care in making documentation submissions, and GAO has pointed to no documented need for strict civil

liability to ensure that pricing is fair and reasonable.

34See, Chap. 8, p. 46 of the Report.

21
II

SIMPLIFIED ACQUISITION THRESHOLD

AND SOCIOECONOMIC LAWS

There is an inverse relationship in DOD con- impact upon small-dollar value purchases usutracting between the dollars expended and the ally by setting a "floor" below which the requirenumbers of contract actions, with over 50 per- ments of the new law would not apply. Howcent of those actions above $25,000 involving ever, while the "ceiling" for simplified acquisicontracts of less than $100,000. Although these tions was regularly adjusted to account for the

actions account forless than five percent of DOD declining purchasing power of the dollar, the

expenditures, they require an inordinate amount floors for applying these other statutory requireof time toaward and administer, largely because ments did not keep pace. As a result - and

of numerous contract provisions required by contrary to the original intent of Congress - the

statute and implementing regulations.35 This requirements of these statutes were gradually

problem has persisted despite long-standing applied to formerly simplified acquisitions. Proefforts by Congress and DOD to simplify acqui- cedures originally intended to expedite the ecosition procedures for small-dollar contracts in nomic acquisition of small-dollar value items

order to reduce administrative costs and to speed and services are now subject to a wide array of

procurement. Consequently, there is probably relatively complex and costly administrative

no single area of acquisition law where there is steps, solicitation provisions, and contract

a greater potential to reduce costs, while retain- clauses. Compliance with each of those proviing the management controls needed for the sions adds to the administrative overhead of

accountability of public funds, than in small- both the government and its suppliers, while

dollar DOD contracts. also adding barriers to commercial-military integration.

SIMPLIFIED ACQUISITION THRESHOLD

The Panel believes that the best way to streamCongress established a "small purchase thresh- line smaller purchases is to create a new, uniold" at $1,000 with the passage of the Armed form "simplified acquisition threshold" at a level

Services Procurement Act of 1947. Since then, of $100,000 (adjusted every fifth year for inflaCongress has usually recognized the need to tion) to replace thecurrentsmall purchase threshbalance the benefits of new legislation with the old of $25,000. To ensure that small business is

potential for adverse impacts upon the efficiency not adversely affected by this increase, the Panel

of the procurement process. Periodic increases recommends extending the current small busiin the level of the small purchase threshold have ness reservation established by 15 U.S.C. § 644(j)

been used by Congress to keep that level consis- up to the simplified acquisition threshold. By

tent with the effects of inflation. Other laws have substituting a uniform threshold for the applicaalso been deliberately drafted to minimize their bility of all socioeconomic provisions in place of

35 See Table IV at the Appendix and Chap. 4.1 of the Report. When contracts under $25,000 are added to this total, more

than 98 percent of all DOD contracts are less than $100,000.

23
the many differing thresholds which prevail First, the Panel reviewed available procurement

today, contracting officef's will not have to turn statistics, which show that across a number of

to a labyrinth of regulations to determine whether statutory programs, a $100,000 threshold will

(and which) simplified procedures can be used. simplify over50 percent of contractactions above

In addition, as DOD budgets decline, contracting $25,000 while affecting less than 5 percent of

offices will be able to conserve on contract ad- DOD expenditures above that amount. A

ministration resources and devote greater effort $100,000 threshold will mean that some 98 perto contracts over $100,000, which account for cent of all DOD contract actions can be accommorethan 90 percent of DOD's acquisition funds. plished under simplified procedures. ThreshFinally, small businesses which receive contracts olds above $100,000 begin to impact more sigbelow $100,000 will not have to cope with unique nificantly on the amount of spending that would

and costly legislated contract requirements. be released from complex regulation, although

an argument could certainly be made - and has

In recommending a simplified acquisition thresh- been made by the executive branch in some

old of $100,000, the Panel is not suggesting that cases - for a higher threshold. On the other

all purchases of supplies or services below that hand, stopping at a threshold of $50,000 would

threshold would be treated the same. Rather, only free about half as many contract actions

the Panel is recommending a level below which from complex regulations as the $100,000

the FAR and the DFARS would prescribe a range threshold.

of simplified procedures that would vary by

dollar value in terms of such factors as the amount Second, Congress set $100,000 as the floor for the

(and documentation) of competition required, application of several recent statutes on prothe formality and detail of price reasonableness curement integrity and lobbying. While these

documentation, and the contracting form to be laws impose restrictions on all contractors, they

used. Part 13 of FAR and DFARS provide a do not require contractual coverage below

range of such procedures appropriate to the $100,000.6

wide variety of simplified acquisitions, ranging

from small imprest fund or credit card pur- Third, statements received by the Panel from

chases to those requiring wider competition and several DOD agencies suggested that, as conmore structured processes. tract staffs are cut back as part of the overall

defense "build-down," it will be difficult for

The Panel's recommendation consists of four parts. contracting officers to spend much time on contracts below $100,000.

I. Establish a Simplified Acquisition

Threshold at $100,000. Fourth, it seemed unlikely to the Panel that any

company would actually be willing to spend the

The small purchase threshold was elevated to its money to make fundamental changes in the way

present level of $25,000 in 1986. Small purchases it does business in return for a sale of $100,000 or

were intended to be simplified by this threshold; less. This may be particularly true of small

i.e., not burdened with costly requirements un- businesses, which are the preferred recipients of

related to the value of the items or services being contracts of this size. Indeed, the Panel members

purchased. The Panel recommends that the are all familiar with anecdotal evidence showthreshold for simplified acquisition be increased ing that many small businesses never gain actual

to $100,000. While any level is somewhat arbi- knowledge of, understand, or implement the

trary, the Panel strongly believes $100,000 is "boilerplate" that is today inserted into smaller

justified for several reasons. contracts.

36ee 10 T .C. § 2397c(a)(1), 41 U.S.C. § 423(e)(7), and the Byrd Amendment, 31 U.S.C. § 1352 note.

24
Fifth, it appears that the great majority of con- One group of laws should continue to apply to

tracts above $25,000 and below $100,000 are simplified purchases, but should not require

awarded on the basis of competition, which implementation in contracts. Examples of this

makes such contracts good candidates for sim- type of law are prohibitions against gratuities or

plification, since competition will be the norm. the hiring of certain debarred individuals. This

set of laws, like criminal law, is binding whether

Sixth, a $100,000 threshold was authorized for or not clauses appear in a contract. The reason

Operations Desert Shield and Desert Storm for for removing the clauses is to permit smaller

overseas purchases, a step which proved essen- transactions to be handled by credit card, electial to the rapid mobilization of U.S. and allied tronic data interchange, or other simplified

forces. means where there may be no "contract" in the

classic sense of a paper document within which

Finally, the Panel approached its review with to place the clauses. Indeed, one of the greatest

the presumption that each socioeconomic pro- barriers to the implementation of credit card

gram created by Congress is important and purchasing for smaller DOD contracts is the

should be implemented to the greatest extent need to have a paper contract which contains

consistent with reasonablyefficient procurement clauses mandated by, for example, the Walshprocedures. At the same time, the Panel was Healey Act or Exec. Order No. 11246.

mindful that its enabling legislation directed it

to consider how procurement could be stream- A second group of laws is not self-executing, but

lined. The Panel believes that adoption of the applies only if implemented by contract clause.

$100,000 threshold continues the government's Examples are the Service Contract Act and the

commitment to socioeconomic (and other regu- Davis-Bacon Act. As to these laws, the Panel

latory) programs, reduces the barriers to small recommends that the statutory floor below which

and small disadvantaged business participation the law does not apply be set at the simplified

in government contracting, and streamlines the acquisition threshold (i.e., $100,000 as adjusted

defense acquisition system. The Panel under- for inflation). The reason for increasing these

stands that the major objection to using the thresholds is to reduce the amount of paper-

$100,000 threshold for domestic purchases has work required to award the contract and monibeen the perceived impact of such a threshold on tor its performance, to speed the award of smaller

small and minority businesses. As set out more contracts, and to reduce costs of performance by

fully in the next section of this summary, (and the private sector- which will hopefully lead to

Chapter 4.3 of the Report) the Panel has recom- reductions in the price of smaller contracts. In

mended statutory changes to protect the inter- this regard, the DOD Directorate for Contract

ests of small and minority businesses in receiv- thi ard ADminirtoa te act

ing smaller contracts on a priority or set-aside that ad tratio n s the te

basis. This, the Panel hopes, will remove the that the lead time for procurements above the

principal objection to use of the $100,000 thresh- current small purchase threshold averages four

old for domestic acquisition. to six months, while the lead time below the threshold averages one month. In addition, a

II. Adjust Existing Statutory Floors to Not Less number of DOD agencies advised the Panel that

Than $100,000. cutbacks in defense manpower will, as a practical matter, make monitoring smaller contracts

The Panel identified some 30 laws requiring very difficult. The threshold recommended here

clauses in contracts at various values below will simplify more than 50 percent of contract

$100,000. These statutes and their respective actions over $25,000 but impact only a very small

contract clauses are set out in Tables V and VI of percentage of total DOD spending. The $100,000

the appendix. The Panel makes two different threshold will conserve contract administration

recommendations with respect to such laws. resources, allow agencies to focus management

25
efforts on high-value contracts, and limit any this amendment is to ensure that the enlarged

impact on socioeconomic programs. 37 small tusiness reservation does not interfere

with current practice. In addition, it is not the

III. Reserve Purchases under the Simplified Panel's intention to "exempt" awards under the

Acquisition Threshold for Small Business. 8(a) program or section 2323 from the simplified

procedures authorized for contracts below

At present, all purchases below the small pur- $100,000; to the contrary, the Panel believes that

chase threshold are reserved by statute (15 U.S.C. simplified procedures should be used to the

§ 644(j)) for small business so long as there is a maximum extent practical for all contracts unreasonable expectation that at least two small der $100,000 including those awarded under

businesses will compete and can be competitive set-asides.

on price and quality. By regulation, contracts

above the small purchase threshold can be set Finally, the Panel notes that section 801 of the

aside (totally or partially) for small business or National Defense Authorization Act for FY 1993

small disadvantaged businesses, again so long has added a requirement 39 that the Secretary

as there is a reasonable expectation that two or of Defense "provide guidance to Department of

more responsible offerors will bid for the work Defense Personnel on the relationship among"

and reasonable price and quality will result. The the set-aside programs created unde- section

Panel was advised by the DOD Office of Small 8(a) of the Small Business Act, section 15 of the

and Disadvantaged Business Utilization that Small Business Act (15 U.S.C. § 644), and section

thousands of DOD contracts between $25,000 2323 of Title 10. The Panel recommends that

and $100,000, totaling in the hundreds of mil- allocation of DOD contracts below the simplilions of dollars, are today set aside by regulation fied acquisition threshold be made pursuant to

for small business or small disadvantaged busi- such regulations and not by statute in order to

ness. The Panel believes it is appropriate to permit the Secretary to meet the various sociocontinue existing practice as the simplified ac- economic participation goals levied on DOD.

quisition threshold is raised to $100,000, and

therefore recommends raising the statutory small IV. Simplify and Modernize Contract

business reservation in 15 U.S.C. § 644(j) to Notice Procedures.

$100,000 as well.

In order to ensure broader public access to streamIn recommending that the small business reser- lined procurement opportunities, the Panel recvation be raised, the Panel is aware that today ommends increased use of electronic procuremany DOD contracts between $25,000 and ment notice and contracting methods. Current

$100,000 are awarded pursuant to section 8(a) of notice requirements are set by section 18 of the

the Small Business Act (15 U.S.C. § 637(a)) or Office of Federal Procurement Policy Act (41

under the predecessors to 10 U.S.C. § 2323 (and U.S.C. § 416). This provision requires DOD

related Public Laws).38 It has therefore draft- contracting offices to post public notices of any

ed amendments to 15 U.S.C. § 644(j) that permit solicitation expected to exceed $5,000 ($10,000

set-asides of DOD contracts below $100,000 to for civilian agencies) and to advertise procureminority and small disadvantaged businesses to ments above the small purchase threshold in the

continue. The Panel stresses that the purpose of Commerce Business Daily (CBD).

37 For a fuller examination of the $100,000 floor, see the separate statutory discussion for each statute listed in Table VI.

38 Formerly the "section 1207 program." See Pub. L. No. 102-484, § 801,106 Stat, 2315, 2442 (Oct. 23, 1992).

3910 U.S.C. § 2323(e)(5)(C), added by Pub. L. No. 102-484, § 801 (C)(5), 106 Stat.2443 (1992).

26
The Panel recommends the following amend- nomic statutes would be retained. However, the

ments: 40 proliferation of socioeconomic statutes applicable to DOD - 114 such statutes (either sepa-

" Raise the threshold for synopsis in the CBD to rate sections of the U.S. Code or specific sections

the simplified acquisition threshold. This of various public laws) were reviewed by the

change alone should substantially decrease Panel - shows that the defense acquisition sysprocurement lead times for smaller purchases. tem reflects a balance between the requirements

of efficiency or streamlining and the dictates of

" Require all solicitations above $10,000 to be larger national goals. In short, the requirements

posted locally, preferably through the use of of the common defense have always been balelectronic bulletin boards, 800-numbers or anced by the necessity to promote the general

othermethods of electronic advertising. When welfare. Each defense dollar is expected to

the synopsis threshold is raised to $100,000, it perform double duty: not only satisfying the

is critical to small business that an effective, primary purpose for which it was authorized

low-cost, and efficient replacement be found, but contributing as well to the objectives of full,

Physical posting of a paper notice at a local fair, and equal employment opportunity, proper

contracting office does not fill this bill. utilization of the defense industrial base, promotion of small business and minority business,

• Require the Administrator for Federal Pro- and protection of the environment. 42

curement Policy (by amending section 416 to

add a new subsection (e)) to develop uniform A Consolidated Socioeconomic

regulations to establish widespread notifica- Chapter in Title 10

tion of opportunities below the simplified acquisition threshold. There are today a number Existing socioeconomic laws are a diverse mixof efforts within DOD to aggressively pro- ture of unrelated enactments, with many of the

mote the use of electronic notice and contract- laws affecting DOD not even being codified.

ing methods. Given the speed with which The Panel recommends that Congress consider

electronic technologies change, it would be the adoption of a new chapter of Title 10 which

inappropriate to legislate the form such notice would consolidate existing socioeconomic policy

must take. Instead, the Administrator should - especially the small and minority business

be charged with phasing in electronic meth- legislation that is today scattered in authorizaods as the required technology becomes rea- tion and appropriation acts - and would create

sonably available to government and thebusi- a structure for future laws. The Panel believes

ness community in general and small busi- that acomprehensive new chapter should do the

ness in particular. 41 following:

SOCIOECONOMIC LAWS Enumerate the laws applicable to DOD. - The

public laws reviewed by the Panel suggest a

One of the mandates in the Panel's charter was to pattern in which annual defense authorization

recommend the elimination of those statutes orappropriations acts regularly become the preunnecessary to the buyer-seller relationship. ferred vehicles for the imposition of new socioUnder this criterion, few, if any, of the socioeco- economic requirements on DOD. These new

40See Chap. 1.2 of the Report for a full discussion of 41 U.S.C. § 416.

4 1 It is the Panel's hope that the Administrator would encourage contracting offices to move to electronic notice and

contracting by reducing procurement lead times for solicitations that are posted electronically.

42See, Chapters 4.1 - 4.4 of the Report

27
and often complex statutory requirements in have been implemented by contract clauses, with

uncodified law make it very difficult to deter- the result that most violations of statute are also

mine which laws are no longer necessary, which breaches of contract. The Panel recommends

conflict with others, and which in combination that any comprehensive review of socioeconomic

have impacts that no one anticipated or desired. policy give serious consideration t i replacing

Old laws are seldom repealed, spawning an the doctrine of "enforcement through contract

even greater number of regulations. clauses" with a mechanism, such as suspension

and debarment, which gives the government the

Streamline requirements. - The 114 socioeco- power needed to obtain compliance through

nomic statutes which were reviewed for their direct enforcement. More straightforward enimpact upon defense procurement represent a forcement methods would avoid the enormous

potpourri of requirements imposed upon the clutter found in contemporary government conDOD from multiple sources with varying de- tracts, ease the burden on a shrinking contractgrees of relevance, validity, and importance to ing work force, and reduce barriers to commerthe national interest or the national defense. cial-military integration.

While each socioeconomic law may have been

passed with the best of intentions and the purest Labor and Equal Opportunity

of motives, their cumulative effect has been to

add both costs and significant barriers to com- In its review of the labor statutes pertaining to

mercial-military integration outlined above, defense procurement, the Panel concentrated on

Consolidation into a new section of the U.S. those statutes which, because of their unique

Code would encourage the drafting of legisla- requirements, place an unusual burden upon

tion based on a comprehensive view of the ac- the defense procurement system. Only three

quisition system. labor laws appeared to create such burdens: the

Davis-Bacon, Service Contract, and Walsh- Balance the Desire to Legislate Against the Healey Acts. Although these are "prevailing

Practicalities of a Decreasing DOD Work Force. wage" statutes that do not single out DOD, per - A recent study by the Merit Systems Protec- se, they apply to a wide range of defense contion Board documented the fact that the tracts involving, respectively, construction, sergovernment's 31,000 contracting officers are vices, and manufactured goods. Although Davishard-pressed even today to administer a pro- Bacon and Walsh-Healey were passed during

curement system characterized by a "potentially the Great Depression, they have become legislacounterproductive growth in federal procure- tive landmarks, surviving periodic attempts at

ment policy and procedures." 43 With fewer repeal or reform. The General Accounting Ofcontract administrators and auditors available fice (GAO) has, in successive reports, urged the

in the future, DOD clearly needs to be able to repealofboththeDavis-BaconandServiceConfocus the efforts of these specialists on contracts ral of bo th t a ao ad ServiCowhich carry the greatest number of dollars - tract Act, arguing that they are hard to adminisand a concomitantly higher degree of risk to the ter and that they inflate the costs of government

government - and where social programs will

have the greatest impact. The Panel's principal recommendations on the

Reduce Contractual Implementation of Laws. Davis-Bacon and Service Contract Acts were

- In the past, many socioeconomic statutes formulated with the overriding objective of el43U.S. Merit Systems Protection Board, Work Force Quality and Federal Procurement: An Assessment, Washington, D.C., July

1992, p. iii.

"See, respectively, U.S. General Accounting Office, The Davis-Bacon Act Should Be Repealed, GAO/HRD 79-18, April 27,

1979; and The Congress Should Consider Repeal of the Service Contract Act, GAO/HRD 83-4, Jan 31, 1983. See also Chap. 4.2

of the Report.

28
evating their thresholds to a common level of retain the present threshold. While the Panel has

$100,000, consistent with the simplified acquisi- no doubt concerning the recommended level of

tion threshold discussed above. The application the Miller Act threshold, it suggests that Conofthisthreshold to thelaborlawswould provide gress may well wish to approach that goal

a common floor of $100,000 in place of the wide through the intermediate step of either a test

variations that currently prevail - $2,000 for program or a study designed to monitor the

Davis-Bacon and $2,500 for the Service Contract application of the streamlined acquisition proAct, for example. For Davis-Bacon, the elevated cedures recommended here.

threshold would streamline 52.5 percent of DOD

contract actions above $25,000 while affecting Small and Disadvantaged Business

only 7.0 percent of the dollars; for the Service

Contract Act, 57.3 percent of the actions would One of the most important areas examined by

be streamlined while only 7.8 percent of the the Panel concerned the relationship between

contract dollars would be affected 4 5 In taking the defense procurement system and those laws

this position, the Panel specifically rejected the which Congress enacted to promote the interadvice of those who urged either higher thresh- ests of small business, especially those busiold levels or the outright repeal of both these nesses which are both small and disadvantaged.

laws. However, the Panel accepted the recom- The Small Business Act clearly has a major effect

mendations of many people who urged the re- on DOD acquisition policy, an effect which has

peal of the Walsh-Healey Act. This statute is one been magnified by a succession of defense authat has gradually outlived whatever usefulness thorization and appropriations acts mandating

it may once have had, its major provisions hay- specific actions by DOD to support various small

ing been whittled away by the passage of more business programs. In assessing the impact of

progressive legislation over the years. 46 these requirements, however, the Panel was

The general need to consolidate a number of mindful that another congressionally-chartered

labor-related requirements at the $100,000 level body, the U.S. Commission on Minority Busialso led to the Panel's recommendations con- ness Development, had been formed in 1989

cerning the Miller Act (40 U.S.C. § 270a, et seq.). with the broader mandate of examining the opThis law protects the government against non- erations and policies of the Small Business Adperformance and related liabilities by imposing ministration, as well as assessing the general

a bond requirement on prime contractors per- state of the minority small business community

forming federal construction projects exceeding nationwide. The Commission's final report, is-

$25,000. To provide greater uniformity in con- sued in September 1992, will clearly have a

tract administration, the Panel proposes amend- major influence upon future discussions of miing the Miller Act to adjust this threshold to nority business issues.47 Despite the differences

$100,000. In presenting this recommendation, in charters - as well as the time and resources

however, the Panel carefully considered a num- devoted to their respective studies - this Panel

ber of comments which strongly suggested that made a number of important recommendations

it was in the best interests of the government to which support the Commission's objectives:

4 5 Source: OSD, Directorate for Information Operations and Reports, DOD Prime Contract Awards, Size Distribution, FY

1991, p. 16.

46 It should be emphasized that those provisions of Walsh-Healey which grant expanded procurement opportunities for

the blind and severely handicapped (41 U.S.C. §§46-48c, also known as the Javits-Wagner-O'Day Act) would be preserved

under the Panel's recommended changes.

4 7 U.S. Commission on Minority Business Development, Final Report, (Washington, D.C: USGPO, September 1992). See

also Chap. 4.3 of the Report.

29
* Congress should replace existing small busi- small business to provide continuing advice

ness legislation - much of which is con- on the management of DOD smaU business

tained in frequently-changed uncodified law programs.

and some of which is internally inconsistent

-witha comprehensive and consistentsmall Congress should amend 15 U.S.C. § 637 to

business code. permit direct contracts between federal agencies and small businesses selected for award

* In such a new code, Congress should go under the Small Business Administration's

beyond the allocation of procurement dol- "section 8(a)" program.

lars and make provision for access by small

business to capital, training, and manage- *Congress should repeal § 804 of the DOD

ment support. Authorization Act for FY 1993 or extend its

procedures governing certificates of compe-

* The Secretary of Defense should consider tency to all federal agencies.

appointing a DOD advisory committee on

30
IV

CONTRACT MANAGEMENT

The Panel's Report contains extensive analyses procedures for government agencies. Those

of two areas which are fundamental to the acqui- policies are derived from the fundamental consition process: contract formation (issues gener- cept of competition, an idea that has been emally arising before the award of a DOD contract) bedded in government contract law snce the

and contract administration (those activities earliest days of the Republic. In 1809, for exnecessary to ensure that both the government ample, Congress enacted a law to provide that

and its suppliers fulfill their obligations under "all purchases and contracts for supplies and

the contract). A closely-related area involves the services shall be made by open purchase or

methods and forums for the resolution of pro- by previously advertising for proposals." 48

tests which may arise in the course of a procure- More recently, in response to concerns that comment. All three of these areas are central to the petition had become the exception and not the

DOD contracting process and, for that reason, rule in government contracts, Congress estabare summarized here under the title contract lished full and open competition as the guiding

management. principle for all government acquisitions. The

Conference Report on the Competition in ConAs an overview, the Panel found that the major- rracting Act (CICA) of 1984 explained this prinity of these laws were necessary for the buyer- ciple as follows:

seller relationship. In line with its charter, however, the Panel recommended numerous amend- The conference substitute uses "full and

ments, consolidations, and repeals to improve open competition" as the required stanand strengthen the contract management pro- dard for awarding contracts in order to

cess, while fulfilling the goals of streamlining emphasize that all responsible sources are

and simplification, permitted to submit Hids and proposals for

a proposed procurement. The conferees

CONTRACT FORMATION strongly believe that the procurement process should be open to all capable contracChapter 1 of the Panel's Report sets forth its tors who want to do business with the

analyses and recommendations on the statutes Government. 4 9

pertaining to contract formation, including those

on procurement protests. The Panel'3 review of The full and open competition policy underlies

these statutes began with those in which Con- all of the Panel's recommendations on contract

gress set forth fundamental policies governing formation. The Panel believes that its recomthe operation of the procurement system and mendations will improve and strengthen the

482 Stat. 536.

49 H.R. CONF. REP. NO. 861, 98th Cong., 2d Sess. 1442 (1984).

31
competition process and enable D)I to gain a The Panel considered amending this and other

fuller measure of the benefits of competition, CICA-related statutes toprovide a definition for

including competition for commercial and the term "adequate and effective competition"

nondevelopmental items. and the conditions ii nder which such competition could be used. The Panel perceived ,ItuaCongressional Defense Procurement Policy tions in which the responses received to a solicitation did not warrant the expense of preparing,

10 U.S.C. § 2301 states congressional policy for reproducing, and distributing solicitation docudefense procurement. The Panel has recom- ments, but also noted that as the technology of

mended amendments incorporating several of electronic data interchange (FI)l) matures, the

its objectives-stated above in the introduction costs of preparing and publicizing solicitatmns

- into the existing statements of congressional are likely to decrease.

policy in a manner that preserves congressional

intent and clarifies priorities. The proposed The Panel was particularly mindful of conchanges provide a clear recognition of the need cerns expressed by Congress when it enacted

for an optimum balance between efficiency, full CICA,5 1 and the Panel concluded, based upon

and open access to the procurement system, and its own knowledge and experience, that there

sound implementation of socioeconomic poli- would be great difficulties involved in precisely

cies. The Panel believes that it is both accurate defining "adequate and effective competition,"

and useful to recognize in congressional policy as well as significant possible unintended consethat there are trade-offs end compromises re- quences of the adoption of that standard. The

quired between worthwhile objectives. It also Panel concluded after extensive discussion that

has recommended clear policies on preferences retreat from the "full and open competition"

for commercial and nondevelopmental items, standard was neither warranted nor wise.

appropriate allocation of risk between the government and contractors, and fair and expedi- Competitive Statutes

tious resolution of protests and disputes through

uniform interpretation of laws and regulations. There are 14 statutes, codified in Titles 10, 40,

and 41, which, together with the procurement

Definitions protest system, provide the fundamental framework for the system of co mpet iti ve procurement

In 10 U.S.C. § 2302, "Definitions," the Panel has in DOD. 52 When applied in conjunction with

recommended a new definition of"commercial the Truth in Negotiations Act at 10 U.S.C. §

item" and the relocation and refinement of the 2306a, 53 these statutes also provide the fundadefinition of "nondevelopmental item" from 10 mental framework for sole-source or limitedU.S.C.§2325(d). Greater reliance on, and consis- source negotia t ions under except ions tothe gentency with, section 4 of the Office of Federal eral requirement for full and open conmpetition,

Procurement Policy Act (41 U.S.C. § 403) and including the methods for -,., tiion and award

increase in the authority to procure outside the of architect-engineering services.

United States in support of contingency operations, as defined in section 101(47) of Title 10, Four of these statutes are on the critical path of

have been proposed. s 0 every procurement. Section 2304 of Title 10,

50 See the analysis at Chap. 4.1 of the Report.

51 Set' Chap. 1.1 of the Report.

52 Sce Chapters 1.2 and 1.5 of the Report for analysis of competitive statutes and prokturemoni j'rote(t , rt-p,,t fively

53Se Chap. 1.3 of the Report.

32
"Contracts: competition requirements," provides rently at section 2304(j), and substitute a comthe fundamental requirement for full and open pletely new section 2304(j). This new section

competition, as well as the exceptions and the would set forth in law the recognition of the

methods for justifying these exceptions. It also legitimate need for contracts that do not procure

provides the statutory basis for inclusion in the or specify a firm quantity of supplies or services,

regulations of simplified procedures for small the use of proper deli,,rv or task orders under

purchases. Section 416 of Title 41, "Procurement such contracts, and the criteria that such connotice," prescribes the public notice require- tracts must meet in order for the delivery or task

ments for procurements to ensure prospective orders issued under them to be exempt fron, 9"e

offerors are aware of solicitations to be issued notice requirements of 41 U.S.C. § 416 (synopsis

and awards made. Section 2305 of Title 10, orpostingrequirements)and fromseparateccm-

"Competition: planning, solicitation, evaluation, petition or approval of a justification under secand award procedures," prescribes these pro- tion 2304(0.

cesses, both for sealed bids and competitive

propo-,als. Section 2306 of Title 10, "Kinds of Since the master agreement authority of section

contracts," provides broad latitude for the kinds 2304(j) is lir ited to advisory and assistance serof contracts that may be used, places limitations vices and includes many restrictions on award,

on fees in cost type contracts, and prohibits cost- duration, and competition of individual task

plus-a-percentage-of-cost contracts. Taken to- orders, the Panel believes that it was a sincere,

gether then, these four statutes tell when to but not entirely successful, attempt to address

compete, how to compete, and what kinds of one very important portion of a larger problem.

contracts may be used. The Panel concluded The Panel believes that its recommended statuthat these four statutes, including the funda- the Panel b ieves th emendeds

mental requirement for full and open competi- toryrulestructure will meet thelegitimate ',eds

tion, continue to provide a sound framework for for having contracts in place to respon ey

conducting the DOD procurement process in an provide supplies or perform services when the

open, fair, and ethical manner, while meeting quantities, timing, and exact nature are not

mission requirements. The most important rec- known in advance. As important, it will help to

ommendations on these four statutes are sum- prevent the improper use of such contracts to

marized here. avoid competing new orexpanded requirements

when competition is appropriate. It will also

The Panel recommended 10 amendments to sec- ensure proper approval of the justification when

tion 2304, "Contracts: competition require- competition is not appropriate.

ments." All but one of these are procedural or

are necessary to implement other recommenda- Among the proposed amendments to section

tions of the Panel. These include amendment of 2305, "Competition: planning, solicitation, evalusection 2304(g) to provide for simplified proce- ation, and award procedures," three are an intedures in the Federal Acquisition Regulation for gral part of implementing the Panel's recompurchases of property or services with a value mended improvements in the protest process.

not in excess of the new $100,000 "simplified These proposed amendments wouldacquisition threshold." 54

* Require regulations which address the deThe Panel's major substantive recommendation briefing of unsuccessful offerors to help elimifor amendment of section 2304 is to delete the nate needless protests. The Panel believes

authority and rule structure for master agree- timely and meaningful debriefings should be

ments for advisory and assistance services, cur- a statutory requirement, but the detailed re5 4 See Section III of this Summary as well as Chap. 4.1 of the Report.

33
quirements of a debriefing should be left to under "Simplified Acquisition Threshold."

the regulations. 55 These regulations would These amendments to section 416, as welJ as

accomplish three things: (1) establish criteria additional changes, are summarized here:

for determining whether a debriefing is required; (2) provide that any required debrief- • Amend section 416 by replacing "small puringbeconducted tothe maximum extent prac- chase threshold" with "simplified acquisiticable within 15 calepdar days after award; tion threshold."

and (3) provide that the debriefing address the

strengths and weaknesses of the unsuccessful Amend section 416(a)(1)(B) to harmonize

proposal. the dollar threshold for posting notices at the

contracting office at $10,000 for both DOD

" Require contracting activities to establish, and the civilian agencies. Also, this amendand provide local access to, a protest file ment would permit agencies to fulfill or

containing releasable information, in order supplement posting requirements through

to help prevent unnecessary multiple pro- automated means, subject to rules to be istests on the same proposed contract award. sued by the Administrator for Federal Procurement Policy.

" Grant to the agency head the same authority

to pay bid and proposal costs and legal fees Add section416(a)(1)(D) to generally require

as the Comptroller General has, when the automated means for transmitting solicitaagency determines a solicitation, proposed tion and award notices for publication in the

award, or award does not comply with a Commerce Business Daily (CBD).

statute or regulation.

* Add section 416(e) to allow the use of autoThe Panel recommends four amendments to mated systems for actions under the simplisection 2306, "Kinds of contracts." Three of fied acquisition threshold.

these are procedural or needed to implement

other Panel recommendations. The major rec- As a result of the above amendments, fewer

ommendation is to amend section 2306 by delet- procurement actions will require publication

ing subsection (c), which requires a delegable in the CBD. 56 To prevent any potential adverse

determination by the head of an agency before impact on competition, the new section 416(e)

use of a cost-reimbursement or incentive con- would require the Administrator for Federal

tract. Congress has recently favored cost-reim- Procurement Policy to issue rules to accomplish

bursement contracts for research and develop- notice through automated means and to take

ment of major systems. Because contract-type into account the costs of automated means and

selection is an integral part of the acquisition their availability to offerors, including small

strategy and planning processes, the Panel be- businesses.

lieves the separate written determination is unnecessary. * Add section 416(a)(4) to increase flexibility

when setting deadlines for submission of

The Panel recommends five amendments to 41 offers for commercial items.

U.S.C. § 416, "Procurement notice," and makes

one recommendatiGn for future consideration Section 416(a)(3) establishes minimum time peby the Congress. Several of these amendments riods that offerors have to prepare their bids or

were discussed in section III of this summary proposals after notice is published in the CBD.

55 See Chap. 1.2.2 of the Report.

56 See Chap. 1.2.9 of the Report.

34
The Panel believes the time periods may be of existing systems, it may be very difficult to

excessive when the product sought is a commer- maintain current levels of competition or to imcial item. For example, a supplier may already prove them further. For that reason, and in light

have an existing catalog which describes the of their expanded role as advocates for commeritem and shows the market price of a commer- cial and nondevelopmental items, the Panel concial item and therefore does not need the usual cluded that the competition advocates should be

30 days to submit a bid. The present law pre- retained. 57

cludes setting a shorter time for the submission

of bids and proposals and thus builds unneces- Truth in Negotiations Act

sary delay and attendant costs into the acquisition process. The proposed section 416(a)(4) Section 2306a, "Cost or pricing data: truth in

exempts commercial items from the statutory negotiations," often referred to as "TINA," clearly

time constraints and directs the Administrator impacts the critical path of many large-dollar

for Federal Procurement Policy to issue rules contracts awarded without price competition

published in the FAR which prescribe the appro- and many significant contractual modifications.

priate time periods. Several public and private sector commenters

focused on the need to amend TINA, or its

* The Panel recommends that Congress con- regulatory implementation, in order to better

sider alternative publication methods for ac- facilitate the procurement of commercial items

tions above the simplified acquisition thresh- and make it easier for the government to buy

old. from commercial entities. Commercial company accounting systems do not normally proThe Panel does not at this time advocate use of duce the detailed cost and pricing data required

automated systems in lieu of publication in the under TINA and do not segregate or record costs

CBD for actions over the simplified acquisition according to government accounting requirethreshold because that publication is at present ments.

the only standardized, uniform repository of

such procurement information. As the technol- After consideration of comments, analysis of the

ogy evolves and experience is gained, the Panel law, and full consideration of the many related

recommends that Congress consider alternative presentations concerning TINA and the overall

publication methods above the simplified ac- subject of procurement of commercial items, the

quisition threshold and, when appropriate, au- Panel concluded that the threshold for applicathorize theissuance of new uniform and govern- tion of the statute should be stabilized and the

ment-wide regulations. statute should be amended to facilitate acquisition of commercial items. 58 The three most

The Panel recommends retention of 41 U.S.C. § significant of the Panel's six recommended

418 and 10 U.S.C. § 2318, both entitled, "Advo- amendments to the statute are:

cates for Competition," but with obsol'-e material in section 2318(c) to be repealed. The Panel "To maintain the dollar threshold for applic.

considered in its discussions whether competi- tion of the statute constant at $500,000 by

tion is sufficiently institutionalized in DOD to eliminating all words in the statute that refer

permit the elimination of competition advocates, to the threshold reverting to $100,000 after

The Panel concluded that, in an environment of December 31, 1995, and repeal section 803 of

decreasing budgets, fewer new programs, and the National Defense Authorization Act for

greater reliance on upgrades and modifications FY 1991 (Pub. L. No. 101-510), as amended.

5 7 See Chapters 1.2.5 and 1.2.10 of the Report.

58See Chap. 1.3 of the Report.

35
" To add a specific exception in subsection (b)(2) tion, it may become subject to submission of

for modifications to contracts or subcontracts certified cost or pricing data if a modification in

for commercial items or services when the excess of the threshold is needed, but the price of

modification exceeds the threshold, but does the modification, itself, is not based on adequate

not change the commercial item or service to price competition. The recommended exempa noncommercial item or service or the modi- tion is limited to only those circumstances under

fication is issued solely to purchase a commer- which the contracting officer should be able to

cial item or service. determine the reasonableness of the price of the

modification by price analysis and comparison

" To expand and clarify the exception for ad- to the price(s) under the basic contract.

equate price competition as stated in subsection (b) by adding a new subsection (b)(3), The last amendment listed would remove unprovidingthata procurement canbe exempted necessary impediments to the use of commercial

from TINA under the adequate price compe- items and leading edge technology. Specifically,

tition exemption if: (1) the price is fair and by permitting the contracting officer to consider

reasonable, and (2) the item is tobe purchased the same or similar items produced under the

from a company or business unit that pro- same or similar production processes as the

duces the same or similar item for the com- contractor's commercial items, proper considermercial market using the sameor similarcom- ation will be given to the actual operation of

mercialproduction processes used toproduc. market forces in the determination of a fair and

the offered item for the government, reasonable price. Use of the term "same or

similar item," recognizes the dynamics of the

Over the past decade, the threshold for applying marketplace where commercial items are freTINA to DOD, NASA, and Coast Guard con- quently undergoing changes: (1) to meet custracts has fluctuated between $100,000 and tomer-specific needs; (2) to use new technolo-

$500,000. The first amendment listed above gies; and (3) to incorporate so-called planned

would provide consistency, take into account product improvements.

inflation since 1962, and maintain the threshold

at the general level that applied when the statute The proposed amendment provides for the conwas originally passed. Stability will assist both sideration of several different factors in detergovernment and industry in planning their con- mining if an item meets the proposed criteria for

tract surveillance or accounting systems and the adequate price competition exemption and

will appropriately balance the risk to the gov- is offered at a fair and reasonable price. Considernment against the administrative costs of au- eration may be given to the prices of alternate

diting and pursuing alleged defective pricing items that perform the same or similar functions.

This would allow the government to compare, cases. The specific requirements of Pub. L. No. for example, the prices of items manufactured

101-510, asamended,whichcallforareviewand with new technologies or processes to items

report by the DODIG on the threshold change, manufactured with older technologies or prowould be inconsistent with stability and predict- cesses. Consideration may also be given to the

ability in the threshold. prices at which the offeror has previously sold

the same or similar items and to the existing The Panel agreed that there is a legitimate con- commercial practices of contractors and subc icern by commercial companies about the appli- tractors. Under this last consideration, where a

cation of TINA to modifications. Ifacommercial subcontract price is established through the use

company, whose accounting system will not of existing vendor business relationships and

produce the cost or pricing data required by pricing methodologies regularly used for comTINA, wins a large contract for a commercial mercial production, this factor may support a

item or service under adequate price competi- determination of a fair and reasonable price.

36
The proposed amendment also links the ad- Other Related Statutes

equate price competition exemption more directly to the use of market research techiques. The Panel analyzed twelve codified statutes, as

Consequently, the Panel believes there will be a well as two uncodified sections of National Deneed for better training of contracting and re- fense Authorization Acts, generally related to

quirements personnel in market research and contracting authorities and delegations, contracprice analysis techniques, as well as meaningful, tual terms and conditions, or limitations on conthoughtful, and innovative regulatory imple- tracting.60

mentation.

Among other recommendations contained in

Research and Development Chapter 1.6 of the Report is the amendment of

section 2310, "Determinations and decisions,"

Nineteen statutes analyzed by the Panel provide to allow determinations and decisions to be

the general statutory framework for research made for a class of purchases or contracts, "exand development. 59 Among the Panel's 14 re- cept when expressly prohibited under this title."

commendations, the two most important are: This amendment, along with conforming amendments to section 2304, places the restrictions on

* Amend section 2358, "Research projects," to class determinations and decisions in the relclarify that advanced. as well as basic and evant statute. It also clearly distinguishes class

applied, research and development should be justifications and approvals permissible under

included in the scope of authority granted in section 2304 from the class determinations made

the statute and that these authorities should by agency heads prohibited by section 2310.

be clearly provided to both the Secretary of

Defense and the Secretaries of the military Also, the Panel recommends amendments to

departments. Implementation of this recom- section 2326, "Undefinitized contractual actions:

mendation will make section 2358 the funda- restrictions" as follows:

mental statute providing authority for performing research and development projects *Amend section 2326(b) to remove limitations

and permit the repeal of sections 4503 and pAm en ec tion tat removetedmitations

9503, which are Service-specific statutes for prior to definitization that are stated in terms Ithe Army and Air Force, respectively, of expenditures and rely instead on limitations stated in terms of obligations. This recog-

* Amend section 2371, "Advanced research nizes that the government indirectly controls

projects: cooperative agreements and other expenditures by limiting the government's

transactions," to delete "advanced research liability to the amount obligated.

projects" from the title and delete the subsection which provides authority that would be *Add section 2326(b)(4) to allow waiver by the

redundant with section 2358 when amended head of the agency of the percentage limitaas recommended by the Panel. The net effect tions on obligations prior to definitization, if

is to amend section 2371 to focus its necessary necessary to support a contingency operation

and very useful provisions more clearly on the as defined in 10 U.S.C. § 101(47) 61 or otheruse of cooperativeagreements and other trans- wise in the best interests of the United States.

actions for research and development. Contractors should not unreasonably be dis59 See Chap. 1.4 of the Report.

60 See Chap. 1.6 of the Report.

61 See National Defense Authorization Act for FYs 1992 and 1993, Pub. L. No. 102-190, § 631, 105 Stat. 1290, 1380 (1991)

(defining "contingency operations").

37
couraged from meeting urgent requirements history and statutory basis of each of these fobecause the time to award a definitive contract rums, the procedural and substantive law varies

may exceed the time to physically deliver or by forum, as does the nature of the remedies

perform. available. A brief description of these forums as

well as the Panel's recommendations to increase

Section 2329, "Production special tooling and the efficiency and effectiveness of bid protest

production special test equipment: contract remedies follows.

terms and conditions" is recommended for GAO Protests 63

repeal. It requires regulations to implement

complex and detailed requirements concerning At the GAO, protests are resolved through writpayment for, and amortization of, the cost of ten decisions initiated by a letter outlining the

production special tooling and test equipment. basis of the protest. The GAO will consider

This section was an appropriate congressional protests which object to the terms of a solicitaresponse to a controversy and a lack of uniform tion, a proposed award or award of a contract,

DOD-wide policy. Based on significant changes and must generally decide protests within 90

in both the circumstances and the statutory role working days. The GAO normally bases its

of the Director of Defense Procurement in decision on the written agency report submitted

approving regulations and clauses, the Panel in response to the protest and the protester's

believes that this subject can again be handled in written comments to the agency report. In order

the regulations, with assurance of uniform and to develop a full record on the protested action,

equitable policies, a protester may request the agency to submit to

the GAO additional agency records with the

PROCUREMENT PROTESTS agency report. Where appropriate, the GAO

may conduct hearings and receive sworn testiIn adopting CICA in 1984, Congress recognized mony on contested issues of fact. Hearings are

the vital role of procurement protests in assuring the exception rather than the rule under the

full and open competition, and stated that GAO procedure.

formal protest proceedings were essential

because: If the agency action is found to be in violation of

law or regulation, the GAO may grant the pro-

(A) strong enforcement mechanism is test and may recommend that the agency cancel

necessary to insure the mandate for competi- the solicitation, award a contract to another bidtion is enforced and that vendors wrongly der, cancel an award, or take other such approexcluded from competing for government priateaction. Additionally, the GAOmayaward

contracts receive equitable relief.62 bid and proposal costs or legal fees incurred

during the protest. If a protest is filed with the

Today, parties who object to agency actions in GAO before contract award or if the agency is

connection with the award, proposed award or notified by the GAO of a protest within 10 calenprocurement solicitation can file a formal pro- dar days after contract award, agencies must

test in four different protest forums external to ordinarily suspend contract award or stop work

the contracting agency. Because of the distinct on awarded contracts.

62 H.R. CONF. REP. NO. 861, 98th Cong., 2d Sess. 1435 (1984), reprinted in 1984 U.S.C.C.A.N. 1445,2123. See also H.R.

CONF. REP. NO. 861,98th Cong.., 2d Sess. 1430 (1984), reprinted in 1984 U.S.C.C.A.N. 1445, 2118.

63

The GAO protest procedures are set out in detail in the GAO bid protest regulations, 4 C.F.R. Part 21.

38
GSBCA Protests 64 contract where the protest is filed before award

or from allowing continuance of performance of

The Administrator of the General Services Ad- the contract in those cases where the protest is

ministration coordinates the procurement of filed after award.

Automatic Data Processing Equipment (ADPE)

and services by federal agencies, including a Under the GSBCA's procedures, agencies are

portion of DOD procurements. 5 In furtherance required to file the record of the agency decision

of this authority, the Administrator either pro- forming the basis of the protest. At the conclucures the ADPE or issues a delegation of pro- sion of discovery, and well before the end of the

curement authority (DPA) to authorize the 45 working day period for a decision, the GSBCA

purchase of ADPE by an agency. 66 The actual may conduct an evidentiary hearing on the proprocurements are conducted by the agencies test. The typical hearing is completed in less

under their procurement statutes. The GSBCA than three days. Following the hearing and

bid protest authority is limited to those ADPE receipt of briefs from the parties, the GSBCA

procurements for which a DPA is necessary6 7 issues its final decision. Decisions of the GSBCA

may be appealed as a matter of right to the Court

The GSBCA can conduct a formal adjudicatory- of Appeals for the Federal Circuit by either the

type procedure to resolve a protest. Protests government or any interested party.

filed with the GSBCA must be resolved to the

maximum extent possible within 45 working Judicial Protests 68

days. The GSBCA procedure typically begins

with an initial conference. At that time, an Protests filed in the district courts or the Court of

administrative judge establishes a process for Federal Claims (CFC) proceed in a manner simiconducting discovery and may establish a limi- lar to those filed before the GSBCA. 69 Parties

tation on the amount of discovery. The judge filingprotestsinthecourtsfileacomplaintgeneralso establishes a time period for completion of ally seeking both a declaratory judgment that an

discovery and for filing of dispositive motions. agency action was improper and a temporary

If a protest is filed before contract award or restraining order or preliminary injunction to

within 10 days of contract award, the GSBCA stop the agency from proceeding with award or

holds a hearing to determine whether to sus- performance ofacontract°70 Before any hearing

pend the agency DPA. If the DPA is suspended, is held, the courts will often allow limited disagencies are precluded from making award of a covery. No prescribed time periods exist for

64 Refers to the General Services Board of Contract Appeals. GSBCA bid protests are governed by the GSBCA Rules

of Procedure, 48 C.F.R. §§ 6100-6199.

65 Under the "Warner Amendment," the jurisdiction of the GSA over ADPE does not extend to DOD ADPE if the function,

operation, or use of the ADPE involves intelligence activities or the command and control of military forces, or is

equipment which is an integral part of a weapon or weapons system, or is critical to the direct fulfillment of military or

intelligence missions. Department of Defense Authorization Act of 1982, Pub. L. No. 97-86, § 908(a)(1), 1982

U.S.C.C.A.N. (95 Stat.) 1117,40 U.S.C. § 759(a)(3).

6640 U.S.C. § 759.

67 Id.

68 The 1991 Report of the American Bar Association Public Contract Law Section Bid Protest Committee Courts Subcommittee

Project contains a thorough discussion of the bid protest procedures in federal courts.

69 Congress recently changed the name of the United States Claims Court to the Court of Federal Claims. See Federal

Courts Administration Act of 1992; Court of Federal Claims Technical and Procedural Improvements Act of 1992, Pub.

L. No. 102-572, § 907(a) & (b).

7 0 See e.g., 28 U.S.C. § 1491 (a)(3).

39
resolution of bid protests filed in the courts, and * The bid protest system will become more

there are no prescribed rules for issuance of efficient and thereby save resources for prodecisions. Protests are often disposed of by the testers, intervenors, and agencies.

grant or denial of a preliminary injunction. In

many cases, this grant ordenial is not accompan- Moreover, the Panel recommends that Congress

ied by a formal decision. Upon appeal of either consider a more far-reaching reform by replacparty, decisions of the district courts may be ing the four existing bid protest forums with a

reviewed as a matter of right to one of the 12 single bid protest forum in the executive branch.

regional courts of appeals. Decisions of the CFC The Panel fully recognizes that it would be preare reviewed on appeal by the Court of Appeals mature to implement this far-reaching reform

for the Federal Circuit. without considerably more analysis and debate.

Regardless of whether Congress eventually finds

Panel Recommendations merit to a single bid protest forum, the Panel

believes consideration should be given to the

The Panel adopted the following four principles immediate improvements recommended in its

to provide guidance in formulating its recom- Report.

mendations for changes to the bid protest system: Disappointed Offerors Should Have

Reasonable Access to the Reasons for

" Disappointed bidders and offerors should Adverse Agency Action

have reasonable access to the reasons for

adverse agency actions. Frequently, a disappointed offeror can obtain

complete and timely information on the reasons

" Contracting officers, like other government for an agency's rejection of its offer only by filing

officials, are entitled to a presumption of a protest. Providing offerors with more comregularity for their actions. plete and timely information on the reasons for

an agency's adverse action would eliminate one

" Protests should be resolved in a fair, expedi- of the reasons that cause contractors to file protious, and efficient manner. tests.71 This would, in turn, shorten the procurement cycle, save time, and reduce needless

" Overlapping, duplicative, and conflicting expense. To make this requirement meaningful,

protest procedures should be eliminated, the period of suspension should be extended to

accommodate the debriefing. For this reason

Based on the above guidance, the Panel made a and for other reasons explained in its detailed

series of recommendations to the existing bid proposal, the Panel recommends that:

protest system which offer some immediate benefits: o Offerors be given timely and complete

debriefings which provide meaningful in-

* Precipitous protests can be avoided; formation on the strengths and weaknesses

of their proposals.

" Greater uniformity in both decisions and

practice can be gained among the bid protest * After contract award, agencies must ordiforums; and narily suspend contract performance when71 In The Protest Experience Under the Competition in Contracting Act (1989), the Bid Protest Committee of the American Bar

Association, Section of Public Contract Law, documented the commonly-held belief that some protests would not have

been filed if a meaningful debriefing had been available.

40
ever a protest is filed within 10 days of strict adherence to the procedures for bidding is

contract award or within three calendardays necessary." 72 A logical corollary to this prinafter the date set by an agency for any re- ciple is the need for consistency among the variquested and required debriefing. ous protest forums as to how a protest is reviewed. A single standard of review for all

The Panel recognizes the effectiveness of protec- protest forums will result in increased consistive orders in GAO protests. The use of protec- tency and greater certainty in result, will reduce

tive orders was recently instituted through the forum shopping, and will enhance the percepunilateral actions of the GAO. Protective orders tion that the protest system is fair. Accordingly,

permit interested parties to review competition- the Panel recommends the establishment of a

sensitive and proprietary information which they single standard of review for agency actions that

otherwise could not review. This practice allows authorizes the courts, like the GAO and the

for a more comprehensive examination of the GSBCA, to set aside agency action which viofacts with a more equitable decision. The Panel lates procurement law or regulation. On matters

believes that the authority for this useful tool committed to agency discretion, the agency

should be permanent. Accordingly, the Panel should be required to establish a reasonable

recommends that the Comptroller General be basis for its actions.

given express authority to use protective orders

to provide access to competition-sensitive or As an additional enhancement of the bid protest

proprietary information to attorneys and techni- system's integrity, the Panel recognizes a need

cal consultants of the interested parties. to provide for a penalty for those who bring a

protest knowing it is baseless or, after having

Contracting Officers, Like Other discovered that fact, continue the protest. While

Government Officials, Are Entitled the Panel believes that this situation is relatively

to a Presumption of Regularity uncommon, the very presence of this penalty

for Their Actions will deter frivolous protests and will add to the

overall perception that the entire process is fair

The Panel believes that contracting officer deci- and even-handed. Accordingly, the Panel recsions on matters which are entrusted to agency ommends that where the GAO, the GSBCA, or a

discretion should be upheld in a protest if the court expressly finds that a protest is frivolous or

government is able to provide a reasonable basis not filed or pursued in good faith, the governfor the contracting officer's actions. However, ment should be entitled to recover its costs in

the government does not have unfettered dis- defending against the protest.

cretion to conduct business with the suppliers it

chooses. It must comply with the laws and regu- Protests Should be Resolved in a Fair,

lations governing the federal procurement pro- Expeditious and Efficient Manner

cess. Indeed, the legislation authorizing the GAO

and the GSBCA protest procedures specifically Althoughprotests further thegovernment policy

instructs that relief can be granted where the of competition, protests also delay the procureagency action violates law or regulation. ment of services and supplies necessary for efficient and effective government operation. It is

The need to adhere to laws and regulations essential, therefore, that protests be both fairly

which provide for competition is grounded in and expeditiously resolved. In enacting CICA,

sound public policy. As the Court of Appeals for Congress recognized this principle and required

the Eleventh Circuit has stated, "the public and the GAO and the GSBCA by statute to resolve

... bidders have a strong interest in certainty in protests expeditiously. The courts should be

the bidding process .... To achieve this certainty, similarly obligated. Accordingly, the Panel rec72 Choctaw Manufacturing Co., Inc. v. United States, 761 F. 2d 609, 619 n. 17 (11th Cir. 1985).

41
omimends that the courts, like the GAO and the # The GAO and the GSBCA should issue proGSBCA, should be directed by statute to resolve cedures which allow for electronic filing of

protests expeditiously. protest documents.

The Panel also believes that any impediment to * The GAO and the GSBCA should use the

early resolution and settlement of a protest where term "calendar day" and not "working day"

appropriate should be removed. One impedi- to specify when statutory deadlines should

ment is the perceived inability of a contracting be met.

agency to completely resolve and settle a protest

by the payment of bid and proposal costs and Overlapping, Duplicative, and Conflicting

legal fees. Currently, if an agency determines Protest Procedures Should be Eliminated

that there is merit to a protest, the agency can

take action to resolve the protest, but some be- The existence of four bid protest forums has

lieve it is not clear that an agency can pay bid naturally resulted in inefficiencies. The most

and proposal costs, attorneys fees, or consultant glaring inefficiency is found in the current sysand expert witness fees associated with the pro- tem of judicial protests. It arises out of the juristest. With an express grant of authority to pay dictional problems created by the FederalCourts

such expenses for meritorious protests, the agen- Improvement Act of 1982 (FCIA). The FCIA

des may completely resolve and settle such pro- created two fundamental jurisdictional probtests at any stage of the protest and avoid unnec- lems. First, FCIA states that the CFC has "exessary administrative and legal expenses. Ac- clusive jurisdiction" to consider pre-award procordingly, the Panel recommends that agencies tests. 73 In the past 10 years, at least five courts

be given express authority to pay bid and pro- of appeals have addressed whether this removes

posalcosts, attorney fees, and consultant or expert the preexisting jurisdiction of the district courts

witnessfeesinordertosettlemeritoriousprotests. to review pre-award protests under the Administrative Procedure Act. The courts are split on

The Panel has also identified several changes to this issue.74 Second, the Court of Appeals for

the procedures of the two administrative protest the Federal Circuit has ruled that the bi&' protest

forums. These changes are intended to stream- jurisdiction of the CFC is limited to protests filed

line the protest process, encourage use of ex- by parties submitting bids or proposals. 75 As

press protest procedures, and institute provi- a result of this ruling, numerous decisions have

sions to use electronic filings to speed the pro- been issued holding that the CFC had no juriscessing of protests. Accordingly, the Panel rec- diction to hear all the types of protests routinely

ommends that: considered by the GAO, GSBCA, and the district

courts. These types of protests include those

* Whenever possible, amended protests filed before bids or proposals are submitted,

should be resolved within the statutory time which allege that a solicitation unduly restricts

period established for resolution of initial competition.

protests.

The Panel concluded that the best way to end

" The GAO should have the authority to re- this jurisdictional confusion is by eliminating

solve protests underanexpress option which, district court jurisdiction. The Panel has identilike GSBCA protests, requires the GAO to fied no substantive justification for having two

render a decision within 65 calendar days. forums with the same jurisdiction, as some have

73 28 U.S.C. § 1491 (a)(3).

74 Cubic Corporation v. Cheney, 914 F. 2d 1501 (D.C. Cir. (1990), discusses the cases decided by the respective circuits

regarding whether 28 U.S.C. § 1491(a)(3) divests district courts of pre-award protest jurisdiction.

75 United States v. Grimberg, 702 F. 2d 1362 (Fed. Cir. 1983).

42
recommended. In choosing the appropriate fo- Single Protest Forum

rum for the judicial protest authority, the Panel

considered the need to provide a knowledge- The Panel found no sound public policy reason

able entity that would be reasonably available to for maintaining four protest forums. To the

protesters and which could handle the number contrary, in the eight years since four forums

of protests that have been historically brought in have been available, divergence has occurred in

the courts. decisions on some fundamental issues ranging

from jurisdiction to timeliness. Some inefficienThe Panel concluded that the CFC was best cies and delays inevitably result from this diversuited for this responsibility for several reasons. gence, as the government is required to reconcile

First, as stated in the Panel's objectives, there is conflicting interpretations. Substantial differa need for uniform interpretation of procure- ences also exist in the practices and procedures

ment laws to govern the conduct of tens of of the various forums which lead to further

thousands of contracting personnel in both gov- inefficiencies.

ernment and industry - divergent opinions can

and do occur in the hundreds of district courts Accordingly, the Panel recommends that Conand in the 12 regional federal circuits undermin- gress consider whether the federal acquisition

ing the essential need for uniform and predict- process can be better served by a single protest

able guidance for DOD on procurement laws forum within the executive branch rather than

and regulations. Second, in complex protests, the four existing bid protest forums. If such a

the government, protester, and other interested single forum were adopted, the Panel believes

parties are often located in different parts of the that it should offer at least two forms of procecountry, and the CFC, which has nationwide dure: (1) a simplified procedure for protest

jurisdiction, is the only court with jurisdiction resolution, similar to that now available at the

over all of the parties. Third, the judges on the GAO, and (2) a formal trial-type proceeding,

CFC are also far more experienced in govern- similartowhatisnowavailable from theGSBCA.

ment contract issues than district court judges. Smaller contracts would be considered under

Fourth, judges of the CFC are authorized to, and the simplified protest procedure. Protests for

do, conduct hearings around the country, and larger contracts could be considered under eitherefore can be available to protesters outside ther procedure by election of the parties. DeciWashington, D.C. Finally, amendments sug- sions of the exclusive bid protest forum could be

gested by the Panel to the statutory jurisdiction appealed to the Court of Appeals for the Federal

of the CFC can eliminate any possible restric- Circuit.

tions on the ability of the court to provide complete relief to disappointed bidders. Accord- Protests for all types of procurements could be

ingly, the Panel recommends that: considered by the new forum under the trialtype proceeding. This recommendation would

* The CFC should be the single judicial forum thus expand the types of contracts for which

with jurisdiction to consider all protests that trial-type hearings would be provided and would

can presently be considered by any district include all federal agency procurements. The

court or by the CFC. Panel believes this expansion is warranted by

the congressional endorsement of the use of

" The CFC should be authorized to set aside adjudicatory proceedings for bid protests. The

agency actions in protests which establish Panel further believes that there is simply no

that the agency has violated procurement justification for distinguishing between ADPE

law or regulation; it should be authorized to contracts and other types of contracts in deterproviderelief including theaward of attorney mining whether or not to grant an adjudicatory

fees to a successful protester, comparable to proceeding. It is the opinion of the Panel that

that provided by the GAO and the GSBCA. this adjudicatory proceeding would serve as a

43
meaningful replacement for the judicial protest of thousands of companies - ranging from the

procedures of the district courts and the CFC. largest multidivisional companies to countless

"Mom and Pop" operation., - should not have

The Panel recognizes that there are certain dis- to seek extensive advice of counsel or assistance

advantages to this recommendation. For ex- from their elected representatives to locate and

ample, the GAO and the GSBCA provide well- understand the laws that relate to contract comdefined procedures for resolving protests and pliance with their customer: the government.

have the strong support of Congress. The The government's costs in administering conPanel's recommendation would replace these tractsshould also be proportional, while thoseof

procedures with a new and untried procedure the contractor should be limited to the minimum

that could lead to unintended problems. There- needed to demonstrate compliance with confore, care must be taken to preserve the exper- tract terms and conditions. These factors are

tise, resources, and precedents of the GAO and especially important in reducing barriers to comthe GSBCA. The Panel also recognizes that trial- mercial-military integration and faci'itating the

type proceedings for all contracts impose addi- entry of small businesses into the defense martional burdens on federal agencies and on con- ketplace.

tractors. The Panel therefore believes that the

trial-type proceeding should be coupled with a Contract Payment

uniform standard of review, as well as commonsense protest procedures and strict time limits The 15 laws relating to payment were among the

similar to those adopted by the GSBCA. most duplicative, dispersed, and difficult to

understand of any of the contract administraCONTRACT ADMINISTRATION tion laws. The Panel recommends consolie ating

a number of these laws into a single statute,

The contract administration process involves renamed "Contract financing," and adding statuthose activities necessary to ensure that the par- tory guidance on making payments with special

ties fulfill their respective obligations under the attention to the needs of small businesses.77 In

contract - a process which runs from the day addition to recommending rep,al of several

the contract is awarded through its completion outmoded statutes, the Panel recommends

and close-out. 76 It includes: monitoring the amending the Prompt Payment Act (31 U.S.C. §§

contractor's performance at a level deemed ap- 3901-3907) to change the procedures for compropriate to ensure the quality of the services or puting discounts, ih, order to correct recent statuproduct, adjusting the specifications and pric- tory changes to this act, which have slowed

ing of the contract as necessary to reflect changes rather than expedited payment to contractors.

in the work to be done, formally accepting the

services or product to allow for contract pay- Cost Princirles

ment, and resolving disputes. The Panel's statutory mandate to streamline the acquisition pro- Consistent with the Panel's objective of placing

cess and eliminate laws unnecessary for the policy guidance and bsic concepts in law while

establishment and administration of the buyer- leaving implementation to regulations, the Panel

seller relationship has particular application recommends that 10 U.S.C. § 2324 ("Allowable

to laws relating to contract administration. That costs under defense contracts") be amended to

process should produce the most efficient means eliminate detailed proscriptions regarding idiof ensuring contract compliance by imple- vidual cost elements, and to provide guidance

menting laws that can be easily located, under- on total costs, on what constitutes a cost, and cost

stood, and administered. In particular, the tens allowability. 78 The current statute contains a

76See Chap. 2 of the Report,

7 7 See Chap. 2.1 of the Report.

78 See Chap. 2.2 of the Report. 44
comprehensive listing of specific unallowable Panel was informed of an increasingly prevalent

costs as well as a provision assessing penalties practice of DOD suppliers maintaining separate

for their inclusion. The Panel's review deter- production facilities for commercial and DOD

mined that this statutewas passed in response to work due to the additional costs occasioned by

several highly-publicized cases of contractor DOD laws and regulations such as the cost acabuse discovered by government auditors in counting standards. Many suggestions for

1985. There was extensive subsequent imple- changes to the standards or their application to

mentation of this statute in the FAR and DFARS; contractors or classes of contractors were made

however, the specificity of the provisions pre- to the Panel. The Panel felt that imposition of

vented regulatory changes. The Panel believes these standards could add significantly to the

that the regulatory process is a more flexible cost of doing business for a basically commercial

alternative for addressing changing situations contractor and that a number of the suggestions

and specific problems in the acquisition process. for changes to the standards or their application

The Panel recommends that the specific provi- had merit. However, after reviewing the ensions addressing allowable costs be deleted from abling statute for the Cost Accounting Stan10 U.S.C. § 2324 and guidance continued in the dards Board (CASB), the Panel decided that

regulations. By recommending this amendment, necessary improvements or reforms could be

the Panel notes that it is not making any judg- carried out by the CASB using its existing aument on the substantive issues of allowability or thority. Thus, the Panel makes no recommendaallocability nor is it, in any way, urging the tion for legislative action, but recommends that

repeal of the cost principles already present in the CASB take early action to consider the issues

the regulations. brought to the Panel's attention. Of particular

importance to a strong industrial base and exContract Audit and Access to Records pansion of competition would be regulatory

changes to facilitate the purchase of commercial

Of the 21 laws identified in this area, 10 U.S.C. § items.

2313 (Examination of books and records) received the most scrutiny and became the center- Administration of Contract Provisions

piece of the Panel's recommendations. The Panel Relating to Price, Delivery, and

recommends that a consolidated audit and ac- Product Quality

cess to records statute be enacted by the Congress, eliminating duplication or outmoded ele- Although not falling into easily recognizable

ments, while adding exemptions and new cat- catLgories such as audit and access to records or

egories of contracts to be audited.79 Consistent cost accounting standards, contract administrawith its objective of facilitating the purchase of tion laws also cover issues such as product qualcommercial items, the Panel recommends that ity, place of delivery, and assignment of con10 U.S.C. § 2313 be listed as one of the statutes tracts.80 After reviewing the results of several

inapplicable to procurement of commercial studies addressing the cost effectiveness of waritems. ranties on major weapons - and after hearing

both industry and government sources question

Cost Accounting Standards the utility of a mandatory warranty for major

weapons systems - the Pe nel recommends the

The Panel's consideration of cost accounting repeal of 10 U.S.C. § 2403 ("Major weapons

standards focused on the impact of these stan- systems; contractorguarantees"). Alternatively,

dards on the purchase of commercial items. The if the Congress continues to mandate the use of

7 9 See Chap. 2.3 of the ReFort.

80 See Chap. 2.5 of the Report.

45
such warranties, recommendations are made while majorchanges are not necessary, the claims

for changes to the current law to meet some of and disputes process does need fine tuning in

the concerns expressed to the Panel. The author- some areas.

ity in 41 U.S.C. § 15, ("Transfer of contracts;

assignments of claims; set-off against assignee,") Because some United States District Courts have

was intended to rectify a problem regarding the persistently but erroneously asserted jurisdicacceptance by banks or other lending institu- tion overcontract claims under the Little Tucker

tions of "assignments of claims" as collateral - Act, 28 U.S.C. § 1346, the Panel recommends a

something which seriously undermined the abil- clarifying amendment to this statute. Other Panel

ity of small businesses to bid on government recommendations would achieve the following:

contracts. During its review, the Panel noted a uniform appeal period of 90 days both at the

that the statute's authority is limited to times of CFC and the agency boards of contract appeals;

war or national emergency but determined that a simplified, uniform certification requirement

it should apply at all times and to all contracts forallcontractclaims;a$100,000threshold rather

covered by its provisions. Specifically, the Panel than the current $50,000 threshold for claims

recommends the retention of this law - which certification; a $25,000 threshold rather than the

has served its purpose well -but that its appli- current $10,000 for accelerated appeals at the

cation tocontracts not be dependent upon a state boards of contract appeals; and a six-year statute

of war or national emergency. of limitations for the filing of contract claims.

Claims and Disputes Statutory amendments in section 907 of the Federal Courts Administration Act of 1992 and in

The primary statute g-overning contract claims the National Defense Authorization Act for FY

anddisputesis the ContractDisputesAct(CDA), 1993 have gone a long way to correcting prob41 U.S.C. §§ 601-613.81 The Panel gave exten- lemswithclaimscertificationandalsowithshipsive consideration to the JDA and other statutes building claims. Few additional adjustments

that, taken together, comprise the claims and are needed in these areas that have been probdisputes process. Under the CDA, there is over- lematic for the government contracting commulapping jurisdiction betweer, the CFC and the nity in the past.

agency boards of contract appeals, and any thorough consideration of claims and disputes must Extraordinary Contractual Relief

take into account whether such duplication is

warranted. Congress had choices to make in The authority to provide extraordinary contracdetermining the jurisdiction of the dispute reso- tual relief, now contained in 50 U.S.C. §§ 1431-

lution forums and could have chosen, for ex- 1435, dates back to a measure taken by the Conample, to grant judicial review only after ex- gress in World War It. Departments and agenhaustion of administrative remedies. Alterna- cies, acting under authority delegated by the

tively, if the CFC is to have original jurisdiction, President, may award or amend contracts, make

a duplicative, heavily proceduralized adminis- advance payments without regard to other laws,

trative forum is not, strictly speaking, necessary. or indemnify against unusually hazardous or

The choices have already been made, however, nuclear risks. More detailed guidance is conand Congress established what has proven to be tained in an executive order and implementing

a workable system. regulations. Comments to the Panel and review

of the actions taken pursuant to the law demonAfter completing its top to bottom review of strate its continued need and that the law is

claims and disputes, the Panel concluded that being carried out prudently. However, the Panel

81 TheCDA isanalyzed in Chap. 2.6 of tie Report- On the related issue of the False Claims Act (Qui Tan)- see the standa rds

of conduct section of this summary and Chap. 6.3 of the Report.

46
recommends that the law be available for use following natural disasters that make a compeleven when the United States is not at war or in a ling case for the use of this extraordinary authorstate of national emergency. 82 There are con- ity at any time.

tingency military operations or relief operations

82See Chap. 2.7 of the Report.

47
V

DEFENSE TECHNOLOGY

AND INDUSTRIAL BASE

In an era of declining defense budgets, the As discussed in the opening sections of this

maintenance of a healthy defense technology summary, one of the primary purposes of recand industrial base has become a major goal of ommending a simplified acquisition threshold

defense policy. The Panel's review of statutes and broader use of commercial items is to indirected toward industrial base and manufac- crease the range of companies doing business

turing technology - including those within with DOD. Those recommendations are specifiTitle 10 - was, however, limited by the fact that cally meant to include those firms whose rethe National Defense Authorization Act for search, development, plant, and operations are

FY 1993 repealed most preexisting law and funded largely by private customers, and hence

enacted extensive new provisions covering this are less vulnerable to defense cutbacks. In addistatute. Since the Authorization Act was tion, these initiatives sought to reduce acquisipassed at the very end of the Panel's delibera- tion law as a barrier to the entry of small busitions, there was little time to review it. nesses into defense contracting, since the Panel

Nonetheless, the Panel recommended a number was told that small businesses are increasingly

of initiatives to protect and foster the technol- the source of cutting-edge technologies needed

ogy, industrial and mobilization bases, which by DOD.

included:

Exports and International Cooperation

" Implementation of a Simplified Acquisition

Threshold. 3 Exports and international cooperation are additional strategies for lessening the cost to DOD of

" A proposed subchapter on commercial maintaining adequate technology, industrial,

items.84 and mobilization bases. But exports and international cooperation are clearly two-way streets.

* A proposed chapter on defense trade and Because our allies also seek to export to maintain

cooperation.85 their industrial bases, our own efforts to increase

offshore defense sales will likely be met with

* Amendments to statutes relating to DOD demands for offsets from our allies. In addition,

commercial and industrial activities.86 a shift of DOD procurement dollars offshore to

83See Chap. 4.1 of the Report.

84 See Chap. 8 of the Report.

85See Chap. 7 of the Report.

86See Chap. 3.5 of the Report.

49
acquire foreign-made nondevelopmental items * In determining whether to purchase foreign

or for cooperative research and development goods, DOD is expressly directed to consider

efforts has the obvious drawback of making it the impact of foreign purchases on the defense

more difficult to fund competing technologies technology and industrial base, the mobilizaand industries in the United States. Even if the tion base, and other national security convalue of those dollars is multiplied by the contri- cerns.

butions of our allies, the long-term effects of

such policies may be the permanent (or at least The test for determining origin of a good -

long-term) loss of critical skills and capabilities which is today different under the Buy Ameriwithin the United States. Recognizing that the can Act and the Trade Agreements Act - is

critical technologies, skills, and capabilities that standardized to the "substantial ti nsformamust be maintained can shift more rapidly than tion test" used in the latter Act.87

legislation can respond to such shifts, the Panel

has proposed a new chapter within Title 10 Many of the product-specific source restricwhich would create a statutory structure under tions currently found in authorization and

which the Secretary of Defense would have the appropriations acts are recommended for reauthority to coordinate at the policy and regula- peal, with a recommendation that future retion level the potentially conflicting goals of: strictions not be adopted in an ad hoc fashion,

but be chosen (if at all) on industrial base and

*Reducing weapons systems costs by burden- national security criteria and consolidated in a

sharing with allies and friendly foreign na- single section of Title 10, where these provitions; sions can be coordinated among themselves.

*Exporting weapons systems to maintain the The second subchapter creates a new statutory

U.S. industrial base; structure for international cooperative agreements. Over the past decade, cooperation in

" Reducing acquisition costs by purchasing for- research and development between the United

eign-made commercial or nondevelopmental States, its allies, and friendly foreign nations has

items; and increased, and such efforts offer the promise of

lower defense costs through the elimination of

* Fostering critical skills and capabilities at home duplication of facilities and the sharing of weapby restricting procurement to U.S. (or North ons development costs. At the same time, it may

American) sources. be in DOD's interests to maintain a U.S. capability not by cooperating in developing a defense

The proposed chapter is in three parts. The first item offshore, but by making the item here and

subchapter covers government purchases of for- attempting to export that item to our allies in an

eign goods by DOD, and consolidates, stream- effort to defray part of the cost of maintaining

lines, and amends the Buy American Act and 10 our industrial base with foreign dollars. Since

U.S.C. §§2501 -2507. Among the major changes our allies are also looking to exports to protect

are the following: and pay for their industrial bases, it is clear that

87"1 he Panel chose the Trade Agreements Act definition because (1) it is susceptible to verification without extensive

audit, whereas the component-content test of the Buy American Act cannot be verified without extensive audit and

examination; (2) commercial companies do not ordinarily determine the components of a commercial item based on

country of origin and indeed may change the country of origin of components from time to time as component costs

change, so that corn ponent-oriented test may inadvertently bar commercial items from procurement by DOD; and (3) the

componcnt test can be "gamed" so that it has no obvious relationship to maintaining jobs in the United States, whereas,

in almost all cases, the substantial transformation test at least requjires final a'sembly labor to take place in the United

States.

50
the Secretary needs full authority to choose a DOD Commercial and Industrial Activities

policy mix of imports, exports, and cooperative

efforts if he is going to have all the tools neces- As funds for acquisition decline, there has been

sary to negotiate for DOD's interests. Whereas renewed competition for DOD dollars between

the first subchapter gave the Secretary authority private industry and military depots, arsenals,

to link "Buy American" and "Sell American" and maintenance facilities. The Panel recogpolicy, the second gives the Secretary the flex- nized that a managed build-down must not only

ibility to create effective international coopera- seek a balance between foreign and domestic

tive agreements. Among the major amendments spending, but also within domestic spending,

proposed in the second subchapter are: between commercial and government owned

and operated facilities and, indeed, among govThe Secretary of Defense is given authority to ernment facilities themselves. The Pancl sought

enter into cooperative agreements at every to implement this balance by proposing two

stage of weapons development, from research new sections of law in Title 10, denominated §§

and development through procurement.88 24XX and 24XY, which would replace existing

authorities found in 10 U.S.C. §§ 2461 - 2468.

* Certain provisions in the Arms Export Con- These sections regulate DOD contracting for

trol Act are consolidated with the provisions commercial services under OMB Circular A-76.

currently found in Chapter 138 of Title 10, and They include restrictions on the contracting out

amended to permit the Secretary of Defense to of core logistics activities by DOD, and set forth

treat our allies as co-venturers in a coopera- specific guidance on depot-level maintenance

tive project rather than as customers subject to activities by DOD. The current statutory proviarms export control. sions present a confusing and contradictory set

of rules.

*Current laws governing cooperative projects The Panel's goal in this area was to consolidate

(principally 10 U.S.C. §§ 2350a and 2350b) are and streamline these conflicting rules into a

combined and amended to permit expendi- coherent statement of basic and essential printures of U.S. funds abroad and waiver by the ciples that eliminates, as far as possible, unnecSecretary of Defense of DOD acquisition laws essary detail. The Panel also attempted to baland regulations that impede effective interna- ance these competing interests into a set of rules

tional cooperation. that affords the Department managerial flexibility while preserving meaningful congressional

* The provision for an "ombudsman" for for- oversight and effective community input. To

eign signatories to cooperative agreements in that end, the Panel proposes a single section,

10 U.S.C. § 2350h is repealed. 24XX, governing traditional A-76 contracting

procedures for the Department. Proposed secThe third subchapter on international trade and tion 24XX provides that DOD Secretaries shall

cooperation covers cross-servicing agreements procure from the private sector, if such source

and standardization of weapons systems within can provide services or supplies adequate to

NATO. Existing authorities in these areas were meet defined performance standards at a cost

consolidatedandminoramendmentsweremade lower than that of an in-house, government

to fill gaps in existing authorities that were dis- source. The proposed section 24XX adopts the

covered during, for example, Operations Desert current "realistic and fair" cost comparison stanStorm and Desert Shield. dard and delineates the types of costs to be

88The third subchapter extends the authority for cooperative agreements through the end of a weapon's life cycle by

permitting agreements with respect to logistics and maintenance.

51
included in that comparison. The proposed vate firms, or among private firms. However, in

section maintains the requirement of federal order to ensure a level playing field in such

employee consultation and maintains, in stream- competitions, the proposed section requires that

lined form, the extant requirement of notice to all bids "shall accurately disclose all costs propCongress of intent to study a conversion, as well erly and consistently derived from accounting

as notice of the decision itself. systems and practices that comply with laws,

policies and standards applicable to those entiA coecond section, 24XY, sets forth the basic prin- ties." Finally, competitions under this proposed

ciples regarding the contracting of core logistics section are exempted from A-76 requirements.

functions by DOD. It restates the basic, core

logistics standard and adopts the current defini- Based on this modification of the current, core

tion of "core" but permits military service secre- logistics section, the Panel recommends the retaries to define "core capabilities," and to iden- peal of 10 U.S.C. § 2466. That section sets forth

tify those activities necessary to sustain those the 60/40 rule regarding DOD contracting for

capabilities. The proposed section then requires depot-level maintenance; i.e.; that the DepartService Secretaries to perform such core func- ment may not contract out more than 40 percent

tions in-house. It permits competition among of its depot-level maintenance. The Panel congovernmententities forassignmentof suchwork sidered, but rejected, application of the same

as a means of encouraging greater economy and "core" concept to Departmental, in-house manuefficiency in these activities. In excess of core facturing capabilities. Instead, the Panel recomrequirements, the Service Secretaries would be mends consolidation and amendment of the

permitted, at their discretion, to use competition Army and Air Force Arsenal Acts to provide

to acquire additional maintenance and repair of Service Secretaries with discretionary authority

defense supplies. Such competition may be to assign defense manufacturing requirements

among maintenance activities owned by the to DOD activities.

United States, between such activities and pri52
VI

INTELLECTUAL PROPERTY

AND STANDARDS OF CONDUCT

This section outlines the Panel's findings per- cess and the research and development commutaining to two critical aspects of the acquisition nity in the United States. 89 Prior to the 1980s

process: intellectual property and standards of there was a general assumption that the technolconduct. Both of these have significant - al- ogy necessary to support DOD could be obthough sometimes overlooked - effects upon tained through direct funding of contracts and

the defense acquisition system. Despite its im- grants for research and development and strong

portance, for example, intellectual property in support of independent research and developDOD acquisition is not particularly well under- ment conducted by defense contractors. The

stood, even by many acquisition professionals. Department made use of some technology creIt is nevertheless a very critical area, involving ated in the commercial sector of the economy,

ownership and rights in various forms of both but this was thought by many to be peripheral

tangible and intangible property, rights that af- and, perhaps, aberrational. The acquisition polifect the development, manufacture, and opera- cies relating to intellectual property were proption of defense equipment. It includes such erly focused on ensuring that the DOD obtained

things as software, data bases, patents, copy- all of the rights in intellectual property that it

rights, information systems, and technical data needed to develop and use weapon systems.

pertaining to hardware acquired by DOD. Similarly, those statutes that directly or indirectly In the 1980s it became more and more apparent

affect the procurement processby imposing limi- that these earlier assumptions were becoming

tations upon the conduct of government em- obsolete. As has been documented in the study

ployees, contractor representatives, or contrac- of the Packard Commission and in the report by

tors are very complex and often misunderstood. the Center for Strategic and International StudThe laws regulating both these areas share the ies, commercial technology has outpaced DOD

common characteristic of having much wider technology in a number of areas of vital imporapplications than defense procurement. In pre- tance to the development of weapon systems.

senting the following summary, therefore, the While the owners of this commercial technology

Panel recognizes that its recommendations could may want to perform work for the government,

have a correspondingly broader impact. they are increasingly reluctant to use their best

commercial technology if there is a possibility

INTELLECTUAL PROPERTY that DOD will take the intellectual property

rights in that technology. It also appears that

In the past decade there has been a major change there will be a greater confluence of commercial

in the relationship between the acquisition pro- and DOD technology in the future. This indi8 9 The Panel's consideration of the various aspects of intellectual property, including rights in technical data, is contained

in Chap. 5 of its Report.

53
cates that there may be greater opportunities to The Panel found a number of laws not fully in

utilize DOD sponsored technology in the com- accord with the new goals. Its recommendamercial sector of the economy. These premises tions for change are intended to complete the

require a different focus for the intellectual prop- task which Congress began in 1980.

erty policies of the Department in the acquisition

process. The new focus must be on fulfilling the For purposes of review, the Panel divided the

Department's needs in the least intrusive man- intellectual property laws into four subchapters:

ner with regard to intellectual property and on (1) Rights in technical data; (2) Technology transmaximizing the flow of technology from the fer; (3) Competitiveness of U.S. companies; and

commercial sector to DOD and from DOD to the (4) Government use of private patents, copycommercial sector. rights, and trade secrets.

Both the Congress and the executive branch The Panel's Approach to the Technical

have recognized this new focus. Congress passed Data Problem

the Bayh-Dole bill in 1980 (35 U.S.C. § 200 et seq.)

to ensure that small business and nonprofit or- In 1964, the Department modified its data rights

ganizations retained commercial rights to in- policy to allow the government to have "limited

ventions made under government contracts. In rights" in data pertaining to items, components,

1986, it passed the Federal Technology Transfer or processes developed at private expense. These

Act (15 U.S.C. § 3710a et seq.) to require federal limited rights permitted the government to use

laboratories to enter into cooperative research the data for its own purposes except that the data

and development agreements sharing technol- could not be used to manufactuie the product

ogy with the private sector. These new policies "in-house," and could not be disclosed to other

were implemented and broadened by Executive contractors - effectively barring its use for cornOrder 12591, April 10, 1987. petitivc procurement. This basic policy remained

The Panel reviewed each law relating to the in effect until the early 1980s. At that time, The ane revewe eah la reatin totheconcerns about abuses in spare parts procurecreation and use of intellectual property in the men a use s in se Weinbreacquisition process to determine whether it im- ment caused Secretary of Defense Weinberger

peded or furthered the attainment of the goals of to seek greater rights for the Department in

this legislation and executive order. In making technical data. The result was new military

this review it proceeded from three fundamen- department contract clauses which, for example,

tal premises: required contractors to sell or relinquish their

data rights as a condition of award and provided

*That a company will not generally make the Uiai thc govc:;.ment would acquire unlimited

investment necessary to bring a product or rights after a stated period (five years in one

service based on sophisticated technology to widely-used clause).

the commercial marketplace unless it has intellectual property protection in the form of a Congress followed suit by enacting new statupatent, copyright or trade secret. tory requirements aimed at acquiring adequate

data to permit competitive procurement of spare

* That a company will not generally use tech- parts, but also required that the implementing

nology with strong commercial potential to regulations provide a balance between the

perform DOD contracts unless it is assured government's needs for technical data to get

that it retains intellectual property protection competition and the contractor's needs for proin that technology. tection of its proprietary data. The DOD proposed implementing regulations on several occa-

*That, as a result of the first two premises, sions, beginning in September 1985. However,

companies are discouraged from integrating they failed each time to satisfy the industry

their commercial with their military work. demand for protection of data that was per54
ceived as being vital to maintaining their com- interest in how the rule should be structured. Its

petitive position in both government and com- deliberations were continuing as the Section 800

mercial markets. Panel prepared its report.

The inability of the Department to formulate a Recommendations on Technical Data

technical data policy acceptable to all parties is

not a result of incompetence or lack of effort but After considering various options on how to

rather of the fact that there are many competing proceed, the Panel decided to follow a twodemands that must be met. From the point of pronged approach:

view of the Department, it must obtain technical

data to meet its many needs with sufficient * First, make minimal modifications to the techrights to ensure that the data can be used as nical data statute, but sufficient to alloy; the

necessary. One of the most compelling needs Secretary of Defense the flexibility to explore

has been to ensure reasonable prices for spare other ways of treating the issue; and,

parts through competition. If data is needed to

meet that competition requirement, the govern- * Second, outline a new alternative approach

ment must obtain sufficient rights to permit the for dealing with technical data that, instead of

data to be disclosed to companies that have the focusing on rights, focuses on the

capability of manufacturing the product. There government's need to ensure reasonable lifeis a significant segment of industry that is de- cycle costs, ordinarily through competition,

pendent on obtaining this technical data in order for spare parts and other follow-on purchases.

to win contracts to manufacture parts. These

companies generally perform little development The Panel recommends statutory changes to

work but have proved to be efficient manufac- expand the definition of "technical data" to inturers of parts for the Department. Another clude computer data bases, manuals, and other

segment of industry including many small busi- publications supporting computer programs

nesses consists of the major contractors and spe- while continuing to exclude computer programs cialty subcontractors that have invested signifi- themselves from the definition. In addition, the cialt fg e s f changes limit the law's applicability only to that

cant funds in developing new products for the data called for under a contract - this is consis- Department as well as for the commercial mar- tn ihtecretrgltr oeae i

ket. These companies feel the- need to protect tent with the current regulatory coverage. Fitheir technical data in order to recover their nally, the Panel recommends that the law be

modified to limit the data acquired for commer- investment and ma in their competitive pokt- cial items being offered to the government, retion in the domestic and international market. flecting the Panel's goal of encouraging firms to Reconciling these competing needs has proven integrate their commercial and military work.

to be a formidable task and may never be possible in any perfect sense. The alternative approach mentioned above focuses not on the distribution of rights between

Congress intervened again in the 1992 Defense government and industry, but rather on ways to

Authorization Act, pushing DOD and industry ensure that the government has the means to

toward a resolution of their differences with the ensure that reprocurement prices are reasonable

creation of another group, the Section 807 gov- As such, it is both new and controversial. Howernment/industry technical data committee, ever, given the impasse that has existed over the

This committee was directed to develop a com- last decade in developing a workable rights

promise technical data rule acceptable to both policy, the Panel presents this as a new idea to be

government and industry. The committee is considered. More work is needed to flesh it out

made up of representatives of DOD and the key fully and explore all of its imnlications so that it

industry groups (representing prime contrac- can be tested in certain programs to be desigtors, and subcontractors) which have a special nated by the Secretary of Defense.

55
The new approach is based on the concept that much bargaining power and permit them to

the government would establish its needs for force the subcontractors to license competitors.

data on the basis of whether or not this data was

necessary to achieve competition. Parts and These concerns were addressed in the revised

components would be categorized according proposal by making clear that the contractor

to the likelihood of their being repurchased and would be obligated to develop and comply with

the cost-effectiveness of subjecting them to full a Spare Parts Acquisition Plan which was develand open competition or limited competition. oped under the control of the government and

The government program manager would be was approved by the contracting officer. In

responsible for making the final decisions on the addition, the revised proposal makes clear that

categorization, working with the contractor as the program manager would have to approve

the system is developed, any parts or components which a contractor or

subcontractor proposed for inclusion in a catUnder this approach, the contractor would be egory for which reprocurement technical data

contractually obligated to deliver, when needed, would not be provided. As to the fear that OEMs

a technical data package that was sufficient to would not furnish technical data, the revised

permit competition for those parts and compo- proposal makes this a contractual requirement.

nents so categorized. The key to this approach Indeed, the Panel perceives this as one of the

is that it recognizes those cases where there is no advantages of this proposal because it ensures

need for the government to take reprocurement that small businesses will have accurate data on

needforthegovrnmnt t tae rproureentthese parts. As to any potential problem conrights in a contractor's technical data as long nge prim

as the government's need to ensure reasonable cering a prune contractor's bargaining power,

life-cycle costs is satisfied. the government would be able to challenge any

recommendation that would limit competitive

In response to the early drafts of the proposal, reprocurement.

both government and industry expressed concern that the process would be under the comn- Taking into account both the controversial naplete pethathe control o ro of fuld the thes prime contractor. e nrt. Firm Firms i in ture any clear of technical solution data issues and the absence of to the overall policy problems,

the breakout community and second-tier ven- an les nto the overal p problems

dor base that rely on the availability of technical the Panel presents this alternative approach as

data packages for their livelihood were particu- an option to be considered on a trial basis for

larly concerned that most of the parts and com- further development and refinement and selecponents would be categorized as subject to lim- tive application during development of major

ited or no competition. Also, since prime con- systems or subsystems.

tractors would serve as data repositories under

the alternative approach, subcontractors and Technology Transfer

small businesses were concerned that, under

the proposed system, any contractor who want- The Panel recommended changes to two of the

ed to compete with the original equipment major statutes that have been enacted to promanufacturer (OEM) in the military market- mote the transfer of technology from the governplace would have to get the data from the OEM, ment to the private sector. 9

who would not be forthcoming or timely with

the information. Finally, some subcontractors The University, Small Business Patent Policy

who invested corporate funds in developing Act (Pub. L. No. 96-517) promotes technology

items for defense systems were afraid that this transferby permitting small businesses and nonproposal would give the prime contractors too profit organizations to retain title in inventions

90See Chap. 5.2 of the report.

56
made in the performance of government con- tion (including at times information of value to

tracts if they elect to file for a patent. The Panel's contractors) released under FOIA requests, it

recommended changes to this Act focus on ob- believes the overall benefits of public disclosure

taining earlier disclosure of both the contractor's oi government activities outweigh any potential

invention and his intention to file for a patent negative effects. Therefore, it recommended no

abroad. They would also give more time for changes to FOIA.

agency review of an invention to protect the

government's option to file if the contractor For the Invention Secrecy Act, the Panel proelects not to do so. A final chan ge would help the posed that a new committee be established,

contractor to file the patent application within chaired by DOD, and including representatives

one year of election. These changes should help of the Patent Office, the Export Control Adminto protect valuable commercial technology while istration, and the Department of State, to review

also accelerating the entry of new technologies needs for secrecy orders on patent applications.

into the marketplace. Such orders are placed where the grant of a

patent has been determined to be detrimental to

The Federal Technology Transfer Act (Pub. L. the national security. The new committee should

No. 99-502) directly promotes technology trans- see that the policy is applied more consistently

fer by permitting federal laboratories to enter and effectively.

into cooperative research and development

agreements (CRADAs) withprivatecontractors. The key change recommended by the Panel for

The Panel recommends two changes in this area: the Arms Export Control Act is the deletion of

the requirement that the government recoup

* Allowing government laboratories to claim nonrecurring costs when defense contractors

copyright protection in computer programs sell major defense equipment through the Fordeveloped by their employees, similar to the eign Military Sales program. This recoupment

protection employees receive on patents; and requirement acts as a sales tax on U.S. goods,

reducing the competitiveness of U.S. suppliers

Allowing employees or former employees un- in world markets. The Panel's proposal is conder certain conditions to assist in commercial- sistent with steps already taken by the Bush

izing the technologies they have developed, Administration to eliminate all recoupment fees

even though they might be entitled to royal- required by regulation.

ties for their invention.

Recommendations on Gover-ment Use of

In both cases, the changes should make it easier Private Patents, Copyrights, and Trade Secrets

for technologies developed in the laboratories to

find their way into the private sector. The authority contained in 28 U.S.C. § 1498 gives

DOD necessary acc 2ss to private technology by

Recommendations on the Competitiveness allowing contracting officers to authorize firms

of U.S. Companies to use private patents on government contracts.

Often this is coupled with an indemnity clause

The Panel reviewed three statutes affecting the protecting the government from any liability

competitive status of the United States in the should a patent owner decide to sue the governworld market: the Invention Secrecy Act; the ment for infringement. The liability would then

Arms Export Control Act; and, the Freedom rest with the infringing contractor. The changes

of Information Act (FOIA). 9' While the Panel proposed by the Panel would modify the law to

recognizes the significant amounts of informa- allow the owner to sue an infringing contractor

91 See Chap. 5.3 of the Report.

57
for damages directly, rather than having to sue False Claims and Qui Tam

the government 9 2 This change should reduce

any unfair competitive advantage for an infring- The Panel reviewed the False Claims Act, 31

ing contractor. A similar approach would be U.S.C. §§ 3729-3732 (FCA), and developed a

followed for purchases of commercial items. number of issues on which there proved to be

considerable Government and industry interest.

STANDARDS OF CONDUCT Many centered on section 3730, under which qui

tam suits are initiated by government employees

The Panel assembled and reviewed those stat- or private citizens.9 4 By amendments in 1986,

utes that directly or indirectly affect the defense Congress changed the standard of proof, inacquisitionprocessbyimposinglimitationsupon creased penalties, and provided additional fithe conduct of government employees, contrac- nancial incentives for the filing of false claims

tor representatives, or contractors. 93 This re- suits by private parties. Those changes have

view included a sweep of topics extending far resulted in significant numbers of new cases,

beyond the criminal provisions of Title 18, rang- sizable government recoveries, and questions as

ing from the fraud and bribery section of that to whether in some respects the 1986 amendtitle to statutory rulemaking powers. The Panel ments may have overadjusted the law's balance

thus reviewed this area from the broadest pos- of incentives and benefits.

sible perspective, looking not just at the role

played by each law standing in isolation, but On this topic the Panel sought views from indusat their interrelationships and cumulative con- try, the Department of Justice, and agency pertributions to the sound conduct of defense pro- sonnel who participate in the government's recurement. view of cases when they are filed. The Panel

members were unanimous in the belief that the

The majority of the statutes under considera- qui tam provisions serve a valuable function.

tion involved not just defense procurement, but Most agreed as well that a principal weakness of

also laws of more general application, prompt- those provisions was in their potential to be

ing the Panel to be sensitive to their histories manipulated by industry and government emof amendment, enforcement, and judicial inter- ployees seeking to maximize personal shares of

pretation - and to the boundaries of its own recoveries. The Panel was sensitive to the fact

charter. The laws governing criminal and civil that the statute was enacted to serve far beyond

fraud, for example, represent carefully ad- the limited confines of defense procurement,

justed balances of public and private interests, and for that reason it approached its review and

Many of them have Civil War antecedents, and resulting recommendations with particular deif redrafted today would, in all likelihood, emerge

in starkly different form and vocabulary. With The Panel recommended barring government

rare exceptions, however, they remain current employees from bringing qui tam suits on the

and serve well. During the course of its delib- basis of information acquired during the course

erations, the Panel progressively narrowed the of their governmr_.rt work. As interpreted in

initial scope of its study and ultimately focused some federal courts, the law currently permits a

on only a very limited number of issues that government auditor, for example, to file a qui

were, in its judgment, of sufficient concern to tam suit against a firm he is auditing, and to

warrant recommendations to Congress. receive a substantial portion of the government's

92 See Chap. 5.4 of the Report.

9 3

The Panel's consideration of standards of conduct is contained in Chap. 6 of its Report.

94 See Chap. 6.3 of the Report.

58
eventual recovery. Because situations such as resolution of contract disputes and the contemthat bear the potential for abuse and for inescap- poraneous resolution of fraud issues relating

able conflicts of interest, the Panel suggests for- to the same contract or dispute. Industry reprebidding suits that rely upon information ob- sentatives pointed out that allegations of fraud

tained during the course of the employee's offi- questions can cause long delays and introduce cial duties. uncertainty into the disputes process, whereas

The Panel also suggests a change to balance the the government understandably attaches high

competing interests of government, industry priority to the opportunity to perform a thorand qui tam plaintiffs in cases involving volun- ough investigation into suspected wrongdoing.

tary disclosures. It recommends that there be no

right to sue if the qui tam plaintiff learned of the One factor long at the root of this conflict is the

grounds for the suit from information conveyed lack of a single forum that can resolve both

to the government as part of a voluntary disclo- contract claims and related fraud claims. The

sure program. The Panel makes an analogous jurisdictional allocation today vests contract

recommendation that would forbid suits based disputesresolutionintheCourtofFederalClaims

upon information generated from a government (CFC) and boards of contract appeals, places

audit or investigation, civil and criminal fraud cases in the district

courts, and gives the CFC jurisdiction over govThe Panel further suggests that pro, ision be ernment fraud counterclaims asserted against

made to permit the court to adjust recoveries contractor claims. There is also a natural tension

awarded to qui tam plaintiffs who played a role present in such cases among the rights and interin the fraud, or were deliberately slow to report ests of the parties. The question, then, is one of

it. The Panel considered, but on the strength of striking the appropriate balance.

experience to date did not adopt, suggestions for

creating additional procedural protections Following its review, the Panel arrived at three

against frivolous qui tam suits, or for imposing a Fo o sed i ts Firsew t clarify at is fixed dollar ceiling on plaintiffs' recoveries, proposed adjustments. First, to clarify what is

often a threshold issue of board jurisdiction, the

The Panel's recommendations also address the Panel recommends amending the Contract Dispotential under the FCA for the imposition of putes Act (CDA) to clarify that the process for

unreasonably excessive penalties. The math- obtaining or bypassing the contracting officer's

ematical calculations prescribed by theFCA hold final decision is available even in cases when

the prospect, especially if applied rigidly to each fraud is suspected. Then, to facilitate resolving

occurrence in a production run, of multiplying contractor claims and related government asserthe effect of a single underlying false record or tions of fraud in a single forum, the Panel proreport into damages well in excess of the poses two additional amendments to the CDA"

government's actual harm. For the contractor, first, it recommends giving boards the authority

this same multiplier effect could potentially in- to transfer a pending appeal to the claims court

volvedamagesofruinousproportions. Tolessen when fraud is at issue, and second, it recomthis concern, which was cited by many as a mends amending the exclusive jurisdiction of

disincentive to becoming a government contrac- the boards o permit trial of a board matter at a

tor, the Panel recommends an amendment au- counterclaim in a district court fraud action hat

thorizing the court to adjust FCA penalties when- counterou rt fra cnth

ever it finds they are disproportionate to the has been brought by the government.

actual damages suffered by the government. Ethics Laws

Contract Disputes When Fraud Is Alleged The Panel also reviewed the array of ethics laws

The Panel received comments addressing a num- affecting those engaged in defense procureber of perceived conflicts between the efficient ment, both on behalf of government and indus59
try. 95 A relatively small group of statutory The Panel concluded that the new OGE regularestrictions governed this topic from the Civil tions satisfy a long-standing need by imposing

War until quite recently, when the defense build- an enforceable and uniform rule on all executive

up of the 1980s was punctuated by a number of branch employees, and that the special gift proevents that drew extensive public attention. visions at 41 U.S.C. §§ 423(a)(2) and (b)(2) are

These disclosures included t. pricing of mili- now essentially redundant and ought to be retary diodes, ashtrays, and hammers as well as pealed to prevent potentially confusing overlap

revelations of corporate dog-boarding at with the new uniform rules.

government expense. Concerns also arose about

situations in which employees or officials left The Panel's review of the restrictions imposed

the government to work for contractors, raising upon an employee's outside employment disquestions concerning the protection of cussions by 18 U.S.C. § 208(a), 10 US.C. § 2397a,

procurement information. The "Ill Wind" pros- and 41 U.S.C. §§ 423 (a)(1), (b)(1), and (c) sugecutions raised new questions about the suffi- gests that the latter provisions were enacted

ciency of the laws and prompted additional primarily to correct technical shortcomings in

legislation. Addressing related issues in slightly the basic government-wide law, 18 U.S.C. §

different terms, most of those provisions were 208(a). The Panel believes those deficiencies are

concerned with the potential for conflicts of today even more comprehensively addressed

interest, or"appearances" of conflicts. The addi- by OGE at 5 C.F.R. § 2635. For that reason, the

tional assurance they contributed towards pub- Panel recommends repeal of those two provilic trust in Pentagon spending during the 1980s sions to avoid confusing inconsistencies among

was judged at the time to merit whatever addi- their differing procedural recuirements for

tional costs they added and the bookkeeping recusal and disqualification.

they required.

Other Integrity Issues

In what is now a different decade and a different

procurement environment, the Panel believes it "Revolving door" laws were also analyzed, inmay be time to reassess the contribution of some cluding the military criminal selling statute at 18

of those provisions. The Panel analyzed six legal U.S.C. § 281; the military-civil selling statute at

restrictions and one comprehensive regulation, 37 U.S.C. § 801; the post-employment and reall of which potentially govern the receipt of a porting provisions of 10 U.S.C. §§ 2397, 2397b,

gift by a defense employee engaged in procure- and 2397c; and the post-employment portion of

ment: the bribery statute at 18 U.S.C. § 201(b); the the procurement integrity amendments to the

criminal gratuities statute at 18 U.S.C. § 201(c); OFPP Act at 41 U.S.C. § 423(0.96 The Panel

the gift provisions of the procurement integrity recommends that all of those provisions be reamendments t, the Office of Federal Procure- pealed. The two antiquated military statutes

ment Policy Act at 41 U.S.C. §§ 423(a)(2) and largely duplicate provisions of 18 U.S.C. § 207,

(b)(2); the supplementation of salary statute at and the others have proven to exact an enor18 U.S.C. § 209; the civil gratuities statute at 10 mous enforcement burden to regulate a very

U.S.C. § 2207: the recently enacted gift statute at limited number of persons. Within the large

5 U.S.C. § 7353; and the new executive branch family of revolving door laws, the chief indestandards of conduct regulations promulgated pendent contribution of the post-employment

by the Office of Government Ethics (OGE) at 5 restrictions of 10 U.S.C. § 2397b and 41 U.S.C. §

C.F.R. § 2635. 423(0 is to prevent key employees and officials

95See Chap. 6.4 of the Report.

96 Sre Chap. 6.7 of the Report.

60
from switching sides in situations that might The Panel reviewed a number of miscellaneous

disadvantage the government through their be- provisions of law, two of which, although they

hind-the-scenes assistance to a contractor. As an relate only indirectly to defense procurement,

alternative, the Panel suggests a new subsection are recommended for repeal. The most importhat could be added to the main body of govern- tant of those is the Byrd Amendment at 31 U.S.C.

ment post-employment laws at 18 U.S.C. § 207. § 1352, which forbids recipients of federal grants

and contracts from using appropriated funds to

The Panel reviewed those provisions of law lobby for the award of contracts. The same

protecting sensitive procurement information, substantive requirements exist elsewhere, and

including the Trade Secrets Act at 18 U.S.C. § the Panel urges Congress, in its next review of

1905 and the information protection provisions this subject, to relieve DOD of the unproductive

of the procurement integrity amendments to the record-keeping requirements imposed by this

OFPP Act at 41 U.S.C. §§ 423(a)(3), (b)(3), and provision. Itsimilarlyrecommendstherepealof

(d). The Panel concluded that the information 10 U.S.C. § 2408 regarding the debarment of

protection provisions of section 423 fill a neces- persons convicted of felonies. The worthy objecsary and useful role in protecting bid and evalu- tives of the latter provision have become mired

ation data during the procurement process, but in administrative paperwork and could be betthat they suffer in clarity from having been ter achieved through reliance on the established

drafted to fit the other definitions and objectives suspension and debarment process. Finally, the

of the OFPP amendments. The Panel believes Panel recommends a "housekeeping action" that

that the current protections could be better ex- would promptly rectivate the suspended

ecuted through enactment of a comprehensive, whistle-blower protection provision at 10 U.S.C.

single-purpose law, a draft of which is offered as § 2409 to avoid a lapse in coverage.

an alternative.

61
VII

OTHER STATUTES

Virtually all of the statutes covered in the pre- cases duplicative and in others inconsistent with

ceding sections of this summary have a direct the reality of reduced defense budgets.97 While

impact upon the buyer-seller relationship The recognizing the continued necessity of reports

Panel's recommendations for repealing, amend- to the Congress, the Panel recommends removing, or consolidating those statutes will have a ing the excessive detail from 10 U.S.C. § 2432,

similarly direct benefit upon those in govern- Selected Acquisition Reports, but retaining the

ment who administer the DOD acquisition sys- broad policy that such reports be submitted. In

tern as well as those in industry who respond to view of concerns that program managers were

its requirements. However, the Panel also re- inundated with various reporting requirements

viewed several other groups of laws which have in differing formats and calling for differing

a less direct impact upon the buyer-seller rela- data, the Panel recommends a unified reporting

tionship but which nevertheless play important format for all users, including the Congress, in

roles in the defense acquisition system. In this the format which DOD uses to manage its operasection the Panel presents its recommendations tions. This unified format would greatly reduce

on a number of those important statutory group- the burden on program managers and eliminate

ings. They include: the periodic necessity for amendment of the

statute to more closely follow DOD practices.

eMajor Systems Statutes The Panel also recommends folding the Unit

*Testing Statutes Cost Report requirement of 10 U.S.C. § 2433 into

-Service Specific Laws § 2432.

*Fiscal Statutes

*Fuel and Energy-Related Laws. Other recommendations concerning Chapter 144

are to streamline 10 U.S.C. §§ 2434 and 2435

Finally, this section includes a summary of the dealing with independent cost estimates, manPanel'sposition on the BrooksAct and theWarner power estimates and baseline requirements by

Amendment, the fundamental authority for the eliminating statutory detail but retaining existprocurementof automaticdata processing equip- ing policy. The Panel recommends that the

ment. legislation governing Defense Enterprise Programs (DEPs), 10 U.S.C. §§ 2436-37, be repealed.

Major Systems Statutes DEPs have not been successfully implemented

by DOD or supported by Congress. The Panel

Chapter 144 of Title 10, U.S. Code contains laws also recommends repeal of statutory requirewhich govern major defense acquisition pro- ments for competitive prototyping and corngrams. The Panel concluded that these statutory petitive alternative sources, 10 U.S.C. §§ 2438-

requirements were excessively detailed, in some 39. The Panel believes that mandating such

97 See Chap. 3.1 of the Repc-t.

63
strategies is inappropriate in today's reduced duction without adequate testing. It avpropribudget environment and may be unaffordable. ately gives a high priority to its testing requireHowever, the Panel recommends retaining the ments. The testing community is also ever vigimajor defense acquisition pilot program because lant and protective of its statutory mandates.

it has not yet been implemented and some expe- The program executive officers and program

rience with the program is warranted. managers, on the other hand, in some cases

express frustration over the delays and expense

Testing Statutes imposed on their programs by overzealous

testers. Thus, testing is a contentious subject

The Panel reviewed various statutes within Title with strong advocates in each camp.

10 of the U.S. Code that establish requirements

regarding testing of major weapon systems and The Panel concluded that a consolidation of the

munitions programs by DOD. 98 Under the cur- four current testing statutes and elimination of

rent statutory scheme, all major defense sys- statutory detail would further its statutory

tems, as defined under 10 U.S.C. § 2302(5), must streamlining mandate and allow the flexibility

undergo operational test and evaluation before desired by the testing and acquisition communithose systems may proceed beyond low-rate ties. The Panel developed a dual proposal in the

initial production. For major defense systems testing area. Initially, the Panel recommends the

under section 2430 of Title 10, that testing must

be set forth in a plan that has been approved repeal of the four testing statutes within Title 10

by the Director of Operational Test and Evalua- in their entirety and the enactment of a stream- tion of DO)D, who must then evaluate the results lined testing statute. This streamlined statute tionof ho OD, ustthenevauat theresltssets forth the basic rule that both vulnerability/ of that testing and report on it to the congressional defense committees before low-rate ini- lethality and operational testing must occur betial production may be exceeded. No system- fore proceeding beyond low-rate initial produccontractor employees may be involved in this tion. The proposed statute adopts extant definitesting unless such employees will also be in- tions of those terms. The statute then vests

volved in system deployment. Further, support discretion in the Secretary of Defense to implecontractors may not assist operational testing ment the required testing. Broad guidelines in

if they have previously been involved in system specific areas - such as contractor involvement

development, production, ordevelopmental test- and authority to modify operational testing reing unless their impartiality has been assured in quirements - are provided. These guidelines

writing by the Director of Operational Test and state general principles, but specific implementaEvaluation or the contractor functioned solely tion of the rule is left to the Secretary of Defense.

as a representative of the federal government.

With regard to live-fire testing, major defense The Panel recognized, however, that in view of

acquisition programs with user-protection fea- the sensitivity and concern in the Congress for

tures and major munitions programs may not adequate testing, there may be reluctance to

proceed beyond low-rate initial production un- fully adopt such a streamlined approach. Actil combat-relevant survivability orlethality test- cordingly, at a minimum, the Panel recommends

ing has been completed. This requirement may the Congress adopt certain specific statutory

be waived by the Secretary of Defense if unrea- amendments that are set forth in the analysis of

sonably expensive or impracticable and if an each individual statute within this subchapter.

alternative is available. A specific requirement

for such testing exists for wheeled or tracked Specifically, the Panel recommends repeal of 10

vehicles. U.S.C. § 2362 as subsumed by the requirements

of 10 U.S.C. § 2366. With regard to the live-fire

Congress rightly is concerned about past abuses requirements of section 2366, the Panel recomwhere the DOD inappropriately rushed to pro- mends substitution of the phrase "vulnerabil98See Chap. 3.2 of the Report.

64
ity" for "survivability" throughout the statute. tions and all were enacted by the same law.

The former term more accurately reflects the These sections were consolidated, and the lantype of testing mandated by the law. The Panel guage modernized where appropriate. Other

also recommends elimination of the require- examples are as follows:

ment for "full-up" vulnerability testing. As a

mandatory requirement, that testing can add The Service-specific authorities to contract for

considerable time and expense in certain high- architect-engineering services (10 U.S.C. §§

value systems. 4540, 9540 and 7212) are recommended for

repeal as laws that have clearly outlived their

Recommended amendments to the operational usefulness; the collective analysis for these

test and evaluation (OT&E) requirements of 10 statutes discusses the problems raised by the

U.S.C. § 2399 include authority to modify dedi- 6 percent fee limit in these laws and their

cated OT&E requirements for certain types of interplay with the Brooks architect-engineerprograms and amendments to permit greater ing statute.

system and support contractor involvement in

OT&E under controls to be specified by the The laws at 10 U.S.C. §§ 4506/9506,4507/9507

Secretary of Defense. Finally, the Panel recom- and 4508, all involving authority to sell or loan

mends that 10 U.S.C. § 2400 be amended to add a government item or service, were crafted

strategic defense missiles as a low density pro- into a single statute that sets forth specified

duction base item, and to make the Test and authorities to sell or loan government mateEvaluation Master Plan discretionary for low- rial for prescribed purposes. It includes imdensity items. portant authority to permit sales or the use of

government test facility services by private

Service-Specific Laws contractors at specified rates.

The Panel examined the Service-specific acqui- Civil Reserve Air Fleet (CRAF) enhancement

sition sections in the last three subtitles of Title authorities at 10 U.S.C. §§ 9512 and 9513 were

10.99 These laws fall into two main groups: (1) recommended for amendment to permit prithe Army/Air Force statutes, that evolved his- vate contractors limited commercial use of

torically out of the same-source law, and (2) military airfields. This proposal was based on

Navy-peculiar laws. These laws provide vari- the crucial role played by CRAF during Opous authorities to a Secretary of an individual erations Desert Storm/Desert Shield.

military department and are grouped in that

Service's chapter of Title 10. These provisions The Panel notes that those Service-specific auare of such a disparate nature that summarizing thorities that are marked for retention might

them is not warranted. appropriately be collected into a "Service Procurement Generally" chapter.

In instances where a grant of authority is no

longer used, or otherwise obsolete, the Panel Fiscal Statutes

recommends repeal. In a number of cases, efforts were made to modernize still-meaningful The Panel considered numerous statutes, priauthorities and to consolidate sections that so marily located within Chapter 131 of Title 10,

lend themselves into a single, streamlined sec- that relate to DOD fiscal authority and budtion. For example, the authorities at 10 U.S.C. §§ getary procedures. 100 Of these statutes, those

7361 through 7367all cover naval salvage opera- that dealt with exemptions for various DOD

99 See Chap. 3.3 of the Report.

100 See Chap. 3.8 of the Report.

65
expenditures from anti-deficiency requirements tions 2481, 2483, and 2490 granted authority to

were deemed directly related to DOD acquisi- sell excess utility services. These sections were

tion and recommended for retention. The con- also recommended for retention. Finally, the

sensus of the Panel was that a number of the Panel recommends that this body of law should

other fiscal and budgetary Title 10 statutes were be collected within Title 10 into a single chapter

not directly related to the DOD acquisition pro- dealing exclusively with fuel and energy-recess and hence were outside the scope of the lated acquisition.

Panel's charter. The Panel formally recommended no action for each of these laws, but The Brooks Act and the Warner Amendment

notes certain dispositions that the Congress may

wish to consider. The Panel did, however, rec- Under the Brooks Act, the acquisition of ADPE

ommend an amendment to the "M" account by the federal executive agencies is centralized

provisions at 31 U.S.C. § 1552(a) to exempt from under the General Services Administration

the five-year cancellation of funds rule sufficient (GSA). That agency retains exclu" ..uthority

funds to complete unfinished work on existing to procure ADPE. While GSA delegates that

contracts and to pay close-out costs and contract authority, to varying degrees, to the individual

claims. agencies, it still retains extensive managerial

oversight of this acquisition process. Under the

Fuel and Energy-Related Laws Warner Amendment, DOD is authorized to purchase directly certain, delineated types of ADPE

The Panel considered statutory provisions that related to military and intelligence missions. In

relate to fuel or energy system procurement the exercise of that authority, and in conducting

by DOD.1 01 These provisions a-e not currently individual procurements when delegated auorganized or grouped within Title 10 on that thority by the GSA, the DOD components have

basis. Some of those sections dealt directly with developed their own, internal mechanisms for

fuel and petroleum acquisition. For example, ADPE procurement. The two primary recomthe Panel recommends amending the authority mendations considered by the Panel were (1) to

to waive contract procedures at 10 U.S.C. § 2404 amend the Warner Amendment to wholly exto add authority to sell excess petroleum stores ermpt DOD from the Brooks Act and with it from

and credit those proceeds to applicable appro- GSA oversight, or (2) to significantly increase

priations. The Panel also recommended a modi- the blanket delegation of procurement authority

fication in authority to contract for storage of for DOD. The Panel deliberated extensively

fuels and management of tank farms to accom- over this question, but was unable to achieve a

modate management-only contracts. Other sec- consensus among its members as to a formal,

tionswereessentiallypolicy-i.2lated enactments, legislative recommendation in this area. At a

mandating environmentally sound acquisition minimum, however, the Panel agreed that the

practices by the DOD. In the absence of any blanket delegation of procurement authority to

significant burden on acquisition practices, these DOD should be raised significantly.' 02

sections were recommended for retention. Sec101 See Chap. 3.7 of the Report.

102 See Chap. 3.4 of the Report.

66
VIII

CONCLUSIONS

Congress will ultimately decide how well the than might otherwise have been identified for

Panel's recommendations met its declared ob- amendment or repeal. It is important to note

jectives as well as the goals suggested by its that these recommendations are made on the

original mandate. However, in assessing those basis of the "best evidence" available to the

results, both Congress and the general public Panel at the time of its decision.

should be aware of the constraints which affected the Panel's work. The second constraint reflects a general concern

about the numbers of laws considered during

The key constraint was time, especially when this review, as well as their placement within the

measured against the magnittude of the task. U.S. Code. Many of the statutes affecting deThe 16 months between the convening of the fense procurement arise from titles of the Code

Panel and the printing of its Report obviously beyond Title 10, often reflecting the divergent

constrained the process of considering the 889 interests of many different congressional comstatutes comprising the universe of acquisi- mittees and subcommittees. The organization of

tion laws - a number so high that it surprised the Code also reflects multiple functions which

even veteran observers of these matters. While may apply in different ways to different agencies

an extension of the statutory deadline of January of the government. The recognition of those

15, 1993, could have been justified, the Panel realities affected one of the Panel's original goals,

members strongly believed that it was more which was to "prepare a proposed code of relimportant to place their recommendations evantacquisitionlaws." Early in its deliberations,

squarely on the agenda of a new Administra- the Panel decided that this goal did not imply the

tion and a new Congress. Inevitably, priorities creation of an all-encompassing "model code"

were set in order to bring the greatest analytical for DOD procurement to be located at a single

attention to the most obvious and best under- point within the body of Title 10 - primarily

stood problems, especially in those areas that because the administrative tidiness of such a

offered the greatest prospects for improvement, compilation would be less helpful than the jurisIn addition to focusing on the most relevant dictional questions that would inevitably be

acquisition laws, the Panel necessarily exclud- raised. Equally important was the need to ased regulations, executive orders, and most case semble and review the array of procurement

law from the study. However, the most signifi- laws before creating a "model code" in Title 10

cant effects imposed by the time constraint may or anywhere else. Consequently, while it has

have come when the Panel chose to recommend recommended the consolidation of certain laws

a law's retention or to exclude it from more and chapters in several of the areas noted above,

detailed consideration, either because the evi- the statutes which the Panel has assembled,

dence for change was ambiguous or because it reviewed, and presented in its Report represent

was impossible to obtain additional data with- its best judgments on the core functions of the

was widefense procurement process. Should those recout the expenditure of far greater resources than ofnendonuremenace, t ho e ec

the Panel had at its disposal. The Panel is, there- of relevant acquisition laws will have been

fore, recommending the retention of more laws created.

67
The specific nature of these recommendations confusion is the proliferation of laws which can

- for the repeal, amendment, or deletion of impose burdensome and often conflicting realmost 300 laws and the consolidation of many quirements. While the Panel is particularly apothers - clearly distinguishes the work of this preciative of the strong congressional support

Panel from many others which have examined for its efforts, it respectfully suggests that the

theproblemofdefenseacquisition. Whilesweep- enactment of the reforms recommended here

ing legislative changes have been advocated will not achieve a lasting effect unless Congress

before, previous efforts have stopped well short also gives continued attention to its responsibilofspecifyingthepreciseproposalsforindividual ity for maintaining a disciplined and coherent

statutory change presented in the Panel's Re- legal structure.

port. There are, however, two major problems

associated with this level of detail. The first is The final point of this summary may not be so

maintaining an appropriate focus for change. much a constraint as a caveat. The work of the

Even though there may be some disagreement Panel represents its best efforts to provide a

or even controversy with particular changes common baseline for those who seek to improve

recommended by the Report, it is vital that the defense acquisition laws as well as the policies

Panel's effort be seen as a "system solution". which implement them. In each of the areas they

The second problem is time - maintaining the reviewed, however, the Panel members were

focus for change over the many months or years struck by the magnitude of the task which future

which will be needed to carry out such an ambi- reformers will face in making comprehensive

tious agenda. While some of the Panel's recom- legislative changes. There is also no qucsion

mendations can easily be enacted, many others that these recommendations are best thought

will require hearings, debate, and careful study. of as a "first cut" at a large problem, and cerThere can be no question, however, that the tainly not as an ideal solution to it. Moreover,

continuation of such legislative initiatives, as the Panel recognizes the importance of seeking

well as further regulatory improvements, must government-wide consistency in procurement

proceed as a legislative-executive branch part- matters and hopes that its recommendations

nership with the common goal of a streamlined can serve as the baseline for parallel changes

acquisition system. in the legislative underpinnings of civilian agency acquisition. While these findings do not

There can be no doubt, however, that this goal fully achieve the Packard Commission's

will require particularly strong leadership and ultimate goal of providing a "single, consistent,

teamwork by Congress. A recent study by the and greatly simplified procurement statute," 104

Business Executives for National Security, for they clearly carry out the will of Congress by

example, is merely the latest to note that no translating those general principles into a "pragfewer than 107 congressional committees and matic, workable set of recommended changes to

subcommittees exercise some degree of Penta- the acquisition laws."1 05 It is therefore our singon oversight: "The result is massive jurisdic- cere hope that the changes recommended by the

tional confusion." 103 But without better coor- Panel will make a substantial and lasting contridination, defense procurement law will remain bution to the development of a more efficient

complex, confused, and often chaotic. The evi- defense procurement system, one that is capable

dence accumulated during this review also sug- of meeting any future challenge to American

gests that an ancillary result of jurisdictional national security.

103 Business Executives for National Security, Washington, D.C. Report of the Commission on Fundamental Defense

Management Reform, 36 (1992).

104 See note 3, p. 2 of this summary.

105 See note 6, p. 2 of this summary.

68
APPENDIX:

TABLE I.

RECOMMENDATIONS FOR AMENDMENT OR REPEAL OF STATUTORY PROVISIONS

(Summarized by Chapter Reference to the Panel's Report)

Chapter 1

Contract Formation

10 U.S.C. § 2301 Congressional defense procurement Amend section to incorporate Panel objectives with existing

policy congressional defense procurement policy. The following

are appropriately melded within the statute:

Enhance science and technology, research and

development and production capability; provide for

continued development and preservation of an

efficient and responsive defense industrial base; and

ensure the financial and ethical integrity of defense

procurement programs consistent with achieving an

optimum balance among efficient processes, full and

open access to the procurement system and sound

implementation of socioeconomic policies.

Clear policy for preference of commercial and

nondevelopmental items.

Appropriate risk allocation.

Investment in "flexible manufacturing processes" and

"dual-use" technologies.

Fair and expeditious processing of protests and

disputes.

Clarify the intent of Congress to state requirements in

terms of functions to be performed, performance

required, or essential physical characteristics.

Provide specific guidance in encouraging contracting

officer discretion to exercise sound judgment in

purchasing commercial items.

10 U.S.C. § 2302 Definitions Add definition of commercial item (both as end-items and as

components) which includes manufactured products.

ancillary services, new products, modified products.

combinations of products, products sold in small quantities

to the general public, and items produced from commercial

processes.

Change the term "small purchase threshold" to "simplified

acquisition threshold" with a threshold of $100,000. Also.

add language concerning "contingency operation" with a

threshold of $200,000 for purchases to be made outside the

United States.

Incorporate and amend definition of nondevelopmental

item for clarity and simplicity.

10 U.S.C. § 2304 Contracts: competition requirements Change references from "small purchase threshold" to

"simplified acquisition threshold."

Amend section to exempt contractors supplying commercial

items from specifying the incurred overhead or the value

added by the contractor to the item.

Amend by deleting subsection (j) covering master

agreements and substituting linguage that prescribes

requirements for contracts that do not procure or specify a

firm quantity of supplies or services and prove'ie for

obtaining supplies or services by issuance of delivco,' orders

or task orders.

69
10 U.S.C. § 2305 Competition: planning, solicitation, Amend to require regulations which address the debriefing

evaluation, and award of unsuccessful offerors.

Amend to grant the head of an agency the authority to take

certain remedial action if an award or proposed award does

not comply with a statute or regulation, such as the ability

to pay bid and proposal costs and legal fees for meritorious

protests.

10 U.S.C. § 2306 Kinds of contracts Amend by deleting subsection (ci which requires approva)

by the head of an agency before use of a costreimbursement or incentive contract is allowed.

10 U.S.C. § 2317 Encouragement of competition and Repeal.

cost savings

10 U.S.C. § 2318 Advocates for competition Delete subsection (c) which requires each advocate for

competition to transmit to the SECDEF a report describing

his activities in the preceding year. Reporting

requirements are already set by regulations within the

agencies.

10 U.S.C. § 2325 Preference for nondevelopmental Amend the section by changing the title to "Commercial

items and nondevelopmental items: product descriptions" and

ensure product descriptions promote the use of both

commercial and nondevelopmental items. Move NDl

definition to 10 U.S.C. § 2302,

40 U.S.C. §§ 541-544 Brooks Architect-Engineers Act Amend section 541 to remove ambiguity as to the breadth of

services covered by the Act.

41 U.S.C. § 416 Procurement Notice Amend to harmonize DOD and civilian agency thresholds,

allow the use of automated systems for actions under the

simplified acquisition threshold, generally require

automated means for transmitting solicitation and award

notices for publication and increase flexibility when setting

deadlines for submission of offers for commercial items.

10 U.S.C. § 2306a Truth in Negotiations Act Amend to maintain the dollar threshold for application of

the statute at $500,000 rather than the lower standard of

$100,000 scneduled to become effective in 1996.

Amend to allow for exemption of modifications to

commercial items contracts in excess of the threshold from

the application of TINA where the contracting officer can

determine price reasonableness.

Amend to expand and clarify the exception for adequate

price competition to provide more discretion to the

contracting officer to use market research to determine

price reasonableness.

10 U.S.C. § 2356 Contracts: delegations Amend the section to provide for decision-making at a

lower level, contributing to streamlining and efficiency.

10 U.S.C. § 2358 Research projects Amend to provide that advanced as well as basic and

applied research is included in the scope of authority

granted to both the SECDEF and the Secretaries of the

military departments.

Amend to provide that cooperative agreements can be used

for all types of research efforts including basic and applied

research.

Expand authority of section to include coverage for

research projects which are "otherwise of interest to DOD

or the military departments."

10 U.S.C. § 2364 Coordination and communication of Amend by changing the language to ensure that

defense research activities information is provided in a timely manner by replacing the

references to, and definitions of. the Milestones 0. 1, and II

decisions with "acquisition program decisions."

10 U.S.C. § 2371 Advanced research projects: Amend the section so that it contains only statutory

cooperative agreements and other provisions dealing with the utilization of cooperative

transactions agreements and other transactions.

10 U.S.C. § 4503 Research and development programs Repeal as duplicative of authority as amended in 10 U.S.C.

§ 2358.

10 U.S.C. § 7522 Contracts for research Amend by repcali:ig subsection (hi) which deals with

payments (if research and development contracts and merge

into revised 10 U.S.C. § 2307.

10 U.S.C. § 9503 Research and development programs Repeal as duplicative of authority which exists in 10 U.S.C.

§ 2358.

70
31 U.S.C. § 3553 Review of protests; effect on Amend to alleviate confusion in the use of working days

contracts pending decision and calendar days by consistently using calendar days.

Amend subsection which requires suspension of contract

performance when a protest is filed within 10 days of

contract award should be modified to also require an

agency to suspend contract performance if a protest is filed

within 3 calendar days after the date set by an agency for

any requested and required debriefing.

Amend to provide statutory authority for the Comptroller

General to issue protective orders.

31 U.S.C. § 3554 Decisions on protests Amend to expand express option for consideration of GAO

protest from 45 to 65 calendar days.

Amend to require to maximum extent that protest

amendments adding new grounds be resolved in the same

time as for original protest.

Amend to make parties found responsible for protests which

are frivolous or not brought or pursued in good faith liable

to the government for its cost of defending the protest.

31 U.S.C. § 3555 Regulation; Authority of Amend section to prescribe regulations to support Panel's

Comptroller General to verify recommendations made in Title 31.

assertions

31 U.S.C. § 3556 Nonexclusivity of remedies; matters Delete reference to district court in accordance with the

included in agency record Panel's recommendation to discontinue the Scanwell

jurisdiction of district courts in bid protest matters.

28 U.S.C. § 1491 Claims against the United States Amend to add a section entitled "Bid Protest" which would

generally; actions involving the give the U.S. Court of Federal Claims exclusive judicial

Tennessee Valley Authority jurisdiction of pre-award and post-award bid protests. This

provision would require the court to set aside agency action

upon a finding of violation of statute or regulation and to

award costs, attorney fees, expert witness fees and bid and

proposal expenses.

40 U.S.C. § 759 The Brooks Act; procurement. Amend to maintain consistency with recommendations

maintenance, operations, and made to GAO protest procedures.

utilization of automatic data Establish consistent use of the term "calendar days."

processing equipment Require an agency to suspend contract performance if

a protest is filed within 3 calendar days after the date

set by an agency for any requested and required

debriefing.

Amend to require that new grounds of protest should

be resolved where possible within the same time

period established for resolution of initial protest.

Amend to allow for electronic filing and dissemination

of protest documents.

Amend to require party responsible for a frivolous

protest or a protest which has not been pursued in

good faith to pay defense costs to the government.

Amend to allow payment of expert witness and

consultant L,,es.

10 U.S.C. §§ 2308 and 2311 A'ionm,,rit and del-gation of Repeal section 2308 and move to section 2311.

procurement functions and

responsibilities

Delegations

10 U.S.C. § 2310 Determinations and decisions Amend to allow determinations and decisions for a class of

purchases or contract. except where expressly prohibited

under Title 10.

10 U.S.C. § 2326 Undefinitized contractual actions: Amend to clarify that limitations are on obligations rather

restrictions than on expenditures.

Amend to allow waiver of the percentage limitations during

contingency operations or other national emergencies.

10 U.S.C. § 2329 Production special tooling and Repeal.

production special test equipment:

contract terms and conditions

10 U.S.C. § 2331 Contracts for professional and Amend by moving subsection (c) to 10 U.S.C. § 2304.

technical services

10 U.S.C, § 2381 Contracts: regulations for bids Amend by clarifying who may prescribe regulations.

10 U.S.C. § 2384 Supplies: identification of supplier Amend section to exempt contractors who supply

and sources commercial items from supplier and source identification

I requirements.

71
Pub. L. No. 101-189 § 821 Requirement for certificate of Repeal.

independent price determination in

certain department of defense

contract solicitations

Chapter 2

Contract Administration

Contract Payment

10 U.S.C. § 2307 Advance payments Rename the section "Contract financing."

Merge the substance of three other statutes

concerned with advance, progress and special

payments into it.

31 U.SC. §§ 3901-3907 Prompt payment Amend section 3904 to extend the discount period to

the latter of the receipt of the invoice or the receipt

of goods and services.

10 U.S.C. § 2324 Allowable costs under defense contracts Amend the section to include a statement defining

allowable cost and to retain only the penalty scheme

as amended by the 1993 Defense Authorization Act,

the burden of proof, the evaluation by the

Comptroller General, and the definition of "covered

contract."

10 U.S.C. § 2382 Contract profit controls during emergency Repeal.

periods

41 U.S.C. § 420 Travel expenses of government contractors Repeal.

Audit and Access to Records

5 U.S.C. App. 3 §§ 1-12 Inspector General Act Amend section 9 to repeal the transfer of auditing

and investigating authority to the Office of the

Inspector General.

10 U.S.C. § 2313 Examination of books and records of contractor Amend to combine this section and section 2306a(f)

and certain regulatory provisions into a single

comprehensive audit statute.

10 U.S.C. § 2406 Availability of cost and pricing records Repeal.

Cost Accounting Standards

10 U.S.C. § 2410b Contractor inventory accounting systems: Repeal.

standards

41 U.S.C. § 422 Cost-accounting standards board Recommend CAS Board under its present authority

take prompt action to facilitate DOD purchases of

commercial items.

Price, Delivery, and Product Quality

10 U.S.C. § 2383 Procurement of critical aircraft and ship spare Repeal.

parts: quality control

10 U.S.C. 8 2403 Major weapon systems: contractor guarantees Repeal.

10 U.S.C, § 4534 Subsistence supplies; contract stipulations; Repeal.

place of delivery on inspection

10 U.S.C. § 9534 Subsistence supplies; contract stipulations; Repeal.

place of delivery on inspection

41 U.S.C. § 15 Transfers of contracts; assignment of claims; set- Amend to delete provision which prohibits set-off

off against assignee against assignees only during times of war or

national emergency.

41 U.S.C. § 20 Deposit of contracts Repeal.

41 U.S.C. § 417 Record requirements Amend to conform to simplified acquisition

threshold.

72
Claims and Disputes

10 U.S.C. § 2405 Limitation on adjustment of shipbuilding Amend section to remove the specific requirement

contracts therein pertaining to the Contract Disputes Act

certification.

10 U.S.C. § 2410 Contract claims: certification Repeal.

28 U.S.C. § 1346 United States as a defendant Amend to clarify that this section does not pertain to

any action or claim which relates to a contract

subject to the Contract Disputes Act.

41 U.S.C. §§ 601-613 Contract Disputes Act Amend to reduce the time for appeals to the Court of

Federal Claims from one year to 90 days.

Amend to raise the threshold amounts from $50,000

to $100,000 and to incorporate Congress' recent

amendments regarding certification.

Amend to include a six-year statute of limitation for

the filing of contract claims by and against the

United States.

Amend to raise the "small claims" maximum amount

to $25,000.

Extraordinary Contractual Relief

50 U.S.C. §§ 143 1-1435 1Extraordinary Contractual Relef Repeal section 1435 to permit use of authority

(Pub. L. 85-804) contained in this statute at all times rather than only

I in times of national emergenc,.

Chapter 3

Service-Specific and Major Systems Statutes

Major Systems Statutes

10 U.S.C. § 2432 Selected Acquisition Reports Amend to remove detail and to incorporate Unit Cost

Report requirement currently in 10 U.S.C. § 2433.

10 U.S.C. § 2433 Unit Cost Reports Repeal and incorporate Unit Cost Report

requirement into 10 USC. § 2432.

10 U.S.C. § 2434 Independent cost estimates, operational Amend to delete manpower and independent cost

manpower requirements etimate report content and definition of manpower

estimates to recast as policy guidance.

10 U.S.C. § 2435 Enhanced program stability Amend to delete baseline description and review

procedures.

10 U.S.C. §§ 2436 -2437 Defense Enterprise Programs: milestone Repeal.

authorization

10 U.S.C. § 2438 Major Programs: competitive prototyping Repeal.

10 U.S.C. § 2439 (formerly Major Programs: competitive alternative sources Repeal.

§ 2438) 1

Pub. L. 101-510 § 809 Major Defense Acquisition Pilot Program Amend to reflect proposed repeal of section 2436.

Testing Statutes

10 U.S.C. § 2362 Testing requirements: wheeled or tracked Repeal.

vehicles

10 U.S.C. § 2366 Major Systems and munitions programs: Repeal and enact a more streamlined statute. In the

survivability and lethality testing required before alternative, amend to: eliminate full-up testing

full-scale production requirement; extend waiver authority: and substitute

the tern "vulnerability" for the term "survivability."

10 U.S.C. § 2399 Operational test and evaluation of defense Repeal and enact a more streamlined statute. In the

acquisition programs alternative, amend to: permit modification of

mandatory operational testing requirement; permit

greater contractor involvement in operational

testing, logistical, and other support functions,

permit greater support and nonsystem contractor

involvement in operational testing.

73
10 U.S.C. § 2400 Low-rate initial production of new systems Repeal and enact a more streamlined statute. In the f[

alternative, amend to add coverage of strategic

defense missiles and to make test and evaluation

master plans discretionary for exempted systems.

Service Specific Statutes

10 U.S.C. §§ 4501 and 9501 Industrial mobilization: orders; priorities; Consolidate.

possession of manufacturing plants; violations

(Army and Air Force)

10 U.S.C. §§ 4502 and 9502 Industrial mobilization; plants; lists; Board on Consolidate,

Mobilization of Industries Essential for Military

Preparedness

10 U.S.C. §§ 4501 and 9501 Procurement for experimental purposes Consolidate.

10 U.S.C. §§ 4505 and 9505 Procurement of production equipment Repeal.

10 U.S.C. §§ 4506 and 9506 Sale, loan or gift samples, drawings and Consolidate these five sections into one section and

10 U.S.C. §§ 4507 and 9507 information to contractors provide additional authority to sell.

10 U.S.C. § 4508 Sale of ordinance stores to designers

Test of iron, steel and other materials

10 U.S.C. §§ 4511 and 9531 Authorization (to purchase certain materials and Repeal.

facilities)

10 U.S.C. § 4533 Army rations Repeal.

10 U.S.C. §§ 4535 and 9535 Exceptional subsistence supplies; purchase Repeal.

without advertising

10 U.S.C. §§ 4537 and 9537 Military surveys and maps: assistance of U.S. Repeal.

mapping agencies ... ....

10 U.S.C. §§ 4538 and 9538 Unserviceable ammunition: exchange and Repeal.

reclamation

10 U.S.C. §§ 4540, 9540 and Architectural and engineering services Repeal

7212

10 U.S.C. 2855 Law applicable to contracts for architectural and Amend to permanently authorize procurement of Aengineering services and contruction design E services;

Amend section 2306 to delete the 6 percent fee

limitation.

10 U.S.C. §§ 4541 and 9541 Gratuitous services of officers of the Army/Air Consolidate.

Force Reserve

10 U.S.C. §§ 9511, 9512 and (Civil Reserve Air Fleet (CRAF) Program) Consolidate and amend to grant authority to

9513 Definitions contract with CRAF carriers for limited use of

Contracts for the inclusion of defense features military airfields.

Commitment of aircraft to the Civil Reserve Air

Fleet

10 U.S.C. § 7201 Guided missiles; research and development, Repeal.

procurement, construction

10 U.S.C. § 7203 Scientific investigation and research Amend and redesignate to provide scientific

exchange authority.

10 U.S.C. § 7213 Relief of contractors and their employees from Repeal.

losses by enemy action

10 U.S.C. § 7230 Sale of degaussing equipment Repeal.

10 U.S.C. § 7296 Appropriations (auxiliary naval vessels); available Repeal.

for other purposes

10 U.S.C. § 7298 Conversion of combatants and auxiliaries (naval Repeal.

vessels)

10 U.S.C. § 7299a Construction of combatant and escort vessels and Amend to repeal obsolete and contradictory

assignment of vessel projects provisions.

10 U.S.C. § 7301 Bids on construction: estimates required Repeal.

10 U.S.C § 7302 Construction on Pacific Coast Repeal.

10 U.S.C. § 7304 Examination by board; unfit vessels stricken from Consolidate the four sections with the exception of

Naval Vessel Register 7307(b) which should be repealed as superfluous.

10 U.S.C. § 7305 Sale of vessels stricken from Naval Vessel

10 U.S.C. § 7306 Register

10 U.S.C. § 7307 Use for experimental purposes

10 U.S.C. § 7308 Restriction on disposal

Transfer or gift of obsolete, condemned, or

captured vessels

10 U.S.C. § 7310 Policy in constructing combatant vehicles Repeal.

10 U.S.C. §§ 7361-7367 Naval salvage facilities Consolidate.

74
The Brooks Act and Warner Amendment

40 U.S.C. § 759 and 10 Brooks Act and Warner Amendment: No legislative recommendation; how. er

U.S.C. § 2315 procurement of ADPE by GSA and certain consideration should be given to an increase in the

exemptions for DOD. blanket Delegation of Procurement Authority by

GSA.

DoD Commercial and Industrial Activities

10 U.S.C. § 2461 and Commercial and industrial type functions; Amend to eliminate unnecessary requirements and

10 U.S.C. § 2462 required studies and reports before conversi-- to consolidate into a single streamlined statute.

contractor performance. Contracting for cei,an

supplies and services required when cost is lower

10 U.S.C. § 2463 Reports on savings or cost from increased use ef Repeal.

DOD civilian personnel

10 U.S.C. § 2464 Core logistics functions Amend to clarify authority of the Secretary of

Defense to zstablish core requirements.

10 U.S.C. § 2465 Prohibition on contracts for performance of Repeai.

firef ghting or security guard functions

10 U.S.C. § 2466 Limitations on the performance of djot level Repeal.

maintenance of material

10 U.S.C. § 2467 Cost comparisons: requirements with respect to Consolidate with the current sections 2461 and 2462

retirement costs and consultation with employees and amend to vest the consultation requirement in

the Secretary of Defense or the military service

Secretaries.

10 U.S.C. § 2468 Military installations: authority of base Repeal.

commanders over contracting for commercial

activities ,Nichols Amendment)

10 U.S.C. §§ 4532 and 9532 Factories and arsenals: manufacture at; Consolidate and amend to specify the authority of

aL)liti.,n of the Secretary of Defense.

10 U.S.C. § 2212 Cox,;racted advisory and assistance services: Repeal.

accounting procedures

Fuel and Energy

10 U.S.C. § 2388 Liquid fuels, contracts for storage Amend to provide separate authority to contract for

storage or handling; add natural gas; vest authority

in the Secretary of Defense and military service

Secretaries.

Repeal subsection (b) concerning protection of

_,.roleum facilities as obsolete.

10 U.S.C. § 2404 Acquisition of petroleum, authority to waive Amend t. provide authority to sell petroleum when

procedures _ _ in the ptHic inters-st.

Fiscal Statutes

10 U.S.C. § 1552 Procedure for appropriation accounts available Amend to provi,;c tor waiver of cancellation of

for definite periods ("M' accounts) avail,.hility .,t obligation if the Secretary of Defense

or the Secretary ot a military department determines

funds are re,:y.Iu under open contracts, and

Congress is notified annually thereafter as to

balance remaining in each fixed appropriation

ac,:ount.

Miscellaneous

U.S.C. § 2202 Obligation of funds: limitation Amend tn specify the authorityi of the Secretary of

Defense to issue regulations for procurement.

product.ca, warehousing oz distribution.

Repeal subsection (b) as a redundant funding

limitation set out elsewhere.

10 U.S.C. §§ 2271-2279 Encouragement of aviation Repeal all sections as obsolete.

10 U.S.C. § 2369 Product evaluation activity Repeal.

10 U.S.C. § 2384a Suplies: economic order quantities Repeal.

10 U.S.C. § 2385 Arms and ammunition: immunity front taxation Amend to add heavy wheeled vehicles and trailers

as items exempt from excise tax,

75
f10 U.S.C. § 2389 Contracts for the procuremtent of nuik price Repeal

jj adju.;tnents,, purchases front the Cottimodity

U ___________________________Credit Corporation____________________________________ f10 U.S.C. § 2402 Prohibition of contractors imniting subcontractor Amend to delete requirement for ,onitact clause fl _________________________sales directly ito the United States ______________________________

Pub. L. 101-510 § 9081 18-month lease restriction on vessels, kehicles. Repeal.

or aircraft

Chapter 4

Socioeconomic Laws, Small Business and Simplified Acquisition Threshold

Simplified Acquisition Threshold: See Tables V and VI

Labor and Equal Opportunity

10 U.S.C. § 7299 Contracts: Applicatton of Public Contracts Act Amend to retatn exclusion of 'hip construction and

_________________________ ____________________________________________ repair fronm Dasis-Bacon and Service Contact Acts

29 U.S.C. § 793 Employment under federal cotitrac:ts Aniertd to conform to the simplified acquisitron

threshold tSlX),Xi front Slt).(X) and to cmeate an

______________________________ _______________________________exemption_____for_____ eseptin fo comercal iem'

38 U.S.C. § 42J2 Veteran's employment emphasis under federal Amend to conformn the thresho~d to the irnplified

contracts acquisition threshold i SI ()X from, the current

5(.()threshold and to create an exemption for

connercil iem'.

40 U.S.C. § 207a el seq The Miller Act Amend to conform the threshold to the simified

acquisitior threshold from the current S25.0)

_______________________ ________________________________________ hrexhoidl.

40 U.S.C. § 267a et seq The Davis-Bacon Act Amend to conform the threshold too the simplified

acquisition thre'hold fromt current S2.0(K0 threshold

Anittd reporting requirements and lengthen

_______________________ _______________________________________ requecy of wxage schedules publteation to- aMnualk.

40 U.S.C. §§35-45 el seq The Walsh-flealev Public Contracts Act Repeal.

41 U.S.C. §§351-358 Service Contract Act Amend to conform the threshold to the proposed

simplified acquisition threshold fro the current _______________________________________________________________52.500) thr-shold

41 U.S.C. § 701 Drug-free workplace for federal cotitractors Amend to conformn the threshold to the proposed

simtplified acquisition threshold fronm the current

S!25.000 threshold and to create an exemption for

comniercial itents.

Small and Disadvantaged Business Preferences f15 U.S.C. § 631 et seq Small Business Act Amn'cti ri;, 63z7 too perit c'njtrjciog officer, to,

negotiate diredtl Aith eligibe ta)i firms rather than

ilealirle through the Stnall P'isines' Aclitjii~trion

-r:: id wc inw A3? to co ntform t I itipliled ____________________________________ a~q~it.itiinhiehoild
Chapter 5

Intellectual Property

Technical Data

10 U.S.C. § 2320-2321 and Rights in technical data and validation of Amend Section 2320 to: more clearly define when

41 U.S.C. § 403 proprietary data restrictions technical data is to be delivered and to provide for

regulations setting out the rights of the government

and its contractors in that data

delete the requirement for written assurances of

complete and accurate data;

comport policy on commercial items to statute and

allow Secretary of Defense the flexibility to use any

technical data policy that would meet the

government's reprocurement needs.

Amend 41 USC. § 403 to more clearly define

technical data to include computer data bases and

manuals and to exclude computer programs.

15 U.S.C. 4§ 3701-3710d Technology innovation (Stevenson-Wydler Amend 15 U.S.C. § 3710a to: provide that

Technology Transfer Act and the Federal government agencies may secure copyright

Technology Act) registration for the United States in computer

programs prepared b civilian and military employees

in performance of their official duties under or

related to cooperative research and development

agreements;

establish procedures for securing copyright.

licensing, and sharing royalties with employees for

copyrightable works;

permit government employ-es under certain

conditions to secure copyright, license and share in

royalties for copyrightable works; and

permit laboratory employees to help in

commercializing copyrighted work made while in

government service if they had no participation in

the selection of the other party to the cooperative

research and development or in negotiation of the

licensing agreement.

10 U.S.C. § 2363 Encouragement of technology transfer Repeal.

35 U.S.C. j§ 200-212 Patent rights in inventions made with federal Amend section 202 to: require contractors to disclose

assistance each invention within a reasonable time, but in any

event prior to publication;

provide that contractors specifically state their

election to retain title to an invention in the United

States and foreign countries;

provide that where publication, sale. or public use,

has initiated the one-year statutory period in which

valid patent protection can still be obtained in the

United States the period for election may be

shortened by the federal agency to a date that is not more than four months prior to the end of the

statutory period; and

provide that whenever contractors elect to retain

title, they must file a patent application within one

year of election (or an additional time as approved by

the federal agency).

77
Competitiveness of United States Companies

35 U.S.C. § 181-188 Secrecy of certain inventions and filing Amend section 181 to establish a Patent and

applications in foreign countries Trademark Technical Advisory Committee within

DOD it) review and administer the imposition of

secrecy orders.

Amend section 183 to provide compensation only for

periods of delay as a resuit of a grant of a secreCy

order which exceed five years. (Amendment to 35

U.S,C, § 155 is also recommended to extend the term

of any patent delayed by a grant of a secrecy order

for a period equal to the delay but not to exceed five

...... years.)

22 U.S.C. § 2761e Charges; reduction or waiver Repeal.

i (Foreign Military Sales Recoupment) ,I ,,

Government Use of Private Patents, Copyrights and Trade Secrets

28 US.C. § 1498 Patent and copyright cases Amend to provide the Secretary of Defense authority

to issue regulations prescribing when a contracting

officer nay withhold from a contractor authorization

and consent to use (and potential infringement) of a

, patent of i third party.

10 U.S.C. § 2386 Copyrights, patents, designs, etc., acquisition Amend to broaden and modernize the section to

coser technical data and computer software rather

than "'designs processes and manufacturing data."

10 U.S.C. § 7210 Purchase of patents, patent applications, and Repeal.

licenses

Chapter 6

Standards of Conduct

Civil Fraud

31 U.S.C. §§ 3729-3732 False Claims Act (Qui Tam) Amend section 3730 to: prohibit qui tram suits based on information obtained by the relator in the course

or scope of official government duties or

employment;

tighten the prohibition against "parasitic suits';

prohibit qui tam actions based on voluntary

disclosures and limit compensation to culpable

defendants.

Amend the Contract Disputes Act to permit disputes

to be processed in the absence of a contracting

officer's final decision within the discretion of a

board or the Court of Federal Claims.

Amend section 3729 to: permit transfer to the Court

of Federal Claims and to permit claims to be heard

as counterclaims in district courts; and avoid

unreasonable penalties.

Ethics

18 U.S.C. § 207 Restrictions on former officers, employees, and Amend section to add a one-year restriction on

elected officials of the executive and legislative representing or advising others concerning certain

branches protected pro urement-rcla.ed information.

10 U.S.C. § 2397a Requirements relating to private employment Repeal.

contacts between certain DOD procurement

officials and defense contractors

18 U.S.C. § 281 Restriction on retired military officers regarding Repeal,

certain matters affect the government . .....

37 U.S.C. § 801 Restriction on payment to certain officers Repeal.

10 U.S.C. § 2397 Employees or former employees of defense Repeal.

contractors; reports

78
10 U.S.C. g 2397b Certain former DOD procurement officials: Repeal.

limitation on employment -__

10 U.S.C. § 2397c Defense contractors: requirements concerning Repeal.

former DOD officials

41 U.S.C. § 423 Procurement integrity Repeal and replace with proposed provisions relating

to the disclosure of bid, proposal, or source selection

information.

Procurement Policy

41 U.S.C. §403 Definitions (OFPP Act) Amend to substitute the term "simplified acquisition

threshold" for "small purchase threshold."

Amend to change the definition of "technical data"

to include computer data bases and manuals and

other supporting computer data.

Other Related Statutes

31 U.S.C. 51352 Limitation on use of appropriated funds to Repeal

influence certain federal contracting and

................ .... financial transactions (Byrd Amendment)

10 U.S.C. § 2408 Prohibition on persons convicted of defense- Repeal.

contract related felonies and related criminal

penalty on defense contractors

10 U.S.C. § 2409a Protection of whistle blowers Repeal.

Chapter 7

Purchases of Foreign Goods by the Department of Defense

41 U.S.C. §§ lOa-10d Buy American Act Amend to substitute "substantial transformation"

test of 19 U.S.C. § 2518 for current test of U.S.

origin.

Repeal debarment provisions in favor of standard

Domestic Source Restrictions administrative debarment procedures.

Domestic Source Preferences Repeal the following congressionally-mandated

domestic source restrictions and product preferences

* Jewel Bearings [Pub. L. No. 90-469 and 101-511, §

8121]

* Food, Clothing, Fabrics, Specialty Metals, and

Hand or Measuring Tools [Pub. L. No. 97-377, § 723]

* Night Vision Devices [Pub. L. No. 101-511, § 80541

* Floating Storage of Petroleum [Pub. L. No. 101-

511. § 8020]

* Anchor and Mooring Chain [Pub. L. No. 100-202,

§ 8125, 101-165. § 9051, and 101-511, § 8041]

* PAN Carbon Fibers [Pub. L. No. 101-511, § 8048]

10 U.S.C § 2506 Limitation on use of funds; procurement of goods Amend section 2506 by striking the heading

renumbered as § 2533 which are other than American goods "Limitation on use of funds: procurement of goods

which are other than American goods" and

inserting in lieu thereof, "policy on Purchases of

Foreign Goods."

Amend subsection (a) by striking the reference to

subsection (c; and amend by adding aew paragraphs

(a)(7), (a)(8), and (a)(9), which add as policy factors

the impact of foreign purchases in the defense

tecbnology and industrial bases and on national

security.

Amend subsection (b) to incorporate the "substantial

transformation test" of 19 U.S.C. § 2518.

10 U.S.C. 5 2507 Miscellaneous procurement limitations Amend section 2507 by striking the heading

renumbered as § 2534 "Miscellaneous procurement limitations" and

inserting in lieu thereof. "Items restricted to

American sources:"

Amend various sections to incorporate product

restrictions (e.g., large-h3re cannon) which today

I I_ appear in scattered sections of law.

79
10 U.S.C. § 4542 Technical data packages for large-caliber cannon: Consolidate sedmion 4542 into 10 U SC , § 2507a as

prohibition on transfers to foreign countries; new subsection 2x 12i

exception ....

10 U.S.C. § 7309 Restrictions on construction or repair of vessels in Consolicate section 73to into into 10 USC § 2517

foreign shipyards as new subsection 2xl2ljy.

10 U.S.C. § 2631 and 46 Cargo Preference Act of 1904 Create exemptions to 10 U SC' § 2631 and 46

U.S.C. App. § 1241 Cargo Preference Act of 1954 U.S.C. App. § 1241 for conunerial items and

I I sinelified acquisitio.

10 U.S.C. § 2327 Contracts: consideration of national security Repeal.

objectives I

International and Cooperative Agreements

10 U.S.C. § 2504 Defense memoranda of understanding and related Amend throughout to change "memorandum of

renumbered as § 2531 agreements understanding" to "international agreement" and to

add "logistics support" to areas of permitted

international cooperation

10 U.S.C. § 2350a Cooperative research and development projects: Consolidate sections 2350a and 2350b as new sec, ion

allied countries 2x31.

Consolidate definitions contained in clause 2350a1i)

into new section 2x20.

10 U.S.C. § 2350b Cooperative projects under Arnts Export Control Consolidate sections 2350a and 235t)b as ne', section

Act: acquisition of defense equipment 231.

10 U.S.C. § 2350i Foreign contributions for cooperative projects Retain and consolidatite section 2350i in new section

2x21

Consolidate definition, contained in subsection

2350iHc) it, new section 2x20.

10 U.S.C. § 2350d Cooperative logistic support agreements: NATO Amend section 2350d by striking subsections (djand

countries (e).

Consolidate definition,, ontained in subsection

2350d(c) into new section 2x20.

10 U.S.C. § 2350h Memorandums of agreement: Department of Repeal.

Defense ombudsman for foreign signatories

10 U.S.C. § 7344 Suspension of construction in case of treaty ,, Re,- .,i.

10 U.S.C. §§ 2341 through Acquisition and Cross-Servicing Agreements. Amend paragraph 2324(ai I) h, striking the phrase

2350 Subchapter 1, Cooperative Agreements With NATO "and after consultation with the SecretarN oi Stat, '

Allies and Other Countries Amend subsectk'n 2143(a) by striking the phrase

"chapter 137 of this title and provisions of this

suh.hapter" after the v.ord, "made in accordance

with" and substituting the phrase "prudent

procurement practices "

Amend section 2347 by adding a ne's paragraph. "(c) when the Secretary of Defense certifies that the

armed forces of the United States :ire. or imminently

shall become, involved in a contingency operation.

the restrictions set forth in subsections (a. and (b)

above are waived for a period not to exceed 180

days "

Amend section 2350 b adding the definition

"contingency operation" with the same meaning

provided that term in ection 631 of the FY92193

Defense Authorization Act (P.1. 102-190) I 10 USC.

§ 101(47)).

10 U.S.C. § 2350f Procurement of communications support and Antend to consolidaite in new section 2x50,

related supplies and services Consolidate definitions contained in subsection

2350f (d) into net' section 250

10 U.S.C. § 2350g Authority to accept use of real property. services. Amend section 2350g b adding new paragraph (at t

j

supplies from foreign countries in connection with and new suhection b't. (The anended section would

mutual defense agreements and occupational proide nceded flexibility to SECI)I.I, in the

arrangements administration and execto n of mulual delense

agreements and occupational arrdirgenientk. a

,

s %ell

Is authoiit0 to Fo0beomt iilernitional coh-t.esand oiutside cros...,setsIcing a rringeltnt+ e lott :i ceded

logislical support and increacd allied burden

_harii s '), 'ile :i , nea , c tion 20)l

Chapter 8: Commercial Items - See Tables 11 and III

80
TABLE II

COMMERCIAL ITEMS: STATUTES RECOMMENDED FOR EXEMPTION I

Statute Regulations Flow Description of Regulations Reasons for Commercial Item Ch

Based on down Exemption

Statute

10 U.S.C. § 52.209-5 and Yes to Prohibits prime contractor from using Prohibition on doing business with 6.11

2393 -6 first tier debarred or suspended debarred or suspended prime subcontractors. contractors is not a problem. A

commercial sellcr will often have

established its sources of supply or

subcontractors prior to sale to the

government. Therefore, exemp- tion from subcontractor approval

provisions is required.

10 U.S.C. § 52.203-6 Yes Prohibits primes from entering into The flow down is not consistent with 3.9

2402 any agreement with subcontractor commercial practices, in which

which prevents subcontractor from subcontractor system will be

selling any item or process directly to established before a contract is

the United States. awarded. If the United States needs

direct purchase of subcontracted

items, let it negotiate for them. The

Panel's primary recommendation is

that this statute be repealed.

10 U.S.C. § 252.203-7001 Yes to Prohibition of employment of persons Commercial si'lers should be able to 6.4

2408 first tier convicted of fraud. utilize their established employees in

performing government contracts.

There is no reason to burden

commercial sellers with need to

screen employees when they get an occasional government contract.

10 U.S.C. § DFARS Part N. Section 2507 contains specific U.S. To the extent that this section 7.1

2507 225 source restrictions applicable to the requires sellers of commercial items

acquisition of identified products. to vary the source of components, it

interferes with the ability of DOD to

buy those items. The Panel has

recommended a complete revision of

this section, which would include a

repeal of most restrictions currently

contained in section 2507. However.

an exemption is required from the

remaining restrictions.

10 U.S.C. § 252.247- Yes- Requires transportation of items by Commercial sellers should be able to 7.1

2631 7022, regs sea in U.S. Flag vessels, utilize their established facilities.

-7023,-7024 seem to technology, supplier networks,

flow processes, employees and other

down; commercial business procedures in

statute performing government contracts.

does not I II

IThe Panel made great efforts to identify every statute that might create a barrier to commercial items.

While an exhaustive effort has been made to identify relevant statutes, it is possible that one or more may

have been missed. The statutes reviewed by the Panel are set out in Appendix D of its Report.

81
15 U.S.C. § 52.219-8;-9; Yes Subcontracting with small and small There is no problem with the policy 4.3

637(d) -16; 19.705; disadvantaged businesses; small prescribed by section 637(d)(3). In

19.708; business subcontracting plans; negotiated procurements of

226.7: liquidated damages. Section 637(d) commercial items, the subcontracting

252.211.- requires that small businesses be plan mandated by section 637(dX4)

7003; given the "maximum practicable may wel! conflict with the established

-7020 opportunity" to participate in subcontracting arrangements of the

government contracts as commercial supplier and is obviously

subcontractors and mandates that the impractical when goods are sold to

clause set out in section 637(d)(3) be the government from inventory.

placed in all contracts other than While section 647(d)(4)(B)(iv) limits

small purchase contracts, personal use of the clause to situations "which

service contracts, and contracts to be offer subcontracting possibilities,"

performed outside of the United comments received from industry

States. Section 637(d)(4) mandates the indicate that this exception is not

negotiation of a small and minority being properly applied to exempt even

subcontracting plan in all negotiated shipments of commercial items from

procurements in excess of $500,000. inventory. For the same reason.

Adherence to the plan is policed by commercial item contracts should be

liquidated damages. There is no exempt from section 637(d)(5), which

exemption for contracts for essentially extends the requirements

commercial items, in section 637(d)(4) to contracts

awarded through competition, and

section 637(d)(6) which contains the

clauses implementing section

637(d)(5). The Panel recommends,

therefore, express exemptions to

sections 637(d)(4), 637(d)(5), and

637(d)(6) for commercial item

contracts.

15 U.S.C. 52.220-3;-4 Yes Preference for labor surplus area The regulations create a 4.3

§§ 644(d), contracting. Requires U.S. to give subcontracting obligation that is

(e), and (f) priority to small and labor surplus inconsistent with normal commercial

area contractors. Subcontracting plan practices, in which subcontracts are

required for negotiated contracts over arranged well in advance of

$500,000. shipments. The regulations do not

contain any exemption for

commercial items. While the

regulations do not appear to be

required by 15 U.S.C. § 644. the

regulation writers seem to think

otherwise. To avoid any doubt.

therefore, an exemption is ranted.

29 U.S.C. § 52.222-36 Yes Rehabilitation Act of 1973; requires Commercial sellers should he able to 4.2

793 affirmative action to employ and utilize their established facilities,

advance handicapped individuals, technology, supplier networks,

Act applies to companies with 50 or processes, employees and other

more employees or annual U.S. commercial business procedures in

contracts of $50,000 or more. performing government contracts.

Especially since discrimination

against the handicapped is prohibited

for all employers under Americans

with Disabilities Act. there should be

an exemp'ion for commercial items.

31 U.S.C. § 52.203-11;- Yes Byrd Amendment. Probably does nct apply to 6.11

1352 note 12 commercial suppliers with respect to

contracts for commercial supplies.

but should be exempted for clarity.

38 U.S.C. § 52.222-35 Yes Affirmative action for disabled and Commercial sellers should be able to 4.2

4212 Vietnam-era veterans, utilize their established facilities.

technology, supplier networks.

processes, employees and other

commercial business procedures in

performing government contracts. In

addition, this statute has a sunset

provision and will no longer be a

requirement after 1994.

82
41 U.S.C. 52.203-7 Yes Anti-Kickback Act; prohibits While many companies may prohibit 6.11

f§51-58 payments from any subcontractor to some forms of payments by

any prime or any employee of the subcontractors to employees.

prime; violation voids contract. commercial practice typically permits

some forms of gratuities (such as

meals or entertainment) that will be

prohibited by this law. Accordingly, it constitutes too much of a burden

for commercial seller to "police"

existing suprlier networks to ensure

compliance for occasional

government contracts,

41 U.S.C. § 52.223-5; -6 Yes Drug-free Workplace certifications. Commercial sellers should be able to 4.2

701 This section requires employers to utilize their established facilities,

establish drug-free awareness technology, supplier networks.

programs and to report any processes, employees and other

convictions by their employees for commercial business procedures in

drug-related offenses. performing government contracts.

46 U.S.C. 52.247-64 Not in Preference for U.S. Flag Vessels; Commercial sellers should be able to 7.1

App. statute; requires 50 percent or more of gross utilize their established facilities,

1241(b) flow tonnage of materials and equipment technology, supplier networks,

down in procured under government contracts processes, employees and other

regs. be transported in U.S. Flag vessels, commercial business procedures in

performing government contracts.

83
TABLE III

COMMERCIAL ITEMS: STATUTES RECOMMENDED FOR AMENDMENT OR REPEAL

Current Regulations Flow Description of Regulations Comments Ch

Statute Based On down

S tatute 1_3

10 U.S,C. § 252.211- Yes Truth in Negotiations Act (TINA); Proposed 2xx5 provides an additional 13

2306a 7010- Price reduction for defective cost or source of authority for pricing

7011.52,215- pricing data-contract modifications; purchases of commercial items.

22;52.215-23 audit of cost or pricing data. Even as amended by the Panel,

section 2306a is not adequate to

provide a complete solution for

commercial items. If the Panels

proposed section 2xx5 is not adopted,

some other comprehensive

amendment to section 2306a as currently drafted will be required

since there is little doubt that the

provisions of section 2306a create

the single greatest impediment to the

......... __purchase of commercial items.

10 U.S.C. 52.215-1; Yes Examination of books and records of Proposed section 2xx5(d) is intended 2.3

§2313 52.215-2 contractor by DOD. to provide the government's exclusive

audit right under a contract. See the

discussion of section 2xx5(d) for the

....... _ rationale,

10 U.S.C. § 252.211-7011 Yes This section requires contractor to Proposed section 2xx5(d) is intended 2.3

2313(b) permit GAO audit of any books, to provide the government's exclusive

documents, papers, or records of audit right under a contract. See the

contractor or subcontractor relating discussion of section 2xx5(d) for the

to a negotiated contract. rationale,

10 U.S.C. § 252.211-7015 Yes Rights in technical data and The requirements of these statutes 5.1

2320-21 through computer software. are inconsistent with normal

7017 commercial practices on data rights.

The Panel has proposed specific

amendments to section 2320 (which

have the effect of modifying the

coverage of section 2321 as well) to

deal with this problem. If these

amendments are not adopted, then

exemption will be required.

10 U.S.C. § 252.231-7001 No Allowable costs under defense The Panel has recommended that the 2.2

2324 contracts; prescribes costs that may detailed provisions on cost

be incurred in overhead pools: allowability contained in this section

Penalties for unallowable costs. be repealed since they have been

implemented in regulation for many

years. If this course is adopted, there

is no need for an exemption. In

addition, because the Panel has

recommended that commercial items

be purchased solely under fixed price

contracts, this section will have little or no applicability to commercial

iten, as proposed. Should flexibly

priced contracts be used to purchase

commercial items, commercial sellers

might have to be exempted from the

detailed cost principles contained in

this section because it would require

changes to a commercial seller's

established accounting system.

84
10 U.S.C. § Part Kb Requires seller to mark supplies with Section 2384(b) contains an 1.6

2384 217.7300 name of seller, national stock exemption for items sold under the

number, and contractor part number; market or catalog price exemption in

if seller is not the manufacturer. TINA, This is not broad enough to

statute requires item to be marked accommodate all commercial items,

with name of actual manufacturer. so that an exemption to section

There is an exemption for 2384(b) is required to implement the

commercial items purchased Panel's commercial item approach

competitively or at an established and such an amendment has been

catalog or market price, recommended by the Panel. If 2384

(b) is amended as proposed, then

there is no need for an exemption.

10 U.S.C. § 252.203-7000 Prohibition on Compensation to The Panel has recommended repeal. 6.7

2397 Former DOD Employees. Reports intended to identify

employees switching sides between

DOD and major defense firms; useless

paperwork burden in commercial

context.

10 U.S.C. § 252.203-7000 Prohibition on Compensation to The Panel has recommended repeal. 6.6

2397a Former DOD Employees. Restrictions on job negotiations with

defense contractors; duplication of

other law and would unnecessarily

burden commercial practices.

10 U.S.C. § 252.203-7000 Prohibition on Compensation to The Panel has recommended repeal. 6.7

2397b Former DOD Employees. Forbids plant representatives and

senior defense negotiators from

working for major defense firms; cost

of screening for occasional retirees

would far exceed return for

commercial sellers.

10 U.S.C. § 252.203-7000 Prohibition on Compensation to The Panel has recommended repeal. 6.7

2397c Former DOD Employees. Reports and penalties for the

foregoing section 2397 restrictions

would have no independent purpose.

10 U.S.C. § 252.215-7001 No Contractor records; requires The Panel has proposed that section 2.3

2406 contractor to permit access to records 2406 be repealed as part cf

relating to cost or pricing data under consolidating all audit statutes into a

covered contracts, which are major revised version of 10 U.S.C. § 2313.

weapons systems contracts where 10 If the Panel's proposal is not adopted,

U.S.C. § 2306a is applicable, then an exemption would be

required for commercial items.

10 U.S.C. § 25.1 and Yes DOD variant of Buy American Act Application of current component- 7.1

2506 25.2 using component test to identify oriented Buy American Act

"American" product. restrictions to commercial buying

may irrationally exclude items DOD

wants to procure. If Buy American

Act is modified as the Panel has

recommended to include "substantial

transformation" test, then should not

be a problem.

41 U.S.C. 25.1 and Yes Buy American Act. Applications of current component- 7.1

§§ 1Oa-10d 25.2 oriented Buy American Act

restrictions to commercial buying

may irrationally exclude items DOD

wants to procure. If executive order

implementing Buy American Act is

modified to include "substantial

transformation" test or if Panel

substitute is adopted, then should not

be a problem.

85
41 U.S.C. j 52.230;3-4 Yes Cost Accounting Standards (CAS): Statute establishes CASB and 2.4

422 Cost Accounting Standards Board provides broad authority to the Board

(CASB). to promulgate regulations. 41 U.S.C.

§ 422(0(2) exempts contracts and

subcontracts based on established

catalog or market prices (as defined

in TINA) from CAS coverage. This

exemption should be broadened to

include commercial items as defined

in proposed section 2302. In

addition, section 422(k) should be

changed to clarify that it has no

application to contracts for

commercial items even though such

items may be made by a company that

must comply with CAS because it

furnishes CAS-covered items as well as commercial items. The Panel has

recommended that the CASB make

modifications through its rule-making

functions since it has authority to

create classes of exemptions. See

generally Chap. 2.4 of the report. If

the CASB does not take such action,

then an exemption would be

required.

41 U.S.C. § 52.203-8;-9;- No Procurement Integrity Act- The certifications required by this 6.9

423 10 Requirement for certificate of section cannot be imposed without a

procurement integrity, major administrative burden of

tracking all procurement integrity

restrictions, which are totally

inconsistent with comn,-;'i

practices and should not apt ae

Panel has recommended as its

primary recommendation that this

statute be repealed and replaced by

totally new language and that its

fundamental prohibition on the

improper use of private information

be incorporated in this section and in

18 U.S.C. § 207. If that proposal is

adopted, there would be no need for

an exemption from either the new

section 423 or the proposed section

207.

86
TABLE IV

DOD PRIME CONTRACT ACTIONS BY SIZE: FY 1991

(Contracts over $25,000; Dollar Amounts in Millions)

SIZE IN DOLLARS TOTAL PERCENT

BY CONTRACT NUMBER SAMOUNT NUMBER SAMOUNT

25,000- 49,999 65,482 2,043 28.6 .6

50,000- 99,999 58,549 3,643 25.5 2.9

100,000- 199,999 38,689 4,802 16.9 3.8

200,000- 299,999 17,329 3,676 7.6 2.9

300,000- 499,999 17,492 5,859 7.6 4.6

500,000- 999,999 14,339 8,281 6.3 6.6

1,000,000- 1,999,999 8,150 9,269 3.6 7.3

2,000,000- 2,999,999 3,044 5,828 1.3 4.6

3,000,000- 4,999,999 2,551 8,156 1.1 6.5

5,000,000- 9,999.999 1,938 11,605 0.8 9.2

10,000,000- or more 1,755 63,134 0.8 50.0

Source: DOD (Washington Headquarters Services, Directorate for Information Operations and Reports)

87
TABLE V

STATUTES TO BE RETAINED BUT NOT TO BE IMPLEMENTED BY CONTRACT CLAUSE

Statute Regulation(s) Code Description of Statute or Regulations

10 U.S.C. § 2207 52.203-3 3 Gratuities

10 U.S.C. § 52.203-5 3 Covenant against contingent fees. 2306(b)

10 U.S.C. § 2397b 252.203-7000 4 Prohibition on compensation to certain former DOD employees.

10 U.S.C. § 2402 52.203-6 3 Prohibits primes from entering into any agreement with

subcontractor which prevents subcontractor from selling any

item or process directly to the United States.

22 U.S.C. § 2370 52.225-11 3 Prohibition on assistance to certain countries.

31 U.S.C. § 1352 52.203-11; -12 3 Byrd Amendment

note

41 U.S.C. § 22 52.203-1 3 Officials not to benefit.

41 U.S.C. § 35-45 3 Walsh-Healey Public Contracts Act 2

41 U.S.C. § 57 52.203-7 2,3,6 Anti-Kickback Act; prohibits payments from any subcontractor

to any prime or any employee of the prime; violation voids

contract.

I1he codes in this column mean the following:

1. Requires contractor to provide information or report.

2. Requires contractor to: establish procedures or prepare and retain records, but does not require

a report unless a violation occurs.

3. Requires no action other than compliance with statute.

4. Individual required to report; contractor not required to report.

5. Representation/certification/notification by contractor required.

6. Contractor required to request authority to take designated action(s).

7. Requires modification of contractors business methods or systems. 2The Panel has recommended that the Walsh-Healey Act be repealed. See Chap. 4.2.3. of the Report.

88
TABLE VI

STATUTORY EXEMPTION FOR CONTRACTS UNDER $100,000

Statute_ Regulation(s) Code Description of Statute or Regulations

10 U.S.C. § 2313 15,.106.1 ,- 1,2,7 See the discussion at section 2.3.2 of the report.

2;52.215-1,-2

10 U.S.C. § 217.7300 1 Requires disclosure of actual manufacturer of component parts.

234b) 252.217-7026

10 U.S.C. § 2393 52.209-5 and -6 5 Prohibits prime contractor from doing business with debarred or suspended subcontractors.

10 U.S.C. § 2397 252.203-7000 3, 4 Reports by former DOD employees.

10 U.S.C. § 252.203-7000 3, 4 Reporting of employment contacts by DOD employees. 2

2397a

10 U.S.C. § 252.203-7000 4 Prohibition on compensation to former DOD employees. 3

2397c

10 U.S.C. § 2408 252.203-7001 3 Prohibition of employment of persons convicted of fraud.

10 U.S.C. § 2506 25.1 and 25.2 3 DOD variant of Buy American Act using component test to

identify "American" product. 4

10 U.S.C. § 2507 25.1 and 25.2 3 Section 2507 contains specific U.S. source restrictions applicable

to the acquisition of identified products. 5

10 U.S.C. § 2631 252.247-7022, 5 Requires transportation of items by sea in U.S. Flag vessels.

-7023, 6

-7024 5

18 U.S.C. § 874; 52.203-7 2 Anti-kickback procedures.

40 U.S.C. 276(c )

18 U.S.C. § 52.222-3 3 Use of convict labor.

4082(c)(2); Pub.

L. No. 89-176

29 U.S.C. § 793 52.222-36 3, 7 Rehabilitation Act of 1973; requires affirmative action to employ

and advance handicapped individuals. Act applies to companies

with 50 or more employees or annuql U.S. contracts of $50.000 or

more.

38 U.S.C. § 4212 52.222-35; 3, 7 Affirmative action for disabled and VieTnam era veterans; reports

52.222-37 of employment of Vietnam era veterans.

40 U.S.C. § 276a 22.400 1, 7 Davis-Bacon Act

to § 276a-7

40 U.S.C. §§ 327- 22.300; 3, 7 Work Hours and Safety Act of 1962; overtime compensation.

333; 52.222-4

28 U.S.C. § 1499

41 U.S.C. §§ 1Oa 25.1 and 25.2 3,7 Buy-American Act

-10d

IThis provision does not apply below the small purchase threshold trday. See 10 U.S.C. § 2307(a)(1). It

should be amended to exempt contracts below the simplified acquisitio threshold.

2This provision does not apply below the small purchase threshold t-,day. See 10 U.S.C. § 2307a(a)(1),

incorporating by reference id. § 2397(a)(1). It should be amended to exempt contracts below the simplified

acquisition threshold.

3This section today applies only to contracts greater than $100,000. See 10 U.S.C. § 2397c(a)(l). The

reference in the statute to "$100,000" should be changed to "simi|lified acquisition threshold."

4The Panel has recommended changing from the component test for compliance with the Buy American

Act and 10 U.S.C. § 2506 to the "substantial transformation" test used by the Trade Agreements Act. if

this amendment is made. then there is no need to exempt simplified purchases from compliance. See

generally Chapter 7 of the Report.

5The Panel has recommended repeal of most of the source restrictions contained in 10 U.SC. § 2507. If

the Panel's recommendations are adopted, then there is no need to exempt simplified purchases from th".

section. See generally Chapter 7 of the Report.

89
41 U.S.C. § §351- 52.222-40;-41; 1,2.7 Service Contract Act

358 -42

41 U.S.C. § 423 52, 203-8 3 Procurement Integrity

41 U.S.C. § 701 52.223-5; -6 3, 7 Drug-free Workplace certifications. This section requires

employers to establish drug-free awareness programs and to

report any convictions by their employees for drug-related

offenses.

46 U.S.C. § 52.247-64 1,7 Preference for U.S. Flag Vessels; requires 50 percent or more of

1241(b) gross tonnage of materials and equipment procured under

government contracts be transported in U.S.flag vessels.

IThe reporting provisions of this section do not apply below $100,000. See 41 U.S.C. § 423(e)(7). The

Panel recommends that "$100,000" be changed to "simplified acquisition threshold."

90

U.S. GOVERNMENT PRINTING OFFICE.199-34*482/6407