Report of the 

Acquisition 

Advisory Panel

to the Office of Federal Procurement Policy 

and the United States Congress

January 2007

Panel Members

	 Marcia G. Madsen, Chair Louis M. Addeo

	 Frank J. Anderson, Jr.	 Dr. Allan V. Burman

	 Carl DeMaio	 Marshall J. Doke, Jr.

	 David A. Drabkin	 Jonathan L. Etherton

	 James A. “Ty” Hughes	 Deidre A. Lee

	 Tom Luedtke	 Joshua I. Schwartz

	 Roger D. Waldron

The Panel acknowledges the contribution of former Panel member David

Javdan who chaired the Small Business Working Group and shepherded the

Small Business findings and recommendations through the Panel’s deliberations.

Panel Staff

Laura G. Auletta, Executive Director

Eric Cho

Pamela Gouldsberry

Emile Monette

Rosanne Tarapacki

Anne Terry

Private Sector Coordinator–Bethany Noble

Acknowledgements

The Panel gratefully acknowledges the contributions of the following individuals to the

successful completion of this Report.

	 Denise Benjamin	 Scott O’Brien

	 Pamela G. Dixon	 Tom O’Toole

	 David Dowd	 Alon Prunty

	 Jerry Edmond	 Barbara Raffaele

	 John Krieger	 David Robbins

	 Luke Levasseur	 Garry Shafovaloff

	 Diane Newberg 	 Robert T. Smith

	 	 Kenneth Weinstein

Panel’s OMB Counsel–Stuart Bender

FACA Adviser–Robert Flaak, GSA

vii

Table of Contents

Preface

Introduction

Executive Summary

Chapter 1–Commercial Practices

Chapter 2–Improving Implementation Of Performance-Based Acquisition (PBA) In The

Federal Government

Chapter 3–Interagency Contracting

Chapter 4–Small Business

Chapter 5–The Federal Acquisition Workforce

Chapter 6–Appropriate Role Of Contractors Supporting Government

Chapter 7–Report On Federal Procurement Data

Appendices

Appendix 1–Working Groups and Members

Appendix 2–Administrative Matters

Appendix 3–Acronyms

ix

Preface

The Acquisition Advisory Panel (“the Panel”) was authorized by Section 1423 of

the Services Acquisition Reform Act of 2003, which was enacted as part of the National

Defense Authorization Act for Fiscal Year 2004.1

By statute, the Panel was tasked with reviewing laws, regulations, and government-wide

acquisition policies “regarding the use of commercial practices, performance-based contracting, the performance of acquisition functions across agency lines of responsibility, and

the use of Government-wide contracts.”2 The Panel was tasked to “review all Federal acquisition laws and regulations, and, to the extent practicable, government-wide acquisition

policies, with a view toward ensuring effective and appropriate use of commercial practices

and performance-based contracting.”3 The Panel was requested to recommend changes that

are necessary to: (A) “protect the best interests” of the government; (B) “ensure the continuing financial and ethical integrity of acquisitions by ”the government; and (C) “amend

or eliminate any provisions in such laws, regulations, or policies that are unnecessary for

the effective, efficient, and fair award and administration of contracts for the acquisition”

by the government of goods and services.4 Originally, the Panel was to submit its Report

to the Administrator of the Office of Federal Procurement Policy (“OFPP”) at the end of a

year. That period was later extended by the FY 2006 DoD Authorization Act.

The appointment of the Panel members was completed and the 14 Panel members

sworn in on February 9, 2005. The Chair immediately appointed five Working Groups to

begin a study of the laws, regulations and policies affecting the areas of focus called out in

the statute, as well as two cross-cutting working groups, as follows: Commercial Practices,

Interagency Contracting, Performance Based Contracting, Small Business, and Federal

Acquisition Workforce. In mid-2005, another Working Group was appointed to examine

the Appropriate Role of Contractors Supporting the Government. The working groups consisted of two to five Panel members each (with many Panel members serving on multiple

groups) who studied the issues and then made detailed presentations, including proposed

findings and recommendations, to the full Panel.5

The Panel held 31 public meetings over the course of 18 months. In its effort to assess

current commercial practices, use of performance-based contracting, use of interagency

contracts, and their implications for small business, the acquisition workforce, and contractors supporting the government, the Panel received testimony from more than 100

witnesses during the public meetings. More than 85 organizations or groups from industry and government appeared before the panel. The meeting transcripts comprise roughly

7,500 pages.

The Panel also solicited and received input from the public via the Internet. The Panel

received and reviewed 54 written submissions from interested groups and individuals.

1

Pub. L. No. 108-136, 117 Stat. 1663 (2003).

2

Id., sec. 1423(a).

3

Id., sec. 1432(c)(1).

4

Id., sec. 1423(c)(2).

5

The Panel’s activities are subject to the Federal Advisory Committee Act (Pub. L. No. 92-463, as

amended), which requires that the Panel’s meetings be open to the public.
x

The Panel’s Working Groups met regularly over the 18 month period, most of them

holding over 30 meetings. The Panel determined that it would take a 360-degree view of the

acquisition process, with the recognition that our recommendations potentially would have

an effect on multiple aspects of the process. The Panel also took the view early on that there

were no privileged perspectives—it performed a thorough analysis in each area of inquiry.

The research and analysis by the Working Groups was the foundation for the Panel’s

work, and the findings and recommendations reflected in this Report. The Working

Groups reviewed laws, legislative histories, regulations, and policy documents, as well as

virtually all available reports by the agency Inspectors General, the Government Accountability Office (“GAO”), and other commissions, as well as academic research and articles

in these areas. The Working Groups published their draft findings and recommendations

on the Panel’s website for public analysis and comment and made periodic presentations

to the Panel during public meetings, where their research, findings, and proposals were

discussed and debated at length. The Working Groups provided essential information

and differing viewpoints for the Panel’s deliberations.

A word is in order about constraints. This Panel was given 18 months to complete its

substantive work. No appropriations for the Panel were authorized. The Panel had one permanent professional staff member, the Executive Director. GSA and the Director of Defense

Procurement and Acquisition Policy periodically provided temporary staff to support the

Panel’s activities. Most of the Panel members were supported by staff from their own companies or organizations, several of whom devoted substantial hours to the Panel’s work

and completion of this Report, and whose work is gratefully recognized and acknowledged.

That said, the work of this Panel is the work of its members. The Panel members performed

the research and analysis. They sat through days of Working Group and Panel meetings.

They debated, discussed and deliberated at length over these findings and recommendations, and they are responsible for this Report.

All of the findings and recommendations in this Report are the product of a deliberative process and were adopted by the Panel by majority vote in public meetings. Each

Panel Member had the opportunity to present and discuss his or her views and proposals

at length during the Panel’s deliberations. While each Panel member does not necessarily agree with every aspect of the discussion in the final Report, the Panel as a whole is in

agreement with the approach taken in this Report.


Background

The federal government is the single largest buyer in the world. Each year federal agencies spend nearly $400 billion a year for a range of goods and services to meet their mission 

needs. Some acquisitions are highly specialized—advanced fighter jets, precision munitions, 

nuclear submarines—for which there is no non-governmental or commercial demand. Other 

goods and services are readily available and purchased from the commercial marketplace. 

From laptop computers and off-the-shelf software to information technology (“IT”) consulting services, software development, and engineering services, federal agencies rely upon 

common commercial goods and services to conduct their business. In addition, commercial 

products may be modified to meet government needs. In all of these circumstances government acquisition process intersects with the private sector and the federal government can 

benefit from knowing how commercial buyers approach the acquisition process.

Importance of the Commercial Market to 

Government Acquisition

Effective and efficient access to products and services available in the commercial market can help government agencies to achieve their various missions. The pace at which 

technology advances requires that government have access to commercial technology and 

technology-based services. Agencies have a significant interest in acquiring such products 

and services at a reasonable price and without undue administrative burden. Of course, in 

light of the involvement of public funds, acquisition must be conducted in a manner that 

is fair and furthers the public interests in transparency and accountability. 

Over the last two decades, significant study and effort has been dedicated to the acquisition of goods and services available in the commercial market by the federal government. 

For example, in 1986, the Blue Ribbon Commission on Defense Management highlighted 

the need for DoD to expand its use of commercial products and processes and to eliminate 

barriers that discouraged application of innovative technology to DoD contracts.



 See https://www.fpds.gov; see also http://www.whitehouse.gov/omb/procurement/index.html.



 The President’s Blue Ribbon Commission on Defense Management (The Packard Commission), 

A Quest for Excellence: Final Report to the President and Appendix (Washington, D.C.: The Packard 

Commission, June 1986).

Introduction

The Panel Project


Congress later chartered the “Section 800 Panel”  to assess laws affecting defense procurement. In early 1993, the Section 800 Panel proposed a variety of reforms, including 

stronger policy language favoring the use of commercial and nondevelopmental items; a 

new statutory definition of commercial items; and an expanded exemption for “adequate 

price competition” in the Truth in Negotiations Act. 

Following the efforts of the Section 800 Panel, Congress enacted a series of procurement reforms in the mid-1990s that were intended to enable the government to streamline the acquisition process and to obtain greater access to products and services available 

in the commercial market. These reforms primarily were introduced through the Federal 

Acquisition Streamlining Act of 1994 (“FASA”) and the Federal Acquisition Reform Act of 

1996

 (“FARA”). 

FASA and FARA required, and were followed by, various changes to the Federal Acquisition Regulation (“FAR”). For example, FASA introduced a strong preference for the acquisition of commercial items. The statutory definition of commercial items refers to categories 

of products and services. The same is true of the regulatory definition in the FAR.

Since the FASA and FARA reforms, agencies have sought to purchase commercial items 

and otherwise rely on the techniques addressed in those statutes with varying degrees of success. Those efforts were the subject of considerable analysis, including by GAO in reports 

regarding use of the Multiple Award Schedule, task and delivery order contracts, and interagency contracting. 

Congress enacted further reforms. For example, Congress passed the Services Acquisition Reform Act of 2003 (“SARA”), which introduced other reforms related to commercial 

items as well as to the acquisition workforce. SARA also chartered this Panel to study current laws, regulations, and government-wide acquisition policies with regard to commercial 

practices, and to recommend appropriate reforms. 

Trends in Acquisition

Since the FASA and FARA reforms were enacted a decade or more ago, a number of 

events have affected government contracting. For example, the events of September 11, 

2001, and subsequent conflicts in Afghanistan and Iraq, as well as the Katrina aftermath, 

have influenced what the government buys and how much it spends. From fiscal year 2000 

to fiscal year 2005, government purchasing increased nearly 75 percent from $219 billion 

to more than $380 billion.

Over the last decade, a number of trends have affected government contracting. Services now comprise a greater percentage of the government’s acquisition budget. Between 



 The Section 800 Panel was chartered by Section 800 of the National Defense Authorization Act for 

Fiscal Year 1991, Pub. L. No. 101-510, § 800, 104 Stat. 1485, 1587 (1990).

 Pub. L. No. 103-355, 108 Stat. 3243 (1994).



 Pub. L. No. 104-106, 110 Stat 186 (1996). FARA was later renamed the Clinger-Cohen Act. 

 See 10 U.S.C. § 2577 (codifying preference).



 See 41 U.S.C. § 403(12).

 See FAR 2.101.

 Trending Analysis Report since Fiscal year 2000, http://www.fpdsng.com/downloads/top_requests/

FPDSNG5YearViewOnTotals.xls.


1990 and 1995 the government began spending more on services than goods.10 Currently, 

procurement spending on services accounts for more than 60 percent of total procurement 

dollars.11 In FY 2005, DoD obligated more than $141 billion on service contracts, a 72 percent increase since FY 1999.12

While procurement spending has increased, products and services often are purchased 

through relatively large orders under contracts with broad scopes of work. Contracting agencies often rely on indefinite delivery contracts, such as interagency contracts, under which 

orders are issued for products or services. Orders under the types of contracts discussed above 

often can be larger in amount than individual contracts. Orders under such contract vehicles 

can be significant in terms of size, and may exceed $5 million. Purchases under the Multiple 

Award Schedules also have more than doubled in value over the last decade.13

There also are fewer acquisition professionals in the government to award and administer contracts as the government’s contracting workforce was reduced in size in the 1990s. 

For instance, the DoD acquisition workforce declined by nearly 50 percent due to personnel reductions in the 1990s.14

 Despite recent efforts to hire acquisition personnel, there 

is an acute shortage of federal procurement professionals with between 5 and 15 years of 

experience. This shortage will become more pronounced in the near term because roughly 

half of the current workforce is eligible to retire in the next four years.15

Over the last decade or so, consolidation has occurred in certain parts of industry 

that contract with the government, including but not limited to aerospace and defense. 

As a result, certain contractors are now performing work that previously was performed 

by other companies. 

In sum, a variety of trends and factors has influenced government contracting and continues to do so. Effective and efficient access to the commercial marketplace will continue to play 

a major role in helping to enable agencies to purchase the products and services they need. 

Current Commercial Practices: What are They?

Because Congress tasked the Panel16 to assess current laws, regulations, and governmentwide acquisition policies with a view toward “ensuring effective and appropriate use of commercial practices and performance-based contracting,” the Panel considered it critical to identify current commercial practices. 

Rather than make assumptions regarding current commercial practices, the Panel 

sought input. Specifically, over the course of its 18 months of study, the Panel broadly 

solicited and received substantial testimony and other input from government, industry, 

10

 Calculations based on the Federal Procurement Report published by the Federal Procurement Data 

Center for fiscal years 1990-1995 (on file with OFPP).

11 Total Actions by PSC, standard report from FPDS-NG run Dec. 2006.

12 See Government Accountability Office, Defense Acquisitions: Tailored Approach Needed to Improve 

Service Acquisition Outcomes, GAO-07-20 (Nov. 2006), at 1.

13 See General Accounting Office, Federal Acquisition: Trends, Reforms, and Challenges, GAO/T-OCG-00-7

(Mar. 7, 2000), at 6-7.

14

 U.S. DoD IG, DoD Acquisitiion Workforce Reduction Trends and Impacts, D-2000-088, 5-6 (Feb. 2000)

15 Testimony before the Acquisition Advisory Panel of S. Assad, Director, Defense Procurement and 

Acquisition Policy, June 13, 2006, p. 57-58 (testimony on file with the Panel).

16

 See Pub. L. No. 108-136, sec. 1423(c)(1).


and other members of the public regarding acquisition practices. As part of its study, the 

Panel also issued questionnaires to private sector buyers and government buying agencies 

to assess current practices and to identify potential areas for improvement in the way the 

government buys.

The Panel thus was able to conduct its assessment of current laws, regulations, and 

government-wide acquisition policies with the benefit of an understanding of current commercial practices, as described by industry. Industry input included private sector buyers 

with experience in large, complex acquisitions of services, such as information technology 

services. Such buyers described the competitions that they conducted, and their efforts to 

ensure that prices were fair and reasonable. It is clear from the many private sector buyers 

who testified before the Panel that the bedrock principle of current commercial practice is 

competition. 

The Panel also benefited from the experience and insights provided by government acquisition personnel regarding the various practices that were introduced or encouraged by procurement reforms in the last decade. The Panel inquired about what agencies were doing, what 

worked, and what did not. The inputs described above provided critical information for the 

Panel’s work. 

Commercial Purchases and Practices: The 

Special Challenge of Government

Our Supreme Court has observed that when the government enters the commercial 

market, it generally subjects itself to the same contract rules as private parties.17 Although 

there are exceptions set forth in federal statutes regulations and the Constitution, this suggests that the federal government take advantage of commercial practices where possible.

Due to its special status as the sovereign, and in light of the statutes and regulations 

that apply to government contracting, government agencies are not in a position to take 

full advantage of the practices of the private sector. For example, agencies generally may not 

award contracts based solely on consideration of a company’s prior performance or enter 

into long-term strategic agreements. Agencies are subject to appropriations laws, and may 

be limited to use of annual appropriations. As discussed above, agencies also are required 

to abide by competition statutes and regulations.

On the other hand, government can take advantage of many approaches used in the 

commercial market. Doing so can foster effective and efficient access to products and services. 

The Panel has made an effort to achieve balance, recognizing the time pressures on the 

acquisition system, but also has tried to recommend current commercial practices regarding competition, and to provide transparency and accountability necessary for the responsible expenditure of taxpayer funds.

17 Lynch v. United States, 292 U.S. 571, 579 (1934). See also Mobil Oil Exploration and Producing 

Southeast, Inc. v. United States, 530 U.S. 604, 607 (2000).


Report Structure

This Report is divided into seven chapters. Each chapter sets forth the background of the 

issues, followed by the Panel’s findings and recommendations. We have provided a relatively 

detailed Executive Summary that explains the Panels findings and recommendations – as 

well as the Panel process. However, the Executive Summary is not the Report. The chapters 

are as follows:

Chapter 1—Commercial Practices

Chapter 2—Improving Implementation Of Performance-Based Acquisition (PBA) In 

The Federal Government

Chapter 3—Interagency Contracting

Chapter 4—Small Business

Chapter 5—The Federal Acquisition Workforce

Chapter 6—Appropriate Role Of Contractors Supporting Government

Chapter 7—Report On Federal Procurement Data



Executive Summary

As the Panel’s Findings and Recommendations took root in its working groups and were 

presented to and debated and adopted by the full Panel during public meetings, certain 

themes began to emerge and intersect across the working groups. This executive summary 

does not list all of the findings and recommendations. Instead, it is intended to share those 

key themes that became apparent over the course of the Panel’s deliberations. For clarity and 

consistency, this material is presented in accordance with the Panel’s statutory charter.

I. Statutory Charter: Ensure Effective And 

Appropriate Use of Commercial Practices

While nobody expects the government to ever be a truly commercial buyer given Constitutional constraints on funding, the need to be accountable for the expenditure of public 

funds, the statutory constraints aimed at providing full and open competition, and achievement of certain social and economic objectives, the Panel’s many commercial sector witnesses echoed recurring themes that could be adopted by the government. 

A. Enhance Competition

1.Findings

Requirements Definition is Key to Achieving Benefits of Competition. Commercial firms 

testifying before the Panel described a vigorous acquisition planning phase when buying 

service solutions. Acquisition process governance is considered of equal importance to 

selecting the right contractor. They obtain “buy in” of the business case from all organizational stakeholders. These organizations invest the time and resources necessary to 

clearly define requirements first. They do this in order to achieve the benefits of competition in an efficient market, namely, high quality, innovative solutions at the best prices. 

They use multifunctional teams and perform ongoing rigorous market research and are 

thus able to provide well-defined performance-based requirements conducive to a best 

value solution at fixed prices. 

Government Frequently Fails to Invest in Requirements Definition. Public sector officials 

and representatives of government contractors testified that the government frequently is 

unable to define its requirements sufficiently to allow for fixed-price solutions. Ill-defined 

requirements also fail to produce meaningful competition for services solutions, relying 

instead on time-and-materials (“T&M”) contracts based on fixed hourly rates. The causes 

for this failure to define requirements were described by many witnesses, including the 

Government Accountability Office (“GAO”) and agency inspectors general (“IGs”). Major 

contributors to this problem are a culture focused on “getting to award” and budgetary 

time pressures combined with a strained workforce and lack of internal expertise in the 

market. Additional problems associated with unclear roles and responsibilities in the use 

of interagency or government-wide contracts, another area under this Panel’s statutory purview, also contribute. The government’s difficulties in defining requirements are well documented. Recently, the GAO and IGs have found that orders under interagency contracts 

frequently contain ill-defined requirements.


2. Recommendations

The Panel’s recommendations seek to improve the environment for healthy competition using a 360-degree approach, providing tools to enhance transparency, requirements 

analysis and definition, requirements for greater use of competition, and positive pressures, 

in the form of protest authority and transparency that will result in agencies applying an 

appropriate level of discipline to the structure of their acquisitions.

The Panel could not make recommendations regarding competition without an aim 

toward nurturing a healthy environment conducive to achieving the benefits of competition. Therefore, the Panel recommends that agencies establish centers of expertise in 

requirements analysis and definition, and obtain express advance approval of the requirements from the key stakeholders (e.g., program manager and contracting officer) to closely 

resemble the buy-in obtained in commercial practice. Additionally, the Panel recognizes a 

need for a centralized source of market research information to facilitate more robust but 

efficient acquisition planning. Therefore, the Panel recommends that the General Services 

Administration (“GSA”) establish a market research capability to monitor services acquisitions by government and commercial buyers, collect publicly available information, and 

maintain a database of information regarding transactions. In addressing the GAO and IGs 

concerns about ill-defined requirements in orders under interagency contracts, the Panel 

recommends criteria for upfront requirements planning before access to interagency contracts is granted.

Requirements definition is particularly important with respect to the Panel’s recommendations for the efficient and appropriate use of performance-based acquisition (“PBA”). The 

Panel made several recommendations to the Office of Federal Procurement Policy (“OFPP”) 

to provide more guidance on the use of this technique in order to assist agencies with defining their requirements and establishing measurable performance standards and appropriate 

contract incentives. A recommendation for a formal PBA educational certification program 

for technical representatives and other acquisition team members is intended to enhance the 

efficiency and effectiveness of analyzing and describing requirements. 

B. Encourage Competition

1. Findings

Commercial Buyers of Services Rely Extensively on Competition. The numerous commercial organizations invited to address the Panel expressed their strong preference for 

head-to-head competition. They use rigorous market research and requests for information (“RFIs”) to identify capabilities and suppliers. They provide significant opportunities 

for information exchange with potential suppliers and typically ensure that they retain 

at least two or three suppliers throughout negotiations. Sole source engagements are 

rare. Even after the contract is signed, competition remains a distinct possibility. These 

commercial buyers reserve the right to recompete or bring the service in-house before 

the contract has run full term. Six Sigma-style continuous monitoring and evaluation is 

used to measure performance and suppliers face the prospect of losing business if performance doesn’t meet targets or if technology or strategic direction changes. Finally, these 

buyers use relatively short-term contracts, especially for services that involve complex 

technology requirements. 


Competition for Government Contracts as well as its Approaches to Acquiring Commercial Services Differs Significantly from Commercial Practice. The Extent to which Each 

of these Approaches Achieves Competition Varies. Even where the government attempts 

to adopt commercial approaches, competition for government contracts differs in 

significant respects from commercial practice. Contributing factors include fiscal constraints imposed by the annual appropriations process, the need to accomplish urgent 

missions with limited time and personnel, policies and statutes requiring transparency and fairness in expenditure of public funds, use of the procurement system to 

accomplish a host of government social and economic objectives, and the audit and 

oversight process designed to protect taxpayers from fraud, waste, and abuse. But there 

is an unequivocal mandate for competition that runs through the statutes and regulations governing federal procurement. Yet, the Panel found government implementation 

of competition varies from quite structured processes on the one hand, to ill-defined 

requirements and minimal, if any, head-to-head competition on the other. 

Comparing the emphasis on competition in commercial practice with actual government-wide competition statistics, the Panel found that nearly one-third of the government’s 

dollars obligated in fiscal year 2004 was awarded without competition accounting for $108 

billion. About one-fourth, or $98 billion was awarded noncompetitively in fiscal year 2005. 

Even when competed, the percent of dollars awarded when only one offer was received has 

doubled from 2000 to 2005. Spending on services was $216 billion in fiscal year 2004 and 

$220 billion in fiscal year 2005, accounting for more than 60 percent of total obligations for 

each year. At least 20 percent to 24 percent of these services were awarded noncompetitively 

in fiscal years 2004 and 2005. However, the Panel believes that the amount of noncompetitive awards is underreported for orders under multiple award contracts available for interagency use. This lack of transparency is significant given that 40 percent or $142 billion of all 

government obligations were spent under interagency contracts in 2004. But even without 

visibility into the level of competition on orders, there is significant evidence to give cause for 

concern. Both the GAO and the DoD IG have found that agencies continue to award a large 

proportion of orders for services noncompetitively. The GAO placed interagency contracts 

on their High Risk Series for 2005, finding, in part, that the orders under these contracts frequently fail to comply with competition requirements. 

In addition to the concerns regarding the level of competition for orders under interagency contracts, the Panel also has significant concern regarding the level of meaningful 

competition achieved. Interagency contracts are generally indefinite-delivery, indefinite-quantity and, based on a statutory preference, generally result in multiple awards. Where services 

are sought, the initial competition for these contracts typically includes a loosely defined 

statement of the functional requirements in the solicitation, focusing on hourly rates for various labor categories, with the expectation that more clearly defined requirements will be provided at the order level where more meaningful competition will occur. However, the Panel 

heard testimony and reviewed GAO and IG reports describing ill-defined requirements at the 

order level. Costly and complex services are procured using orders under these contracts. Of 

the $142 billion obligated under interagency contracts in fiscal year 2004, $66.7 billion was 

awarded in single transactions exceeding $5 million, with services accounting for 64 percent 

or $42.6 billion. For fiscal year 2005, interagency contract obligations totaled $132 billion 
10

with $63.7 billion in single transactions over $5 million, and services accounting for 66 percent or $42 billion. 

So what has happened to dampen the expectation for this more rigorous competitive process at the order level? There appear to be several key checks and balances 

missing that would otherwise contribute to a healthier competitive environment. For 

instance, except recently for DoD, it is not required that all eligible contractors be 

informed of an order requirement. Also, there is little transparency, even into sole 

source orders, as there is no public notification or synopsis requirement. Even where 

competition is used at the order level, there is no protest option for contractors under 

multiple award contracts, reducing transparency and accountability, including, for 

instance, the need for clearly stated requirements, evaluation criteria and the incentive 

to evaluate using reasonable trade-offs based on these criteria. And, finally, there is no 

requirement for a detailed debriefing at the task order level, denying contractors the 

opportunity to become more competitive on future orders. 

But the Panel does recognize that these multiple award contracts provide significant 

benefits to the government, not the least of which is a reduced administrative cost accruing to those agencies that would otherwise have to conduct full and open competitions 

for their recurring service needs. Multiple award contracts are an effective tool allowing a 

strained acquisition workforce to meet mission needs in a streamlined fashion. However, 

there was never an expectation that these streamlined vehicles would not produce meaningful competition. Therefore, the Panel sought to achieve a balance – one that would 

introduce more pressure to encourage competition but not unduly burden these contracts 

as tools for streamlining. While nearly half of the dollars spent under these contracts are 

awarded in single transactions over $5M, the majority of the transactions fall under this 

threshold. Therefore, in addition to its other recommendations, the Panel recommends 

applying additional requirements at this threshold, thereby impacting a significant dollar 

volume but not the majority of transactions.

2. Recommendations

To emphasize the importance of competition to achieving the best outcomes, the Panel recommends expanding government-wide the current DoD requirements to notify all eligible contractors under multiple award contracts of order opportunities or to ensure the receipt of three 

offers. The Panel also felt that while a pre-award notification of sole source orders might unduly 

burden the streamlined purpose of these multiple award contracts, post-award notification 

would suffice in providing transparency and the positive pressures that transparency imparts 

while bolstering public confidence. And for single orders with an expected value in excess of 

$5 million where a statement of work is required, the Panel recommends that agencies 1) provide a clear statement of the requirements; 2) disclose the significant evaluation factors and 

subfactors and their relative importance; 3) provide a reasonable response time for proposal 

submissions, and; 4) document the selection decision to include the trade-off of price/cost to 

quality in best value awards. Additionally, the Panel recommends post-award debriefings for 

disappointed offerors for orders in excess of $5 million where statements of work and evaluation criteria are used in the selection. The Panel found that contractors expend significant bid 

and proposal costs in competing for individual orders under multiple award contracts and that 

debriefings encourage meaningful competition by providing disappointed offerors information 
11

that assists them in becoming more competitive on future orders. Concerned that the government is purchasing costly and complex services without a commensurate level of deliberation, 

transparency and review to ensure an appropriate level of discipline, the Panel recommends 

limiting the statutory restriction on protests of orders under multiple award contracts to orders 

valued at $5 million or less. 

With respect to the GSA Federal Supply Schedules Program, the Panel recommends a 

new services schedule for information technology that would reduce the burden on contractors normally resulting from a lengthy process of negotiating labor rates with GSA that 

produce little meaningful price competition because services of this type are requirement 

specific. The meaningful competition results from an offeror responding to a specific order 

requirement with an appropriate and well-priced labor mix resulting in a quality solution. 

This new services schedule would require competition at the order level. 

C. Adopt More Commercial Practices

1. Findings

Commercial Buyers Rely on Competition for the pricing of goods and services, using welldefined requirements that facilitate competitive, fixed-price offers. Commercial practice strongly 

favors fixed-price contracts in the context of head-to-head competition in an efficient market. In the absence of competition, which is relatively rare, commercial buyers rely on their 

own market research, and benchmarking, and often seek data on similar commercial sales. 

In some cases, they may obtain certain cost-related data, such as wages or subcontract costs, 

from the seller to determine a price range. 

While commercial buyers avoid T&M contracts, viewing them as too resource intensive 

to monitor, they do use them for specific types of work, for instance, repair, building capital equipment designed in-house, and engineering/development work. When T&M contracts are used, commercial buyers plan for and apply the necessary in-house resources to 

effectively monitor these contracts.

2. Recommendations

The Panel’s statutory charge requires it to make recommendations with a view toward 

protecting the best interests of the federal government. These recommendations seek to 

improve the government’s ability to establish fair prices. The Panel recommends restoring 

the statutory definition of commercial services found in the Federal Acquisition Streamlining Act (“FASA”). FASA intended for services that were offered and sold in substantial quantities in the commercial marketplace to be defined as commercial, thereby allowing more 

streamlined purchasing per FAR Part 12. This would mirror how commercial buyers purchase in an efficient market using competition. However, the regulatory implementation of 

the definition of commercial services allowed services not sold in substantial quantities in 

the commercial marketplace, or those “of a type,” to nonetheless be classified as commercial and acquired using the streamlined purchasing policies of FAR Part 12. This can leave 

the government at a significant disadvantage by restricting the available tools for determining fair and reasonable prices when limited or no competition exists. Restoring the statutory definition would not preclude purchasing services not sold in substantial quantities in 

the commercial marketplace, but would require that such services be purchased using FAR 

Part 15 procedures.
12

The Panel also recommends specific regulatory revisions that would provide a more 

commercial-like approach to determining price reasonableness when no or limited competition exists. The recommendation revises what “other cost or pricing data” the contracting 

officer can request when no or limited competition exists for a commercial item or service. 

To protect contractors from contracting officers who might be tempted to default immediately to seeking cost data from the contractor before attempting other means to establish price reasonableness, the Panel has provided an order of precedence, favoring market 

research first and limited information from the contractor last. In no event may the contracting officer require detailed cost breakdowns or profit, and shall rely instead on price 

analysis. The contracting officer may not require contractor certification of “other cost or 

pricing data,” nor may it be the subject of a post-award audit or price redetermination.

The Panel’s concerns regarding the use of T&M contracts are based largely on price and 

contract management. However, in considering a recommendation in this area, we balanced 

our concerns for the risk these contracts place on the government, especially given GAO 

findings that the government does not provide sufficient surveillance, with our concern to 

protect the government’s ability to perform its mission uninterrupted. The Panel, therefore, 

recommends enforcing the current policies limiting the use of T&M contracts. This includes 

the recently enacted Section 1432 of SARA that allows the use of these contracts using FAR 

Part 12 procedures if they are competed. The Panel also recommends, whenever practicable, 

establishing procedures to convert work being done on a T&M basis to a performance-based 

effort. Finally, to limit the government’s risk under these contracts, the government should 

not award a contract or task order unless the overall scope of the effort, including the objectives, has been sufficiently described to allow efficient use of the T&M resources and to provide effective government oversight of the effort. While a written public statement from an 

association representing contractors advised the Panel to recommend repealing the competition requirement under Section 1432 of SARA for commercial item T&M contracts, the Panel 

could not ultimately support this given its findings regarding competition. 

D. Equality Under Legal Presumptions

1. Findings

Government Contractors Not on a Level Playing Field. Although the presumption of good 

faith applies equally to both parties to a commercial contract in the event of a performance 

dispute with the government, contractors do not enjoy the same legal presumptions regarding good faith of the parties. Current precedent provides that the government enjoys an 

enhanced presumption of good faith and regularity in such a dispute.

2. Recommendation

In addition to protecting the best interests of the government, the Panel’s statutory 

charter also called on it to make recommendations with a view toward ensuring fairness. 

The Panel recommends legislation to ensure that contractors, as well as the government, 

enjoy the same legal presumptions, regarding good faith and regularity, in discharging their 

duties and in exercising their rights in connection the performance of any government procurement contract, and either party’s attempt to rebut any such presumption that applies 

to the other party’s conduct shall be subject to a uniform evidentiary standard that applies 

equally to both parties. In enacting new statutory and regulatory provisions, the same rules 
13

for contract interpretation, performance, and liabilities should be applied equally to contractors and the government unless otherwise required by the United States Constitution or 

the public interest. 

II. Statutory Charter: Review Laws and Regulations Regarding the Performance of Acquisition Functions Across Agency Lines of 

Responsibility, and the Use of GovernmentWide Contracts

A. Enhance Accountability and Transparency

1. Findings

Accountability and Transparency Lacking. Government-wide contracts are referred to in this 

Report as interagency contracts and multi-agency contracts interchangeably. The performance 

of acquisition functions across agency lines is almost exclusively accomplished through the 

use of interagency contracts. The Panel finds that interagency contracts play a critical streamlining role, allowing agencies to achieve their missions with fewer resources devoted to 

procurement while affording the government the opportunity to leverage its buying power. 

But in 2005, GAO placed interagency contracts on its High Risk series due, in part, to ordering under these contracts that failed to adhere to laws, regulations, and sound contracting 

practices, and for a lack of oversight and accountability. GAO found that the causes of such 

deficiencies stem from the increasing demands on the acquisition workforce, insufficient 

training, and in some cases inadequate guidance. GAO also noted that the fee-for-service 

arrangement used for interagency contracts may create incentives for the contracting agency 

to increase sales volume and results in too great a focus on meeting customer demands and 

not enough on complying with fiscal rules and ordering procedures. GAO raised concerns 

that the lines of responsibility for key functions such as describing requirements, negotiating 

terms, and conducting oversight are not clear among: (i) the agency that manages the interagency contract, (ii) the ordering agency, and (iii) the end user. 

The Comptroller General of the United States told the Panel that while it is known that 

these contracts are proliferating, outside of the GSA Schedules program and the Governmentwide Acquisition Contracts (“GWACs”), there is no reliable data on how many such 

contracts exist, how much money is involved and the nature of the services acquired under 

them. Through its research, the Panel has obtained some general information regarding 

these contracts. As evidence of their popularity, interagency contract obligations in fiscal 

year 2004 totaled $142 billion or 40 percent of the government’s obligations in that year.

With the proliferation has come extensive oversight of various federal agencies by Congress, GAO, the IGs, outside organizations and the media. Among the GAO and IG findings 

on ordering deficiencies is a significant failure to comply with competition requirements, 

use of ill-defined requirements and T&M pricing without sufficient government surveillance. Some GAO and IG findings identify “interagency assisting entities” that use interagency contracts. These interagency assisting entities provide fee-for-service acquisition 

support to other agencies. The Panel recommendations address these entities. The Panel 
14

also found a trend of agencies establishing enterprise-wide contract vehicles that operate 

much like an interagency contract, except their use is restricted to a single agency. While the 

Panel recognizes that some competition among agencies is desirable, inefficient duplication threatens to dilute the overall value of interagency contracts to the government. 

With the rapid growth in public funds spent under these interagency contracts and 

with the assisting entities that use them, the Panel believes it is critical to confront the lack 

of accountability and transparency to improve public confidence in these vehicles and 

ensure they fulfill their promise for reducing overall administrative costs to the government. It is notable that despite the significant dollars spent under these contracts, there is 

no consistent, government-wide policy regarding their creation and reauthorization.

2. Recommendations

Many of the issues identified by the GAO, IGs and Panel witnesses on the misuse of 

these vehicles are related to the internal controls, management and oversight, and division 

of roles and responsibilities between the vehicle holder and ordering agency. These issues 

can best be addressed with a government-wide policy that requires agencies to specifically 

and deliberately address these matters at the point of creation rather than attempting to 

remedy these problems at the point of use. The current lack of procedural requirements 

and transparency allows for the proliferation of these vehicles in a largely uncoordinated, 

bottom-up fashion, based on short-term, transaction-related benefits instead of on their 

ultimate value as a tool for effective government-wide strategic sourcing. The Panel recommends that under guidance issued by OMB, agencies formally authorize the creation or 

expansion of multi-agency contracts, enterprise-wide contracts, and assisting entities. The 

Panel’s recommendations maintain approval for the creation and expansion at the agency 

level (except for GWACs). The Panel provides a list of considerations to be included in this 

OMB guidance to address responsible management of these contracts and assisting entities. 

The Panel also made recommendations to improve transparency regarding these contracts. First, the Panel recommends OMB conduct a survey of existing vehicles and Assisting Entities to establish a baseline. The draft OFPP survey, developed during the Working 

Group’s deliberations includes the appropriate vehicles and data elements. The Panel 

believes that establishing a database identifying existing contracts and assisting entities as 

well as their characteristics is the most important near-term task. It is the view of the Panel 

that the most expeditious means of assembling such information is in the form of a survey 

as currently drafted by OFPP in support of the OMB task force examining Interagency and 

Agency-Wide Contracting. The information gathered should be available for agency and 

public use. This survey is already underway.

From the outset of the Panel’s work, we have been frustrated by the lack of data available to conduct a thorough analysis of interagency contracts and the orders placed under 

them. The Federal Procurement Data System (“FPDS”) has traditionally been a transactions-based database, collecting information only on transactions that obligate funds. 

Therefore, while agencies input their order information, there was no efficient way to identify it as an order under an interagency contract, except for the GSA Schedules program. 

In 2004, FPDS-Next Generation (“FPDS-NG”), a new technology solution, replaced 

FPDS. Twenty-seven years of collected contract data was migrated into the new system. But 

at the same time as the system migration, new reporting elements were added. For instance, 
15

FPDS-NG now collects information on interagency contracts. However, adding a new collection requirement on any ongoing contract or order creates a myriad of unavoidable 

migration issues. Moreover, information on the extent of competition at the order level 

is not reliable due to a number of issues including: (i) automatic DoD coding of all GSA 

schedule orders as full and open competition, (ii) coding of other orders as full and open 

based on the master contract, and (iii) system migration rule failure. 

The Panel also is concerned with the amount of incorrect data entered into the system by agencies, such as the ultimate value (base plus options) requiring the Panel to rely 

solely on the transaction value of an order, significantly less than the ultimate value. 

The data section of the Report documents a long history of inaccurate data input by 

agencies. For example, the Panel’s survey of PBA contracts and orders found that of the 

sample reviewed, 42 percent that were entered in FPDS-NG as performance based, clearly 

were not (with some agencies admitting to FPDS-NG coding errors). Among other recommendations for data improvement, the Panel has made several to focus attention on the 

importance of agencies inputting accurate data, including a statutory amendment assigning 

Agency Heads the accountability for accurate input. In those limited circumstances where 

the Panel and FPDS-NG staff were able to obtain data on interagency contracts, the Panel 

recommends providing public access to that data online.

III. Statutory Charter: Ensuring Effective 

and Appropriate Use of Performance-Based 

Contracting

Performance-based Contracting, now called Performance-based Acquisition (“PBA”), 

is an approach to obtaining innovative solutions by focusing on mission outcomes rather 

than dictating the manner in which the contractor’s work is to be done. Those outcomes 

are then measured and the contractor compensated on the basis of whether or not the outcomes are achieved. 

During the Panel’s public deliberations, there was some debate as to the value of this 

technique. Witness testimony, as well as written public statements, was mixed on PBA 

merits. One member and some public comments questioned the validity of PBA for government uses after more than a decade of attempts to implement have failed to produce 

expected results. Others, however, noted significant successes using PBA. And though a 

1998 OFPP study found generally positive results, the Panel found no systematic government-wide effort to assess fully the merits of the process. Many spoke to the challenges 

in implementing the technique, most of which focused on the acquisition workforce, 

including those who define requirements. Even commercial organizations told the Panel 

that implementing the technique can be difficult, especially identifying the appropriate 

performance standards to measure. Despite the difficulty, it remains the preferred commercial technique seen as critical to obtaining transformational and innovative solutions. 

Ultimately, the Panel determined that in view of a lack of data supporting either that the 

technique is unworkable in the federal government sector or that PBA’s costs outweigh its 

benefits, the Panel’s statutory mandate was clear: improve the effectiveness and appropriate use of PBA. As such the Panel recommendations should not be interpreted as offering 

a long-term endorsement of PBA. Rather the Panel aims are directed at improving current 
16

implementation and at providing a solid basis for a more thorough assessment of its value. 

Thus, the Panel agreed that the overall statement of the issue is “Why has PBA not been 

fully implemented in the federal government?”

A. Improve PBA Implementation

1. Findings

Uncertainty Remains on How and When to Apply PBA. Government officials testifying 

before the Panel related the challenges they face in applying PBA that included when and 

how to apply it and the time and resources required for the technique. They also spoke to the 

cultural emphasis of “getting to award” that shortchanges both the requirements definition 

process and effective post-award contract management. A 2002 GAO survey of 25 contracts 

reported as PBA found that while most contained at least one PBA attribute, only 9 contained 

all of the required elements. GAO concluded that the study raised concern about whether 

agencies have an understanding of PBA and how to maximize its benefits. A Rand Corporation study of the U.S. Air Force Air Logistics and Product Centers in 2002 found uncertainty 

over which services were suitable for PBA, confusion with the terms “Statement of Work” and 

“Statement of Objectives,” and over what constitutes a measurable performance standard. 

The Panel’s own survey of randomly selected PBAs from the top ten contracting agencies 

reflect similar problems, including an inability to identify and align performance measures 

and contract incentives to ensure desired outcomes are achieved. A multi-association group 

representing government contractors told the Panel that many of the solicitations they receive 

that would be appropriate for PBA are still not described in terms of outcomes and those that 

are frequently do not identify measures to achieve those outcomes. This multi-association 

group provided the Panel with a sampling of such solicitations. As a result of these findings, 

the Panel concluded that the potential for PBA to generate transformational solutions to 

agency challenges remains largely untapped.

FPDS-NG data are insufficient and perhaps misleading regarding use and success of PBA. At 

the suggestion of a written public statement, the Panel conducted its own survey of contracts and orders that were coded in FPDS-NG as performance-based. Of the 76 contracts 

and orders randomly selected from the top ten contracting agencies, the Panel received 

55 that contained sufficient documentation to support the review. While 36 percent 

were determined to have the elements of a PBA, another 22 percent required significant 

improvement. And of the sample reviewed, 42 percent were clearly not PBA with some 

agencies admitting that the contracts were mistakenly coded as performance-based in 

FPDS-NG. Finally, it is important to note that FPDS-NG data is collected at the time of 

contract or order award and is not designed to collect information to assess cost savings or 

other similar measures of success.

2. Recommendations

Based on these findings, the Panel recommended more guidance to assist agencies in 

the efficient and appropriate application of PBA, including 

• An Opportunity Assessment Tool that acknowledges the resource investment required by 

PBA and helps agencies identify those acquisitions likely to derive the most immediate 

benefit from such an investment;
17

• A Best Practices Guide on developing measurable performance standards; and

• Improved guidance on types of incentives appropriate for various contract vehicles

Other Panel recommendations seek to provide a framework for a discipline in defining outcomes and appropriate measures during acquisition planning, and with post-award 

monitoring. The recommendation for a Baseline Performance Case, prepared by the government, would assist agencies in developing and communicating appropriate outcomes, 

measures and expectations to prospective offerors. The Panel recommends a Performance 

Improvement Plan, prepared by the contractor, to serve as a tool to ensure that the contractor and agency are regularly assessing performance, expectations, and the need for continuous improvement to respond to shifting priorities

As a signal of the cultural change PBA requires throughout the contract life cycle, 

the Panel recommends redesignating the traditional Contracting Officers Technical Representative (“COTR”) as a Contracting Officers Performance Representative 

(“COPR”). The COPR should receive training in PBA and be involved in the development of the Baseline Performance Case and key measures. The Panel recommends 

that the Federal Acquisition Institute (“FAI”) and the Defense Acquisition University 

(“DAU”) jointly develop a formal educational certification program for COPRs.

Finally, in recognition of the concerns raised by some regarding the appropriate use 

of and cost-benefits of this technique, the Panel makes two recommendations. First, the 

Panel recommends improved data on PBA usage and enhanced oversight by OFPP on 

proper implementation using an “Acquisition Performance Assessment Rating Tool” or “APART.” Currently, OMB uses a “Program Assessment Rating Tool” or “PART” as a systematic 

method for measuring program performance across the federal government. It essentially 

includes a series of questions that help the evaluator determine whether a program is meeting the mission requirements it was designed to support. The use of the PART has helped 

improve the clarity of OMB guidance on the Government Performance and Results Act 

(“GPRA”) as well as engaged OMB more aggressively in reviewing its implementation. The 

Panel recommends that OFPP develop a checklist that reflects how well a particular acquisition comports with the basic elements of a PBA to provide a more methodological and 

accountable approach to PBA implementation. While the Panel anticipates the need for 

such rigor until agencies are comfortable and competent in using the tool, we believe the 

requirement should sunset after three years unless its continued use is deemed useful by 

OMB and the agencies. Second, the Panel recommends that OFPP undertake a systematic 

study on the challenges, costs and benefits of using PBA techniques five years from the date 

of the Panel’s final Report.
18

IV. Statutory Charter: Review all Federal Acqui- sition Laws and Regulations, and . . . Policies . . . make Recommendations . . . Considered 

Necessary . . . to Protect the Best Interests of 

the Federal Government [and] to Ensure the 

Continuing Financial and Ethical Integrity of 

Acquisition . . . .

Because the state of the federal acquisition workforce was not one of the topics specifically identified by Congress in the legislation establishing the Panel, some might 

wonder why the Panel addressed this topic. From the beginning, the Panel clearly understood that providing the insight and assistance that Congress sought could not be accomplished without addressing the federal acquisition workforce. Through the Panel’s review 

of numerous GAO and IG reports and extensive witness testimony, it is clear that the 

knowledge and skill base necessary to successfully operate the acquisition system and to 

secure good value for the government and taxpayers has outstripped the resources available to operate the system.

Without an analysis and recommendations on the state of this workforce, there is a 

risk that problems stemming from the shortcomings of the acquisition workforce would 

be misunderstood. And certainly, addressing the specifics of the Panel’s statutory charter, 

PBA, commercial practices, and interagency contracting, inevitably have an impact on the 

acquisition workforce, both in terms of identifying problems with these techniques and the 

recommendations to improve them. Finally, those readers who are familiar with the 1972

Commission on Government Procurement, and more recently, the National Performance 

Review, will recall that these initiatives recognized the importance of an effective workforce 

to the acquisition system.

A. Focus on the Acquisition Workforce

1. Findings

Even though there are now available a variety of simplified acquisition techniques, the 

demands on the workforce, both in terms of the complexity of the federal acquisition system 

as a whole as well as the volume and nature of what is bought, have markedly increased 

since the 1980s. A qualitatively and quantitatively adequate and adapted workforce is 

essential to the successful realization of the potential of the procurement reforms of 

the last decade. Without such a workforce, successful federal procurement is unachievable. But demands on the workforce have grown. Just since 9/11, the dollar volume 

of procurement has increased by 63 percent. And while acquisition reform made low 

dollar purchases less complex, high dollar purchasing became more complex with the 

emphasis on best value, commercial practices, past performance evaluations and PBA, 

placing greater demands on the workforce including requiring more sophisticated market expertise. The streamlined purchasing vehicles, such as purchase cards and interagency contracts, we now know are subject to management challenges associated with 

appropriate and effective use. Accompanying these trends is a structural change in what 
19

the government is purchasing, with an emphasis on high dollar complex services. In 

general, the demands placed on the acquisition workforce have outstripped its capacity. And while the current workforce has remained stable in the new millennium, there 

were substantial reductions in the 1990s accompanied with a lack of attention to providing the training necessary to those remaining to effectively operate the more complex buying climate. There are currently too few people in the pipeline with between 5

and 15 years of experience to mitigate the eventual retirements of the most experienced 

acquisition workforce. 

Lack of a Consistent Definition for and Accounting of the Workforce. Assessing workforce 

needs and proposing solutions for these challenges has been made difficult by the continued inconsistent definitions and accounting of the workforce. An accurate understanding of the key trends about the size and composition of the federal acquisition workforce 

cannot be had without using a consistent benchmark and none is currently available. The 

definitions for the DoD workforce and the civilian workforce are not consistent and have 

changed or been reported differently over time. The reports on the workforce, therefore, do 

not facilitate trend analysis. 

The Panel recognized that these issues about the acquisition workforce have long roots. 

To assist the Panel in analyzing the available information about the size, composition, 

competencies and effectiveness of the acquisition workforce, and to help identify gaps and 

inconsistencies in the data, the Panel engaged a contractor, Beacon Associates, Inc. to collect 

and analyze the voluminous available data. Beacon created a report that has been used extensively by the Panel in developing its recommendations.

Agencies have not Engaged in Systematic Human Capital Planning to Assess their Acquisition 

Workforce in the Present or for the Future. While the GAO has recognized improved progress in this area, there is a wide variance between agencies in terms of their progress. And 

while some agencies have undertaken an analysis of the competencies necessary for the 

workforce, they do not attempt to address the demands these competencies place on the 

workforce of the future nor the degree to which their existing workforce possess these competencies. In fact, GAO found that the civilian agencies generally lacked reliable, consistent 

and complete data on the composition of the current workforce, including data on the 

knowledge, skills and abilities of the existing workforce.

Despite the variations in the way the acquisition workforce has been defined and counted over 

time and among agencies, no one is counting contractor personnel that are used to assist, support 

and augment the Acquisition Workforce. Witness testimony before the Panel, a 2006 DoD IG 

Report, and the experience of members of the Panel make clear that many agencies make 

substantial use of contractor resources to carry out their acquisition functions. But because 

there is no count of such contractor support, much of which is accomplished outside of 

the bounds of OMB Circular A-76, the government lacks information on which to make a 

determination of whether this reliance is cost effective. 

While the private sector invests substantially in a corps of highly sophisticated, credentialed 

and trained business managers to accomplish sourcing, procurement and management of functions, 

the government does not make comparable investments. Testimony before the Panel points to 

two reasons for this disparity. First, the most successful commercial organizations have 

built a procurement workforce on the understanding that smart buying is important to 
20

profitability. Second, the private sector pays better, has superior approaches to recruitment 

and retention, and considers procurement integral to business success. 

2. Recommendations

Remedying what the Panel found as the structural barriers to assessing the acquisition 

workforce is an important first step to assessing how the acquisition workforce can better 

fulfill its mission. Therefore, the Panel provides a specific recommendation to OFPP to prescribe a single, consistent government-wide definition of the acquisition workforce using 

a combined methodology designed to address the broader understanding of the functions 

outside of procurement that must be addressed while preserving a count that does not 

overstate the resources available to conduct and manage procurement. The Panel’s belief in 

the urgency of accurately assessing the acquisition workforce on a government-wide basis 

is reflected in its recommendation that using this combined methodology, OFPP should 

collect this data within a year of the issuance of Panel’s final report. Consistent with this 

recommendation, OFPP should also be responsible for the creation, implementation and 

maintenance of a mandatory government-wide database for members of this acquisition 

workforce. The Panel notes that the Commission on Government Procurement recommended a similar system in 1971. 

Human capital planning requires prompt attention. Chief Acquisition Officers 

(“CAOs”) should be responsible for assessing the current and future needs of their agencies, including forthrightly identifying and acknowledging gaps, and taking immediate 

steps to address these gaps through hiring, allocation of resources, and training. The CAO 

should be responsible for developing a separate Acquisition Workforce Human Capital 

Strategic Plan as part of the overall Human Capital Management Plan. This plan should 

assess the effectiveness of contractor personnel supplementing the acquisition workforce. 

OFPP should be delegated the responsibility for reviewing and approving agency Human 

Capital Plans regarding the acquisition workforce and for identifying trends, good practices, and shortcomings.

The Panel recommends identifying and eliminating obstacles to the speedy hiring 

of new talent and a government-wide acquisition intern program to attract first-rate 

entry-level personnel into the acquisition career fields. Concurrently, incentives to retain 

qualified, experienced personnel need to be created. To address the training needs of the 

acquisition workforce, the Panel recommends the statutory reauthorization of the SARA 

Training Fund and provision of direct funding/appropriations for it. Additionally, OMB 

should issue guidance directing agencies to assure that funds in agency budgets identified for acquisition workforce training are actually expended for that purpose and require 

Agency Head approval before such funds are diverted for other uses. OFPP should also 

conduct an annual review of whether agency acquisition workforce training funds are 

sufficient to meet agency needs per the agency’s human capital plan. 

Because both DoD and the civilian agencies provide for waivers to the congressionally 

established training and education standards, such waivers should be guided by sufficient 

oversight. The Panel recommends that permanent waivers be granted by agencies only after 

an objective demonstration that the grantee possesses the competencies and skills necessary to perform the duties and that temporary waivers should only be granted to allow sufficient time to acquire any lacking education or training. And CAOs (or equivalent) should 
21

report annually to OFPP on the agency’s usage of waivers, justifying their usage and reporting on plans to overcome the need to rely excessively on waivers. Upon review of these 

reports, OFPP should provide an annual summary report on the use of waivers of congressionally established training and education standards. In order to promote consistent 

quality, efficiency and effectiveness in the use of government training funds, OFPP should 

convene a 12-month study panel to consider whether to establish a government-wide Federal Acquisition University and/or alternative recommendations to improve training. And 

finally, in light of OFPP’s unique government-wide focus, the Panel recommends establishing in OFPP a senior executive with responsibility for Acquisition Workforce Policy 

throughout the federal government. 

V. Statutory Charter: Protect the Best Interests 

of the Government . . . Amend or Eliminate any 

Provisions that are Unnecessary for the Effec- tive, Efficient, and Fair Award and Administra- tion of Contracts

The Panel recognized early in its deliberations that the Panel’s statutory charter would 

necessarily impact small business. In terms of ensuring the fair award of contracts, certainly 

with respect to government-wide contracts, the interests of small business must be represented. The statutory requirement that agencies afford the maximum practicable small business participation in federal acquisition reflects the critical role of small businesses in stimulating the Nation’s economy, creating employment, and spurring technological innovation. 

The Panel identified findings and recommendations that impact efficient and effective acquisition planning and fairness in the competition of multiple award contracts. 

A. Improve Small Business Participation

1. Findings

Inconsistent Statutory and Regulatory Framework Governing the Use of Various Small Business Preference Programs Hinders Efficient and Effective Use of the Programs. The Panel found 

potentially conflicting guidance between the statutory and regulatory provisions governing 

the priority of the various small business contracting programs. For example, the Small 

Business Act appears to mandate a priority for the HUBZone program by providing that 

contracting officers “shall” use the HUBZone contracting mechanism in certain circumstances “notwithstanding any other provision of law.” At the same time, other provisions 

of law appear to suggest parity between the HUBZone and 8(a) programs. The potential 

inconsistency between the statutory framework and the regulatory guidance has created 

confusion among contracting officials and has hindered the proper application of these 

programs to ensure small business goal achievements. 

But the Panel also found that there are no express guidelines governing a contracting 

officer’s decision in selecting the appropriate small business contracting techniques. This 

lack of guidance not only deprives a contracting official of published standards against 

which to exercise discretion, but also obfuscates that decision-making process.
22

The contracting community does not properly apply and follow the governing contract bundling 

definition and requirements in planning acquisitions. Continuing its focus on ensuring small 

businesses are afforded sufficient opportunities to participate in government contracting 

and that acquisition planning is efficient and effective, the Panel found that there continues 

to be confusion about what constitutes contract bundling and the procedures that apply 

for addressing it. Furthermore, the reporting and review provisions contain little in the way 

of clear procedures, instructions, or techniques for mitigating the effects of bundling once 

such acquisitions are identified and justified during the acquisition planning phase. This 

lack of guidance contributes to the workload pressures facing our acquisition workforce, 

undermining its ability to plan and award acquisitions efficiently. 

Agency officials need targeted training to better acquaint them with the requirements and benefits 

of contracting with small businesses. The Panel found that because senior program managers 

play such an important role in shaping an acquisition during the planning stages, it is imperative that they understand the governing small business contracting requirements as well as 

the benefits of contracting with small business. Such an understanding would also serve to 

lessen the pressure on contracting officials to explain such requirements, thereby improving 

efficiency and the overall effectiveness of agencies in meeting small business goals. 

Cascading procurements fail to balance the government’s interest in quick and efficient 

contracting with governing requirements for the maximum practicable small business contracting opportunities. Cascading procurements (sometimes called tiered procurements) 

are a costly substitute for government market research. Essentially, these procurements tier 

the evaluation of offers based on the socioeconomic status of the offeror. For example, an 

agency may establish a four-tiered evaluation, beginning with 8(a), then HUBZone, small 

business, and finally large business offerors. The contracting officer’s evaluation of offers 

will then cascade to each succeeding tier until a winning offeror is identified. If the winner 

is found in tier one, then the proposals of all other tiered offerors will never be considered 

for award. This controversial contracting technique, fails to balance the interests of the 

government and contractors. Proposal preparation is costly for government contractors, 

large and small alike. As a result, recent legislation limits their use in the Department of 

Defense. The new legislation requires the contracting officers to first conduct the required 

market research, and to document the contract file before engaging in cascading procurements. But the Panel has determined that the recent enhancements to the Central Contractor Registration database have improved the contracting officer’s capability to conduct 

this type of market research, thereby obviating the need for such procurements. Cascading 

procurements place an undue financial burden on small and large contractors that is not 

outweighed by the administrative convenience of this technique.

There is No Explicit Statutory Authority For Small Business Reservations in Otherwise Full and 

Open Competitions for Multiple Award Contracts. While the Panel recognizes the great efficiencies offered by these contracts, especially those available for multi-agency use, the desire for 

efficiency must be balanced against the sometimes negative impact these contracts can have 

on small business opportunities. The Panel found that, often, these contracts have such 

broad coverage, either geographically, functionally, or both, that they effectively preclude 

small businesses from competing with large businesses under full and open competitions 

for the multiple awards. And if there are small businesses that receive awards under these 
23

contracts, there is no specific statutory or regulatory authority for agencies to reserve orders 

under these contracts for small business competition in order to achieve agency goals.

2. Recommendations

The Panel recommends a simple and specific amendment to the Small Business Act 

that would provide consistent statutory language enforcing the intended parity among the 

various small business programs and affording contracting officers the discretion and flexibility to develop acquisition strategies appropriate to agency small business goal achievements. The Panel also recommends specific statutory and regulatory revisions clarifying 

that contracting officers should exercise their discretion to select the appropriate small 

business contracting methods based on agency small business goal achievements and market research on the availability of small business vendors. With respect to the concerns over 

the implementation of contract bundling requirements, the Panel recommends additional 

training and the creation of an interagency group to develop best practices and strategies to 

unbundle contracts and mitigate the effects of contract bundling. 

Finding that acquisition planning and compliance with requirements would be better 

served if all stakeholders in the acquisition planning phase were better trained, the Panel 

recommends that OFPP coordinate the development of a government-wide small business 

contracting training module targeting program managers and acquisition team members. 

The training module should not only educate these officials on the requirements, but also 

the value and benefits of contracting with small businesses, including acquainting them 

with the substantial capabilities, sophistication and innovation of the Nation’s small business concerns. The Panel also recommends a statutory prohibition on the use of the cascading procurement technique, finding that they place an undue financial burden on contractors, thereby limiting their participation in government procurement. 

Finally, with respect to multiple award contracts, the Panel recommends specific statutory amendments that would allow contracting officers to reserve, for small business competition only, a portion of the multiple awards in a competition not suitable for a total 

small business set-aside. The Panel further recommends express authority to reserve certain 

orders under these multiple award contracts for competition by the small business multiple 

awardees only. These authorities will afford contracting officers who wish to take advantage 

of these streamlined acquisition vehicles greater opportunities in meeting agency small 

business goals as well. 

VI. Statutory Charter: Ensure the Continuing 

Financial and Ethical Integrity of Acquisitions

The government has realized for some time that it cannot achieve its mission without 

the support of contractors. A 1991 GAO report stated that contractors were “essential for 

carrying out functions of the government.” Since this report, the government’s spending on 

services has exceeded that spent on goods. Spending on services in 2006 accounts for 61

percent of total procurement dollars.

Given the growth of services, the expanded role of contractors and the government’s 

reliance on them in the workplace, the Panel believes that addressing the “blended” workforce was essential though not specifically called out in its authorizing statute.
24

A. Focus on Effective, Efficient and Responsible Use of 

Contractor Support

1. Findings

Several developments have led federal agencies to rely increasingly on the use of contractors 

as service providers. During the 1990s, the federal acquisition workforce was significantly 

reduced and hiring virtually ceased, creating what has been termed the “bathtub effect,” a 

severe shortage of procurement professionals with between 5 and 15 years of experience. 

The impact of this shortage is likely to be felt more acutely soon, as half of the current 

workforce is eligible to retire in the next four years. The impact of these events has left its 

mark on government operations, creating a shortage of certain capabilities and expertise in 

government ranks. In order to meet mission requirements and stay within hiring ceilings, 

some agencies have contracted for this capability and contractors are increasingly performing the functions previously done by civil servants. This has largely occurred outside of 

the discipline of OMB Circular A-76 procedures, meaning there is no clear and consistent 

government-wide information on the numbers of and functions performed by this growing 

cadre of service providers.

The “blended” or “multisector” workforce, where contractors are co-located and work side-by-side 

with federal managers and staff, has blurred some boundaries. While the A-76 outsourcing process 

provides a certain rigor and discipline to distinguishing between “inherently governmental” 

and commercial functions, the application of these terms is less clear outside of this context. 

The challenge is determining when the government’s reliance on contractor support impacts 

the decision-making process such that the integrity of that process may be questioned. 

The growth in the use of contactors to perform acquisition functions that in the past 

were performed by federal employees, coupled with the increased consolidation in many 

sectors of the contractor community, has increased the potential for organizational conflicts of interest (“OCI”). Based on the language in FAR 9.5, the case law has divided 

OCIs into three groups: (i) biased ground rules; (ii) unequal access to information; and 

(iii) impaired objectivity.18

 And while the FAR instructs it provides little guidance to already 

strained contracting officers on how to identify, evaluate, and avoid or mitigate such conflicts. The GAO is sustaining more protests for the government’s failure to do so. With 

respect to protection of contractor confidential or proprietary data, the Panel recognizes the 

increased threat of improper disclosure as more and more contractor employees engage in 

support of the government’s acquisition function. 

Government employees face civil and criminal penalties for not acting impartially in 

their official duties in exchange for personal gain, and some have suggested that similar civil 

and criminal statutes be applied to contractor employees performing acquisition functions. 

But the Panel found that many contractors have established extensive ethics and compliance 

programs. Further, the Sarbanes-Oxley Act of 2002 requires specific accountability and controls relating to fiduciary duties. 

As the extent of service contracting has grown, the current ban on personal services contacts has 

created two unfortunate responses. Except as authorized by statute, the government is prohibited 

18 See Daniel I. Gordon, Organization Conflicts of Interest: A Growing Integrity Challenge, 35 Pub. Con. L.J. 

25, 2005.
25

from entering into personal services contracts (“PSCs”). The FAR cautions that such relationships not only result from inappropriate contract terms, but also from the manner in which 

the contract is administered. In order to comply with the PSC prohibition, government managers may find themselves crafting cumbersome and inefficient processes to manage the work 

of contractor personnel to avoid an appearance that they are exercising continuous supervisory control. Some testimony before the Panel indicates that others simply ignore the ban. 

2. Recommendations

The Panel recommends that OFPP update the principles for agencies to apply in determining which functions must be performed by civil servants. These principles are needed 

so that those not specifically engaging in A-76 studies understand their applicability to the 

blended workforce.

With respect to conflicts of interest, the Panel concluded that it is not necessary to 

adopt any new federal statutes to impose additional requirements upon contractors or 

their personnel. Rather, where appropriate, the obligations should be imposed through 

contract clauses, the goal of which should be ethical conduct, not technical compliance. 

Such clauses would not necessarily impose specific prohibitions upon contactors and/or 

their personnel; rather, it might be possible to achieve an appropriate level of integrity and 

ethical conduct with general ethical guidelines and principles and/or by requiring appropriate disclosures. The Panel does not believe that the requirements imposed on contractors and their personnel—through the contract and solicitation clauses—should incorporate the extensive and complex requirements imposed on federal employees. The Panel is 

concerned about the possibility of over-regulation and its attendant costs, particularly as it 

applies to small businesses, noting that the imposition of burdensome requirements could 

discourage such businesses from contracting with the government. 

Thus, the Panel recommends that the FAR Council, in its unique role as the developer 

of government-wide acquisition regulations, take the following action: review existing 

rules and regulations, and to the extent necessary, create new, uniform, government-wide 

policy and clauses dealing with OCIs, and personal conflicts of interest (“PCIs”), as well as 

the protection of contractor confidential and proprietary data. The Panel recognized that 

numerous agencies have considered these issues, and in many cases identified and implemented effective measures to address them. However, there has been no standardization, 

and there is no central repository or list of best practices available. The Panel concluded 

that the identification and adoption of government-wide policies and standardized contract clauses in these areas would be beneficial and that the FAR Council, as the developers 

of government-wide acquisition regulations, was the appropriate organization to perform 

this task. The FAR Council should work with DAU and FAI to develop and provide training 

and techniques to help procurement personnel identify and mitigate potential OCIs and 

PCIs, remedy conflicts when they occur, and appropriately apply tools for the protection of 

confidential and proprietary data. 

Finally, the Panel recommends replacing the ban on PSCs with guidance on the appropriate and effective use of such contracts. In implementing this recommendation, the 

government should be allowed to direct or supervise the contractor employee’s workforce 

concerning the substance of work or tasks performed. This new flexibility, however, should 

be accompanied by retention of the current prohibitions on government involvement in 
26

purely supervisory activities (e.g., hiring, leave approval, promotion, performance ratings, 

etc.). Because this recommendation represents a significant departure from the decades of 

prohibition on personal services, the Panel recommends that GAO review the new policy 

five years after implementation to identify the benefits of the changes and any unintended 

adverse consequences or abuses by agencies. 
27

Table of Contents

Table Chapter 1–Commercial Practices Findings and Recommendations . . . . . . . . . . 31

I. Background: 

Government Efforts To Use Commercial Practices . . . . . . . . . . . . . . . . . . . . . . . . . . 39

A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

B. “Commercial Items” and Commercial Practices: Definition 

and Procurement Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

 1. Statutory Definition: “Commercial Items” . . . . . . . . . . . . . . . . . . . . . . . . . . 44

 2. Statutory Preferences and Exemptions for “Commercial Items”.......... 45

C. Legislative and Regulatory Origins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

 1. The Origins of Current Government “Commercial” Practices . . . . . . . . . . 46

 2. The Commercial Item Exemption from the Original Truth 

in Negotiations Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

 3. The Commission on Government Procurement . . . . . . . . . . . . . . . . . . . . . 47

 4. DoD Directive 5000.37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

 5. 1984 Congressional Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

 6. The President’s Blue Ribbon Commission on Defense Management . . . . 49

 7. Congressional Directives of the Late 1980s and Early 1990s . . . . . . . . . . . . 50

 8. DFARS Parts 210 and 211 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

 9. The Section 800 Acquisition Advisory Panel . . . . . . . . . . . . . . . . . . . . . . . . 52

 10. The Federal Acquisition Streamlining Act of 1994 . . . . . . . . . . . . . . . . . . . 53

 11. The Regulatory and Practical Implementation of FASA . . . . . . . . . . . . . . . 54

 12. The Federal Acquisition Reform (“Clinger-Cohen”) Act of 1996 . . . . . . . 55

 13. Recent Congressional and Executive Changes . . . . . . . . . . . . . . . . . . . . . . 56

 14. The Services Acquisition Reform Act of 2003 . . . . . . . . . . . . . . . . . . . . . . . 57

 15. Restrictions on Use of Commercial Items . . . . . . . . . . . . . . . . . . . . . . . . . 58

D. Time-and-Materials and Labor-Hour Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 58

CHAPTER 1

Commercial Practices
28

 1. Definition and Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

 2. Recent Legislative Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

 3. OFPP’s Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

E. Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

 1. A History of Difficulty in Achieving Competition . . . . . . . . . . . . . . . . . . . . 60

 2. The Current Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

 3. The Competition in Contracting Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

 a. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

 b. Competition Under CICA Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 63

 (i) Acquisition Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

 (ii) Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

 (iii) Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

 (iv) Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

 (v) Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

 (vi) Post-Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

 4. The Use of Interagency Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

 5. IDIQ Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

 a. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

 b. “Fair Opportunity” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

 c. Section 803 Revisions to “Fair Opportunity” . . . . . . . . . . . . . . . . . . . . 69

 d. Competition Under Multiple Award IDIQ Contracts . . . . . . . . . . . . . . . 71

 6. GSA Federal Supply Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

 a. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

 b. Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

 c. Streamlined Ordering Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

 (i) Policies and Procedures for Ordering Services . . . . . . . . . . . . . . . 75

 (ii) Schedule BPAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

 (iii) Brand Name Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

F. Pricing—The Current Regulatory and Oversight Scheme . . . . . . . . . . . . . . . . . . 79

 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

 2. The Current Truth in Negotiations Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

 a. What Is Cost or Pricing Data? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

 b. Information Other Than Cost or Pricing Data . . . . . . . . . . . . . . . . . . . . 81

 3. GSA Schedule Pricing Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

G. Unequal Treatment of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
29

II. Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

 1. Commercial “Best Practices” Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

 2. Defining Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

 3. Competition in the Commercial Marketplace . . . . . . . . . . . . . . . . . . . . . . . 88

 4. Contract Terms and Conditions Used in Commercial Contracts . . . . . . . . 89

 5. Pricing of Commercial Contracts by Commercial Buyers . . . . . . . . . . . . . . . 90

 6. “Commercial Practices” Adopted by the Government . . . . . . . . . . . . . . . . . . 90

 7. Time-and-Materials Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

 8. Statutory and Regulatory Definitions of Commercial Services . . . . . . . . . 95

 9. Time Required for Commercial Services Contracts . . . . . . . . . . . . . . . . . . . 97

 10. Impact of the Annual Budget and Appropriations Processes . . . . . . . . . . 97

 11. Unequal Treatment of the Contracting Parties . . . . . . . . . . . . . . . . . . . . . . 98

III. Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

 1. Definition of Commercial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

 2. Improving the Requirements Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

 3. Improving Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

 4. New Competitive Services Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

 5. Improving Transparency and Openness . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

 6. Time-and-Materials Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

 7. Protest of Task and Delivery Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

 8. Pricing When No or Limited Competition Exists . . . . . . . . . . . . . . . . . . . . 108

 9. Improving Government Market Research . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

 10. Unequal Treatment of the Contracting Parties . . . . . . . . . . . . . . . . . . . . . . 110

Appendix A–Statutory Evolution of “Commercial Item” . . . . . . . . . . . . . . . . . . . . . . . 113

Appendix B–Memorandum from the Commercial Items Drafting Team 

to the FAR Council and the Project Manager, 

FASA Implementation Project, (Nov. 16, 1994) . . . . . . . . . . . . . . . . . . . . . 119

Appendix C–Proposed Statutory Changes to Implement Recommendation 5, 

New Competitive Services Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

Appendix D–Proposed Changes to FAR Parts 12 and 15 to Implement 

Recommendation 8, Pricing When No or Limited 

Competition Exists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Supplemental Views of Marshall J. Doke, Jr. regarding Improving Competition . . . . 141

Supplemental Views of Marcia G. Madsen, James A. Hughes, 

and Marshall J. Doke, Jr. regarding Commercial Practices 

and Payment of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

Chapter 1A Commercial Practices Observation: Impact of Funding Delays . . . . . . . 157

31

Chapter 1–Commercial Practices Findings and Recommendations

Findings Recommendations

8. Statutory and Regulatory Definitions of 

Commercial Services 

Finding: The current regulatory treatment of 

commercial items and services allows goods 

and services not sold in substantial quantities 

in the commercial marketplace to be classified 

nonetheless as “commercial” and acquired using 

the streamlined procedures of FAR Part 12. 

1. Definition of Commercial Services 

Recommendation: The definition of standalone commercial services in FAR 2.101 

should be amended to delete the phrase “of 

a type” in the first sentence of the definition. 

Only those services that are actually sold in 

substantial quantities in the commercial marketplace should be deemed “commercial.” The 

government should acquire all other services 

under traditional contracting methods, e.g., 

FAR Part 15.

1. Commercial “Best Practices” Generally

Finding: “Best practices” by commercial 

buyers of services include a clear definition 

of requirements, reliance on competition for 

pricing and innovative solutions, and use of 

fixed-price contracts. 

2. Defining Requirements 

Finding: Commercial organizations invest the 

time and resources necessary to understand 

and define their requirements. They use multidisciplinary teams to plan their procurements, 

conduct competitions for award, and monitor 

contract performance. They rely on well-defined 

requirements and competitive awards to reduce 

prices and to obtain innovative, high quality 

goods and services. Procurements with clear 

requirements are far more likely to meet customer needs and be successful in execution. 

2. Improving the Requirements Process

Recommendation: Current policies mandating 

acquisition planning should be better enforced. 

Agencies must place greater emphasis on 

defining requirements, structuring solicitations 

to facilitate competition and fixed-price offers, 

and monitoring contract performance. Agencies should support requirements development 

by establishing centers of expertise in requirements analysis and development. Agencies 

should then ensure that no acquisition of 

complex services (e.g., information technology or management) occurs without express 

advance approval of requirements by the 

program manager or user and the contracting 

officer, regardless of which type of acquisition 

vehicle is used.
32

Findings Recommendations

3. Competition in the Commercial Marketplace

Finding: Commercial buyers rely extensively 

on competition when acquiring goods and 

services. Commercial buyers further facilitate 

competition by defining their requirements in a 

manner that allows services to be acquired on 

a fixed-price basis in most instances. 

5. Pricing of Commercial Contracts by 

Commercial Buyers

Finding: Commercial buyers rely on competition for the pricing of commercial goods and 

services. They achieve competition by carefully defining their requirements in a manner 

that facilitates competitive offers and fixedprice bids. In the absence of competition, 

commercial buyers rely on market research, 

benchmarking, and, in some cases, costrelated data provided by the seller, to determine a price range. 

6. “Commercial Practices” Adopted by 

the Government

(a) Finding: The government has implemented 

a number of different approaches to acquiring commercial items and services. Each 

approach has distinct strengths and weaknesses. The extent to which each of these 

approaches achieves competition, openness, 

and transparency varies. Competition for 

government contracts differs in significant 

respects from commercial practice, even 

where the government has attempted to adopt 

commercial approaches. 

(b) Finding: The Panel received evidence from 

witnesses and through reports by inspectors 

general and the GAO concerning improper 

use of task and delivery order contracts, multiple award IDIQ contracts, and other government-wide contracts, including Federal Supply 

Schedule contracts, including improper use 

of these vehicles by some assisting entities. 

Nonetheless, the Panel strongly believes that 

when properly used these contract vehicles 

serve an important function and that the 

government derives considerable benefits 

from using them. Accordingly, the Panel has 

made specific recommendations in an effort to 

balance corrections to the identified problems 

while preserving important benefits of such 

contract vehicles. 

3. Improving Competition 

(a) Recommendation: The requirements of 

Section 803 of the FY 2002 Defense Authorization Act regarding orders for services 

over $100,000 placed against multiple award 

contracts, including Federal Supply Service 

schedules, should apply uniformly governmentwide to all orders valued over the Simplified 

Acquisition Threshold. Further, the requirements of Section 803 should apply to all 

orders, not just orders for services.

(b) Recommendation: Competitive procedures 

should be strengthened in policy, procedures, 

training, and application. For services orders 

over $5 million requiring a statement of work 

under any multiple award contract, in addition 

to “fair opportunity,” the following competition 

requirements as a minimum should be used: (1) 

a clear statement of the agency’s requirements; 

(2) a reasonable response period; (3) disclosure of the significant factors and subfactors 

that the agency expects to consider in evaluating proposals, including cost or price, and their 

relative importance; (4) where award is made 

on a best value basis, a written statement documenting the basis for award and the trade-off of 

quality versus cost or price. The requirements 

of FAR 15.3 shall not apply. There is no requirement to synopsize the requirement or solicit or 

accept proposals from vendors other than those 

holding contracts.

(c) Recommendation: Regulatory guidance 

should be provided in FAR to assist in establishing the weights to be given to different types of 

evaluation factors, including a minimum weight 

to be given to cost/price, in the acquisition of 

various types of products or services.
33

Findings Recommendations

10. Impact of the Annual Budget and 

Appropriations Processes 

Finding: A fundamental difference between 

commercial and government acquisition is 

the fiscal environment in which decisions on 

acquisition processes are made. Commercial 

acquisition planning decisions can take place 

in a fiscal environment relatively unconstrained 

with respect to the availability of funds over 

time. In contrast, government acquisition 

decisions are driven to a significant extent by 

the budget and appropriations process which 

often limits availability of funds to a single fiscal year period. 
34

Findings Recommendations

6(c) Finding: The evidence received by the 

Panel regarding Federal Supply Schedule and 

multiple award contracts included the following:

(1) Solicitations for task and delivery order 

contracts often include an extremely broad 

scope of work that fails to produce meaningful 

competition. 

(2) Orders placed under task and delivery 

order contracts frequently indicate insufficient 

attention to requirements development.

(3) The ordering process under task and delivery order contracts, in some instances, occurs 

without rigorous acquisition planning, adequate 

source selection, and meaningful competition.

(4) Agencies frequently make significant 

purchases of complex services using task and 

delivery orders.

(5) Use of task and delivery order contracts 

by agencies for the acquisition of complex services on a best value basis has been increasing. Guidance on how to conduct best value 

procurements using these contract vehicles is 

not adequate. 

(6) Agency management control of orders 

placed using multi-agency contracts have 

varied in adequacy and effectiveness. 

(7) The unit price structure commonly used on 

Federal Supply Schedule contracts and many 

multiple award contracts is not a particularly 

useful indicator of the true price when acquiring complex professional services.

(8) Competition based on well-defined 

requirements is the most effective method 

of establishing fair and reasonable prices for 

services using the Federal Supply Schedule.

4. New Competitive Services Schedule 

Recommendation: GSA be authorized 

to establish a new information technology 

schedule for professional services under 

which prices for each order are established by 

competition and not based on posted rates.
35

Findings Recommendations

6(b) Finding: The Panel received evidence 

from witnesses and through reports by 

inspectors general and the GAO concerning improper use of task and delivery order 

contracts, multiple award IDIQ contracts, and 

other government-wide contracts, including 

Federal Supply Schedule contracts, including improper use of these vehicles by some 

assisting entities. Nonetheless, the Panel 

strongly believes that when properly used 

these contract vehicles serve an important 

function and that the government derives considerable benefits from using them. Accordingly, the Panel has made specific recommendations in an effort to balance corrections 

to the identified problems while preserving 

important benefits of such contract vehicles. 

6(c) (3) Finding: The ordering process under 

task and delivery order contracts, in some 

instances, occurs without rigorous acquisition planning, adequate source selection, and 

meaningful competition.

6(c)(4) Finding: Agencies frequently make 

significant purchases of complex services 

using task and delivery orders.

6(c)(5) Finding: Use of task and delivery 

order contracts by agencies for the acquisition of complex services on a best value basis 

has been increasing. Guidance on how to 

conduct best value procurements using these 

contract vehicles is not adequate. 

6(c)(6) Finding: Agency management control 

of orders placed using multi-agency contracts 

has varied in adequacy and effectiveness.

5. Improving Transparency and Openness 

(a) Recommendation: Adopt the following 

synopsis requirement. 

Amend the FAR to establish a requirement 

to publish, for information purposes only, at 

FedBizOpps notice of all sole source orders 

(task or delivery) in excess of the simplified 

acquisition threshold placed against multiple 

award contracts.

Amend the FAR to establish a requirement to 

publish, for information purposes only, at FedBizOpps notice of all sole source orders (task 

or delivery) in excess of the simplified acquisition threshold placed against multiple award 

Blanket Purchase Agreements. 

Such notices shall be made within ten business 

days after award.

(b) Recommendation: For any order under a 

multiple award contract over $5 million where a 

statement of work and evaluation criteria were 

used in making the selection, the agency whose 

requirement is being filled should provide the 

opportunity for a post-award debriefing consistent with the requirements of FAR 15.506. 
36

Findings Recommendations

7. Time-and-Materials Contracts

Finding: Commercial buyers have a strong 

preference for the use of fixed-price contracts 

and avoid using time-and-materials contracts 

whenever practicable. Although difficult to 

quantify precisely due to limited data, the 

government makes extensive use of time-andmaterials contracts. 

6. Time-and-Materials Contracts

Recommendations: The Panel makes the 

following recommendations with respect to 

time-and-materials contracts. 

(a) Current policies limiting the use of timeand-materials contracts and providing for the 

competitive awards of such contracts should 

be enforced. 

(b) Whenever practicable, procedures should 

be established to convert work currently being 

done on a time-and-materials basis to a performance-based effort. 

(c) The government should not award a timeand-materials contract unless the overall scope 

of the effort, including the objectives, has been 

sufficiently described to allow efficient use 

of the time-and-materials resources and to 

provide for effective government oversight of 

the effort. 

6(b) Finding: The Panel received evidence 

from witnesses and through reports by 

inspectors general and the GAO concerning improper use of task and delivery order 

contracts, multiple award IDIQ contracts, and 

other government-wide contracts, including 

Federal Supply Schedule contracts, including improper use of these vehicles by some 

assisting entities. Nonetheless, the Panel 

strongly believes that when properly used 

these contract vehicles serve an important 

function and that the government derives considerable benefits from using them. Accordingly, the Panel has made specific recommendations in an effort to balance corrections 

to the identified problems while preserving 

important benefits of such contract vehicles. 

6(c) (3) Finding: The ordering process 

under task and delivery order contracts, in 

some instances, occurs without rigorous 

acquisition planning, adequate source selection, and meaningful competition.

6(c)(4) Finding: Agencies frequently make 

significant purchases of complex services 

using task and delivery orders.

7. Protest of Task and Delivery Orders

Recommendation: Permit protests of task and 

delivery orders over $5 million under multiple 

award contracts. The current statutory limitation on protests of task and delivery orders 

under multiple award contracts should be 

limited to acquisitions in which the total value 

of the anticipated award is less than or equal 

to $5 million.
37

Findings Recommendations

5. Pricing of Commercial Contracts by 

Commercial Buyers

Finding: Commercial buyers rely on competition for the pricing of commercial goods and 

services. They achieve competition by carefully defining their requirements in a manner 

that facilitates competitive offers and fixedprice bids. In the absence of competition, 

commercial buyers rely on market research, 

benchmarking, and, in some cases, costrelated data provided by the seller to determine a price range. 

8. Pricing When No or Limited 

Competition Exists

Recommendation: For commercial items, 

provide for a more commercial-like approach to 

determine price reasonableness when no or limited competition exists. Revise the current FAR 

provisions that permit the government to require 

“other than cost or pricing data” to conform 

to commercial practices by emphasizing that 

price reasonableness should be determined by 

competition, market research, and analysis of 

prices for similar commercial sales. Move the 

provisions for determining price reasonableness 

for commercial items to FAR Part 12 and de-link 

it from FAR Part 15. 

Establish in FAR Part 12 a clear preference 

for market-based price analysis but, where 

the contracting officer cannot make a determination on that basis (e.g., when no offers 

are solicited, or the items or services are not 

sold in substantial quantities in the commercial 

marketplace), allow the contracting officer to 

request additional limited information in the 

following order: (i) prices paid for the same 

or similar commercial items by government 

and commercial customers during a relevant 

period; or, if necessary, (ii) available information regarding price or limited cost related 

information to support the price offered such 

as wages, subcontracts, or material costs. The 

contracting officer shall not require detailed 

cost breakdowns or profit, and shall rely on 

price analysis. The contracting officer may not 

require certification of this information, nor may 

it be the subject of a post-award audit.

9. Time Required for Commercial 

Services Contracts 

Finding: Commercial buyers can award a 

contract for complex services acquisitions in 

about six months, depending on the size of the 

acquisition and how much work is necessary 

for requirements definition. For larger contracts, if the process begins with requirements 

definition, the total cycle time to award may be 

six to twelve months. If some market research 

and requirements definition has been done in 

advance, commercial buyers stated they could 

get under contract in three to six months, even 

for larger contracts.

9. Improving Government Market Research 

Recommendation: GSA should establish a 

market research capability to monitor services 

acquisitions by government and commercial 

buyers, collect publicly available information, and maintain a database of information 

regarding transactions. This information 

should be available across the government to 

assist with acquisitions. 
38

Findings Recommendations

11. Unequal Treatment of the 

Contracting Parties 

Findings: The failure to provide equal treatment for both parties to a government contract 

is inconsistent with commercial practices. 

Equal treatment should be afforded to the 

government and contractors in contractual 

provisions unless the Constitution of the 

United States or special considerations of the 

public interest require otherwise.

10. Unequal Treatment of the 

Contracting Parties 

(a) Recommendation: Legislation should be 

enacted providing that contractors and the 

government shall enjoy the same legal presumptions, regarding good faith and regularity, 

in discharging their duties and in exercising 

their rights in connection with the performance 

of any government procurement contract, and 

either party’s attempt to rebut any such presumption that applies to the other party’s conduct shall be subject to a uniform evidentiary 

standard that applies equally to both parties.

(b) Recommendation: In enacting new statutory and regulatory provisions, the same rules 

for contract interpretation, performance, and 

liabilities should be applied equally to contractors and the government unless otherwise 

required by the United States Constitution or 

the public interest.

4. Contract Terms and Conditions Used in 

Commercial Contracts 

Finding: Large commercial buyers generally 

require sellers to use the buyers’ contracts 

which include the buyers’ standard terms and 

conditions. This allows all offerors to compete 

on a common basis. The use of standard 

terms and conditions streamlines the acquisition process, making it easier to compare 

competing offers, eliminating the need to 

negotiate individual contract terms with each 

offeror, and facilitating contract management. 
39

I. Background: Government Efforts to Use 

Commercial Practices

A. Introduction

Acquisition and process reform has been the subject of numerous studies and implementation efforts over the past four and a half decades.

1

 A decade ago, following up on the 

Packard Commission Report, internal Department of Defense (“DoD”) initiatives and the 

work of the Section 800 Panel, and the National Performance Review (“NPR”) Report, the 

Federal Acquisition Streamlining Act of 1994 (“FASA”)2 and the Federal Acquisition Reform 

Act (“FARA”)3 were enacted. The studies, FASA and FARA, were an effort to make the federal 

procurement process more commercial-like and to simplify the federal procurement process with the expectation that a simpler and more commercial-like process would increase 

government access to private sector technology and the growing private sector development 

of technology-related services. The reforms of the mid-1990s adopted some commercial 

practices in government procurement and encouraged the purchase of commercial products and services rather than acquisitions tailored to unique government specifications in 

the belief that this approach would give the government access to commercial solutions, 

reduce the cost of major systems, improve the overall quality of contractor performance, 

and shorten the time it takes to purchase goods and services that support agency missions.

Those reforms have expanded the definition of commercial items to encompass not only 

goods, but virtually all types of services.

4

The most significant acquisition reform involving commercial items and services was 

FASA, which became law on October 13, 1994, following the 800 Panel Report and the 

NPR. This law was intended, among other purposes, to make it easier for the government 

to acquire goods and services from the commercial marketplace. FASA made a wide range 

of changes in acquisition policy and procurement law by exempting purchases of commercial products from several statutes, while expanding the definition of a “commercial 

product.” FARA made additional statutory changes, such as exempting commercial items 

from certain cost disclosure and cost accounting standards that discouraged commercial 

companies from doing business with the government. Building on more than 20 years 

of work by the Commission on Government Procurement,5 the Packard Commission,6

the Section 800 Panel,7 and the NPR,8 FASA and FARA set the stage for simplifying the 

1 See Def. Acquisition Performance Assessment Report, App. E (Jan. 2006). (Citing 128 acquisitionrelated studies that preceded it.).

2 Pub. L. No. 103-355, 108 Stat. 3243 (1994); codified at 41 U.S.C. § 403.

3 Pub. L. No. 104-106, 110 Stat. 186 (1996).

4 Ashton B. Carter & John P. White, Keeping the Edge, Managing Defense for the Future 170-71 (MIT Press 2001).

5 Report of the Comm’n on Gov’t Procurement (Dec. 1972). For specific discussion of commercial 

products, see id. Vol. 3, Pt. D, Acquisition of Commercial Products.

6 The President’s Blue Ribbon Comm’n on Def. Mgmt, A Quest for Excellence: Final Report to the 

President and Appendix (June 1986) (hereinafter referred to as the “Packard Commission Report”).

7 The Advisory Panel on Streamlining and Codifying Acquisition Laws (known as the Section 800 

Panel) was created in response to Section 800 of the National Defense Authorization Act for Fiscal Year 

1991, Pub. L. No. 101-510.

8 Report of the Nat’l Performance Review, Reinventing Procurement PROC 13, Ch. 3 (Sept. 7, 1993).
40

process for entering into contracts and attempting to align government contracting more 

closely with commercial practices.

9

In the late 1980s and early 1990s, senior government officials, including the Secretary 

of Defense and the Vice President, were concerned that the government was paying too 

much and not obtaining the latest technology because of regulatory impediments.

10 Key 

concerns cited were military-unique requirements and complex regulatory requirements 

associated with cost-based contracting such as the Truth in Negotiations Act (“TINA”), 

government-specific Cost Accounting Standards (“CAS”), and associated reporting, auditing, and oversight mechanisms.

11 Other concerns cited in the NPR were burdensome 

rules for smaller purchases.

12 As discussed below, for acquisitions of commercial items 

the presumption in FASA and FARA is that a fair and reasonable price should be determined by reference to the market, rather than by examination of a seller’s costs. FASA 

and FARA focused on obtaining the benefits of the commercial marketplace through 

competition, historical pricing, benchmark pricing, etc. However, in circumstances where 

market forces are not active, this presumption is questionable.

13

In 1986, the Blue Ribbon Commission on Defense Management, chaired by former 

Deputy Secretary of Defense David Packard, highlighted the need for DoD to expand its 

use of commercial products and processes and to eliminate barriers that discouraged application of innovative technology to DoD contracts.

14 The Packard Commission’s recommendations clearly focused on the power of the commercial marketplace to produce more 

cheaply than the defense acquisition system.

15 The report also contained a separate section 

on competition wherein the Commission noted that foremost among commercial practices 

is competition, “which should be used aggressively in the buying of systems, products and 

professional services.”16

In January 1993, the Section 800 Panel, which specifically focused on laws affecting 

defense procurement, published its 1800-page report that made recommendations in the 

areas of procurement reform, electronic commerce, and military specifications, among 

others. The 800 Panel proposed a new approach to the acquisition of commercial items, 

both as end items and as components in defense-unique products. The 800 Panel specifically proposed: stronger policy language favoring the use of commercial and nondevelopmental items; a new statutory definition of commercial items; an expanded exemption for 

“adequate price competition” in the Truth in Negotiations Act; and relief from inappropriate requirements for cost or pricing data when a competitively awarded contract for commercial items or services is modified; new exemptions to technical data requirements in 

commercial item acquisitions; and relief from “Buy American” restrictions. The 800 Panel 

9 Carter, supra note 4, at 170-71.

10 See National Performance Review Report: Foster Reliance on the Commercial Marketplace (Sept. 14, 1993).

11 This concern is reflected in the Packard Commission Report, the Section 800 Panel, created by 

Congress, and the National Performance Review Report.

12 Report of the Nat’l Performance Review, PROC09: Lower Costs and Reduce Bureaucracy in Small 

Purchases Through the Use of Purchase Cards (1993).

13 See U.S. GAO, DoD Contracting: Efforts Needed to Address Air Force Commercial Acquisition Risk, GAO06-995, 2-3 (Sept. 2006).

14 See Packard Comm’n Report.

15 Packard Comm’n Report at 60.

16 Packard Comm’n Report at 62.
41

also proposed creation of a new subpart in Title 10 for commercial item acquisitions, providing for exemptions from statutes that create barriers to the use of commercial items and 

including provisions on pricing, documentation, and audit rights tailored for commercial 

item acquisition.

17

The Defense Science Board issued a report entitled “Defense Acquisition Reform” in 

July 1993. The report urged adoption of the recommendations of the Section 800 Panel.

The Board also recommended: moving away from cost-based acquisition; using functional 

specifications to encourage commercial solutions; and adopting commercial practices for 

treatment of intellectual property.

18

Later, on February 24, 1994, Defense Secretary William Perry set forth his vision for 

simplification of the way the Pentagon buys military systems in a report titled “Acquisition Reform: A Mandate for Change.” 19 Dr. Perry was particularly concerned that the use 

of detailed military specifications limited competition, stifled innovation, increased costs, 

and delayed the fielding of new systems.

20 To correct that, Dr. Perry issued a memorandum 

entitled “Specifications and Standards—A New Way of Doing Business” on June 29, 1994.

Also known as the “Perry Memo,” it reversed DoD policy by directing the military services 

“to use performance and commercial specifications and standards in lieu of military specifications and standards, unless no practical alternative exists to meet the user’s needs.”21 It 

also directed military acquisition programs to reduce their oversight, employing process 

controls in place of extensive testing and inspection.

22

The Panel’s Commercial Practices Working Group was privileged to meet with Dr. Perry 

and to discuss his experience on the Packard Commission, his memorandum, and his 

efforts to implement commercial practices. He explained that as a member of the Packard 

Commission he became concerned about the inability of the defense acquisition system 

to obtain current technology for semi-conductors. He said that when he became Secretary 

of Defense and issued his memorandum, his focus was on semi-conductors. He noted that 

when he was Secretary of Defense, DoD was behind in its use of semi-conductors. Dr. Perry 

was focused on how to buy semi-conductors and related technology without paying exorbitant prices for them. He had observed that industry had already created semi-conductors 

that were adequately rugged. Therefore, he was particularly concerned about the impact of 

military specifications on the cost of technology—he saw potential savings of one to two 

billion dollars per year, just in semi-conductors.

23

Around the same time, the manner in which the DoD acquired information technology (“IT”) changed. The Information Technology Management Reform Act of 1996 (Division E of the Clinger-Cohen Act) sought to leverage commercial IT advances by calling for 

“modular contracting” in which acquisitions are “divided into several smaller acquisition 

17 See Streamling Defense Acquisition Laws: Report of the Acquisition Law Advisory Panel to the United States 

Congress 8-18 (1993).

18 See Report of the Defense Science Board Task Force on Defense Acquisition Reform (July 1993).

19 Carter, supra note 4, at 171-72.

20 William Perry, DoD, AAP Commercial Practices Working Group meeting (May 22, 2006).

21 Memorandum from Secretary of Defense William Perry to Secretaries of the Military Departments, et 

al., Specifications & Standards – A New Way of Doing Business (June 29, 1994).

22 Id.

23 Perry meeting, AAP Commercial Practice Working Group (May 22, 2006).
42

increments that [1] are easier to manage individually... , [2] enhance the likelihood of achieving workable solutions... , [3] [are] not dependent on any subsequent increment... , and [4] 

take advantage of any evolution in technology or needs.”24

While FASA and FARA changed the federal acquisition landscape to improve access 

to commercial markets and to allow the government to function more like a commercial 

buyer in some respects by reducing regulatory barriers, as discussed further below, the government is nonetheless not a commercial buyer. The ways in which the government differs 

from a commercial buyer are many, but to take some obvious examples: 

•	As discussed above, the government’s source of funding is taxpayer – public funds. That 

source of funding is subject to constitutional and legal restrictions that impose burdens 

on government managers to which the private sector is not subject. Annual appropriations, which frequently are not enacted into law after the fiscal year has already started, 

and fiscal procedures that distribute funds within an agency, often delay the availability 

of funds and shorten the time period that government managers have to conduct competitive procurements and obligate funds. Private sector buyers are not limited to annual 

appropriations for planning and implementing their acquisitions.

•	 The government is not accountable from a profit and loss standpoint for its performance.

Success in government is measured by different standards e.g., successful mission accomplishment, which features national security, defense, and homeland security missions.

Market-based pressures that strongly influence commercial company performance are 

not present. Private companies can change and adapt their practices to reflect market 

trends as they evolve. The government changes its practices by statute and regulation.

•	Government is committed to a host of social and economic programs that are largely 

implemented through discretionary expenditures divided between grants and the procurement system, such as preference programs for small and disadvantaged businesses of 

various types; environmentally friendly products; handicap accessible products, services 

and buildings; and many others. This means the government may purchase services or 

goods from a more costly provider in furtherance of broader social policy goals. And 

compliance with some of these requirements is subject to an audit and compliance 

regime by a variety of federal agencies.

•	 The government has its own regulatory intellectual property (“IP”) regime that is significantly different from the private sector. The private sector focuses on development and 

protection of IP and has significant legal remedies for protecting the value of its IP. The 

government, on the other hand, focuses on its rights to use IP without restriction for government purposes, which may involve giving a company’s IP to a competitor, if necessary, 

for a government mission. The differing approaches often conflict when the government 

acquires commercial items.

•	 The government is subject to trade policy restrictions that limit the sources for its materials 

and products.

•	The disputes mechanism for government contractors is limited to monetary remedies 

under the Contract Disputes Act. In the private sector, parties are free to bring claims 

in court, including seeking equitable remedies, or to negotiate contract provisions for 

alternative resolution.

24 Pub. L. No. 104-106, § 5202, 110 Stat. 186, 690 (1996).
43

•	 Even in the “commercial” area, the government has the right to audit, investigate, and 

bring civil or criminal fraud claims against a contractor.

It is in the context of the changes directed at making the government’s acquisition 

process more commercial that the Panel has done its analysis. The Panel began its efforts 

by reviewing relevant laws, regulations, and procurement policies relating to use of commercial practices by the government. It further identified and reviewed reports and studies 

from the Government Accountability Office (”GAO”), the Inspectors General of DoD and 

the General Services Administration. The Panel examined other studies and analyses such 

as the Defense Acquisition Performance Assessment and the study of Price-Based Acquisition performed by the Rand Corporation for the Air Force. The Panel also reviewed other 

literature and background studies on the topic of commercial practices in services acquisition. The Panel attempted to seek the views of all stakeholders i.e., the government users 

and buyers, the holders of government contracting vehicles, and the contractor community.

Significantly, the Panel attempted to ascertain current commercial practices, particularly for services acquisition by large commercial buyers of services and the professionals 

that support the procurement process for those companies. The Panel gained a heightened 

awareness that there exists in the private sector a large, vigorous, and rapidly-growing market for the acquisition of professional services, particularly IT, and IT-heavy business management and financial services. When large, private-sector companies acquire services, they 

may engage in an “outsourcing” transaction. For example, a company may seek a vendor to 

manage its IT resources, its human resources department, or support financial institutions 

transaction processes. In some outsourcing transactions, a company may acquire vendor 

services to support its own performance of such functions.

American corporations are hiring services vendors, both domestic and foreign, at a 

rapid pace to drive down costs and improve their profitability. These companies are supported, both internally and externally, in their procurement processes by highly trained 

and experienced executives and consultants. Indeed, there are services acquisition specialists who work only in the private sector. Moreover, major private-sector buyers are acquiring services from many of the same companies who sell services to the government. The 

Commercial Practices Working Group and the Panel set out to learn as much as possible 

about the acquisition processes used by large private sector buyers. The Working Group 

met over 40 times in 17 months. The full Panel also heard directly from a number of private sector buyers about their acquisition practices. At the same time, the Panel recognized 

that the government has created its own set of practices that it identifies as “commercial,” 

characterized by FAR Part 12, use of interagency and indefinite delivery indefinite quantity 

(“IDIQ”) contracts, the GSA Multiple Award Schedule (“MAS”), and relief from submission 

of certified cost or pricing data.

The questions upon which the Panel has focused include: (1) how the government can 

take advantage of commercial practices; (2) what is working and what is not in the current 

government “commercial” framework, and how that compares to what the commercial 

market is doing now; (3) how the government’s commercial-like practices can be refined 

and improved by reference to current commercial best practices; and (4) how to strike 

the right balance to obtain access to commercial markets while achieving mission performance, honoring various social policy goals, and obtaining a reasonable level of oversight 
44

to protect the government from fraud and abuse (recognizing that the government will 

never be a truly commercial buyer). These are significant questions to have tackled, and 

the expectation is that this debate will continue for some time. However, it is very useful, 

a decade out from FASA and FARA, to benchmark current commercial best practices based 

on the huge volume of private sector services transactions and to compare the current government “commercial” approach.

B. “Commercial Items” and Commercial Practices: 

Definition and Procurement Policies

The term “commercial items” has evolved as various acquisition reforms have 

attempted to simplify government procurement and to harness the efficiency of the commercial marketplace. As the Section 800 Panel observed, “a primary purpose of defining a 

commercial item [is] to be able to exempt items so defined from the reach of [statutes and 

regulations that] have created barriers to the acquisition of commercial items.”25 Accordingly, this categorical approach to procurement consists of four components: (1) the gateway definition of “commercial items;” (2) the application of the definition to a particular 

item or service; (3) the determination of the appropriate pricing mechanism; and (4) the 

preferences and exemptions afforded to such items as qualified supplies or services.

1. Statutory Definition: “Commercial Items”

The current statutory definition for “commercial items” is set out in the Office of 

Federal Procurement Policy Act.

26 It includes tangible items of the type traditionally used 

by the public, but it also includes items that have evolved from tangible commercial 

items and items that have been modified through processes traditionally available to the 

general public or in such a way that does not significantly alter the nongovernmental 

function of the item. Notwithstanding the use of the term “items,” the definition also 

embraces two forms of services: (1) services in support of tangible, commercial items, 

and (2) standalone services, provided that such services are offered and sold competitively in substantial quantities based on established catalog or market prices. In full, the 

current statutory definition provides:

The term “commercial item” means any of the following:

(A) Any item, other than real property, that is of a type customarily used by 

the general public or by nongovernmental entities for purposes other than 

governmental purposes, and that— 

(i) has been sold, leased, or licensed to the general public; or 

(ii) has been offered for sale, lease, or license to the general public.

(B) Any item that evolved from an item described in subparagraph (A) 

through advances in technology or performance and that is not yet 

available in the commercial marketplace, but will be available in the 

25 Streamlining Defense Acquisition Laws: Report of the Acquisition Law Advisory Panel to the United States 

Congress at 8-18 (Jan. 1993) (hereinafter “Acquisition Law Advisory Panel Report”).

26 41 U.S.C. § 403(12).
45

commercial marketplace in time to satisfy the delivery requirements 

under a Federal Government solicitation.

(C) Any item that, but for—

(i) modifications of a type customarily available in the commercial 

marketplace, or

(ii) minor modifications made to meet Federal Government requirements, 

would satisfy the criteria in subparagraph (A) or (B).

(D) Any combination of items meeting the requirements of subparagraph 

(A), (B), (C), or (E) that are of a type customarily combined and sold in 

combination to the general public.

(E) Installation services, maintenance services, repair services, training services, 

and other services if—

(i) the services are procured for support of an item referred to in subparagraph (A), (B), (C), or (D), regardless of whether such services 

are provided by the same source or at the same time as the item; and

(ii) the source of the services provides similar services contemporaneously 

to the general public under terms and conditions similar to those 

offered to the Federal Government.

(F) Services offered and sold competitively, in substantial quantities, in 

the commercial marketplace based on established catalog or market prices 

for specific tasks performed or specific outcomes to be achieved and under 

standard commercial terms and conditions.

(G) Any item, combination of items, or service referred to in subparagraphs (A) through (F) notwithstanding the fact that the item, combination of items, or service is transferred between or among separate divisions, 

subsidiaries, or affiliates of a contractor.

(H) A nondevelopmental item, if the procuring agency determines, in 

accordance with conditions set forth in the Federal Acquisition Regulation, 

that the item was developed exclusively at private expense and has been 

sold in substantial quantities, on a competitive basis, to multiple State and 

local governments.

27

2. Statutory Preferences and Exemptions for “Commercial Items”28

In enacting FASA29 in 1994 and FARA in 1996,30 Congress established a preference for the acquisition of “commercial items”31 and provided exemptions from many 

27 41 U.S.C. § 403 (12).

28 See Appendix A of this chapter for a redline tracing the evolution in the definition of 

“Commercial Items.”

29 Pub. L. No. 103-355, 108 Stat. 3243 (1994).

30 Pub. L. No. 104-106, div. D, tit. XLII, 110 Stat. 649.

31 10 U.S.C. § 2377 (codifying preferences).
46

of the cost-based procurement requirements, including TINA’s cost or pricing data 

requirements32 and certain cost accounting standards.

33 In addition, Congress provided 

exemptions from many government-unique laws that were perceived as barriers to the 

procurement of “commercial items.”34

C. Legislative and Regulatory Origins

To fully understand the contemporary usage of the term “commercial items,” it is necessary to consider its origins—as a component of the larger development of modern acquisition policy and as a reaction to perceived problems associated with those policies. Federal 

acquisition policy incorporates three core principals: (1) conducting procurements competitively whenever practicable so that the government receives quality goods and services 

at a fair price and interested parties have a reasonable opportunity to compete; (2) maintaining the transparency of the acquisition process; and (3) ensuring that the government’s 

acquisition process has, and is seen as having, integrity.

1. The Origins of Current Government “Commercial” Practices 

The start of the modern acquisition era is appropriately demarcated by the end of the 

Second World War.

35 In the immediate aftermath, Congress enacted the framework for 

modern acquisition procedures: the Armed Services Procurement Act of 194736 and its 

civilian counterpart, the Federal Property and Administrative Services Act of 1949.

37 For 

the most part, current federal acquisition policy developed from this framework—though 

it was shaped, to a great extent, by the unique concerns of the second half of the twentieth century, including the large peacetime military establishments associated with the 

Cold War, the federal government’s expanding role in the domestic sphere, the rapid 

development of civilian and military technologies, and the equally rapid expansion of 

government spending.

38

While the government sought to acquire more services and supplies—in particular, the 

newly emerging aerospace and electronic technologies of the 1950s and 1960s—the procurement system was becoming exponentially more complex.

39 These trends proved prohibitive to achieving all of the government’s principal goals outlined above: the complexity 

discouraged competitive participants and there was concern that the volume of negotiated 

32 10 U.S.C. § 2306a(b)(1)(B).

33 41 U.S.C. § 422(f)(2)(B)(i).

34 See Pub. L. No. 103-355, § 8105, 108 Stat. 3243, 3392. See also Pub. L. No. 104-106, div. D, tit. XLII, 

§ 4203, 110 Stat. 642, 654-55 (rendering inapplicable certain procurement laws regarding commercially 

available off-the-shelf items). The Federal Acquisition Reform Act was renamed the “Clinger-Cohen Act” 

by the Omnibus Consolidated Appropriations Act for Fiscal Year 1997, Pub. L. No. 104-208, tit. VIII, § 

808, 110 Stat. 3009, 3009-393 (1996).

35 It appears that the stresses of war are equally beneficial for the advancement of federal procurement 

policies as they are for medicine. As the 1972 Commission on Government Procurement explained, “The 

most significant developments in procurement procedures and policies have occurred during and soon 

after periods of large-scale military activity.” Comm’n on Gov’t Procurement Report, Vol. 1 at 163 (1972).

36 Pub. L. No. 80-413, 62 Stat. 21 (1948) (codified as amended at 10 U.S.C. § 2301 et seq.).

37 Pub. L. No. 81-152, 63 Stat. 377 (1949) (codified as amended at 40 U.S.C. § 471 et seq.).

38 S. Rep. No. 103-259, at 1-2 (1994), as reprinted in 1994 U.S.C.C.A.N. 2561, 2562.

39 Comm’n on Gov’t Procurement Report, Vol. 1 at 177-78 (1972).
47

acquisitions made it increasingly difficult for the government to safeguard itself against 

inflated cost estimates in negotiated contracts.

40

2. The Commercial Item Exemption from the Original Truth in Negotiations Act

In 1962, Congress enacted Public Law 87–653 to facilitate fair price terms in noncompetitive contracts.

41 The law amended the Armed Services Procurement Act to require 

“oral or written discussions” with all firms “within a competitive range” and promoted 

the use of advertising over single-party negotiated contracts—all in an effort to increase 

competition. The law also contained a provision requiring contractors to submit and certify detailed cost or pricing data to provide the government with sufficient information to 

negotiate a fair price—now popularly referred to as TINA.

42

TINA excepted certain acquisitions from its requirements for certified cost or pricing 

data, including acquisitions that involved “commercial items sold in substantial quantities 

to the general public.” In full, the exception clause stated: 

Provided, That the requirements of this subsection need not be applied to contracts or 

subcontracts where the price negotiated is based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the 

general public, prices set by law or regulation or, in exceptional cases where the head of the 

agency determines that the requirements of this subsection may be waived and states in 

writing his reasons for such determination.

43

TINA was the first statute to use the term “commercial items.” To qualify under the 

“commercial item” exception—and avoid TINA’s data submission requirements—a contractor had to proffer established catalog or market prices “sold in substantial quantities to 

the general public.” The definition did not encompass modification or development, and 

it did not apply to items not yet sold to the general public, even if those items were being 

developed for use by the general public.

3. The Commission on Government Procurement 

During the 1960s and 1970s, the federal acquisition system was perceived as being 

plagued by cost overruns, inefficiencies, and burdensome government specifications. A 

1970 GAO study of 57 major DoD systems found 38 systems with at least a 30 percent 

cost increase from the point of contract award.

44 Although this percentage was historically 

consistent with past cost overruns, the sheer volume of government contracting yielded 

40 Id. at 178. See also S. Rep. No. 87-1884 (1962), as reprinted in 1962 U.S.C.C.A.N. 2476. [Note: prior 

to 1984 enactment of the Competition In Contracting Act, the Armed Services Procurement Act and the 

Federal Property and Administrative Services Act relied on sealed bidding for competition. Negotiated 

procurement was permitted, but as an exception to formal advertising requiring a written justification.

While competition for negotiated procurements was required, if practicable, negotiated contracts were 

frequently noncompetitive.] See S. Rep. No. 98-50 (1983), as reprinted in 1984 U.S.C.C.A.N. 2174-84.

41 S. Rep. No. 87-1884 (1962), as reprinted in 1962 U.S.C.C.A.N. 2476.

42 Public Law 87-653 may have actually discouraged increased participation and competition among 

vendors. The 1993 Report of the Acquisition Law Advisory Panel (“Section 800 Panel”) argued that TINA 

“greatly impedes commercial buying.” Acquisition Law Advisory Panel Report at 8-6.

43 Pub. L. No. 87-653, 76 Stat. 528, 529 (1962) (emphasis in original).

44 U.S. GAO, Status of the Acquisition of Selected Major Weapon Systems, B-163058, Ch. 2 at 12 (1970);

Comm’n on Gov’t Procurement Report, Vol. 1 at 182.
48

staggering dollar amounts that proved unpalatable.

45 Government-unique specifications 

also proved a major impediment to the efficient procurement of otherwise suitable, commercially developed products and services. By way of a popular illustration, the military 

specifications for fruitcake once ran eighteen pages.

46

In 1969, Congress established the Commission on Government Procurement to study 

and recommend to Congress methods “to promote [the] economy, efficiency, and effectiveness” of procurement by the executive branch.

47 The Commission’s authority subsequently 

was extended,48 and in 1972 it issued its report to Congress. Among its many recommendations, the Commission advocated for the creation of the Office of Federal Procurement Policy 

and the consolidation of federal acquisition regulations, leading to the passage of the Office 

of Federal Procurement Policy Act of 1974 and, ultimately, the promulgation of the Federal 

Acquisition Regulation.

49

The idea that the federal government could benefit from the broader use of commercial 

items did not go unnoticed by the Commission in its 1972 Report. In fact, the Commission 

urged Congress to promote the acquisition of commercial products over “Governmentdesigned items to avoid the high cost of developing unique products.”50 This recommendation, however, did not lead to appreciable statutory reforms—at least, not in the 1970s.

4. DoD Directive 5000.37 

In 1978, the DoD issued its Acquisition and Distribution of Commercial Products 

(“ADCOP”) directive, “which sought to facilitate the acquisition of commercial products 

by eliminating government specifications and contract clauses that did not reflect commercial practices.”51 During its implementation of ADCOP, DoD sought “to establish qualified 

commercial products lists,” but “[t]his aspect of ADCOP was blocked by Congress because 

it would have precluded small businesses that sold only to DoD from continuing to sell 

their products as commercial products.”52 At the same time, “various elements within DoD 

began assessing how commercial and foreign subsystems and components might be used 

in weapons systems.”53

5. 1984 Congressional Reforms

In 1984, Congress passed the Competition in Contracting Act (“CICA”),54 which was 

designed “to establish a statutory preference for the use of competitive procedures in 

45 Id.

46 Stephen Barr, ‘Reinvent’ Government Cautiously, Study Urges, Wash. Post, July 28, 1993, at A17, citing 

Brookings Institute Study. Of course, that should be understood in the context that the government buys 

fruitcakes by the truckload (quite different from the “Joy of Cooking” recipe identified in the article).

47 Pub. L. No. 91-129, 83 Stat. 269 (1969).

48 Pub. L. No. 92-47, 85 Stat. 102 (1971).

49 Pub. L. No. 93-400, 88 Stat. 796 (1974).

50 Acquisition Law Advisory Panel Report at 8-3 (citing Comm’n on Gov’t Procurement Report, Pt. D).

51 Id. (citing DoD Directive 5000.37 (Sept. 29, 1978)).

52 Id. at 3 n.6 (citing W.T. Kirby, Expanding the Use of Commercial Products and “Commercial-Style” 

Acquisition Techniques in Defense Procurement: A Proposed Legal Framework, Packard Comm’n Report). The 

small business restrictions from pre-qualification were lifted from the NDAA in 1986; however, qualified 

bidder lists remained impermissible pursuant to the passage of the Competition in Contracting Act in 1984.

53 Id. at 3.

54 Pub. L. No. 98-369, div. B, tit. VII, 98 Stat. 494, 1175 (1984).
49

awarding federal contracts for property or services, to impose restrictions on the awarding 

of noncompetitive contracts, and to permit federal agencies to use the competitive method 

most conducive to the conditions of the contract.”55 In addition to representing the first 

major amendments to the Armed Services Procurement Act of 1947 and the Federal Property and Administrative Services Act of 1949, CICA contained a specific provision requiring federal agencies to “promote the use of commercial products whenever practicable.”56

CICA also provided a statutory basis for multiple award schedule contracting.

57 CICA 

deemed the GSA Schedules to meet the definition of “competitive procedures” provided 

that (1) participation in the program is open to all responsible sources, and (2) orders 

and contracts under the schedules result in the lowest overall cost alternative to meet the 

government’s needs.

58

Following the passage of CICA, Congress enacted the Defense Procurement Reform Act as 

a component of the National Defense Authorization Act for Fiscal Year 1985.

59 The 1985 Act 

was designed to curb abuses, then brought to light, regarding the acquisition of military parts 

and supplies.

60 For example, during the course of congressional investigations, the House 

Committee on Armed Services discovered an Air Force report that attempted to explain “how 

a diode which cost a contractor $0.04 was billed to the government at $110.34.”61 In an effort 

to reduce these excessive payments, Congress directed DoD to use “standard or commercial 

parts . . . whenever such use is technically acceptable and cost effective.”62

6. The President’s Blue Ribbon Commission on Defense Management

In 1986, President Reagan established the Packard Commission to make recommendations to improve defense management.

63

In a now familiar passage, the Packard Commission Report stated:

DoD should make greater use of components, systems, and services available “off-the-shelf.” It should develop new or custom-made items only 

when it has been established that those readily available are clearly inadequate to meet military requirements.

 64

No matter how DoD improves its organization or procedures, the defense 

acquisition system is unlikely to manufacture products as cheaply as the 

commercial marketplace. DoD cannot duplicate the economies of scale possible in products serving a mass market, nor the power of the free market 

system to select and perpetuate the most innovative and efficient producers.

55 S. Rep. No. 98-50, at 1 (1984), as reprinted in 1984 U.S.C.C.A.N. 2174.

56 Pub. L. No. 98-369, div. B, tit. VII, 98 Stat. 494, 1186 (1984).

57 H.R. Conf. Rep. No. 98-861, at 1423 (1984), as reprinted in 1984 U.S.C.C.A.N. at 2110-11.

58 41 U.S.C. § 259.

59 Pub. L. No. 98-525, tit. XII, 98 Stat. 2492, 2588 (1984).

60 See id.

61 H.R. Rep. No. 98-690, at 10 (1984), as reprinted in 1984 U.S.C.C.A.N. 4237, 4241.

62 Pub. L. No. 98-525, tit. XII, § 1202, 98 Stat. 2492, 2588-89 (1984).

63 Packard Comm’n Report.

64 Packard Comm’n Report, at 60 (emphasis removed).
50

Products developed uniquely for military use and to military specifications 

generally cost substantially more than their commercial counterparts.... 65 

A case in point is the integrated circuit or microchip.. . . This year DoD will 

buy almost $2 billion worth of microchips, most of them manufactured to 

military specifications. The unit cost of a military microchip typically is three 

to ten times that of its commercial counterpart. This is a result of the extensive testing and documentation DoD requires and of smaller production 

runs. (DoD buys less than ten percent of the microchips made in the U.S.) 

Moreover, the process of procuring microchips made to military specifications 

involves substantial delay. As a consequence, military microchips typically lag a 

generation (three to five years) behind commercial microchips.

66

The Packard Commission also noted that the same principle—the expanded use of 

commercial items—could apply to a wide variety of products, but also to services, including 

professional services.

67 As set forth in the Introduction, the Packard Commission contained 

a discussion of competition as a “foremost” commercial practice that should be aggressively 

used in the acquisition of “systems, products, and professional services.”68

7. Congressional Directives of the Late 1980s and Early 1990s 

Shortly after the Packard Commission issued its final report in 1986, Congress amended 

Title 10 of the United States Code to add a provision mandating that DoD use “nondevelopmental items” where those items would meet DoD’s needs.

69 The act defined “nondevelopmental items” to include “any item of supply that is available in the commercial 

marketplace.”70 The provision also required DoD to define its requirements in functional or 

performance terms and define requirements such that “nondevelopmental items may be procurement to fulfill such requirements.”71 The provision also included in the definition “any 

item of supply” that “requires only minor modifications in order to meet the requirements 

of the procurement agency” and “any item of supply that is being currently produced,” but is 

either “not yet in use” or “is not yet available in the commercial marketplace.”72 According to 

a committee report that accompanied this legislation, it was Congress’s intent to break DoD’s 

“long standing bias to use detailed military specifications.”73

Based on concerns over DoD’s “lack of progress in eliminating barriers to the procurement of [nondevelopmental items],”74 in 1989 Congress issued another set of 

directives—this time requiring DoD to issue streamlined regulations governing the 

65 Packard Comm’n Report, at 60.

66 Id.

67 Id. at 61.

68 Id. at 62.

69 National Defense Authorization Act for Fiscal Year 1987, Pub. L. No. 99-661, § 907, 100 Stat. 3816, 

3917 (1986).

70 Id.

71 Id.

72 Id.

73 S. Rep. No. 99-331, at 265 (1986), as reprinted in 1986 U.S.C.C.A.N. 6413, 6460.

74 H.R. Conf. Rep. No. 101-331, at 612 (1989), as reprinted in 1989 U.S.C.C.A.N. 977, 1069.
51

acquisition of nondevelopmental and commercial items.

75 These mandates—part of the 

Defense Authorization Act for Fiscal Years 1990 and 1991—also required DoD to lessen 

TINA’s cost or pricing data submission requirements.

76 However, Congress failed to 

amend TINA’s statutorily defined exceptions, making it difficult for DoD to provide relief 

through regulatory changes.

77 Finally, in 1990, Congress again directed DoD to prioritize 

the use of nondevelopmental items.

78

8. DFARS Parts 210 and 211

In response to these congressional directives, DoD promulgated Parts 210 and 211 of 

the Defense Federal Acquisition Regulation Supplement (“DFARS”) in 1991.

79 Part 210 

offered a definition and a preference for “nondevelopmental items,”80 while Part 211 contained an early predecessor to the modern statutory definition of “commercial items.”81 In 

pertinent part, the definition in Part 211 provided:

(a) Commercial items means items regularly used in the course of normal 

business operations for other than Government purposes which:

(1) Have been sold or licensed to the general public;

(2) Have not been sold or licensed, but have been offered for sale 

or license to the general public;

(3) Are not yet available in the commercial marketplace, but will be 

available for commercial delivery in a reasonable period of time;

(4) Are described in paragraph (1), (2), or (3) that would require 

only minor modification in order to meet the requirements of the 

procuring agency.

82

The DFARS definition represented a departure from TINA’s circumscribed conception of a commercial item. In contrast to TINA, which required that commercial items be 

based on established catalog or market prices “sold in substantial quantities to the general public,”83 Part 211 included items that were “offered for sale or license to the general 

public” and items that eventually would “be available for commercial delivery.”84 In addition, Part 211 contained a general provision, which permitted an item to still qualify as a 

“commercial item” even if it required “minor modification in order to meet the requirements of the procuring agency.”85

75 National Defense Authorization Act for Fiscal Years 1990 and 1991, Pub. L. No. 101-189, § 824(b), 

103 Stat. 1352, 1504-05 (1989).

76 Id.

77 10 U.S.C. § 2306a(b)(1)(B).

78 National Defense Authorization Act for Fiscal Year 1991, Pub. L. No. 101-510, § 814, 104 Stat. 1485, 

1595 (1990).

79 56 Fed. Reg. 36,315, 36,315-17 (July 31, 1991) (codified at 48 C.F.R. Ch. 2 pts. 210, 211).

80 Id. at 36,315 (defining “nondevelopmental items”).

81 Compare 56 Fed. Reg. at 36,317 (defining “commercial items”), with 41 U.S.C. § 403(12) (2000) 

(defining “commercial items”), and 48 C.F.R. § 2.101 (2004) (also defining “commercial items”).

82 56 Fed. Reg. at 36,317.

83 Pub. L. No. 87-653, 76 Stat. 528, 529 (1962).

84 56 Fed. Reg. at 36,317 (emphasis added).

85 Id.
52

9. The Section 800 Acquisition Advisory Panel

Sensing the need for significant acquisition reform, in 1990, Congress established the 

Advisory Panel on Streamlining and Codifying Acquisition Laws (“Section 800 Panel”).

86

The Section 800 Panel—popularly named after the section of the Act from which it derived 

authority—was to review existing defense acquisition laws, make recommendations for 

their repeal or revision, and prepare an acquisition code “with a view toward streamlining 

the defense acquisition process.”87

In January of 1993, the Panel issued its final report to Congress. Among its many 

recommendations, the Panel proposed “a comprehensive new approach to address the 

acquisition of commercial items.”88 After explaining that the patchwork of congressional 

directives had failed to promote the broad use of commercial items in DoD systems, the 

Panel identified several reasons for this shortfall, including (1) the failure to enact a uniform definition for commercial items, (2) the burdens imposed by TINA’s cost or pricing 

data requirements, (3) the arduous standards associated with unique socioeconomic laws 

applicable only to government contractors, and (4) the ever-increasing burdens that flowed 

from the myriad of federal statutes and regulations governing procurement.

89

Drawing on Part 211 of the Defense Federal Acquisition Regulation Supplement,90 the 

Panel proposed a uniform statutory definition for “commercial items”—

(5) The term “commercial item” means

(A) property, other than real property, which: (i) is sold or licensed to the 

general public for other than Government purposes; (ii) has not been 

sold or licensed to the general public, but is developed or is being 

developed primarily for use for other than Government purposes; or 

(iii) is comprised of a combination of commercial items, or of services and commercial items, of the type customarily combined and 

sold in combination to the general public;

(B) The term “commercial item” also includes services used to support items 

described in subparagraph (A), such as installation, maintenance, repair, 

and training services, whether such services are procured with the commercial item or under a separate contract; provided such services are or 

will be offered contemporaneously to the general public under similar 

terms and conditions and the Government and commercial services are 

or will be provided by the same workforce, plant, or equipment;

(C) With respect to a specific solicitation, an item meeting the criteria 

set forth in subparagraphs (A) or (B) if unmodified will be deemed 

to be a commercial item when modified for sale to the Government 

if the modifications required to meet Government requirements (i) 

86 Pub. L. No. 101-510, § 800, 104 Stat. 1485, 1587.

87 Id.

88 Acquisition Law Advisory Panel Report at 8-1.

89 Id. at 8-5, 8-6.

90 See id. at 8-1.
53

are modifications of the type customarily provided in the commercial marketplace or (ii) would not significantly alter the inherent 

nongovernmental function or purpose of the item in order to meet 

the requirements or specifications of the procuring agency;

(D) An item meeting the criteria set forth in subparagraphs (A), (B), or (C) 

need not be deemed other than “commercial” merely because sales of 

such item to the general public for other than Governmental use are a 

small portion of total sales of that item; and

(E) An item may be considered to meet the criteria in subparagraph (A) 

even though it is produced in response to a Government drawing or 

specification; provided, that the item is purchased from a company or 

business unit which ordinarily uses customer drawings or specifications 

to produce similar items for the general public using the same workforce, plant, or equipment.

91

“[T]he Panel believed that a primary purpose of defining a commercial item was to be 

able to exempt items so defined from the reach of those statutes and implementing regulations which have created barriers to the acquisition of commercial items.”92 To further 

this end and to eliminate many of the shortfalls identified above, the Panel expanded Part 

211’s definition to include items that were modified in a way “customarily provided in the 

commercial marketplace” or in a manner that “would not significantly alter the inherent 

nongovernmental function or purpose of the item.”93 More fundamentally, the definition 

was expanded to include “services,” provided that those services were acquired in support 

of tangible commercial items.

94 The Panel tied its definition of services to a requirement 

that they be offered contemporaneously to the general public under similar terms and conditions and that the commercial and government services be provided by the same workforce, plant, or equipment. The Panel thus wanted to be sure that the services had a solid 

anchor in the commercial marketplace. However, the Panel did not include standalone, or 

“pure,” services within the definition of a commercial item.

95

10. The Federal Acquisition Streamlining Act of 1994

Over the course of the 103rdCongress, various legislative proposals were offered in an 

effort to implement the Section 800 Panel’s recommendations.

96 Eventually, these efforts 

91 Id. at 8-17-8-18.

92 Id. at 8-18.

93 Id.

94 Id. at 8-17.

95 Id. at 8-19. The Panel concluded that “it did not have sufficient information to recommend exempting 

‘pure’ service contractors from additional Government-specific statutes and regulations.” Id. This would have 

been the natural effect of including “pure services” within the definition of a commercial item.

96 See Federal Acquisition Streamlining Act of 1993, S. 1587, 103 Cong. (1993) (as introduced); 

Federal Acquisition Improvement Act of 1993, H.R. 2238, 103 Cong. (1993); Federal Acquisition Reform 

Act of 1994, H.R. 4328, 103 Cong. (1994); Federal Acquisition Streamlining Act of 1994, S. 2206, 103 

Cong. (1994); Federal Acquisition Streamlining Reform Act of 1994, S. 2207, 103 Cong. (1994); Federal 

Acquisition Streamlining Act of 1993, S. 1587, 103 Cong. (1993) (enacted). Cf. Nondevelopmental 

Items Acquisition Act of 1991, S. 260, 102 Cong. (1991); Federal Property and Administrative Services 

Authorization Act of 1991, H.R. 3161, 102 Cong. (1991).
54

yielded the Federal Acquisition Streamlining Act (“FASA”) of 199497—ushering in the largest federal procurement changes in almost a decade.

FASA included an expansive, uniform statutory definition for “commercial items,” mostly 

tracking the Section 800 Panel’s recommendations.

98 The definition did contain one significant revision, which was offered by the House of Representatives and acquiesced to by the 

Senate; it included standalone services within the meaning of “commercial items.”99 Accordingly, while the Section 800 Panel and the Senate would have included only “services that 

are procured for support of a commercial item,”100 the House of Representatives prevailed 

in including within the meaning of “commercial items” any service that is “offered and sold 

competitively, in substantial quantities, in the commercial marketplace based on established 

catalog prices for specific tasks performed and under standard commercial terms and conditions.”101 The definition, which remains in the current statute, ties the definition of commercial services to the sale of services by competitive sales in the commercial marketplace. Thus, 

it links together the definition of commercial item for services with an explicit requirement 

for validation through competitive sales in the commercial market.

After defining “commercial items,” Congress expressed a strong preference for their 

acquisition102 and provided streamlined mechanisms to eliminate barriers to their procurement.

103 Likewise, by expanding the definition of “commercial items,” Congress 

seemingly expanded the applicability of the exception from TINA’s cost or pricing data 

requirements.

104 Two years later, Congress eliminated the requirement for certified cost 

or pricing data for commercial item contracts.

105 However, FASA did provide that when 

certified cost or pricing data were not required to be submitted, the head of the procuring 

activity could require submission of “data other than certified cost or pricing data” to the 

extent necessary to determine price reasonableness.

106

11. The Regulatory and Practical Implementation of FASA

Following the passage of FASA, the Executive Branch began the difficult task of implementing its statutory requirements.

107 On September 18, 1995, DoD, GSA, and NASA 

issued a final rule, which included a regulatory definition for “commercial items.”108 For 

the most part, this definition tracked the definition in FASA—though it did little to clarify 

97 Pub. L. No. 103-355.

98 Id. § 8001(a), 108 Stat. at 3384.

99 H.R. Conf. Rep. No. 103-712, at 228-29 (1994), reprinted in 1994 U.S.C.C.A.N. 2607, 2658-59.

100 Id. at 228, 1994 U.S.C.C.A.N. at 2658. Cf. Acquisition Law Advisory Panel Report at 8-19 (1993).

101 Pub. L. No. 103-355, tit. VIII, § 8001(a), 108 Stat. 3243, 3384 (adding 41 U.S.C. § 403(12)).

102 Id. tit. VIII, § 8104, 108 Stat. at 3390 (adding 10 U.S.C. § 2377).

103 Id. tit. VIII, § 8105, 108 Stat. at 3392 (eliminating various legal requirements imposed by Title 10 of 

the U.S. Code).

104 See supra text accompanying note 42.

105 See Pub. L. No. 104-106, div. D, tit. XLII, § 4201, 110 Stat. 642, 649-52 (1996).

106 Pub. L. No. 103-355, tit. I, § 1203, 108 Stat. 3275 (1994).

107 For an overview of FASA’s implementation, see U.S. GAO, Acquisition Reform: Regulatory 

Implementation of the Federal Acquisition Streamlining Act of 1994, GAO/NSIAD 96-139 (June 1996).

108 60 Fed. Reg. 48,231, 48,235 (Sept. 18, 1995).
55

some of its more archaic terms.

109 The definition did seek to clarify what would qualify 

as permissible “minor modifications” by providing specific factors that could be used to 

adjudge the nature of those modifications.

110 The regulatory definition also adjusted the 

scope of the definition of standalone services, permitting qualification based on established “market prices” in addition to catalog prices. (The statutory definition did not 

include the terms “market prices,” rather it only referred to “[s]ervices offered and sold 

competitively, in substantial quantities, in the commercial marketplace based on established catalog prices for specific tasks performed....”111 ) 

The final regulation slightly revised the definition of standalone commercial services by 

adding the term “of a type.” The regulatory drafters were concerned that without this change, 

the government would be limited to acquiring services based only on “established catalog 

prices.” They cited lawn-cutting and janitorial services as examples of commercial services that 

were priced based on the size of the task rather than existing catalog prices. The drafters also 

expressed concern that the intent of the law—providing for the acquisition of commercial services that are sold in substantial quantities in the commercial marketplace—could easily be circumvented by the creation of a catalog.

112 Based on the record and testimony examined by the 

Panel, the drafters never intended for the “of a type” language to extend the definition of commercial services beyond those sold in substantial quantities in the commercial marketplace.

113

12. The Federal Acquisition Reform (“Clinger-Cohen”) Act of 1996

In 1996, Congress passed the Federal Acquisition Reform Act114—later renamed the 

Clinger-Cohen Act115—as part of the National Defense Authorization Act for Fiscal Year 

1996. The Clinger-Cohen Act expanded upon FASA’s preference for commercial items by 

eliminating, for commercial items, TINA’s requirement for certified cost or pricing data 116

and by relieving contractors supplying commercial items from complying with the CAS.

117

With respect to information “other than cost or pricing data,” FARA provided additional 

guidance and limitations with respect to what types of information could be required.

118

The act also provided simplified procedures for the acquisition of commercial items with 

a purchase value of $5 million or less119 and set up an even more streamlined process for 

109 Compare Pub. L. No. 103-355, tit. VIII, § 8001(a), 108 Stat. 3243, 3384 (1994) (defining 

“commercial items”), with 60 Fed. Reg. at 48,235 (also defining “commercial items”). Among the terms 

that the implementing agencies failed to clarify were “established catalog or market prices.” See 60 Fed.

Reg. at 48,235.

110 60 Fed. Reg. at 48,235.

111 Pub. L. No. 103-355, tit. VIII, § 8001, 108 Stat. 3385.

112 Memorandum from the Commercial Items Drafting Team to the FAR Council and the Project 

Manager, FASA Implementation Project, (Nov. 16, 1994) at 6. (See Appendix B).

113 Some of the comments received by the Panel from some service industry associations have assumed 

that the “of a type” language expands the definition of commercial services far beyond what the record 

indicates Congress and the FAR drafters intended.

114 Pub. L. No. 104-106, div. D, 110 Stat. 642 (1996).

115 Omnibus Consolidated Appropriations Act for Fiscal Year 1997, Pub. L. No. 104-208, tit. VIII, § 

808, 110 Stat. 3009, 3009-393 (1996).

116 Pub. L. No. 104-106, div. D, tit. XLII, § 4201, 110 Stat. 642, 649-52 (1996).

117 Id. § 4205, 110 Stat. at 656.

118 Id. § 4201, 110 Stat. at 650-51.

119 Id. § 4202, 110 Stat. at 652-53.
56

the acquisition of commercially available, off-the-shelf items (“COTS”).

120 Finally, the 

act amended the definition of “commercial items” to include established “market prices” 

within the provision governing standalone services.

121 This amendment adopted the language previously adopted in the FAR definition that implemented FASA.

122

13. Recent Congressional and Executive Changes

Even after the Clinger-Cohen Act, Congress and the Executive Branch have made subtle 

changes to the definition of “commercial items” and the process for their acquisition. First, 

in 1998, Congress directed the Executive Branch to modify the FAR’s definition of “commercial items” to clarify such terms as “catalog-based pricing” and “market-based pricing.”123 Then, in 1999, Congress amended the statutory definition of “commercial items” 

to define what constitutes services in support of commercial items.

124 These legislative 

efforts helped to produce a revised regulatory definition for “commercial items,” which was 

codified in the FAR.

125 Finally, in 2003, Congress amended the definition of “commercial 

items” in order to accommodate explicit authorization for time-and-material commercial 

services contracts to be used for the acquisition of commercial services “commonly sold to 

the general public through such contracts.”126

Section 814 of the National Defense Authorization Act for FY 2000 authorized the Secretary of Defense to initiate a five-year pilot program treating procurement of some services 

“as” commercial items “if the source of the services provides similar services contemporaneously to the general public.”127 Section 821 of the FY 2001 National Defense Authorization 

Act expands the authority to procure services as commercial items. It establishes a preference 

for performance-based contracting for services and allows DoD to award any applicable performance-based contract as a commercial item under FAR Part 12, “Acquisition of Commercial Items,” if: the contract or task order is valued at $5 million or less; the contract or task 

order sets forth specifically each task to be performed and (1) defines each task in measurable, mission-related terms, (2) identifies specific end products or output, and (3) has a firm 

fixed-price; and the source of the services provides similar services contemporaneously to the 

120 Id. § 4203, 110 Stat. at 654-55.

121 Id. § 4204, 110 Stat. at 655-56.

122 60 Fed. Reg. 48,231, 48,235 (Sept. 18, 1995).

123 Strom Thurmond National Defense Authorization Act for Fiscal Year 1999, Pub. L. No. 105-261, § 

803(a), 112 Stat. 1920, 2082 (1998).

124 National Defense Authorization Act for Fiscal Year 2000, Pub. L. No. 106-65, § 805, 113 Stat.

512, 705 (1999).

125 66 Fed. Reg. 53,477 (Oct. 22, 2001).

126 Service Acquisition Reform Act of 2003 (“SARA”), Pub. L. No. 108-136, tit. XIV, § 1432, 117 Stat.

1663, 1672-73 (2003). See also 149 Cong. Rec. H. 10563 (2003). The Senate initially requested additional 

safeguards and limitations on the use of time-and-materials contracts for commercial services, but later 

withdrew this request because Section 824 of the National Defense Authorization Act for FY 2001 only 

permits the use of time-and-material contracts when “no other contract type is suitable.”

127 National Defense Authorization Act for Fiscal Year 2000, Pub. L No. 106-65, at 711 (2000).
57

general public under similar terms and conditions.

128 Lesser revisions also have been made in 

various defense authorization laws.

129

14. The Services Acquisition Reform Act of 2003 

Congress has continued to revise the laws related to acquisition and commercial practices, including most notably the Services Acquisition Reform Act (“SARA”) of 2003.

130

Through SARA, Congress sought to improve the acquisition workforce131 and make various 

reforms, including incentives for performance-based contracting132 and special emergency 

procurement authority, that permit agencies to utilize emergency acquisition authority 

under the “commercial items” exemptions.

133

With specific reference to services acquisition, SARA made three changes. First, it 

authorized performance-based contract or task orders for the procurement of services to 

be “deemed” a “commercial item” under specified circumstances: (1) if the value of the 

contract or order is not expected to exceed $25 million; and (2) if the contract or order specifically sets forth (i) each task to be performed, (ii) defines each task in measurable, mission-related terms, and (iii) identifies the specific result to be achieved. In addition, such 

performance-based commercial services contracts must contain firm fixed-prices, and further, the source of the services provides similar services to the general public under terms 

and conditions similar to those offered to the government.

134

Second, Section 1432 of SARA authorizes the limited use of a time-and-materials 

(“T&M”) or labor-hour contracts in the procurement of commercial services subject to 

certain restrictions, including that the services: (i) are commonly sold to the general public through such contracts; (ii) are purchased by the procuring agency on a competitive 

basis; (iii) the contracting officer executes a determination and finding that no other contract type is suitable; (iv) the contracting officer includes a ceiling price that the contractor 

exceeds at its own risk; and (v) the contracting officer authorizes any subsequent change in 

the ceiling price only upon a documented determination that it is in the best interest of the 

procuring agency to change the ceiling price.

Third, Congress looked at the definition of standalone services in FASA and maintained 

that definition with a revision to permit use of commercial items when the services are sold 

competitively in the commercial marketplace based on catalog or market prices for “specific 

outcomes” to be achieved as well as for specific tasks performed. Congress again remained 

focused on whether the services were sold competitively in the commercial marketplace.

128 National Defense Authorization Act for Fiscal Year 2001, Pub. L. No. 106-398 (2001).

129 See, e.g., Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Pub. L. No.

108-375, § 816, 118 Stat. 1811, 2015 (2004); National Defense Authorization Act for Fiscal Year 2004, Pub.

L. No. 108-136, tit. XIV, § 1431, 117 Stat. 1663, 1671-72 (2003) (containing SARA); Bob Stump National 

Defense Authorization Act for Fiscal Year 2003, Pub. L. No. 107-314, § 812, 116 Stat. 2458, 2609 (2002); 

National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 107-107, § 823, 115 Stat. 1012, 1183 

(2001).

130 Pub. L. No. 108-136, tit. XIV, 117 Stat. 1663 (2003).

131 Id. sub-tit. A, §§ 1411-14, 117 Stat at 1663-66.

132 Id. sub-tit. C, § 1431, 117 Stat. at 1671-72.

133 Id. sub-tit. D, § 1443, 117 Stat. at 1675-76.

134 Pub. L. No. 108-136, tit. XIV, § 1431,117 Stat. 1663; codified at 41 U.S.C. § 403.
58

In the SARA provisions, Congress also adopted a narrow exception to the prescribed 

market-based approach to defining commercial items by allowing certain products or 

services to qualify for “commercial item” status, regardless of whether they actually were 

offered commercially. Section 1443(d)135 provides authority to the head of an agency to 

treat certain procurements for defense against or recovery from terrorism or nuclear, biological, chemical, or radiological attack as commercial items, subject to the restriction that, 

if a contract greater than $15 million in value is awarded on sole source basis, the provisions of TINA and CAS shall apply.

15. Restrictions on Use of Commercial Items

In the Defense Authorization Act of 2005, Congress restricted the relief from the 

requirement for cost or pricing data for commercial items. This change provides that cost 

or pricing data is required for noncommercial modifications to commercial items that are 

expected to cost, in the aggregate, more than $500,000 or 5 percent of the total price of 

the contract, whichever is greater.

136 The provision took effect on June 1, 2005, and applies 

to offers submitted, and modifications to contracts or subcontracts made, on or after that 

date. Interim Regulations implementing the provision became effective on June 8, 2005.

137

D. Time-and-Materials and Labor-Hour Contracts

1. Definition and Description 

T&M contract provides for the acquisition of supplies or services on the basis of 

direct labor-hours at specified fixed hourly rates and/or the cost of any materials used for 

the project. This contrasts with fixed-price contracts where the contractor is paid a firm 

fixed-price for completion of the contract, irrespective of the amount of time or materials 

expended on the project.

The use of T&M contracts is governed by FAR Part 16. FAR 16.601 provides a description 

of a T&M contract, lays out its appropriate application, and limits its use. T&M contracts are 

permitted when the contracting officer determines that “it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs 

with any reasonable degree of confidence.”138 In other words, when the buyer cannot determine its requirements sufficiently to use another contracting method. Since T&M contracts 

provide “no positive profit incentive to the contractor for cost control or labor efficiency,”139

the FAR makes T&M contracts the least preferred of all contract types. The most important 

limitation on the use of time-and-materials contracts is found in FAR 16.601(c)(1), which 

provides that T&M contracts may be used “only after the contracting officer executes a determination and findings that no other contract type is suitable....”140

Under the current FAR rules, T&M contracts make a labor-hour a unit of sale, but 

they do not make efficient or successful performance a condition of payment. Under 

135 Id at § 1443.

136 Pub. L. No. 108-375, § 818.

137 70 Fed. Reg. 33659 (June 8, 2005); See FAR 15.403-1(c)(3)(ii)(B), and (C).

138 FAR 16.601 (b).

139 FAR 16.601(b)(1).

140 FAR 16.601(c)(1).
59

FAR 52.232-7(a)(1), the contractor bills the government by multiplying the appropriate 

hourly rates prescribed in the contract schedule141 by the number of direct labor-hours 

performed.

142 The rates are to include wages, indirect costs, general and administrative 

expense, and profit. Also, FAR 16.601(c)(2) requires that a T&M contract shall not be used 

unless the contract includes a “ceiling price that the contractor exceeds at its own risk.” 

The total cost of the contract is not to exceed the ceiling price set forth in the schedule, and 

the contractor must agree to make its best efforts to perform the work within the ceiling 

price.

143 The contractor is not obligated to continue performance if to do so would exceed 

the ceiling price, unless the contracting officer notifies the contractor that the ceiling price 

has been increased.

144 In addition, the government may be required to pay the contractor at 

the hourly rate, less profit, for correcting or replacing defective services.

145 Generally, if the 

contractor is terminated for default or defective performance, the government, nonetheless, 

is obligated to pay the contractor at the hourly rate, less profit, for all hours of defective 

performance.

146

Under the current FAR provisions, therefore, the contractor does not have to complete 

the work successfully in order to obtain payment; rather the contractor is paid for the hours 

devoted to the task regardless of outcome. Therefore, substantial oversight is necessary for 

T&M contracts. Agencies are advised in FAR 16.601(b)(1) that “appropriate Government 

surveillance of contractor performance is required to give reasonable assurance that efficient methods and effective cost controls are being used.” 

2. Recent Legislative Developments

As noted above, SARA section 1432147 amended section 8002(d) of FASA to authorize 

the use of T&M contracts for the procurement of commercial services commonly sold to 

the general public through such contracts. As amended, section 8002(d) places certain conditions on the use of T&M contracts for purchases of commercial services under FAR Part 

12: (1) the purchase must be made on a competitive basis; (2) the service must fall within 

certain categories as prescribed in FASA section 8002(d); (3) the contracting officer must 

execute a determination and findings (“D&F”) that no other contracting type is suitable; 

and (4) the contracting officer must include a ceiling price that the contractor exceeds at its 

own risk and that may be changed only upon a determination documented in the contract 

file that the change is in the best interest of the procuring agency.

148

The House Conference Report for section 1432 noted that section 821 of the Floyd D.

Spence National Defense Authorization Act for FY 2001149 established a statutory preference for performance-based contracts and performance-based task orders that contain firm 

141 FAR 15.204-1(b) identifies the uniform contract format including Part I, the Schedule.

142 FAR 52.232-7(a)(1) (Payments Under Time-and-Material and Labor-Hour Contracts).

143 FAR 52.232-7(c).

144 FAR 52.232-7(d).

145 FAR 52.246-6.

146 FAR 52.249-6, Alt. IV. This default condition can be incorporated through special contract 

provisions. However, such special provisions are seldom negotiated for routine T&M contracts.

147 Pub. L. No. 108-136.

148 SARA § 8002(d); FAR § 16.601.

149 Pub. L. No. 106-398.
60

fixed-prices for the specific tasks to be performed.

150 The report stated that section 1432 

should not be read to change that preference.

151 “A performance-based contract or task 

order that contains firm fixed-prices for the specific tasks to be performed remains the preferred option for the acquisition of either commercial or non-commercial items.”152

Despite the preference for any other contract type, the use of T&M contracts by the government is widespread. The GSA Office of the Inspector General reported to the Panel in 

May 2005, that of recent studies of 523 Federal Technology Service contract awards, valued 

at over $5.4 billion, the IG found (i) 58 percent of all awards were inadequately competed; 

(ii) of those solicitations open to competition, one-third of the orders representing 53 

percent of the aggregate sales dollars received only one bid, and (iii) over 60 percent of all 

orders were awarded on a T&M basis.

153

3. OFPP’s Rule

It should be noted that the amendment section 1432 made to FASA section 8002(d) is 

not self-executing. Rather, implementation of section 8002(d) requires OFPP to revise FAR’s 

current commercial items policies and associated clauses. OFPP, the Civilian Agency Acquisition Council, and the Defense Acquisition Regulations Council issued a Federal Register 

notice soliciting comments regarding an amendment to the FAR addressing the use of commercial T&M contracts.

154 Subsequently, OFPP and the Councils issued a final rule 155 with an 

effective date of February 12, 2007. 

The final rule allows an agency to purchase any commercial service on a T&M basis if it uses 

competitive procedures and prepares a D&F containing sufficient facts and rationale to justify 

that a firm fixed-pricing arrangement is not suitable. With respect to the contents of the D&F, 

the rule provides that the rationale supporting use of a T&M contract for commercial services 

should establish that it is not possible at the time of placing the contract or order to estimate 

accurately the extent or duration of the work or to anticipate costs with any reasonable degree 

of certainty. If the need is of a recurring nature and is being acquired through a contract extension or renewal, the rule requires that the D&F reflect why knowledge gained from the previous 

acquisitions could not be used to further refine requirements and acquisition strategies in a 

manner that would enable purchase on a fixed-price basis. The stated goal of the proposed rule 

is to ensure that T&M contracts are used only in the best interests of the government. The rule 

also establishes a standard payments clause for commercial T&M contracts.

E. Competition

1. A History of Difficulty in Achieving Competition 

The long history of public contracting problems and the various legislative 

attempts at solutions was discussed and reported in the Report of the Commission on 

150 H.R. Conf. Rep. No. 108-354 (2003).

151 Id.

152 Id.

153 Test. of Eugene Waszily, GSA Office of Inspector General, AAP Pub. Meeting (May 17, 2005) Tr.

at 198-99.

154 69 Fed. Reg. 56316 (Sept. 20, 2004).

155 71 Fed. Reg. 74667 (Dec. 12, 2006).
61

Government Procurement.

156 Issues such as how to encourage competition and assure 

reasonable prices have been recurrent themes. The 1972 Commission Report discusses 

the various studies of these issues over the years, including the Dockery Commission 

(1893), the Keep Commission (1905), the two Hoover Commissions, and that of the 

Commission on Government Procurement itself. The Report traces the development of 

the “formal advertising” competition requirement in the two basic procurement statutes enacted after Word War II; namely, the Armed Services Procurement Act of 1947 

and the Federal Property and Administrative Services Act of 1949. Although these laws 

expressed a preference for competition, exceptions to competition requirements permitting “negotiated” contracts raised considerable concern about whether or not the 

competition requirements were being met, particularly as the dollar value of government contracts increased. The Armed Services Procurement Act was amended in 1962 

to enhance competition in negotiated procurements.

157

The legislative history of the Competition in Contracting Act demonstrates significant 

concerns about the lack of competition, particularly for large negotiated procurements. The 

Report of the Senate Committee on Government Affairs notes that a large volume of procurement dollars was being expended through noncompetitive negotiated procurements due to 

the lack of an adequate competition standard for negotiated procurements and due to familiar sounding problems such as lack of appropriate market research, overuse of sole source 

justifications, restrictive specifications, and the rush to expend appropriated funds in the final 

quarter of the fiscal year.

158

2. The Current Situation

As discussed below, currently, there are several different competition regimes in use 

today. The Competition in Contracting Act generally requires “full and open” competition (subject to certain exceptions for urgency, single source, etc., that must be supported 

by a justification). However, today a large volume of federal procurement dollars are spent 

through processes that involve different types of procedures from the processes set forth in 

FAR Parts 15 (Contracting By Negotiation) and 14 (Sealed Bids).

159 Currently, the requirements of FAR Parts 15 and 14 do not apply to two parallel ordering regimes under which a 

huge volume of purchases is made.

First, the CICA statute provides that in addition to contracts entered into pursuant to 

full and open competition, the term “competitive procedures” also includes procedures 

established for the GSA schedules.

160 CICA provided a statutory basis for the schedule 

program as a means to meeting agency needs for a broad range of commercial products 

156 Comm’n on Gov’t Procurement Report at 163-84.

157 S. Rep. No. 98-50, at 5 (1984).

158 See, e.g., id.

159 The Panel is aware that sealed bid procurement is relatively unused in today’s environment, 

accounting for less than 1% of total actions and dollars in FY 2004 according to the Federal Procurement 

Report for FY 2004, and 1.3% of actions and 3.5% of dollars in FY 2005 according to the Federal 

Procurement Report for 2005. However, as noted below, the statute continues to define “full and open 

competition” with reference to sealed bids and competitive proposals.

160 41 U.S.C. § 259(b)(3). The term “full and open competition” is defined in 42 U.S.C. § 403 (6) to 

mean that “all responsible sources are permitted to submit sealed bids or competitive proposals on the 

procurement.”
62

that would be provided to various using agencies in small quantities and at diverse locations.

161 As discussed below, the use of the GSA schedules for the acquisition of services 

has exploded since the late 1990s. As this growth has occurred, GSA has developed 

approaches for obtaining competition among schedule contract holders that are different from the typical processes used under FAR Part 15 (and 14). Although prices on the 

schedules are deemed fair and reasonable, and orders can be placed directly in accordance with the applicable regulations, GSA also has developed additional tools (albeit 

not subject to FAR Part 15), discussed further below, that allow buyers to enhance competition and seek further price reductions from schedule contract holders.

Second, also as discussed below, orders placed under multiple award contracts (such 

contracts usually awarded initially through Part 15 procedures) are subject to the requirement for a “fair opportunity to compete” among the contract holders if a waiver is not 

exercised. There is no requirement that these “mini-competitions” be synopsized162 or that 

unsuccessful offerors for an order receive a debriefing. Data requested by the Panel indicates that significant numbers of large orders, in excess of $5 million, have been placed 

under these vehicles.

3. The Competition in Contracting Act 163

a. Background

In 1982, contracting officers from various agencies testified before Congress to the 

effect that, while competition in government contracting was the requirement, it was not 

the practice. Congress attempted to reform the procurement process in 1984 by passing the 

Competition in Contracting Act. CICA provided that competition, rather than the common 

practice of “formal advertising” (sealed bidding) should be the norm. At the time, negotiated procurement was not required to be competitive, so Congress was concerned about 

the increasing use of noncompetitive negotiations.

Although drafts of CICA used the term “effective competition,” the conferees ultimately 

adopted “full and open competition” as the standard for federal procurement. The Report of 

the House Government Operations Committee on CICA explained the benefits of competition:

The Committee has long held the belief that any effort to reform government 

procurement practices must start with a firm commitment to increase the 

use of competition in the Federal marketplace. Competition not only provides substantially reduced costs, but also ensures that new and innovative 

products are made available to the government on a timely basis and that all 

interested offerors have an opportunity to sell to the Federal government.

164

The premise that underlies this strong preference for “full and open competition” is the 

economic premise that has long been recognized by the courts as the basis for a free market 

161 H. Conf. Rep. No. 98-861 (1984), as reprinted in 1984 vol. 3 U.S.C.C.A.N. 1445 page 2111.

162 FAR 16.505(a)(1).

163 Pub. L. No. 98-369, 98 Stat. 1175 (1984) (codified as amended in scattered sections of the U.S.C.)

164 H.R. Rep. No. 98-1157, at 11 (1984).
63

economic system—that competition brings consumers the widest variety of choices and the 

lowest possible prices.

165

The Senate Committee specifically provided a definition of competition for federal procurement in its report. “In government contracting, competition is a marketplace condition 

which results when several contractors, acting independently of each other and of the government, submit bids or proposals in an attempt to secure the government’s business.”166

CICA defined “full and open competition” to mean “all responsible sources are permitted to submit sealed bids or competitive proposals on the procurement.”167 In addition, to 

ensure that agencies did not lightly sidestep the competition requirement, Congress established requirements to justify departures from full and open competition. For example, CICA 

provided that full and open competition could be avoided only through one of seven limited 

exceptions,168 and it required a written justification and approval (“J&A”) document to be 

filed if one of the exceptions was invoked.

169 In addition, Congress mandated that the head 

of each agency designate a Competition Advocate and required that all J&As for procurements of $500,000 or more be approved by the Competition Advocate for each agency.

170

CICA expressly recognized and permitted the use of competitive negotiations, rather 

than sealed bids, required that the government’s requirements and evaluation factors be 

clearly expressed so that offerors could understand the ground rules, and mandated that 

the government follow its stated requirements and evaluation factors in the source selection process. CICA expressly recognized and permitted best value selections based on 

technical, cost, and other factors, rather than just cost. In a best value source selection, the 

government can choose the overall best value for the particular requirement; however, cost 

must be a consideration under CICA—it cannot be ignored. To support a best value selection, the source selection official must justify the trade-off between the cost and technical 

merit of the offers in the competitive range. Thus, for each best value procurement, the government buyer has a record of the basis for the selection.

b. Competition Under CICA Procedures

(i) Acquisition Planning. The statute and the FAR require agencies to use advance 

procurement planning and develop specifications using appropriate market research that 

meets the agency’s needs. Specifications may be stated in functional, performance, or 

design terms as the agency requires. However, unless an exception applies, requirements 

must be stated in a manner designed to achieve full and open competition.

171

(ii) Synopsis. Current procedures require contracting officers to synopsize contract 

actions expected to exceed $25,000 via the Internet to the single governmentwide point of 

165 ATA Def. Indus., Inc. v. United States, 38 Fed. Cl. 489, 500 (1997) (citing Adam Smith, Wealth of 

Nations 112 (1776)).

166 S. Rep. No. 97-665, at 2.

167 41 U.S.C. § 403(6).

168 10 U.S.C. § 2304(c); 41 U.S.C. § 253(c).

169 10 U.S.C. § 2304(f)(1)(A); 41 U.S.C. § 253(f)(1)(A).

170 FAR 6.501.

171 41 U.S.C. § 253a; FAR 11.002, 15.2.
64

entry (“GPE”) known as Federal Business Opportunities (“FedBizOpps”).

172 Publication 

is to ensure that all responsible sources are permitted to submit offers consistent with the 

definition of “full and open competition” at 41 U.S.C. § 403(6) which provides:

(6) The term “full and open competition,” when used with respect to a 

procurement, means that all responsible sources are permitted to submit sealed bids or competitive proposals on the procurement.

Typically, for a procurement expected to exceed the simplified acquisition threshold, 

the FAR requires a synopsis to be published at least 15 days prior to the issuance of the 

solicitation. Once the solicitation is issued, agencies must allow at least 30 days response 

time for receipt of offers, making the minimum period between the publication of synopsis 

and the receipt of offers 45 days.

173

For commercial items, agencies may establish a shorter period for issuance of the 

solicitation or use the combined synopsis/solicitation procedures set out in FAR 12.603. In 

such case the solicitation response time may be determined so as to “afford potential offerors a reasonable opportunity to respond” considering “the circumstances of the individual 

acquisition, such as the complexity, commerciality, availability, and urgency.”174 The time 

required for synopsis may be affected, even in the case of commercial items, by the requirements of certain trade agreements. Under the WTO Government Procurement Agreement 

or a Free Trade Agreement,175 the time between publication of the notice and receipt of 

offers must be no less than 40 days.

(iii) Solicitation. Once a solicitation is issued in the form of an RFP or IFB, interested vendors submit their offers and the selection process begins. While sealed bids 

are evaluated without discussion (FAR 14.101(d)) and award is made on the basis of 

price,176 evaluation of competitive proposals typically involves a negotiation with the 

offerors. The objective of competitive negotiations under the statute and FAR Part 15 is 

to give the government the ability to negotiate for the proposal that represents the best 

value, considering the factors specified in the solicitation and price.

177 For competitive 

negotiated procurements, CICA requires that the solicitation state all significant factors 

and subfactors, both non-price (e.g., technical capability, management capability, prior 

experience, and past performance) and price, that the agency expects to consider in 

evaluating proposals and the relative importance assigned to each of those factors and 

subfactors.

178 The statute explicitly requires that the agency evaluate proposals “based 

solely on the factors specified in the solicitation.”179 

172 The synopsis is required by the OFPP Act (41 U.S.C. § 416), and the Small Business Act (15 U.S.C. § 

637(e). FAR 5.003 and 5.102(a)(1) require the government to use the GPE known as FedBizOpps at http//

www.fedbizopps.gov.

173 FAR 5.203.

174 FAR 5.203 (b).

175 FAR subpart 25.4.

176 FAR 14.101(e).

177 41 U.S.C. § 253 (b); FAR 15.302

178 41 U.S.C. § 253a(b), (c); FAR 15.305.

179 41 U.S.C. § 253b(a).
65

(iv) Negotiations. The process of competitive negotiations allows the buying agency 

to negotiate with the offerors to obtain the best value. Where discussions are held,180 the 

contracting officer must “establish a competitive range comprised of all of the most highly 

rated proposals. . . . ”181 The contracting officer may, pursuant to specific statutory authority, further “limit the number of proposals in the competitive range to the greatest number 

that will permit an efficient competition among the most highly rated proposals.”182 This 

provision allows narrowing of the competitive range to the proposals most likely to be successful. Note, however, that the standard RFP instructions to offerors for commercial items 

in FAR 52.212-1 for some reason do not include such language while its FAR 15 counterpart does include the language. (See FAR 52.215-1(f)(4).) 

Negotiations with offerors in the competitive range, if determined to be in the government’s interest, may occur. If the contracting officer holds discussions, the contracting 

officer must “indicate to, or discuss with” each offeror, deficiencies, significant weaknesses, 

and adverse past performance information to which the offeror has not yet had an opportunity to respond. While the contracting officer is not required to discuss every area where 

the proposal could be improved, the FAR encourages the contracting officer to discuss 

aspects of the offeror’s proposal that could, in the opinion of the contracting officer, be 

altered or explained to enhance materially the proposal’s potential for award.

183 Following 

close of discussions, the contracting officer is required to permit final proposal revisions at 

a common cut-off date.

184 Government personnel participating in discussions must observe 

certain requirements for fairness such as: (1) not favoring one offeror over another; (2) not 

revealing an offeror’s unique technical solution or intellectual property; (3) not revealing 

an offeror’s specific price; (4) not disclosing past performance references; and (5) not violating the Procurement Integrity Act by revealing source selection information.

(v) Award. Awards are made on the basis of the solicitation factors and subfactors by 

a Source Selection Official who, using his or her discretion and independent judgment, 

makes a comparative assessment of the competing proposals, trading off relative benefits 

and costs. The Source Selection decision must be reflected in a written statement that 

explains the rationale for award.

185

(vi) Post-Award. Unsuccessful offerors are entitled to a debriefing, if timely requested, 

regarding the conduct of the procurement and the evaluation of their proposals. The 

debriefing must disclose at least: (1) the government’s evaluation of the significant weaknesses or deficiencies in the offeror’s proposal; (2) the overall evaluated cost or price and 

technical rating of the awardee and the debriefed offeror, and past performance information on the debriefed offeror; (3) the overall ranking of all offerors, if one exists; (4) a summary of the rationale for award; (5) for commercial items, the make and model of the item 

180 Award may be made without discussions pursuant to FAR 52.212-1 and 52.215-1. In this case, no 

competitive range is established and the most competitive proposal as evaluated in accordance with the 

evaluation criteria will be awarded a contract. Here, only limited exchanges in the form of clarifications are 

allowed to ensure fair treatment of all offerors (FAR 15.306).

181 41 U.S.C. § 253b(d); FAR 15.306.

182 10 U.S.C. § 2305(b)(4); 41 U.S.C. § 253b(d); FAR 15.306.

183 FAR 15.306(d)(3).

184 FAR 15.307.

185 FAR 15.308.
66

to be delivered by the awardee; (6) reasonable responses to questions about whether the 

solicitation procedures were followed.

186

An offeror who believes that the solicitation or the source selection process was unfair 

may protest and obtain an independent outside review of the award decision under an 

Administrative Procedure Act standard of review which provides that the decision may be 

overturned only upon a showing that the decision was arbitrary and capricious (which 

includes within its definition that the decision violated law or regulation).

187

4. The Use of Interagency Vehicles

In 1993, the Section 800 Panel Report188 again discussed the fundamental role of competition in public procurement. Agencies complained about the time and delays involved 

in considering multiple proposals and their perceived inability to eliminate proposals that 

did not have an opportunity for success from consideration.

189 The Section 800 Panel gave 

serious consideration to amending the competition statute to provide for “adequate and 

effective competition” but, after extensive consideration,190 decided to retain the definition 

of full and open competition. Among other things, the Section 800 Panel was concerned 

both with the strongly expressed views of Congress and the difficulties involved in defining 

“adequate and effective competition.”191

Following submission of the Section 800 Panel report, Congress considered substituting the term “efficient competition” for “full and open competition.” However, Congress 

retained the term “full and open competition.” In 1996, during consideration of the Federal Acquisition Reform Act, Congress provided guidance in use of the “full and open” 

standard by the following addition to 10 U.S.C. § 2304(j) and 41 U.S.C. § 253(h): “The 

Federal Acquisition Regulation shall ensure that the requirement to obtain full and open 

competition is implemented in a manner that is consistent with the need to efficiently 

fulfill the Government’s requirements.” Although the basic standard was not changed, in 

response to agencies’ expressed concerns, Congress tried to convey to agencies that they 

had flexibility in establishing the competitive range and in using competition to obtain the 

best result for the government.

Two other issues entered into the practical application of competition at the time of FASA 

and FARA. First, was the increased use of IDIQ contracts. Second, was the use of the GSA 

schedules to include the acquisition of services. These developments are discussed below.

186 FAR 15.506.

187 31 U.S.C. §§ 3551-3556; 28 U.S.C. §1491(b)

188 Acquisition Law Advisory Panel Report, Ch. 1.

189 The complaint of difficulty in winnowing down the offers to those with the best chance of success was 

not a new one. Congress had addressed this very issue in considering the potential definition of “effective 

competition” in enactment of CICA. The CICA conferees expressed their view that the procurement process 

“should be open to all capable contractors who want to do business with the Government. The conferees do 

not intend, however, to change the long-standing practice in which contractor responsibility is determined 

by the agency after offers are received.” H.R. Rep. No. 861, 98-1422 (1984).

190 The 800 Panel understood there could be situations in which the circumstances did not warrant the 

expense of proceeding with a full and open competition. Acquisition Law Advisory Panel Report at 1-24.

191 Id. at 1-25.
67

5. IDIQ Contracts

a. Background 

At the time of its deliberations, the Section 800 Panel reviewed the use of IDIQ contracts, also known as delivery order contracts or task order contracts.

192 The Section 800 

Panel noted concerns regarding the abuse of sole source IDIQ contracts for supplies and 

services, and the existence of inspector general and audit reports criticizing the award and 

administration of such contracts.

193 The 800 Panel was concerned about the growing practice of awarding IDIQ contracts on a sole source basis. Recognizing these concerns and 

the inadequacy of the then-existing statutory provision for master agreements for advisory 

and assistance services, the Section 800 Panel recommended a revision of the authority for 

IDIQ vehicles. While noting the issue of agencies expanding the scope of such vehicles as 

a problem, the Section 800 Panel believed that flexibility was necessary to permit award of 

contracts for supplies or services in which the detailed requirements, timing of work, and 

definite dollar value could not be determined at the time the basic contract was awarded.

194

Without this ability, the Section 800 Panel expressed concern that legitimate requirements 

and tasks would be unnecessarily delayed or result in improper sole source justifications or 

inappropriate undefinitized contract actions.

The Section 800 Panel then recommended a new statute that would provide some structure around the use of IDIQ contracts. First, the basic contract had to be awarded pursuant 

to full and open competition (or a permissible, properly approved exception). The competition for the basic contract was required to have provided: (i) a “reasonable description of the 

general scope, nature, complexity, and purposes of the supplies or services;” (ii) meaningful 

evaluation criteria, properly applied; and (iii) if multiple awards were made, a clear method 

of competing or allocating delivery or task orders among contracts.

195 If properly awarded, 

then with respect to delivery orders or task orders issued under that contract, no notice (synopsis) or separate competition (or justification) was required.

196 At the time, the Section 800 

Panel believed that the potential for abuse of these vehicles was the expansion of the contract 

scope or period by a delivery or task order. Thus, the Panel recommendation prohibited any 

such expansion without use of full and open competition.

197

192 Under FAR 16.501-2(a), indefinite delivery indefinite quantity (IDIQ) contracts are a subset of 

indefinite delivery contracts. IDIQ contracts may be delivery order contracts or task order contracts. Under 

FAR 16.501-1, a “delivery order contract” is defined as a contract for supplies that does not procure or 

specify a firm quantity of supplies (other than a minimum or maximum quantity) and that provides for 

the issuance of orders for the delivery of supplies during the period of the contract. A “task order contract” 

is defined as a contract for services that does not procure or specify a firm quantity of services (other than 

a minimum or maximum quantity) and that provides for the issuance of orders for the performance of 

tasks during the period of the contract.

193 Acquisition Law Advisory Panel Report, at 1-32.

194 Id. at 1-32-1-33.

195 Id. at 1-52-1-53.

196 Id. at 1-53.

197 Id. “The Panel believes that this statutory rule structure will meet the legitimate needs for having 

contracts in place to responsively provide supplies or perform services when the quantities, timing, and 

exact nature are not known in advance. As important, it will prevent the improper use of such contracts 

to avoid competing new or expanded requirements when competition is appropriate, or ensure proper 

approval of the justification when it is not.” Id.
68

In enactment of FASA,198 Congress largely accepted the Section 800 Panel approach.

FASA required that award of IDIQ contracts be subject to full and open competition and 

include specific requirements for solicitations for such contracts, including specification of 

the contract period and the maximum quantity or dollar value to be procured. In addition, 

Congress stated that the solicitation should contain: 

A statement of work, specifications, or other description that reasonably 

describes the general scope, nature, complexity, and purposes of the services or property to be procured under the contract.

199

Congress also included a preference for multiple awards to improve competition, stating it was establishing “a requirement that solicitations for such contracts shall ordinarily provide for multiple awards and for fair consideration of each awardee for task orders 

issued under the contracts.”200 The Report of the Senate Government Affairs Committee, 

which originated the provisions regarding IDIQ and task order contracts, stated its reasons 

for their enactment as follows: 

The Committee believes that indiscriminate use of task order contracts for 

broad categories of ill-defined services unnecessarily diminishes competition and results in the waste of taxpayer dollars. In many cases, this problem can effectively be addressed, without significantly burdening the procurement system, by awarding multiple task order contracts for the same or 

similar services and providing reasonable consideration to all such contractors in the award of such task orders under such contracts. The Committee 

intends that all federal agencies should move to the use of multiple task 

order contracts, in lieu of single task order contracts, wherever it is practical 

to do so.

201

b. “Fair Opportunity”

FASA mandated that agencies award orders through a limited competitive process. Specifically, the statute required that all contractors to multiple award contracts be provided 

a “fair opportunity to be considered” for each task or delivery order in excess of $2,500,202

subject to four exceptions: (1) circumstances of unusual urgency that will not permit fair 

opportunity; (2) only one contractor has the capability to provide the highly unique or 

specialized services necessary; (3) a sole source order is necessary as a logical follow-on to 

an existing order already issued on a competitive basis; or (4) the noncompetitive order is 

necessary to satisfy a minimum guarantee.

203

198 41 U.S.C.A. § 253j; 10 U.S.C.A. § 2304a-d

199 41 U.S.C.A. § 253h; 10 U.S.C.A. § 2304a.

200 S. Rep. No. 103-258, at 15 (1994); See also 41 U.S.C.A. § 253h(d)(3); 10 U.S.C.A. § 2304a(d)(3).

201 S. Rep. No. 103-258, at 15.

202 41 U.S.C.A. § 253j; 10 U.S.C.A. 2304c(b).

203 41 U.S.C.A. § 253j; 10 U.S.C.A. 2304c(b).
69

The fair opportunity process for IDIQ contracts was implemented in FAR Subpart 

16.5.

204 Although FASA called for a “fair opportunity to be considered,” studies conducted 

by GAO and agencies’ inspectors general after the Act was implemented indicated that 

agencies did not consistently promote competition or justify exceptions to competition.

205

To address these concerns, Congress enacted section 804 of the National Defense Authorization Act for Fiscal Year 2000.

206 This provision directed that the FAR be revised to provide 

guidance regarding the appropriate use of multiple award IDIQ contracts. The guidance, at 

a minimum, was to identify specific steps that agencies should take to ensure that: (1) all 

contractors are afforded a fair opportunity to be considered for the award of task and delivery orders and (2) the statement of work (“SOW”) for each order clearly specifies all tasks 

to be performed or property to be delivered. In April 2000, the FAR was revised to address 

these topics.

Under the FAR revisions, fair opportunity requires, with limited exceptions, that all 

awardees are afforded a fair opportunity to be considered for each order exceeding $2,500.

The current FAR gives contracting officers significant discretion in applying the fair opportunity standard. For example, FAR 16.505(b)(1)(ii) provides that contracting officers “need 

not contact each of the multiple awardees ... if the contracting officer has information 

available to ensure that each awardee is provided a fair opportunity to be considered for 

each order.” 

Protests of task order awards are not authorized, except for cases where the order 

increases the scope, period, or maximum value of the contract under which the order is 

issued.

207 FASA did require that each agency issuing task or delivery order contracts appoint 

an ombudsman to review complaints regarding the fair opportunity process.

208 There is 

little evidence that these ombudsmen have been active. 

c. Section 803 Revisions to “Fair Opportunity” 

Notwithstanding the measures to further define the fair opportunity standard and the 

discretion afforded by the FAR, Congress continued to have concerns regarding the adequacy of competition under multiple award contracts, particularly for services. For example, Section 803 of the National Defense Authorization Act for Fiscal Year 2002 required 

DoD to promulgate regulations requiring competition in the purchase of services by DoD 

under multiple award contracts. It required that DoD’s regulations must provide for DoD 

the award of orders “on a competitive basis,” absent a waiver.

209 The statute provided that 

the purchase of services would be made on a “competitive basis” only if it was made pursuant to procedures that required “fair notice” of the intent to make a purchase to be given to 

“all contractors offering such services under the multiple award contract” and afforded all 

204 FAR 16.5(c) provides that with respect to GSA, nothing in 16.5 restricts GSA’s authority to enter 

into schedule, multiple award or task or delivery order contracts under any other provision of law. GSA’s 

regulations at FAR 8.4 take precedence for GSA’s contracts.

205 See U.S. DoD IG, DoD Use of Multiple Award Task Order Contracts, Audit Rep. No. 99-116, 4-7 (Apr.

1999); U.S. GAO, Contract Management: Few Competing Proposals for Large DoD Information Technology 

Orders, GAO /NSIAD-00-56, 12-13 (Mar 2002).

206 Pub. L. No. 106-65 (Oct. 5, 1999).

207 10 U.S.C. § 2304c(d).

208 10 U.S.C. § 2304c(e).

209 See Pub. L. No. 107-107, § 803(b)(1).
70

contractors that respond “a fair opportunity to make an offer and have that offer fairly considered by the official making the purchase.”210 Thus, Section 803 went beyond the FAR in 

that, when implemented, it would require agencies to solicit offers from all contract holders to meet the “fair opportunity” test.

DoD’s implementing regulations, which became effective in October 2002, require that 

each order of services exceeding $100,000 shall be placed on a “competitive basis.” The 

regulations provide that an order is made on such a basis only if the contracting officer:

(1) Provides a fair notice of the intent to make the purchase, including a 

description of the supplies to be delivered or the sources to be performed 

and the basis upon which the contracting officer will make the selection, to 

all contractors offering the required supplies or services under the multiple 

award contract; and

(2) Affords all contractors responding to the notice a fair opportunity to 

submit an offer and have that offer fairly considered.

211

The regulations also permit the contracting officer to waive the competition requirement under certain circumstances.

212 As discussed below, the DoD regulations also cover 

ordering procedures for services under schedule contracts.

GAO continued to express concern in 2003 regarding the level of competition under fair 

opportunity.

213 In July 2004, GAO issued another report regarding DoD’s implementation 

of Section 803.

214 GAO found that competition requirements were waived for nearly half of 

the task orders surveyed.

215 GAO noted that, “[a]s a result of the frequent use of waivers, there 

were fewer opportunities to obtain the potential benefits of competition—improved levels of 

service, market-tested prices, and the best overall.”216 GAO found that, in the majority of cases 

where waivers were invoked, it was done at the request of the government program office “to 

retain the services of contractors currently performing the work.”217 The report further found 

that roughly two-thirds of the cases in which waivers were invoked were in Federal Supply 

Schedule orders.

218 For orders that were available for competition, buying organizations 

awarded more than one-third after receiving only one offer.

219

210 Id. § 803(b)(2).

211 See DFARS 216.505(c).

212 See DFARS 216.505(b).

213 U.S. GAO, Contract Management: Civilian Agency Compliance with Revised Task and Delivery Order 

Regulations, GAO-03-393, 7 (Feb. 2003)

214 U.S. GAO, Contract Management: Guidance Needed to Promote Competition for Defense Task Orders, 

GAO-04-874, (July 2004).

215 Id. at 6.

216 Id. at 6.

217 Id. at 3.

218 Id. at 6.

219 Id. at 3.
71

In its July 2004 report regarding Section 803, GAO recommended that DoD:

• develop additional guidance on the circumstances under which the logical follow-on and 

unique services waivers may be used;

• require that all waiver determinations be supported by documentation describing in 

detail the circumstances that warrant the use of a waiver; and

• establish approval levels for waivers under multiple award contracts that are comparable 

to the approval levels for sole source Federal Supply Schedule orders under subpart 8.4 of 

the [FAR].

220

In testimony before the Panel, representatives of the DoD Inspector General discussed 

an additional investigative report that would show (report released in October 2006) a significant number of orders still are not being subjected to fair opportunity requirements.

221

The report states that on 6 of 14 sole source purchases reviewed, adequate justification was 

not provided for sole source procurements.

222 In the FY 2007 DoD Authorization Act, Congress tasked the IG with a further review of fair opportunity.

223 The agency implementation 

of the “fair opportunity” required by FASA thus has been uneven and subject to congressional prodding to encourage competition.

The Defense FAR Supplement was amended further in March 2006 to add increased 

specificity to the requirements for competition in placement of orders under multiple 

award contracts.

 224 The March 2006 amendments made clear that DoD’s requirements pursuant to Section 803 apply to orders for both supplies and services, including orders placed 

by non-DoD agencies on behalf of DoD. In addition, DoD clarified that any justification 

for a waiver of fair opportunity was required to be consistent with the requirements of FAR 

8.405-6,225 including senior level approvals for waivers involving large orders.

d. Competition Under Multiple Award IDIQ Contracts 

As described above, the award of work under multiple award IDIQ contracts is a twostep process. The award of the basic multiple award IDIQ contract is made using FAR Part 

15 procedures. Agency requirements are broadly stated in these contracts, since the actual 

requirements to be filled have not yet been determined.

In the case of supplies, an agency may know what it needs, but not the quantity or 

timing. For services, the government’s ability to state its requirements in a manner that 

allows an evaluation against those requirements may be difficult. For routine services such 

as groundskeeping or equipment maintenance, the work is identifiable and the unknowns 

220 Id. at 17.

221 Test. of Henry Kleinknecht & Terry McKinney, DoD, AAP Pub. Meeting (June 29, 2006) Tr. at 54-56, 111-12.

222 U.S. DoD IG, Acquisition – FY 2005 DoD Purchases Made Through the General Services Administration,

D-2007-007, 5 (Oct. 2006).

223 John Warner National Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364, § 817, 

120 Stat. 2083 (2006).

224 71 Fed. Reg. 14106 (Mar. 21, 2006).

225 FAR 8.405-6, as amended by GSA in June 2004, sets forth detailed requirements for a waiver 

justification including, among other things, (i) demonstration of the proposed contractor’s unique 

qualifications; (ii) the ordering activity contracting officer’s determination that the order represents the 

best value to the government, (iii) the market research performed; (iv) steps the ordering agency may take 

in the future to overcome the need for a noncompetitive order; and (v) evidence that supporting data have 

been certified as accurate and complete by technical or requirements personnel.
72

are quantity and timing. However, for complex IT and management services, the statement of requirements may be extremely general since the agency does not include the mix 

of labor or the expected nature and duration of the individual projects in the solicitation.

For complex services, the evaluation thus typically is based on sample tasks rather than 

the agency’s actual requirements. Because of the multiple award preference stated in FAR 

16.504(c), awards usually are made to multiple offerors, including one or more mandatory 

awards to small businesses—if a partial reservation has been made. Large programs such as 

the authorized GWACs typically have a set number of awardees and involve more offerors.

Some multiple award vehicles, such as SeaPort-e may not involve any initial competition, 

i.e., according to testimony, SeaPort-e initially awarded 654 contracts.

226

Once the base contract awards are made under a multiple award IDIQ solicitation, 

the government’s specific requirements are identified in task orders. The DFARS order 

procedures at 216.505 contain relatively little guidance for the conduct of order competitions over $100,000. The contracting officer is required to consider cost or price and is 

encouraged to use streamlined procedures, as well as take into account past performance 

on earlier orders under the contract.

227 However, for the more complex and higher value 

task orders involving services, agencies often will conduct competitive negotiations that 

apply some of the competitive source selection procedures from FAR Part 15. For example, 

agencies will issue a solicitation type document that contains a statement of work, proposal instructions, evaluation criteria, and a statement of intent to make a best value selection. Agencies often hold discussions, request final proposals, and make an award based 

on trade-offs involving price and non-price factors. [Note that GSA’s regulations for FSS 

ordering provide more detailed guidance for large orders involving statements of work, as 

discussed further below.] However, agencies making awards under multiple award IDIQ 

contracts are not required to debrief offerors, and, regardless of the size of the award, no 

protest involving the procurement process is permitted. Protests are permitted only under 

limited circumstances involving orders out of scope.

6. GSA Federal Supply Schedule

a. Background

With enactment of the provisions for commercial items, the acquisition of services on the 

GSA Federal Supply Schedule increased dramatically. Sales under the Federal Supply Schedules grew from $4.5 billion in 1993 to $10.5 billion in 1999228 and reached $35.1 billion in 

FY 2006 (in addition, sales under the Veterans Administration Federal Supply Schedule in FY 

2005 was $7.9 billion).

229 The effect on the acquisition of services was particularly profound.

FASA led to a “significant increase” in the type of services available on GSA’s schedules,230 and 

by 2001, the federal government spent $109 billion on services, constituting 51 percent of all 

226 Test. of Jerome Punderson, NAVSEA, AAP Pub. Meeting (Aug. 18, 2005) Tr. at 285-86.

227 DFARS 216.505-70(c).

228 See U.S. GAO, Federal Acquisition: Trends, Reforms, and Challenges, GAO/T-OCG-00-7, 6-7 (Mar. 2000).

229 GSA Data, Contractors Report of Sales - Schedule Sales FY 2006 Final, (Oct. 24, 2006) (on file with the 

General Services Administration).

230 See Commercial Activities Panel, Final Report: Improving the Sourcing Decision of the Federal 

Government 27 (Apr. 2002), http://sharea76.fedworx.org/ShareA76/search/showsingledoc.

aspx?docinfoid=1591.
73

acquisition spending for that year.

231 In FY 2005, total GSA schedule sales had increased to 

$33.9 billion with services constituting 61.9 percent of schedule sales or $20.9 billion. In FY 

2006, GSA schedule sales increased again to a total of $35.1 billion with services constituting 

64.4 percent or $22.6 billion. During the past nine years, GSA-managed schedule sales have 

grown on average 22.7 percent annually. (Note that for FY 2006 GSA-managed schedule sales 

grew by only 3.5 percent from FY 2005—a decrease from the 21.5 percent growth in FY 2004 

and 9.0 percent growth in FY 2005.)232 Today, services account for about two-thirds of all 

schedule sales.

GSA offers professional services through the schedule in a variety of areas, including: 

general purpose commercial Information Technology Equipment, software and services 

(known as the “IT 70” Schedule); Financial and Business Solutions (“FABS”); Mission Oriented Business Integrated Services (“MOBIS”); Professional Engineering Services (“PES”), 

and Environmental Services. Companies offering these services agree to perform the identified services for hourly rates identified on the Schedule. 

Within the schedules program, the Services Acquisition Center offering the PES, FABS, 

and Advertising and Integrated Marketing (“AIMS”) Schedules has grown remarkably. The 

Services Acquisition Centers FY 2005 sales were $3.5 billion. During the previous three years, 

its sales have grown by 164 percent, showing a substantial demand for professional services.

Although services under the IT 70 Schedule grew less dramatically (less than 1 percent in FY 

2005), IT 70 Schedule sales totaled $16.9 billion in FY 2005, accounting for approximately 

50.8 percent of total schedule sales. This number grew only slightly in FY 2006, to $17 billion, of which services accounted for approximately 64 percent or $10.8 billion.

FSS contracts are awarded pursuant to GSA’s separate authorizing statute. CICA defined 

“competitive procedures” to include the GSA schedules so long as: (1) participation in the 

program is open to all responsible sources, and (2) orders and contracts under such procedures result in the lowest overall cost alternative to meet the government’s needs.

233 Thus, 

orders placed under the schedules are deemed to be the product of competitive procedures, 

because they are items and services that are routinely sold in substantial quantities in the 

commercial marketplace. GSA’s regulations implementing the FSS program are set forth in 

FAR Subpart 8.4. For the FSS program, GSA maintains an open solicitation under which 

any contractor may submit an offer of a commercial item or service for award of an FSS 

contract.

234 Offerors under an FSS solicitation do not compete against other offerors; rather, 

prices are assessed against the standard of a “fair and reasonable price.” For services, the 

FAR states: 

GSA has already determined the prices of supplies and fixed-price services, 

and rates for services offered at hourly rates, under schedule contracts to 

be fair and reasonable. . . . By placing an order against a schedule contract 

. . ., the ordering activity has concluded that the order represents the best 

231 Id. at 27.

232 Data provided to the Panel (on file with GSA).

233 41 U.S.C.A. § 259.

234 As of the date of this Report, more than 17,000 companies have schedule contracts according to GSA.
74

value. . . and results in the lowest overall cost alternative (considering price, 

special features, administrative costs, etc.) to meet the Government’s needs.

235

To be awarded a base schedule contract, a vendor has to provide GSA with information about its commercial sales practices and identify categories of customers who then 

become the basis of negotiation. Utilizing a Most Favored Customer (“MFC”) approach, 

GSA negotiates with its vendors to obtain the best prices afforded their preferred customers 

for like requirements of similar scale. The essence of GSA schedule contract price analysis 

is a comparison of the prices offered to the government with the prices paid by others in 

the commercial marketplace for the same or similar items, including services, under similar 

conditions. This pricing approach, combined with GSA’s Price Reductions clause (GSAM 

552.238-75), is designed to maintain a specific, commercially-competitive pricing relationship throughout the duration of the contract. The focus of this threshold negotiation is to 

leverage the government’s volume buying to achieve a position similar to that of the most 

competitive commercial customer from the particular vendor.

236 The resulting price is, thus, 

deemed “fair and reasonable.”237

b. Market Prices 

As discussed above, orders placed under the schedules are deemed to be the product 

of a competitive procedure because the items and services are routinely sold in substantial 

quantities in the commercial marketplace. GSA attempts to ensure that the prices and labor 

rates of an FSS contract are reasonable through analysis of commercial pricing policies and 

practices and use of pre-award audits by the GSA IG of those commercial prices. In recent 

years, GSA has increased the surveillance of commercial prices. The number of pre-award 

audits is increasing. During fiscal year 2003 to 2004, the number of pre-award audits performed increased from 18 to 40, and GSA established the fiscal year 2005 goal at 70.

238

According to GSA, the goal is set at 100 in fiscal year 2006.

239 In FY 1995, GSA conducted 

154 pre-award audits. GSA MAS contracts contain over 10 million products from more 

than 17,000 commercial vendors.

240 

c. Streamlined Ordering Process

The use of GSA schedules provides for a simplified ordering process. For instance, 

as long as ordering activities (i.e., buyers) comply with the regulatory ordering policies 

and procedures established by GSA and set forth in FAR 8.405, the order is not subject 

to the requirements of FAR Part 13 (Blanket Purchase Agreements), FAR Part 14 (Sealed 

Bidding), FAR Part 15 (Contracting By Negotiation), or FAR Part 19 (Small Business 

Programs)(except for the requirement at FAR 19.202-1(e)(1)(iii) dealing with bundling in 

small business procurements). Buyers still must comply with all FAR requirements regarding bundled contracts, if the order meets the definition for a bundled contract at FAR 

2.101(b). The GSA schedules also may be used to meet agency small business goals.

235 FAR 8.404(d).

236 FSS Procurement Information Bulletin 04-2 (on file with GSA).

237 FAR 8.404(d).

238 GAO-05-229 at 14-15, 17.

239 According to information provided by GSA to the Panel.

240 Data provided to the Panel (on file with GSA).
75

Once a contractor’s products or services are placed on the GSA schedules, any agency may 

order pursuant to the ordering procedures set forth in FAR 8.4. Although GAO generally lacks 

jurisdiction to hear protests involving the issuance of delivery and task orders,241 GAO has 

determined that its bid protest jurisdiction under the Competition in Contracting Act242 does 

extend to competitions conducted under FSS contracts.

243 Orders under the schedules may be 

protested, regardless of the size of the order.

(i) Policies and Procedures for Ordering Services. While there are no dollar limits for 

orders placed under GSA schedule contracts, the ordering procedures specified in the FAR 

differ depending on a number of factors, including dollar thresholds. More specifically, 

the ordering procedures vary depending on (1) whether the acquisition is for supplies 

or services, (2) if services, whether they are of a type requiring a statement of work, i.e., 

statement of the buyer’s requirements, (3) the dollar value of the purchase (i.e., below the 

micro-purchase threshold, currently set at $3,000, or above the micro purchase threshold 

established by category of supply or service), and (4) whether a Blanket Purchase Agreement (“BPA”) is being established under the schedule contract for the fulfillment of repetitive needs for supplies or services. For any orders of services at or below the micro purchase 

threshold, the buyer may place orders directly with any FSS contractor that can meet the 

agency’s needs, without regard to whether a SOW was used.

244

For orders of services under the maximum order threshold, if an SOW is not used (e.g., 

for commoditized services such as installation, maintenance or repair services), the ordering activity must review at least three schedule contractors’ price lists.

245 Such a survey of 

prospective suppliers on the schedules may be accomplished through a review of the “GSA 

Advantage!246” online shopping service or by review of catalogs or price lists from three 

contractors.

247 The FAR does not define survey requirements or how the three schedule contractors are to be chosen. The FAR does include a list of factors that may be considered in 

determining best value for purposes of selecting a contractor for an order.

248 For orders in 

excess of the maximum order threshold, the policy is that buyers should seek a price reduction.

249 However, an order may be placed even though no reduction is offered.250

In cases where services priced at hourly rates are being acquired from schedule contractors, GSA policy calls for an SOW stating the buyer’s requirements (e.g., the work to 

241 41 U.S.C. § 253j(d); 10 U.S.C. § 2304c(d).

242 See 31 U.S.C.A. § 3551 et seq.

243 E.g., Savantage Fin. Servs., Inc., B-292046, B-292046.2, June 11, 2003, 2003 CPD ¶ 113; see Sys. 

Plus, Inc. v. United States, 68 Fed. Cl. 206 (2005), where the extent of the authority for review of FSS 

competitions has been called into question. In recently rejecting a challenge to an agency decision not to 

implement a stay of performance in regard to the award of an order under a schedule contract, the U.S.

Court of Federal Claims distinguished FAR Part 15 procurements from the competitions conducted under 

FAR subpart 8.4 for purposes of the statutory stay outlined in the statute that sets forth GAO’s bid protest 

jurisdiction.

244 FAR 8.405-1(b) and 8.405-2(c)(1).

245 FAR 8.405-1(c).

246 As of January 2006, GSA Advantage! provides more than 11.2 million different commercial services 

and products through its 17,495 contracts in 43 different schedules. It features advanced search capability 

and has traffic of approximately 45,000 hits a day.

247 See id.

248 FAR 8.405-1(c)(3).

249 FAR 8.405-1(d).

250 FAR 8.405-1(d)(3).
76

be performed, location, period of performance, schedule, performance standards, etc.) 

to be provided along with evaluation criteria in an RFQ.

251 In circumstances involving 

orders over the micro-purchase threshold, but less than the maximum order threshold 

where an SOW is called for, the policy is that the buyer provide such an RFQ “to at 

least three schedule contractors that offer services that will meet the agency’s needs.”252

RFQs may be posted on e-Buy. Buyers are encouraged to request firm fixed-prices for 

the work scope.

253 The policy makes it clear that although the hourly rates are already 

on the schedule and deemed fair and reasonable (through deemed competition), the 

responsibility for obtaining a fair and reasonable price for the buyer’s specific requirement, considering the level of effort and mix of labor proposed, is the responsibility 

of the buyer.

254 Buyers are encouraged to seek price reductions regardless of the size of 

individual orders.

255

In purchases where the dollar value of the buy exceeds the maximum order threshold, 

or if establishing a BPA under a schedule, the FAR instructs ordering activities whose order 

does not require an SOW to review the price lists of additional schedule contractors, seek 

price reductions, and place the order or BPA with the schedule contractor that provides the 

best value.

256 However, as noted above, the order may be placed even if no price reductions 

are forthcoming.

257

For those orders exceeding the maximum order threshold or for establishing a BPA for 

services that require an SOW, the policy is that buyers provide the RFQ to additional schedule contractors, or to any schedule contractor who requests the RFQ. The SOW is required 

to identify the work performed, location period of performance deliverable schedule, and 

performance standards.

258 In order to determine the appropriate number of additional 

contractors, buyers should consider, among other factors, the complexity, scope, estimated 

value of the requirement and market research. GSA places the responsibility on the buyer 

whose requirement is being filled, to evaluate the responses and make an award to the 

schedule contractor determined to offer best value based on a consideration of the level of 

effort and the proposed labor mix for the task defined in the SOW.

259 In such circumstances 

and depending on the complexity and size of the order, the buying agency contracting 

officer may use his or her discretion to use the minimum required evaluation procedures 

in FAR 8.405-2 to conduct an evaluation that is similar to a best value selection under FAR 

part 15 and produces a result deemed to be the best value.

The Internet-based tool e-Buy often is used for order competitions under the GSA 

schedules. This tool is designed to facilitate the request for and submission of quotes or 

proposals for products and services offered through FSS contracts and GSA GWACs.

260

251 FAR 8.405-2(c).

252 FAR 8.405-2(c).

253 FAR 8.405-2(c)(2)(iii).

254 FAR 8.405-2(d).

255 FAR 8.405-4.

256 FAR 8.405-1(d)(1)-(3).

257 FAR 8.405-1(d)(3).

258 FAR 8.405-2 (b) and (c)(3).

259 FAR 8.405-2(c)(3)-(4) and 8.405-2(d).

260 http://www.gsaadvantage.gov.
77

Agencies can use e-Buy to prepare and post a request for quotations for specific products 

and services for a specified period of time, and contractors may review the request and post 

a response. Under the e-Buy tool, the buying agency, not GSA, defines the requirements 

and writes the statement of work—GSA does not review them. The buying agency selects 

the contractors who will be solicited for a quotation. However, the system is set up so that 

all vendors within the selected product/service categories or SINs can view the RFQ under 

the bulletin board and submit quotations. It is up to the vendor whether to make the effort 

to submit a quotation if that vendor did not receive a solicitation. Using e-Buy satisfies the 

additional requirements of DFARS 208.405-70. DoD’s implementation was addressed in 

the GAO report discussed above.

261

For example, an ordering agency with a requirement for an IT business improvement 

task may choose SIN 132-51, IT Services, under the Schedule 70-IT and SIN 874-1, Consulting Services, under the Schedule 874-MOBIS. The e-Buy system will show the list of 3,995 

vendors available under SIN 132-51 and 1,741 vendors under SIN 874-1 (as of 6/8/2006).

The agency will then select the vendors to whom to send e-mail notifications about the 

RFQ (“select all vendors” is also available). However, the rest of the vendors within the two 

SINs may still view the RFQ in the bulletin board and submit quotes. Under, FAR 8.405-

2(c)(4) and (d), the ordering agencies must provide the RFQ including the statement of 

work and the evaluation criteria to any schedule contractor who requests it and they must 

also evaluate all responses received. The agency can decide reasonable response time.

Postings on e-Buy have been continually increasing since its inception in August 2002.

In FY 2003, 13,282 solicitations were posted. Postings increased to 25,582 in FY 2004 and 

41,179 in FY 2005. Finally, in FY 2006, there have been 48,423 postings representing an 

approximately 18 percent increase over the last year. On average, three quotes have been 

received per closed RFQ during FY 2005 and FY 2006.

262

Regardless of whether ordering activities use e-Buy, the ordering activity, not GSA, is 

responsible for establishing the dollar thresholds for BPAs and orders, developing a quality 

SOW when required, conducting the competition including selecting appropriate vendors 

to receive an RFQ when e-Buy is not used, and evaluating and selecting the schedule contractor to fulfill their requirements.

As with task orders under multiple award contracts, Section 803 also applies to orders 

under FSS contracts. DoD regulations impose the requirements of Section 803 for services 

orders over $100,000 under GSA schedule contracts.

263 As implemented in DFARS 208.405-

70, DoD’s regulations require that a DoD order for supplies or services exceeding $100,000 

must provide fair notice either to all applicable schedule holders or to as many schedule 

contractors as practicable to reasonably ensure receipt of at least three offers. The Procedures, Guidance and Information (“PGI”) for DFARS 208.405-70 specifically mentions 

“e-Buy” as one medium that provides fair notice to all the GSA schedule contractors. At the 

time of this report, GSA has under consideration, a proposed rule that will make Section 

803 applicable government-wide.

261 See GAO-04-874.

262 Data provided to Panel by GSA.

263 See DFARS 208.405-70.
78

(ii) Schedule BPAs. Blanket Purchase Agreements under GSA schedules also are used 

as a tool to streamline the ordering process. BPAs originally were designed to provide a 

simplified method for government agencies to meet their repetitive needs for unpredictable quantities of commodities.

264 With the addition of services priced at hourly rates to 

the Federal Supply Schedules, schedule BPAs for these services in some ways more closely 

resemble IDIQ services contracts in their application and use than traditional FAR Part 

13 BPAs with their individual purchase limitations.

265 BPAs under GSA schedules may be 

single BPAs or multiple BPAs. Schedule BPAs also may be established for the use of a single 

agency, or may be established for multi-agency use if the BPA identifies the participating 

agencies and their estimated requirements at the time the BPA is established.

While fair opportunity requirements that apply to umbrella IDIQ contracts do not 

apply to multiple BPAs, the establishing agency must specify the ordering procedures to be 

used by the ordering activities and the ordering activities must forward their requirement, 

including any statement of work and evaluation criteria, if required, to an appropriate 

number of BPA holders, as established by the BPA’s ordering procedures.

Unlike traditional FAR Part 13 BPAs, with their dollar threshold limitations, BPAs under 

GSA schedules have been used for streamlining large buying programs for various types of 

services and supplies. While dollar thresholds invoke varying ordering procedures under GSA 

schedules (as discussed above), there are no dollar limits for an order or a BPA. After complying with the ordering policies discussed above under FAR Subsection 8.405-1 or -2 as applicable for establishing the BPA, and estimating the quantities or work to be performed,266 the 

ordering activity may place orders as the need arises for the duration of the BPA (usually five 

years),267 without notice requirements or competition beyond that required under the BPA’s 

ordering procedures. As discussed above, FAR Subsection 8.405-3(b)(3) requires that those 

placing orders under a BPA for hourly rate services develop an SOW for the order and ensure 

that the order specifies a price for the performance of the tasks identified in the SOW. So, while 

the hourly rates are themselves already deemed fair and reasonable, FAR Subsection 8.405-2(d) 

places the responsibility for considering the level of effort and the mix of labor proposed to perform a specific task on the ordering activity in determining the total price reasonable. 

While an established BPA can remain in effect for up to five years (may exceed five years 

to meet program requirements),268 the contracting officer must review the BPA annually.

269

The review process must determine whether the vendor is still under the GSA schedule contract, whether the BPA is still the best value for the government, and whether additional price 

reductions could be obtained due to an increase in the amounts of services purchased.

270 In 

addition, the contracting officer must document the results of the annual review.

271

(iii) Brand-Name Specifications. On April 11, 2005, OMB issued a memorandum 

addressing the use of brand-name specifications to reinforce the need to maintain vendor 

264 FAR 8.405-3(a)(1).

265 FAR Subsection 13.303-5(b).

266 FAR 8.405-3(a)(2).

267 FAR 8-405.3(c).

268 Id. at 8.405-3(c).

269 Id. at 8.405-3(d).

270 Id. at 8.405-3(d)(1).

271 Id, at 8.405-3(d)(2).
79

and technology neutral contract specifications. OMB’s twin goals in issuing the memorandum were to increase competition and transparency regarding the use of brand-name 

requirements. OMB encouraged agencies to limit the use of brand-name specifications 

and requested that agencies publicize any justification for use of a brand name with the 

contract solicitation. The Civilian Agency Acquisition Council and the Defense Acquisition 

Regulations Council followed suit, and, on September 28, 2006, the Councils issued an 

interim rule amending the FAR to require agencies to publish on the GPE or e-Buy, the justification to support the use of brand-name specifications.

The interim rule stated that, as a general rule, contract specifications should emphasize 

the necessary physical, functional, and performance characteristics of a product—not brand 

names. In addition, the interim rule requires that brand-name orders exceeding $25,000 

to be placed against the FSS program must be posted on e-Buy. As part of the posting, the 

ordering agency is required to include the documentation or justification supporting the 

brand-name requirement. For non-FSS acquisitions, including simplified acquisitions, the 

interim rule requires posting of the justification or documentation supporting the brandname requirement to the FedBizOpps website.

F. Pricing—The Current Regulatory and Oversight Scheme

1. Overview

Under current law, contracts that are priced or performed on the basis of cost are subject to the requirement for submission of certified cost or pricing data if they are above the 

$650,000 threshold.

272 There are exceptions to this requirement, as discussed further below, 

for competitively awarded contracts (although noncompetitive modifications to such contracts may be covered) and for contracts for commercial items (the exception also covers 

modifications to commercial item contracts).

For commercial item contracts under FAR Part 12, the government still must determine 

whether the price is fair and reasonable. Where commercial item contracts are competitively 

awarded, price reasonableness is easily established. Where commercial item contracts are 

acquired noncompetitively, an issue arises as to what data should reasonably be required to 

support the contractor’s proposed pricing. For price-based acquisitions of commercial items, 

FAR 15.403-3(c) describes the process the contracting officer must utilize. The contracting 

officer is directed, “at a minimum” to use price analysis to determine fair and reasonable 

prices whenever a commercial item is acquired. If price analysis is not sufficient, the contracting officer is directed to use other sources (e.g., market information), and if that is insufficient, authority exists to obtain information other than cost or pricing data.

In the grey area, where there is little or no competition, where exceptions to fair opportunity are used, or where there is an inadequate response to the competition, questions arise 

as to what types of data the contracting officer can and should obtain in connection with 

commercial items, whether pressures to get to award discourage asking for information other 

than cost or pricing data, and what the government audit community does with such data; 

i.e., is the mindset to treat it no different than cost or pricing data?

272 FAR 15.403-4(a).
80

For defense articles, considerable controversy has arisen since this Panel was appointed 

regarding whether such articles should be considered “commercial items” and whether 

price-based acquisition of such items should be permitted.

2. The Current Truth in Negotiations Act

The TINA273 requires a contractor to submit certain factual information to the government for purposes of contract negotiations. The contractor must submit this “cost or pricing 

data” to the government and certify that the data are “accurate, complete, and current.”274

Specifically, unless an exception applies, TINA requires submission of cost or pricing 

data before the award of any negotiated prime contract, subcontract, or modification to 

any contract that is expected to exceed $650,000. Unless an exception applies, cost or pricing data also may be required for contract actions over the simplified acquisition threshold 

if the data are necessary to determine whether the offered contract or modification price is 

fair and reasonable.

275 The FAR encourages contracting officers to “use every means available to ascertain whether a fair and reasonable price can be determined before requesting 

cost or pricing data.” 276

There are several exceptions to the requirement that a contractor submit cost or pricing 

data.

277 A contractor does not have to provide cost or pricing data if the agreed upon price 

was based on “adequate price competition”278 or “prices set by law or regulation.”279 Finally, 

submission of cost or pricing data is not required for contracts for “commercial items” 

or modifications to such contracts (provided that such modifications would not change 

the contract from one for a commercial item to one other than for a commercial item).

280

Notwithstanding, the contracting officer may require information other than cost or pricing 

data to support a determination of price reasonableness or cost realism.

281 The government 

may not require submission of certified cost or pricing data if an exception applies.

282

a. What is Cost or Pricing Data? 

Cost or pricing data is broadly defined as: 

all facts that, as of the date of agreement on the price of a contract (or the 

price of a contract modification), or, if applicable consistent with [TINA], 

another date agreed upon between the parties, a prudent buyer or seller 

would reasonably expect to affect price negotiations significantly. Such 

term does not include information that is judgmental, but does include the 

factual information from which a judgment was derived.

283

273 10 U.S.C. § 2306a; 41 U.S.C. § 254b.

274 See 10 U.S.C. § 2306a(a)(2), 41 U.S.C. § 254b(a)(2).

275 See FAR 15.403-4(a)(2).

276 FAR 15.402(a)(3).

277 See 10 U.S.C. § 2306a(b); 41 U.S.C. § 254b(b); FAR 15.403-1.

278 See FAR 15.403-1(b)(1).

279 FAR 15.403-1(b)(2).

280 See FAR 15.403-1(b)(3), (5).

281 See FAR 15.403-1(b).

282 See 10 U.S.C. § 2306a(b); 41 U.S.C. § 254b(b).

283 10 U.S.C. § 2306a(h)(1); 41 U.S.C. § 254b(h)(1). See also FAR 2.101.
81

The FAR further states:

Cost or pricing data are factual, not judgmental; and are verifiable. While 

they do not indicate the accuracy of the prospective contractor’s judgment 

about estimated future costs or projections, they do include the data forming the basis for that judgment. Cost or pricing data are more than historical accounting data; they are all the facts that can be reasonably expected to 

contribute to the soundness of estimates of future costs and to the validity 

of determinations of costs already incurred.

284

Thus, cost or pricing data includes a variety of information including, but not limited 

to, cost information on which the contractor based its price.

The FAR provides some specific guidance in identifying broad categories of information that qualify as cost or pricing data. It states that cost or pricing data includes 

such factors as–

(1) Vendor quotations; 

(2) Nonrecurring costs;

(3) Information on changes in production methods and in production or

purchasing volume; 

(4) Data supporting projections of business prospects and objectives and 

related operations costs; 

(5) Unit-cost trends such as those associated with labor efficiency; 

(6) Make-or-buy decisions; 

(7) Estimated resources to attain business goals; and 

(8) Information on management decisions that could have a significant 

bearing on costs.

285

b. Information Other Than Cost or Pricing Data

When one of the exceptions discussed above applies, the contracting officer “shall not 

require submission of cost or pricing data to support any action (contracts, subcontracts, or 

modifications).”286 Therefore, the prohibition on obtaining such data is explicit. The FAR 

also states, however, that the contracting officer “may require information other than cost 

or pricing data to support a determination of price reasonableness or cost realism.”287

284 FAR 2.101.

285 Id.

286 See FAR 15.403-1(b).

287 Id. 
82

The text of TINA provides:

When certified cost or pricing data are not required to be submitted under 

this section for a contract, subcontract, or modification of a contract or 

subcontract, the contracting officer shall require submission of data other 

than certified cost or pricing data to the extent necessary to determine the 

reasonableness of the price of the contract, subcontract, or modification of 

the contract or subcontract. Except in the case of a contract or subcontract 

covered by the exceptions in subsection (b)(1)(A), the contracting officer 

shall require that the data submitted include, at a minimum, appropriate 

information on the prices at which the same item or similar items have 

previously been sold that is adequate for evaluating the reasonableness of 

the price for the procurement.

288

The FAR mandates that, in establishing the reasonableness of prices, a contracting 

officer must not obtain more information than is “necessary.”289 If “the contracting officer 

cannot obtain adequate information from sources other than the offeror, the contracting 

officer must require submission of information other than cost or pricing data.”290

In light of the use of the phrase “other than” in conjunction with “cost or pricing data,” 

it is not entirely clear from the TINA statute or the implementing regulation in the FAR 

what qualifies as “information other than cost or pricing data.” Neither statute nor the FAR 

specify the difference between “cost or pricing data” and “information other than cost or 

pricing data.” For example, it is not clear from the regulation whether the category “information other than cost or pricing data” necessarily encompasses the same types of cost or 

price-related information as “cost or pricing data,” and if it then differs from “cost or pricing data” only in regard to certification and defective pricing implications.

Although the FAR does not describe the differences between “cost or pricing data” and 

“information other than cost or pricing data,” it sets forth the following order of precedence for seeking “information other than cost or pricing data” when cost or pricing data 

are not required and there is no “adequate competition”: 

Information related to prices (e.g., established catalog or market prices or 

previous contract prices), relying first on information available within the 

Government; second, on information obtained from sources other than the 

offeror; and, if necessary, on information obtained from the offeror. When 

obtaining information from the offeror is necessary, unless an exception 

under 15.403-1(b)(1) or (2) applies, such information submitted by the 

offeror shall include, at a minimum, appropriate information on the prices 

at which the same or similar items have been sold previously, adequate for 

evaluating the reasonableness of the price.

* * * *

288 10 U.S.C. § 2306a(d)(1); See also 41 U.S.C. § 254b(d)(1).

289 See FAR 15.402(a).

290 FAR 15.403-3(a)(1).
83

Cost information, that does not meet the definition of cost or pricing data 

at [FAR] 2.101.

291

Thus, the order of precedence for “information other than cost or pricing data” looks 

first to price information and, secondarily, to cost information. The FAR does not further 

identify or describe “information other than cost or pricing data.”

Under the FAR, “information other than cost or pricing data” may be requested for 

commercial items where there is no adequate price competition.

292 The FAR provides:

(i) The contracting officer must limit requests for sales data relating to 

commercial items to data for the same or similar items during a relevant time period.

(ii) The contracting officer must, to the maximum extent practicable, limit 

the scope of the request for information relating to commercial items 

to include only information that is in the form regularly maintained by 

the offeror as part of its commercial operations.

293

The FAR includes instructions (located in Table 15-2) for submission of proposals 

when a contractor is required to submit cost or pricing data. The table is entitled “Instructions for Submitting Cost/Price Proposals When Cost or Pricing Data Are Required.” The 

instructions address various “cost elements,” including materials and services, direct labor, 

indirect costs, and other costs. The FAR provides detailed guidance regarding submission 

of the information.

294 Although “information other than cost or pricing data” is addressed 

in FAR Subpart 15.4, the FAR does not include instructions for how to submit “information 

other than cost or pricing data.” Instead, the FAR specifies that the “contractor’s format for 

submitting the information should be used,”295 although FAR 52.215-20 Alternate IV also 

enables the government to provide a “description of the information and the format that 

are required.”

3. GSA Schedule Pricing Policies

Because the services and products on GSA schedule contracts are commercial items and 

such contracts are awarded on commercial terms and conditions, GSA uses a price-based 

approach to negotiate contract pricing. This approach relies on the prices of the supplies/

services that are the same or similar to those in the commercial marketplace. Under this 

approach, submission of cost or pricing data is not required.

GSA’s negotiation objective is to receive prices that are equal to, or better than, a company’s MFC pricing for a comparable requirement. To arrive at a price that the government 

considers fair and reasonable, offerors are required to submit significant amounts of data 

pertaining to their commercial sales and discounting practices using the standard Commercial Sales Practices Format.

291 FAR 15.402(a)(2)(i), (ii).

292 See FAR 15.403-3(c)(1).

293 FAR 15.403-3(c)(2)(i), (ii).

294 See FAR 15.408 (tbl. 15-2).

295 FAR 15.403-3(a)(2).
84

GSA schedule contracts contain an Economic Price Adjustment clause under which 

schedule contractors may increase or decrease prices according to their commercial 

practice. Price decreases may be submitted at any time during the contract period. Price 

increases, resulting from a reissue or modification of the contractor’s commercial catalog that formed the basis for award, can only be made effective on or after the initial 12 

months of the contract period and, then, periodically thereafter for the remainder of the 

contract term. Under a standard GSA clause, MAS contractors are required to maintain and 

provide current Federal Supply Schedule Price Lists with detailed data on all price, pricerelated information, and pertinent ordering instructions (I-FSS-600).

A contractor’s pricing and discount information is subject to audit by the GSA Inspector General. GSA schedule contracts also contain a Price Reductions Clause that requires 

contractors provide and maintain auditable data establishing that, for the class of item 

offered, the government has maintained price parity with commercial customers identified for tracking purposes in the contract. If it is discovered that the contractor offered 

more favorable pricing arrangements to its commercial customers, the government will be 

entitled to a rebate. GSA’s Office of Inspector General uses its investigatory powers (including subpoenas) and the civil false claims act to pursue such rebates. The FSS program, thus, 

is unique in that it relies on commercial pricing but uses the audit, investigatory, and fraud 

prosecution powers of the government to enforce its price terms.

G. Unequal Treatment of the Parties

A fundamental difference between government and commercial contracting is unequal 

treatment of the parties in the contracting process. The government enjoys certain contractual 

“advantages” by virtue of its status as the “sovereign” resulting in benefits from the centuriesold, judicially created doctrine of sovereign or governmental immunity. The prime example 

of this doctrine is that the government cannot be sued unless (and only to the extent that) 

it consents to be sued.

296 Application of this doctrine to the contracting process means that 

contractors can sue the government only as permitted by the Tucker Act,297 which does not 

authorize suits in United States District Courts, jury trials, and certain types of relief such 

as specific performance, injunctions (except in bid protest cases), interest on damages, etc.

Related doctrines are “official” immunity, precluding lawsuits against government employees 

for their contractual activities,298 and the “sovereign acts” doctrine, which shields the government from contractual liability for actions taken in its sovereign capacity.

299

The government also enjoys special protection under the U.S. Constitution by virtue of 

the Appropriation Clause precluding payments from the Treasury unless authorized by a 

congressional appropriation statute.

300 Additional favored treatment for the government in 

contracts is provided in numerous statutory provisions, such as the Anti-Deficiency Act,301

296 United States v. Sherwood, 312 U.S. 584, 586 (1941).

297 28 U.S.C. § 1491(a)(1).

298 See Westfall v. Erwin, 484 U.S. 292, 295-96 (1988).

299 Horowitz v. United States, 267 U.S. 458 (1925).

300 See OPM v. Richmond, 496 U.S. 414 (1990).

301 31 U.S.C. § 1341(a)(1).
85

Contract Disputes Act of 1978,302 Defense Production Act, False Claims Act,303 Forfeiture of 

Claims Statute,304 Procurement Integrity Act,305 and the Truth in Negotiations Act.

306

The United States Supreme Court, however, has held for some 130 years that the 

same rules of contract interpretation and performance apply to both the government 

and contractors. The Supreme Court stated in 1875 that the government is subject to 

the same rules as contractors. In Cooke v. United States,

307 the Court said that, when the 

United States became parties to commercial papers, they incur all the responsibilities of 

private persons under the same circumstances. The Court then said:

If [a government] comes down from its position of sovereignty, and enters 

the domain of commerce, it submits itself to the same laws that govern 

individuals there.

308

Two years later, in a case involving the government’s obligations under a lease, the 

Court said:

The United States, when they contract with their citizens, are controlled by 

the same laws that govern the citizen in that behalf. All obligations which 

would be implied against citizens under the same circumstances will be 

implied against them.

309

In the Lynch case involving government insurance, the Court said:

When the United States enters into contract relations, its rights and duties 

therein are governed generally by the law applicable to contracts between 

private individuals.

310

The Panel considered areas in which the courts and boards of contract appeals have not 

followed the guidance in the Supreme Court’s decisions and have provided the government 

more favorable treatment than contractors even when the disparate treatment is not based 

on the Constitution, statutory provisions, or contract clauses. These areas included the presumption of regularity (that actions of the government were conducted properly and correctly),311 estoppel against the government,312 the presumption of good faith,313 and interest 

as damages.

314

302 41 U.S.C. § 601 et. seq.

303 31 U.S.C. §§ 3729-3731.

304 28 U.S.C. § 2514.

305 Office of Fed. Procurement Policy Act, 41 U.S.C. § 423.

306 10 U.S.C. § 2306(f).

307 91 U.S. 389 (1875).

308 Id. at 398.

309 United States v. Bostwick, 94 U.S. 65, 66 (1877).

310 Lynch v. United States, 292 U.S. 571, 579 (1934); see also Franconia Associates v. United States, 536 U.S.

129, 141 (2002).

311 See, e.g., Astro Sci. Corp. v. United States, 471 F.2d 624, 627 (Ct. Cl. 1973) (government tests were 

conducted properly).

312 See, e.g., Rumsfeld v. United Tech. Corp., 315 F.3d 1361, 1377 (Fed. Cir. 2003).

313 Torncello v. United States, 681 F.2d 756, 770 (Ct. Cl. 1982).

314 See England v. Contel Advanced Sys., Inc., 384 F.3d 1372 (Fed. Cir. 2004).
86

The Panel gave considerable attention to the legal presumptions, primarily because of a 

scholarly opinion by Judge Wolski in the United States Court of Federal Claims decision in 

Tecom, Inc. v. United States315 (decided during the Panel’s deliberations) and a recommendation by the American Bar Association’s Section of Public Contract Law.

The Tecom case discussed the history and application of the presumptions of regularity 

and good faith. The presumptions have their root in the English law of evidence, and the 

presumptions initially applied to both government officials and private persons (the law 

presumed every man, in his private and official character, did his duty, and all things were 

rightly done, until the contrary is proved).

316 The Supreme Court of the United States initially 

did not limit the presumptions to government officials but applied them also to private persons.

317 The Tecom decision discussed the judicial precedent involving the burden of proof 

needed to rebut the presumptions and contrasted actions by government officials accused of 

fraud or quasi-criminal wrongdoing with their actions of the type that may be taken by a private party to a contract.

318 In fact, many of the cases discussed by Judge Wolski can be distinguished on the basis of actions taken by a government official in the government’s sovereign 

or contractual capacities.

The comments of the American Bar Association’s Section of Public Contract Law (consisting of lawyers in private practice, industry, and government service) were contained in 

a letter to the Panel from the Section dated June 22, 2006. The Section noted that courts 

and boards of contract appeals, over time, have applied some presumptions to conduct of 

government employees acting in the contractual area, not merely the sovereign area. Much 

of the confusion, the Section said, comes from the mingling of (a) the duty of good faith 

and fair dealing (as recognized by Section 205 of the Restatement 2d of Contracts) that is 

implied into every contract with (b) the presumption of good faith that attaches to government employees acting in a sovereign capacity. The Section also noted that the unequal 

treatment of the government and contractors by the misapplication of the doctrine has 

been compounded by some judges who have imposed a higher standard of proof on contractors in order to overcome the presumption. The Section concluded by recommending 

the following language:

The contractor and the Government shall enjoy the same legal presumptions, 

if any, in discharging their duties and in exercising their rights in connection 

with the performance of any Government contract, and either party’s attempt 

to rebut any legal presumption that applies to the other party’s conduct shall be 

subject to a uniform evidentiary standard that applies equally to both parties.

Representatives of the ABA Section discussed the recommendation at a meeting of the 

Panel and responded to numerous questions and comments by Panel members, including 

acceptance of several revisions to the quoted recommendation made during the meeting.

315 66 Fed. Cl. 736 (2005).

316 Id. at 758.

317 Id. at 760.

318 Id. at 769.
87

II. Findings

1. Commercial “Best Practices” Generally

Finding: 

“Best practices” by commercial buyers of services include a clear definition 

of requirements, reliance on competition for pricing and innovative solutions, and use of fixed-price contracts. 

Discussion: 

The Panel found a number of common “best practices” among commercial buyers in 

the commercial marketplace.

319 Commercial buyers invest the time and resources necessary 

up-front to clearly define their requirement. They use multidisciplinary teams to plan their 

procurements, conduct competitions, and monitor contract performance throughout the 

terms of the contract. They rely on well-defined requirements and competitive awards to 

reduce prices and to obtain innovative and high quality goods and services. Commercial 

buyers establish objective measures of performance and continuously monitor contract 

performance. They rely on carefully crafted standardized terms and conditions, developed 

with vendor input, to manage risk and ensure quality performance.

Commercial buyers also told the Panel that, when feasible, they preferred fixed-priced 

contracts. Well-defined performance-based requirements facilitated the use of fixed-price 

contracts. These same buyers avoided the use of cost-based contracts whenever possible.

They indicated that cost-based contracts were too expensive and too burdensome on the 

company to manage. These commercial buyers typically use relatively short-term contracts, 

usually three to five years with some contracts lasting seven years. Commercial buyers usually reserve the right to recompete before the contract has run full term.

2. Defining Requirements 

Finding: 

Commercial organizations invest the time and resources necessary to 

understand and define their requirements. They use multidisciplinary teams 

to plan their procurements, conduct competitions for award, and monitor 

contract performance. They rely on well-defined requirements and competitive awards to reduce prices and to obtain innovative, high quality goods and 

services. Procurements with clear requirements are far more likely to meet 

customer needs and be successful in execution. 

Discussion: 

Effective services competition in the private sector rests upon a robust requirementsbuilding process.

320 Gathering of requirements is a fundamental first step in commercial 

319 For an extended discussion of best practices for creating contractual structures that allow 

commercial buyers of services to manage a dynamic outsourcing arrangement, see Presentation of Daniel 

Masur, Outsourcing Attorney, AAP Pub. Meeting (Sep. 27, 2005) Tr. At 77-110.

320 Test. of Janice Menker, Concurrent Tech. Corp., AAP Pub. Meeting (May 17, 2005) Tr. at 32 (culture 

change to focus on requirements definition is difficult, but the best written contract cannot fix poor 

requirements definition).
88

organizations’ services acquisition strategy.

321 Companies with deep experience in services acquisition value acquisition process governance as highly as selecting the awardee 

providing the best functional expertise.

322 For buyers, detailed statements of work communicating specific contract requirements and expected levels of service quality are 

essential to a successful relationship with vendors.

323

Private sector companies spend significant amounts of time and resources developing 

business cases for services acquisition.

324 They get the stakeholders involved and use highly 

qualified personnel to develop the business cases. Business case development helps to prevent false trade-offs. Cost reduction is just one component of the business cases. They have 

found that too much focus on cost reduction can lead to missed opportunities and, in some 

cases, reduce service quality in other areas of the organization.

325 Stated differently, total 

cost of service acquisition does not equal total value captured through sourcing.

326 Companies that conducted successful sourcing transactions focused on total value when planning 

requirements. They also used specifications with well-defined scopes of desired services.

327

3. Competition in the Commercial Marketplace

Finding:

Commercial buyers rely extensively on competition when acquiring goods 

and services. Commercial buyers further facilitate competition by defining their requirements in a manner that allows services to be acquired on a 

fixed-price basis in most instances. 

Discussion: 

Commercial buyers strongly prefer head-to-head competition among vendors. Successful 

commercial organizations rely on competition to deliver the best quality and the greatest value.

As a result, they minimize use of sole source or other contract forms that restrict competition.

One company testified that its standard practice is to send RFPs to four leading vendors and 

hold discussions with at least two of the four.

328 Consultants recommend maintaining competition throughout the procurement process.

329

Competition in the commercial marketplace is achieved by starting with an in-depth 

analysis of company needs, internal strengths and weaknesses, and strategic goals. The 

process often begins with wide-ranging requests for information (“RFIs”) to gather information about services and vendors available in the commercial marketplace. Competition 

does not end when the sourcing transaction contract is signed. Rather, Six Sigma-style, continuous evaluation is the predominant model for continuously measuring vendor/supplier 

321 Test. of Mark Stelzner, EquaTerra, AAP Pub. Meeting (Aug. 18, 2005) Tr. at 360.

322 Id.

323 Test. of Robert Miller, Procter & Gamble, AAP Pub. Meeting (Mar. 30, 2005) Tr. at 80.

324 Test. of Todd Furniss, Everest Group, AAP Pub. Meeting (Mar. 30, 2005) Tr. at 122-23.

325 Id. at 121; Test. of Tony Scott, Walt Disney Co., AAP Pub. Meeting (Apr. 21, 2006) Tr. at 11.

326 Furniss Test., AAP Pub. Meeting (Mar. 30, 2005) at 116.

327 Test. of Ronald Casbon, Bayer, AAP Pub. Meeting (Aug. 18, 2005) Tr. at 219.

328 Miller Test., AAP Pub. Meeting (Mar. 30, 2005) at 79.

329 See Furniss Test., AAP Pub. Meeting (Mar. 30, 2005) at 142.
89

performance.

330 Vendors expect ongoing monitoring, and continually face the prospect of 

losing business if technology or strategic direction changes, or if service metrics fall below 

target levels.

331 Commercial companies with robust sourcing activities are aligned around 

common objectives, with buy-in at all levels of the organization, so that vendors and company employees managing vendors understand their objectives and have profit-and-loss 

responsibility for their transactions.

332

4. Contract Terms and Conditions Used in Commercial 

Contracts 

Finding: 

Large commercial buyers generally require sellers to use the buyers’ contracts which include the buyers’ standard terms and conditions. This allows 

all offerors to compete on a common basis. The use of standard terms and 

conditions streamlines the acquisition process, making it easier to compare 

competing offers, eliminating the need to negotiate individual contract terms 

with each offeror, and facilitating contract management. 

Discussion: 

The commercial buyers who addressed the Panel said that they use tight deal terms in 

their solicitation, e.g., detailed pricing structure, work breakdown matrices, description of 

work, etc. The commercial buyers also have developed and use their own standard contracts in large procurements. These standard contracts have several important advantages 

to the seller. They provide consistency and predictability. Sellers know what to expect. Also 

standard contract terms create a common baseline for evaluating offers in a competitive 

acquisition. Standard contract terms also benefit the buyer. They streamline the acquisition 

process by simplifying the comparison of competing offers and by eliminating the need for 

negotiation of terms and conditions with individual vendors. Commercial buyers seldom 

grant deviations to their standard contract terms. Rather than tailoring terms for individual 

offerors, the buyers instruct the sellers to adjust their price to account for any risks associated with the buyers’ standard contract terms.

Unlike commercial practices, government contracts using the streamlined procedures 

of FAR Part 12 normally incorporate the sellers’ terms and conditions verbatim along with 

several mandatory FAR clauses. Analyzing the sellers’ terms and conditions, and negotiating changes to them can be very time consuming. The risk allocations under commercial 

terms frequently differ from those under the FAR provisions for traditional procurements.

For example, a seller’s commercial terms might limit its risk by defining when acceptance 

occurs or by limiting remedies for nonperformance. Also under FAR Part 12, the government cannot unilaterally direct changes. The seller must first agree to both the change and 

the price.

330 See notes 13, 33–34, 44–48, infra, and accompanying text.

331 See notes 47–48, infra, and accompanying text. For a discussion of the importance of maintaining 

control over the engagement in this manner and the methods of retaining control, see Masur Test., AAP 

Pub. Meeting (Sep. 27, 2005) at 77-110; see also Hassett Test., AAP Pub. Meeting (Mar. 30, 2005) at 123.

332 MacMonagle Test., AAP Pub. Meeting (May 18, 2006) handout at 7.
90

5. Pricing of Commercial Contracts by Commercial Buyers

Finding:

Commercial buyers rely on competition for the pricing of commercial goods 

and services. They achieve competition by carefully defining their requirements in a manner that facilitates competitive offers and fixed-price bids. 

In the absence of competition, commercial buyers rely on market research, 

benchmarking, and, in some cases, cost-related data provided by the seller, 

to determine a price range. 

Discussion: 

Commercial buyers rely upon well-defined requirements and head-to-head competition for pricing. They define requirements in a manner that facilitates fixed-price bids.

Commercial buyers conduct extensive market research and use that information to support 

competition for their solicitations. In the absence of competition (which is relatively rare), 

commercial buyers rely on their own market research and sometimes seek data from other 

vendors. Commercial buyers occasionally use vendor cost data from sellers to establish 

price reasonableness. However, commercial buyers generally do not request detailed cost 

data from commercial sellers.

There is an unequivocal mandate for competition that runs through the statutes and 

regulations that govern federal procurement. Despite this clear mandate, reports by the GAO 

and DoD IG show that the federal government continues to award a significant proportion 

of task orders noncompetitively. These noncompetitive actions are not limited to traditional 

procurements; they include commercial items and services. In contrast, commercial buyers 

repeatedly told the Panel that competition results in better quality good and services and 

lower prices. As a result, commercial buyers avoid sole source arrangements.

6. “Commercial Practices” Adopted by the Government 

(a) Finding: 

The government has implemented a number of different approaches to 

acquiring commercial items and services. Each approach has distinct 

strengths and weaknesses. The extent to which each of these approaches 

achieves competition, openness, and transparency varies. Competition for 

government contracts differs in significant respects from commercial practice, 

even where the government has attempted to adopt commercial approaches. 

Discussion:

Competition for government contracts for commercial items differs in significant 

respects from actual commercial practice, even where government has attempted to adopt 

commercial approaches. Reasons for this include the budget and appropriations process 

which largely limits availability of funds to a single fiscal year period, the government’s 

need to accomplish mission objectives, policies and statutory requirements requiring transparency and fairness in expenditure of taxpayer funds, use of the procurement system to 

accomplish various government social and economic objectives, and the audit and oversight process designed to protect from fraud, waste and abuse. The Panel found that government practices vary from providing very structured acquisitions processes with carefully 
91

defined requirements and a competitive selection process on the one hand, to ill defined 

requirements and minimal, if any, head-to-head competition on the other.

(b) Finding: 

The Panel received evidence from witnesses and through reports by inspectors general and the GAO concerning improper use of task and delivery order 

contracts, multiple award IDIQ contracts, and other government-wide contracts, including Federal Supply Schedule contracts, including improper use 

of these vehicles by some assisting entities. Nonetheless, the Panel strongly 

believes that when properly used these contract vehicles serve an important 

function and that the government derives considerable benefits from using 

them. Accordingly, the Panel has made specific recommendations in an effort 

to balance corrections to the identified problems while preserving important 

benefits of such contract vehicles. 

Discussion:

Evidence received by the Panel through witnesses and reports identified recurring problems with multiple award IDIQ contracts, and other government-wide contracts, including 

Federal Supply Schedule contracts. These problems include poorly defined requirements, 

lack of effective competition, the use of sole source awards without adequate justification, 

fiscal law violations, and the failure to manage the work once awarded. While these problems are serious and need to be addressed, they do not reflect underlying deficiencies in the 

contract vehicles. Rather they indicate management and contract administration failures 

that can be corrected. The Panel also heard testimony of corrective action taken by agencies 

to address these problems.

(c) Finding: 

The evidence received by the Panel regarding Federal Supply Schedule and 

multiple award contracts included the following:

(1) Solicitations for task and delivery order contracts often include an 

extremely broad scope of work that fails to produce meaningful competition. 

Discussion:

The Panel noted the testimony expressing concern and criticism regarding the 

extremely broad scope of work in the solicitations for task and delivery order contracts.

333

For example, many agencies opt for broadly defined contracts for IT services in an effort 

to encourage multiple bidders and, ultimately, multiple awardees. These efforts seek to 

encourage flexibility and spur competition on future task orders.

Testimony from large private sector buyers stated that those buyers were capable of 

defining their requirements for information technology services and competing them 

head-to-head—without resort to a secondary ordering process. The Panel questions 

whether the large IDIQ contracts being used by the government involve sufficient rigor in 

333 U.S. DoD IG, DoD Use of Multiple Award Task Order Contracts, Audit Rep. No. 99-116, 4-7 (Apr.

1999); GAO/NSIAD 00-56, 12-13; Kleinknecht Test. at 54-56.
92

the requirements process for the base contract and whether there is meaningful competition for these contracts and for task orders issued under these contracts.

334

(2) Orders placed under task and delivery order contracts frequently indicate 

insufficient attention to requirements development. 

Discussion:

The Panel heard criticism that orders often are placed under task and delivery order 

contracts with insufficient attention to requirements development. Testimony before 

the Panel by senior agency procurement officials335 and oversight organizations strongly 

indicates that these orders frequently involve insufficient requirements development. For 

example, the DoD IG reported in December 2006, that with respect to task orders placed 

by DoD entities in FY 2005 through the Department of the Treasury entity, FedSource, 61 

of 61 orders examined had no documentation that market research was performed.

336

(3) The ordering process under task and delivery order contracts, in some 

instances, occurs without rigorous acquisition planning, adequate source 

selection, and meaningful competition.

Discussion:

Reviews by GAO and the DoD IG over several years have repeatedly called into question the competitiveness of the ordering process under task and delivery order contracts.

These reviews have found overuse of the waiver authority to direct the work to a particular 

contractor. Reviews by the DoD IG indicate that the proportion of sole source orders is 

significant.

337 Additional reports issued as the Panel’s report was being finalized show further significant failures in competition for such orders. For example, the DoD IG review 

of Treasury’s FedSource in 2005 revealed that 51 of 61 task orders reviewed were awarded 

with inadequate or no competition.

338 Similarly, the DoD IG reported that, with respect 

to orders placed by DoD entities under the NASA Scientific and Engineering Workstation 

Procurement contracts in 2005, 69 of 111 orders examined were awarded without providing 

fair opportunity to qualified contractors.

339 In addition to the concerns about the waivers, 

GAO found in 2004 that for orders that were available for competition, buying organizations awarded more than one-third of the orders after receiving only one offer.

Although anecdotal, the Panel is familiar with situations where a statement of work 

was issued with proposals due in two or three days. The Panel observes that the contract 

holders confronted with such solicitations readily determine that it is not worth the time 

and cost to submit a proposal.

334 U.S. GAO, Defense Acquisitions: Tailored Approach Needed to Improve Service Acquisition Outcomes, 

GAO-07-20, 16-17, 20, 22 (2006).

335 Test. of Glenn Perry, DoEd, AAP Pub. Meeting (Feb. 23, 2006) Tr. at 136, 140-44, 146-51. Test. of 

Shay Assad, DPAP, AAP Public Meeting (June 14, 2006) Tr. at 25-28, 55-58, 96-97.

336 U.S. DoD IG, Report on FY 2005 Purchases Made Through the Department of the Treasury, D-2007-032, 

12 (2006).

337 U.S. DoD IG, D-2007-007.

338 U.S. DoD IG, D-2007-032, at ii.

339 U.S. DoD IG, FY 2005 DoD Purchases Made Through the National Aeronautics and Space Administration, 

D-2007-023, ii (2006).
93

Testimony before the Panel indicated concern that the Schedules may be used, in some 

instances, for large services procurements without adequate planning and source selection 

procedures.

340 Agencies placing large orders typically use a form of negotiated, best valuelike process, but are not required to adhere to any particular procedures for defining of 

requirements, evaluating proposals, or making a source selection decision.

(4) Agencies frequently make significant purchases of complex services 

using task and delivery orders.

Discussion:

Large orders under these contracts are being used for acquisition of complex services.

The Panel analyzed FPDS-NG data for 2004 and determined that of the $142 billion in 

interagency transactions, $66.7 billion was expended in single transactions over $5 million, 

with services accounting for 64 percent or $42.6 billion. For 2005, there was $132 billion in 

interagency transactions with $63.7 billion expended in single transactions over $5 million, 

with services accounting for 66 percent or $42 billion. The Panel believes these numbers to 

be understated because the numbers reflect single transactions, not the total order value (i.e., 

base year plus options).

(5) Use of task and delivery order contracts by agencies for the acquisition 

of complex services on a best value basis has been increasing. Guidance 

on how to conduct best value procurements using these contract vehicles is 

not adequate. 

Discussion:

The Panel notes that agencies use best value type source selection procedures for larger 

orders, including use of evaluation factors, cost/technical trade-offs and best value decisions. As the orders grow in size and the agencies use FAR Part 15-like procedures, the 

Panel has reservations about whether the standards for competition are adequate.

(6) Agency management control of orders placed using multi-agency contracts have varied in adequacy and effectiveness. 

Discussion:

Evidence received by the Panel indicates that agency management controls of orders 

placed using multi-agency contracts have varied widely in adequacy and effectiveness. For 

example, DoD IG reports in 2005, 2006, and 2007 addressing multi-agency contracts have 

cited poor acquisition planning, inadequate interagency agreements, lack of competition, 

lack of adequate quality assurance surveillance, and failure to clearly establish roles and 

responsibilities for contract administration between the contracting agency and the requiring agency.

341 The Panel also heard testimony from officials from various agencies, including 

340 Perry Test., AAP Pub. Meeting (Feb. 23, 2006) at 177-78.

341 See U.S. DoD IG, Acquisition–FY 2005 DoD Purchases Made Through the General Services 

Administration, D-2007-007, (2006) and DoD Purchases Made Through the General Services Administration, 

D-2005-096 (2005); U.S. DoD IG, Report on FY 2005 DoD Purchases Made Through the Department of the 

Treasury, D-2007-032 (2006); U.S. DoD IG, FY 2005 DoD Purchases Made Through the National Aeronautics 

and Space Administration, D-2007-023 (2006); U.S. DoD IG, Report on FY 2005 DoD Purchases Made Through 

the Department of Interior, D-2007-044 (2007).
94

GSA, of efforts to strengthen contract administration and better delineate roles and responsibilities for administration.

(7) The unit price structure commonly used on Federal Supply Schedule 

contracts and many multiple award contracts is not a particularly useful indicator of the true price when acquiring complex professional services.

Discussion: 

The current structure of the GSA Schedules was established for acquiring commercial 

commodities based on unit prices. Unit prices are not a particularly useful indicator of the 

true price for acquisition of complex professional services such as design, development, 

and implementation of IT systems. Obtaining best value for these acquisitions depends 

on the capabilities and expertise of a vendor, the mix of skills, and well-defined requirements—not merely hourly rates.

For such transactions, the Panel found that commercial practice for acquisition of such 

services involves careful requirements definition, head-to-head competitive negotiations, 

and best value source selection procedures.

(8) Competition based on well-defined requirements is the most effective 

method of establishing fair and reasonable prices for services using the Federal Supply Schedule.

Discussion:

The Panel noted the comments from GAO and others regarding the use of pre- and 

post-award audits of vendor commercial pricing to aid in negotiation and establishment of 

the prices most favorable to the government. With particular reference to services, the Panel 

finds that competition for services awards that is based on good quality requirements definition likely will be more effective than reliance on certifications and audits in establishing 

fair and reasonable prices for services on the schedule.

7. Time-and-Materials Contracts

Finding: 

Commercial buyers have a strong preference for the use of fixed-price contracts and avoid using time-and-materials contracts whenever practicable. 

Although difficult to quantify precisely due to limited data, the government 

makes extensive use of time-and-materials contracts. 

Discussion: 

Commercial buyers who spoke with the Panel provided many sound reasons not to use 

T&M contracts.

342 They noted that commercial clients in-source, or bring the work in-house, 

rather than use T&M contracts.

343 T&M contract structure encourages contractors to provide 

people to perform services while under the purchaser’s direction. The purchaser becomes the 

project manager rather than shifting project management risks and rewards to the vendor.

The T&M vendor has no incentive to be efficient, “because if they do so, they won’t be able to 

342 See Test. of Bhavneet Bajaj, TPI, AAP Pub. Meeting (Mar. 17, 2006) Tr. at 203-06.

343 Id. at 203.
95

provide more T&M bodies....”344 This view was not unanimous, with others suggesting that 

checks and balances inherent in the existing process do provide incentive for vendors to work 

efficiently. Such incentives include the threat of poor past performance citations and failure 

to receive contract options or follow-on work.

345

Despite concerns about efficiency, commercial organizations do use T&M contracts for 

some specific types of work. One large company, for example, uses T&M contracts for design 

engineering/development work, construction, and repair work.

346 Another uses T&M contracts for unique work, such as building capital equipment that was designed internally.

347

These companies are aware of the risks associated with T&M contracting and endeavor to 

maintain tight controls over the contracting process, costs, and levels of effort.

348

8. Statutory and Regulatory Definitions of Commercial 

Services 

Finding:

The current regulatory treatment of commercial items and services allows 

goods and services not sold in substantial quantities in the commercial marketplace to be classified nonetheless as “commercial” and acquired using 

the streamlined procedures of FAR Part 12. 

Discussion: 

The FAR definition of standalone commercial services in FAR 2.101 added the phrase 

“of a type” between the words “Services” and “offered” in the first line of the statutory definition of commercial services quoted below. There was no discussion of the addition of 

this phrase in the two proposed rules to implement the FASA definitions published in 60 

Fed. Reg. 11198 (March 1, 1995) and 60 Fed. Reg. 15220 (March 22, 1995). Notwithstanding having received 559 written comments to these proposed rules, the final rule implementing the statutory provisions for the acquisition of commercial items did not mention 

this variance between the statutory definition and the FAR definition.

The definition of standalone “commercial services” in 41 U.S.C. § 403(12)(F) is:

Services offered and sold competitively, in substantial quantities, in the 

commercial marketplace based on established catalog or market prices for 

specific tasks performed or specific outcomes to be achieved and under 

standard commercial terms and conditions.

349

The definition of a “commercial item” in subsection (12)(A) of the same statutory section, however, refers to any item that is “of a type” customarily used by the general public 

(with additional requirements). The omission of the phrase “of a type” from the statutory 

definition of standalone “commercial services” is significant.

344 Bajaj Test., AAP Pub. Meeting (Mar. 17, 2006) at 205; Test. of John P. MacMonagle, GE Corporate 

Initiatives Group, AAP Pub. Meeting (May 18, 2006) at 171.

345 Test. of Bruce Leinster, ITAA, AAP Pub. Meeting (Aug. 18, 2005) Tr. at 121-22.

346 Panel communications with Casbon, Bayer, Spring 2006.

347 Panel communications with Miller, Procter & Gamble, Spring 2006.

348 Panel communications with Casbon and Miller, Spring 2006.

349 The words “or market” were added by Pub. L. No. 104-106 § 4204 (1996).
96

This definition for commercial services is adopted in FAR 2.101 as follows:350

(6) Services of a type offered and sold competitively in substantial quantities in the commercial marketplace based on established catalog or market 

prices for specific tasks performed or specific outcomes to be achieved and 

under standard commercial terms and conditions. This does not include 

services that are sold based on hourly rates without an established catalog 

or market price for a specific service performed or a specific outcome to be 

achieved. For purposes of these services–

(i) Catalog price means a price included in a catalog, price list, schedule, 

or other form that is regularly maintained by the manufacturer or vendor, 

is either published or otherwise available for inspection by customers, and 

states prices at which sales are currently, or were last, made to a significant 

number of buyers constituting the general public; and

(ii) Market prices means current prices that are established in the course of 

ordinary trade between buyers and sellers free to bargain and that can be substantiated through competition or from sources independent of the offerors.

(Emphasis added).

The most critical element of this definition is that a service must be “offered and sold 

competitively, in substantial quantities, in the commercial marketplace.” When commercial 

services are sold in substantial quantities, commercial market forces determine both price 

and the nature of the services offered.

The current regulatory definitions of commercial items and services allow goods and 

services not sold in substantial quantities in the commercial marketplace to be classified 

nonetheless as “commercial” and acquired using the streamlined procedures of FAR Part 

12. This can put the government at a significant disadvantage with respect to pricing when 

there is limited or no competition.

It is clear that Congress has always intended that pricing for commercial items and service be based on either competition or market prices. The conference report accompanying 

the National Defense Authorization Act for Fiscal Year 1996, which added “market prices” to 

the FASA definition of commercial item applicable to services,351 states that market prices are 

current prices that are established in the course of ordinary trade between buyers and sellers 

free to bargain and that can be substantiated from sources independent of the offeror.

352

The Panel believes that there is an appropriate balance between the use of commercial 

procedures under FAR Part 12 and more traditional methods of procurement. Commercial 

350 FAR 2.101 also provides the following definition for commercial services directly related to a 

commercial item:

(5) Installation services, maintenance services, repair services, training services, and other services if –

(i) Such services are procured for support of an item referred to in paragraph (1), (2), (3), or (4) of this 

definition, regardless of whether such services are provided by the same source or at the same time as the 

item; and

(ii) The source of such services provides similar services contemporaneously to the general public under 

terms and conditions similar to those offered to the Federal Government.

351 41 U.S.C. 403(12)(F) (1994).

352 H.R. Conf. Rep. No. 104-450, at 967.
97

items and commercial services that meet the various statutory and regulatory definitions 

can and should be acquired under the streamlined procedures of FAR Part 12 whenever 

appropriate. It is the operation of commercial market forces that makes FAR Part 12 work.

Extending the streamlined commercial procedures of FAR Part 12 to items and services 

that are not commercial under the statutory and regulatory definitions (with the changes 

recommended by the Panel), and therefore not subject to commercial market forces, disadvantages the government in pricing, limits competition, reduces transparency, and creates 

the opportunity for abuse. When commercial market forces do not exist, the Panel believes 

that the more traditional methods of procurement should be used.

9. Time Required for Commercial Services Contracts 

Finding: 

Commercial buyers can award a contract for complex services acquisitions 

in about six months, depending on the size of the acquisition and how much 

work is necessary for requirements definition. For larger contracts, if the 

process begins with requirements definition, the total cycle time to award 

may be six to twelve months. If some market research and requirements 

definition has been done in advance, commercial buyers stated they could 

get under contract in three to six months, even for larger contracts.353

Discussion:

The commercial buyers and consultants who testified before the Panel said that they 

generally required about six months to award a complex services contract. Large acquisitions, such as corporate-wide information technology contracts, could take up to a year.

Factors that facilitate a prompt award included market research, well-defined requirements, 

and direct involvement by key corporate stakeholders.

10. Impact of the Annual Budget and Appropriations 

Processes 

Finding: 

A fundamental difference between commercial and government acquisition is 

the fiscal environment in which decisions on acquisition processes are made. 

Commercial acquisition planning decisions can take place in a fiscal environment relatively unconstrained with respect to the availability of funds over 

time. In contrast, government acquisition decisions are driven to a significant 

extent by the budget and appropriations process which often limits availability 

of funds to a single fiscal year period. 

Discussion: 

Unlike commercial firms, federal agencies must plan and execute acquisition decisions 

within strict fiscal rules established by Congress. Most agencies’ operations and programs 

353 Bajaj Test., AAP Pub. Meeting (Mar. 17, 2006) at 192; Test. of Neil Hassett, United Tech. Corp., AAP 

Pub. Meeting (Apr. 19, 2005) Tr. at 123; Test. of Michael Bridges, GM, AAP Pub. Meeting (Aug. 18, 2005) 

Tr. at 191.
98

are funded on an annual basis. Fiscal rules limit when funds can be obligated. For example, 

operations and maintenance funds are only available for obligation within a single fiscal 

year. If not obligated, these funds cannot be rolled over into the next fiscal year. Fiscal rules 

also limit agencies’ flexibility in using funds for any purpose other than that for which the 

funds were specifically provided. Reprogramming of funds normally requires congressional 

approval. The inherent limitations created by an annual funding process are compounded 

when Congress fails to make these annual appropriations on time.

354 Late appropriations 

disrupt acquisition planning and compress the amount of time that agencies have to award 

new contracts or exercise options under existing contracts.

In this environment, the ability to obligate funds before they expire or are reprogrammed is treated as one measure of success by both Congress and agencies. In contrast 

to commercial companies, agencies have a fundamental incentive to follow acquisition 

processes that allow them to obligate funding as expeditiously as possible. At times, this 

occurs at the expense of obtaining the best business deal. The Panel recognizes that this 

significant difference between the commercial sector and the federal government has to be 

taken into account in considering the application of commercial acquisition practices to 

federal agencies.

11. Unequal Treatment of the Contracting Parties 

Finding: 

The failure to provide equal treatment for both parties to a government contract is inconsistent with commercial practices. Equal treatment should be 

afforded to the government and contractors in contractual provisions unless 

the Constitution of the United States or special considerations of the public 

interest require otherwise.

Discussion:

Although the presumption of good faith applies equally to both parties to a commercial contract in the event of a performance dispute, in performance disputes with the government, contractors do not enjoy the same legal presumptions regarding good faith of the 

parties. Under current legal precedent the government enjoys an enhanced presumption of 

good faith and regularity in such a dispute.

354 For example, Congress only enacted 2 of 10 major appropriations acts for fiscal year 2007, before 

the fiscal year began forcing many agencies to operate on short-term continuing resolutions.
99

III. Recommendations

1. Definition of Commercial Services 

Recommendation:

The definition of standalone commercial services in FAR 2.101 should be 

amended to delete the phrase “of a type” in the first sentence of the definition. Only those services that are actually sold in substantial quantities in the 

commercial marketplace should be deemed “commercial.” The government 

should acquire all other services under traditional contracting methods (e.g., 

FAR Part 15). 

Discussion: 

The Panel observed that the regulatory definition of commercial services is broader 

than the statute and can include services not sold in substantial quantities in the marketplace. The statute defining commercial services does not include the phrase “of a type.” 

Based on the Panel’s research and basic statutory construction, it is clear that when Congress used the phrase “of a type” for items, but not for services, it did not intend “of a type” 

to apply to services. The Panel proposes that the FAR be revised to be consistent with the 

statutory definition.

355 However, the regulatory coverage can be improved in two specific 

areas as proposed in Recommendations 1 and 6.

The Panel considered whether the statutory definitions of commercial services should 

be changed. After reviewing the legislative and regulatory origins of commercial services, 

and hearing evidence as to how the private and government sectors acquire commercial 

services, the Panel concluded that the current statutory definition of commercial services 

was adequate and does not need to be changed. The statutory definition of commercial 

services correctly focuses on the key concept—whether the services are sold in substantial 

quantities in the marketplace. The regulatory drafters added the phrase “of a type” to the 

statutory definition of commercial services. Their intention in adding this phrase was to 

allow the acquisition of commercial services when catalog prices did not exist. The drafters used grass cutting and janitorial contracts as some examples.

356 Today, the “of a type” 

language allows the government to acquire under FAR Part 12 services that are not sold in 

substantial quantities in the marketplace.

The Panel received some public comments critical of this proposed change. Some even 

accused the Panel of “rolling back the clock” on procurement reform. These critics, apparently confused, assumed that the Panel’s recommendation extended to both commercial 

items and commercial services. In fact, the Panel’s recommendation regarding the deletion 

of the phrase “of a type” is limited to commercial services.

The Panel also considered whether the statutory definition of commercial items should 

be changed. For the reasons described above, the Panel concluded that the current statutory 

definition of commercial items was adequate and does not need to be changed. The “of a 

type” language with respect to items enables the government to acquire the next generation of commercial items when they become available. Existing market forces generally are 

355 Lindh v. Murphy, 521 U.S. 320, 326-30 (1997).

356 See Appendix B.
100

adequate to enable the government to price new commercial items that are “of a type.” The 

Panel did hear anecdotal evidence of items being mischaracterized as commercial items by 

virtue of being “of a type.”357 However, correction of these mischaracterizations does not 

require a legislative change.

2. Improving the Requirements Process

Recommendation: 

Current policies mandating acquisition planning should be better enforced. 

Agencies must place greater emphasis on defining requirements, structuring 

solicitations to facilitate competition and fixed-price offers, and monitoring 

contract performance. Agencies should support requirements development 

by establishing centers of expertise in requirements analysis and development. Agencies should then ensure that no acquisition of complex services 

(e.g., information technology or management) occurs without express 

advance approval of requirements by the program manager or user and the 

contracting officer, regardless of which type of acquisition vehicle is used.

Discussion: 

Testimony before the Panel from commercial buyers overwhelmingly emphasized the 

importance of requirements definition to successful competition and performance of services contracts. DoD officials also testified that “it’s all about requirements.”358 The Panel’s 

findings demonstrate that the government’s requirements process for services acquisition is 

deficient in several respects.

This recommendation is intended to put “teeth” into the process of requirements definition for services contracts. Without review and sign-off from the senior program executive and the contracting officer, no acquisition may be conducted. This approach is consistent with commercial practice that requires “buy-in” by those portions of the company 

with an interest in the transaction. The sign-off may occur at the time of the initial business clearance memorandum, or an equivalent point—but must be accomplished without 

regard to the type of procurement process or vehicle used.

3. Improving Competition 

(a) Recommendation: 

The requirements of Section 803 of the FY 2002 Defense Authorization Act 

regarding orders for services over $100,000 placed against multiple award 

contracts, including Federal Supply Service schedules, should apply uniformly 

government-wide to all orders valued over the simplified acquisition threshold. 

357 The characterization of the Air Force KC-767 tanker and C-130J tactical transport aircraft as 

commercial items are two recent examples. U.S. DoD IG, Acquisition of the Boeing KC-767A Tanker Aircraft, 

D-2004-064 (2004); Contracting for and Performance of the C-130J Aircraft, D-2004-102 (2004); Contracting 

and Funding for the C-130J Aircraft Program, D-2006-093 (2006).

358 Assad Test., AAP Pub. Meeting (June 14, 2006) at 67.
101

Further, the requirements of Section 803 should apply to all orders, not just 

orders for services.

Discussion: 

Section 803 of the National Defense Authorization Act for 2002 (P.L. 107-107) changed 

the process for orders for services over $100,000 placed against multiple award contracts, 

including Federal Supply Schedules. DFARS implements Section 803 and requires the 

contracting officer to contact as many schedule holders capable of performing the work as 

practicable and ensure that at least three responses are received, or, alternatively, contact 

all the schedule holders. If the order is placed against multiple award contracts that are 

not part of the Federal Supply Schedules program, the contracting officer must contact all 

awardees that are capable of performing the work and provide them an opportunity to 

submit a proposal that must be fairly considered for award. Program managers and other 

requiring offices must assist in determining which contractors are capable of performing 

the desired work.

359

Under the Federal Supply Schedule program, the requirements of Section 803 apply to 

orders placed directly by DoD and orders placed by non-DoD activities on behalf of DoD.

In contrast, civilian agencies must place orders in accordance with FAR Subpart 8.4. Civilian agencies must comply with FAR 16.5 when placing orders against multiple award contracts authorized by FASA.

The Panel believes that there is no logical basis for having two sets of “fair opportunity” regimes—one subject to Section 803 and one not, especially given that DoD orders 

account for approximately 55 to 60 percent of all orders under the schedules as well as 

a majority of the orders under multiple award multi-agency contracts. Further, the Panel 

believes there is no logical basis for limiting the requirements of Section 803 to services. It 

should apply to all orders.

The proposed change would generally provide that, for schedule orders over the simplified acquisition threshold, the ordering agency must either provide notice to all schedule 

holders capable of meeting the requirement (via e-Buy or other electronic medium) or as 

many as practicable to reasonably ensure receipt of at least three offers. In the case where 

agency provides notice under the second scenario, if less than three offers are received, the 

contracting officer would be required to document the file outlining the efforts to obtain 

competition before an award could be made. For multiple award contracts authorized by 

the Federal Acquisition Streamlining Act of 1994 (FASA), notice and a fair opportunity to 

submit an offer for all contract holders would be required for all orders over the simplified 

acquisition threshold.

(b) Recommendation: 

Competitive procedures should be strengthened in policy, procedures, training, and application. For services orders over $5 million requiring a statement 

of work under any multiple award contract, in addition to “fair opportunity,” the 

following competition requirements as a minimum should be used: (1) a clear 

statement of the agency’s requirements; (2) a reasonable response period; (3) 

disclosure of the significant factors and subfactors that the agency expects 

359 DFARS 208.405-70 and 216.505-70.
102

to consider in evaluating proposals, including cost or price, and their relative 

importance; (4) where award is made on a best value basis, a written statement documenting the basis for award and the trade-off of quality versus cost 

or price. The requirements of FAR 15.3 shall not apply. There is no requirement to synopsize the requirement or solicit or accept proposals from vendors 

other than those holding contracts.

Discussion: 

Where acquisitions under multiple award contracts become significant procurement 

actions in their own right, essential attributes of source selection requirements should 

be applied at the order level. A substantial volume of orders exceeds $5 million and 

includes orders for services where the Agency uses best value type source selection. This 

approach facilitates head-to-head competition, but with a prequalified group of vendors.

The Panel notes that it is not recommending use of all of the procedures in FAR 15.3, nor 

is it suggesting that a synopsis of the requirement be provided to all responsible sources.

The exceptions to “fair opportunity” would be available consistent with the current DoD 

implementation of those exceptions which requires advance approval of a waiver. The 

Panel understands that the current regulations provide guidance on the structuring of 

best value acquisitions in the context of orders under multiple award contracts. However, 

the Panel believes that a clear, unambiguous statement addressing the specific standards 

to be applied should be included in the revised regulations implementing Section 803 

across the government.

The Panel believes that these recommendations are not inconsistent with the Small 

Business recommendations regarding award of contracts and task or delivery orders.

(c) Recommendation: 

Regulatory guidance should be provided in FAR to assist in establishing the 

weights to be given to different types of evaluation factors, including a minimum weight to be given to cost/price, in the acquisition of various types of 

products or services.

4. New Competitive Services Schedule 

Recommendation: 

Authorize GSA to establish a new information technology schedule for 

professional services under which prices for each order are established by 

competition and not based on posted rates. 

Discussion:

The Panel recommends that GSA be authorized to establish a new information 

technology schedule for professional services under which negotiation of the schedule 

contracts is limited to terms and conditions other than price.

360 Under this new schedule, prices would be determined at the order level based on competition for the specific 

requirement to be performed. As discussed in the Findings above, the Panel believes that 

the pricing for services is requirement specific. The price for services depends, to a greater 

360 See Appendix C.
103

degree, on the level of effort and mix of skills necessary to meet the government’s needs for 

an individual requirement (order). Rates play a role but are more often determined based 

on the specifics of the individual requirement and current market conditions.

The Panel envisions the proposed schedule working in the following manner. Negotiation of hourly rates based on most favored customer pricing would be eliminated at the 

schedule contract level. The Price Reductions Clause also would be eliminated. Offerors 

under the new IT schedule would be required to meet the following terms: (1) offer a 

commercial service that meets the definition described above (sold in substantial quantities); (2) have a suitable record of past performance; (3) agree to specific GSA terms and 

conditions for purchase of commercial items. The IT schedule contractors also would be 

contractually required to post labor rates on GSA Advantage!. The labor rates posted on 

GSA Advantage! would be established solely at each contractor’s discretion and could be 

changed by the contractor at any time. However, proposed prices in response to a task 

order request would be binding on the contractor.

Contracting officers would use the posted labor rates, along with key terms and conditions, for market research and comparison purposes when reviewing potential competitors at 

the order level. The Panel believes that the posting of rates at each contractor’s discretion will 

create a more dynamic market for services. The inherent competition created by the transparency of the “electronic marketplace” will benefit buyers who will be able to better compare 

and contrast the associated labor rates and services offered under this new IT schedule.

Contracting officers seeking to place a task order against this new schedule would be 

required to conduct a task order competition consistent with the Section 803 ordering procedures (see Panel Recommendation 3 above). Contracting officers could only use this schedule if a firm requirement exists that has been converted to a Statement of Work or Statement 

of Objectives. To the maximum extent practicable, the requirement should be firm fixedprice. If a labor-hour task order is contemplated, the agency must ensure it has the infrastructure in place to manage the effort (see Panel Recommendation 6 below). Contracting officers 

will be strongly encouraged to use “e-Buy,” GSA’s electronic request for quote (“RFQ”) tool 

linked to GSA Advantage!. “e-Buy” currently provides notice and an opportunity to compete to all applicable schedule contractors for RFQs posted at the site. Ordering activities 

will remain to be responsible for determining the reasonableness of the total price or prices 

proposed in response to an RFQ’s Statement of Work. The Federal Acquisition Regulation 

currently provides that for “services requiring a statement of work,” the ordering agency 

contracting officer determines the reasonableness of the price for the specific requirement by 

examining the level of effort and the labor mix. See FAR 8.405-2(d).

Audits under this schedule would more closely mirror commercial practice. Once the 

task order competition has taken place, audits may be performed on a contractor’s performance. However, since task order awards under this schedule will be based on competition, an examination of the individual rates or their corresponding “cost build up” would 

not be authorized. Audits would be limited to examining whether a contractor performed 

a task consistent with the contract and/or task order terms and conditions. Audits based on 

cost data or pricing practices, including post-award audits of pre-award price information 

and Price Reductions Clause compliance would be eliminated. While prices established by 

competition will require less audit attention, GSA’s current regulations, amended to adopt 
104

this recommendation, would provide sufficient basis for review of prices to ensure that the 

price proposed is consistent with the price paid.

Testimony before the Panel revealed that it is commercial practice to audit performance 

of a contract or task.

361 The private sector will audit whether a contract has been performed 

in accordance with applicable terms and conditions. In essence, a typical commercial audit 

includes whether the buyer gets what he or she paid for under the contract. Generally, 

when competition exists, commercial audits do not examine cost data or cost buildups 

associated with performance of a requirement.

362 In contrast, it is current GSA schedule 

policy that, at the time of contract formation, GSA requires the submission and potential 

audit of sensitive information regarding a commercial firm’s pricing practices and policies.

See GSAR 52.215-20. GSA uses this data to identify the “Most Favored Customer” pricing 

negotiation objective. GSA also uses the data to identify a class of customer for Price Reductions Clause application during performance of the contract. Testimony before the Panel 

revealed that, in the case of professional services, it is commercial practice to price based 

on the specific task to be performed.

363 The use of Most Favored Customer and Price Reductions Clause mechanisms are not conducive to commercial practices for pricing services.

Accordingly, the use of the Price Reductions Clause today for professional IT labor rates 

produces little benefit—the facts driving the cost of the project are the proficiency of the 

personnel and the mix of skills. This is particularly relevant if the requirement is large and 

complex such as in IT services procurement.

Currently, GSA and the contractors focus a great deal of time and energy on the negotiation of rates and audits of those rates. GSA has invested millions of dollars building 

an extensive infrastructure focused on the negotiation and audit of labor rates under the 

schedules program. Schedule contracting officers spend a significant portion of their work 

life negotiating pricing for professional service contracts that more often than not is not 

relevant to the actual performance of a complex professional service order requiring a statement of work.

364 GSA has also built structures to monitor and audit contractor performance 

with an emphasis on compliance with the Price Reductions Clause. Similarly, contractors 

invest major resources in submitting, negotiating, and creating compliance programs for 

schedule contracts including compliance with the Price Reductions Clause. By eliminating the MFC price negotiation model at the contract level, as well as the Price Reductions 

Clause, and focusing on competition at the order level, both industry and GSA can save 

money, improve efficiency and provide greater opportunity under the schedules program.

Under the proposed model, GSA would be able to focus more on negotiating key terms 

and conditions relating to services, establishing a more uniform description of the services 

being offered, as well as continuing to improve its e-tools for stronger task order competition. This approach could provide a more efficient and effective program for delivering services to the federal government.

361 MacMonagle Test., AAP Pub. Meeting (May 18, 2006) at 164-165; Bajaj Test., AAP Pub. Meeting 

(Mar. 17, 2006) at 153.

362 Bajaj Test., AAP Pub. Meeting (Mar. 17, 2006) at 196-97, 200-04; MacMonagle Test., AAP Pub.

Meeting (May 18, 2006) Tr. at 164-65.

363 Bridges Test., AAP Pub. Meeting (Aug. 18, 2005) at 136; MacMonagle Test., AAP Pub. Meeting at 

141; Leinster Test., AAP Pub. Meeting (Jan. 31, 2006) at 139; Bajaj Test., AAP Pub. Meeting at 154.

364 Testimony of Geraldine Watson, GSA, AAP Pub. Meeting (Aug. 18, 2005) Tr. at 16-28.
105

From the contractor’s perspective, providing pricing information at time of basic schedule contract offer also has significant implications for continued compliance with the Price 

Reductions and audit clauses. Under GSAR 515.215-71, Examination of Records by GSA 

(Multiple Award Schedule), GSA maintains the right to examine contractor records up to 

three years after final payment relating to overbillings, price reductions, and compliance with 

the Industrial Funding Fee (“IFF”). Although GSA modified its audit procedures in 1997 and 

redefined the limited circumstances to use of the Examination of Records clause for MAS 

contracts, the contractor community has continually expressed concerns related to what may 

essentially lead to defective pricing audit. Even a slight possibility for such post-award defective pricing audit is a real risk to the schedule holders and may drive business practices that 

are counter productive to both industry and to the government. Such nonstandard business 

practices are not consistent with commercial practices and end up driving up the cost of 

doing business with the government. Additionally, the Panel’s review found that the commercial service industry does not necessarily have a pre-defined set of standard labor categories as required by the schedules program, and that commercial firms sometimes modify or 

create separate government business divisions with corresponding price lists for services in 

order to meet schedule requirements including MFC pricing.

365

In adopting this recommendation the Panel was also concerned that the current 

schedule structure for professional IT services remains static at a time of increased dynamism in the commercial sector. Currently, the IT schedule program includes over 4,000 

contractors offering professional IT services.

366 This number represents a dynamic market cutting across all types and sizes of commercial firms. In addition, each year the IT 

schedule receives over 1,200 offers.

367 Under the IT schedule, approximately 64 percent 

or $10.8 billion out of $17.0 billion FY 2006 sales was for services.

368 However, the basic 

pricing strategy for negotiating and awarding schedule contracts is built on a framework 

established at a time when supplies accounted for the vast majority of purchases under 

the schedules program. Over time, the framework has evolved to accommodate the addition of professional IT services to the schedules program but the accommodation reflects 

trying to put a square peg in a round hole. Accordingly, the Panel’s recommendation will 

foster a more dynamic model, improve efficiency and reduce costs for government and 

industry, and foster greater competition and transparency.

5. Improving Transparency and Openness 

(a) Recommendation: 

Adopt the following synopsis requirement: 

Amend the FAR to establish a requirement to publish, for information purposes only, at FedBizOpps notice of all sole source orders (task or delivery) 

365 Id. at 26-27, 78; Leinster Test., AAP Pub. Meeting (Aug. 18, 2005) at 102; Test. of Larry Trowell, 

General Electric Transportation, AAP Pub. Meeting (Jan. 31, 2006) Tr. at 113.

366 GSA Data.

367 GSA Data, IT Acquisition Center (FCI).

368 GSA Data, Contractors Report of Sales - Sales by Service/Commodity Code for FY 2006, (Oct. 16, 2006).
106

in excess of the simplified acquisition threshold placed against multiple 

award contracts.369

Amend the FAR to establish a requirement to publish, for information purposes only, at FedBizOpps, notice of all sole source orders (task or delivery) 

in excess of the simplified acquisition threshold placed against multiple 

award Blanket Purchase Agreements. 

Such notices shall be made within 10 business days after award.

Discussion: 

Transparency into government requirements by the public serves two important purposes.

First, it promotes competition by familiarizing the public with what the government buys and 

giving the opportunity for vendors of similar products and services to sell to the government, 

thus providing for new entrants into the government marketplace and greater competition. Second, transparency promotes public confidence in the awarding of government contracts.

The degree of transparency provided in today’s contracting system notwithstanding, 

the growth of IDIQ contracts since FASA and the growth of the MAS program over the last 

decade, have reduced the visibility that the public has into more than 10 percent of the 

nondefense system procurements made annually and that percentage continues to grow.

FPDS-NG data for 2004 indicates that $142 billion, or 40 percent of all government-wide 

obligations, was against multi-agency contracts including multiple award IDIQ and MAS 

contracts. Currently, once an IDIQ or a MAS contract is awarded there is no provision for 

publishing information, pre-award, of the task or delivery orders placed against that contract. The first time the public learns about these awards is when the data on the award is 

published in the FPDS database, often many months after the award was made. This lack 

of transparency into the placement of orders has led some, according to the testimony 

received by the Panel, to question whether the government complied with its own procedures, whether competition was obtained in placing the order, and whether the taxpayer 

received best value.

The Panel believes that sole source orders under these vehicles should not be subject to 

a lesser standard of transparency. The synopsis proposed here would be post-award only, 

providing the positive pressure that transparency offers and bolstering public confidence, 

while not delaying the award or imposing any further restrictions, on urgent requirements 

for instance, than the current fair opportunity regime.

(b) Recommendation: 

For any order under a multiple award contract over $5 million where a 

statement of work and evaluation criteria were used in making the selection, the agency whose requirement is being filled should provide the 

369 Multiple award contracts has the same meaning here as in Section 803 of the National Defense 

Authorization Act for 2002, Pub. L. No. 107-107).
107

opportunity for a post-award debriefing consistent with the requirements 

of FAR 15.506. 

Discussion: 

Where agencies are making acquisitions of goods or services under a negotiated process 

involving a statement of work and evaluation criteria, the Panel sees no basis for not providing a debriefing to the unsuccessful offeror(s), regardless of the contract type involved.

Companies expend significant bid and proposal costs in response to order solicitations, 

just as they do in response to other solicitations. The Panel believes that debriefings are a 

good business practice. It is important that the government share its rationale regarding a 

task order award with losing offerors in order to create a climate of continuous improvement. Offerors need to understand where they can improve their approaches to meeting 

the government’s needs. While FAR Part 8 encourages debriefings for schedule orders, it 

does not require them. There is no requirement for debriefings for orders under multiple 

award contracts. The Panel believes providing debriefings will increase confidence in the 

integrity of the procurement process.

6. Time-and-Materials Contracts

Recommendations: 

The Panel makes the following recommendations with respect to T&M contracts: 

(a) Current policies limiting the use of T&M contracts and providing for the 

competitive awards of such contracts should be enforced. 

(b) Whenever practicable, procedures should be established to convert work 

currently being done on a T&M basis to a performance-based effort. 

(c) The government should not award a T&M contract unless the overall

scope of the effort, including the objectives, has been sufficiently described 

to allow efficient use of the T&M resources and to provide for effective government oversight of the effort. 

Discussion:

The issues that give rise to concern by the Panel over the use of T&M contracts in the 

government are price and contract management. The Panel has carefully considered how 

best to deal with these issues so as to protect the government’s interests and allow the government to continue to perform its mission uninterrupted. Clearly, an arbitrary limitation 

on the use of T&M contracts is not appropriate nor is a solution that shifts all of the risk to 

the private sector.

However, it is not unreasonable to require the government, when it chooses to use 

T&M contracts, to obtain price competition by defining its requirements and requiring 

the competitors for the work to define their labor categories so that adequate price comparisons can be performed. Similarly, it is not unreasonable for the government to ensure 

up-front in its acquisition planning process that it has sufficient resources to manage T&M 

contracts and that those resources are identified as already required by FAR Part 7, or that 

T&M contracts not be used.
108

Finally, in order to get a firm grasp on how much T&M contracting is being done 

throughout the government and to ensure that it is being managed aggressively, the government should account for its use of T&M contracts through the budget execution process, 

reporting annually at the conclusion of the fiscal year the dollars and personnel purchased 

through the use of T&M contracts.

7. Protest of Task and Delivery Orders

Recommendation: 

Permit protests of task and delivery orders over $5 million under multiple award 

contracts. The current statutory limitation on protests of task and delivery orders 

under multiple award contracts should be limited to acquisitions in which the 

total value of the anticipated award is less than or equal to $5 million. 

Discussion:

The Panel has serious concerns about the use of task order to conduct major acquisitions of complex services without review. The Panel has obtained and analyzed data from 

FPDS-NG that show that nearly half of the dollars spent under interagency contracts are 

expended on single transactions valued over $5 million. Agencies are using competitive 

negotiation techniques to make best value type selections under these multi-agency, multiple award contracts. The Panel believes that these procurements are of sufficient significance that they should be subject to greater transparency and review.

8. Pricing When No or Limited Competition Exists

Recommendation: 

For commercial items, provide for a more commercial-like approach to 

determine price reasonableness when no or limited competition exists. 

Revise the current FAR provisions that permit the government to require 

“other than cost or pricing data” to conform to commercial practices by 

emphasizing that price reasonableness should be determined by competition, market research, and analysis of prices for similar commercial sales. 

Move the provisions for determining price reasonableness for commercial 

items to FAR Part 12 and de-link it from FAR Part 15. 

Establish in FAR Part 12 a clear preference for market-based price analysis 

but, where the contracting officer cannot make a determination on that basis 

(e.g., when no offers are solicited, or the items or services are not sold in substantial quantities in the commercial marketplace), allow the contracting officer to request additional limited information in the following order: (i) prices 

paid for the same or similar commercial items by government and commercial 

customers during a relevant period; or, if necessary, (ii) available information 

regarding price or limited cost related information to support the price offered 

such as wages, subcontracts, or material costs. The contracting officer shall 

not require detailed cost breakdowns or profit, and shall rely on price analysis. 
109

The contracting officer may not require certification of this information, nor 

may it be the subject of a post-award audit.

Discussion: 

Competition, market research, and comparisons to prior prices that have been determined to be reasonable typically should enable the contracting officer to determine that 

an offered price for a commercial item is fair and reasonable without further information 

from the offeror. However, if the contracting officer is unable to make such a determination 

on that basis (e.g., no offers are solicited, or the items or services are not sold in substantial quantities in the commercial marketplace), the contracting officer should be able to 

request the following information: (i) prices paid for the same or similar commercial items 

or services by its commercial and government customers under comparable terms and 

conditions for a relevant time period, and (ii) available information regarding price or cost 

that may support the price offered, such as wages, subcontracts, or material costs.

In requesting this information, the contracting officer should limit the scope of the 

request to information that is in the form regularly maintained by the offeror as part of its 

commercial operations. The contracting officer should not require the offeror to provide 

information regarding all cost elements, detailed cost breakdowns, or profit, but instead 

shall rely on price analysis. The contracting officer should not request that this information be certified as accurate, complete, or current, nor shall such information be the subject of any post-award audit or price redetermination with regard to price reasonableness.

This information would be exempt from release under the Freedom of Information Act (5 

U.S.C. 552(b)).

See proposed regulatory changes in Appendix D.

9. Improving Government Market Research 

Recommendation: 

GSA should establish a market research capability to monitor services 

acquisitions by government and commercial buyers, collect publicly available information, and maintain a database of information regarding transactions. This information should be available across the government to assist 

with acquisitions.

Discussion:

This internal government group should collect data regarding significant services buys 

regardless of whether they are made in the private sector or by government, and regardless 

of whether they are made through Part 15, the schedules or task/delivery order contracts.

The data should include size of transaction, whether it is competitive, the type of competition, the scope and elements of work, the type of contract (e.g., fixed-price, T&M or costbased) the price or prices paid, the period of performance, the terms, and other data that 

affect the value of the transaction. This group will make its expertise and data available to 

other civilian and military agencies to assist in analysis and design of services acquisitions, 

and to provide current market data for comparison of price and terms.
10. Unequal Treatment of the Contracting Parties 

(a) Recommendation: 

Legislation should be enacted providing that contractors and the government shall enjoy the same legal presumptions, regarding good faith and 

regularity, in discharging their duties and in exercising their rights in connection with the performance of any government procurement contract, 

and either party’s attempt to rebut any such presumption that applies to the 

other party’s conduct shall be subject to a uniform evidentiary standard that 

applies equally to both parties.

Discussion:

When the government acts in a sovereign or regulatory capacity, either under its constitutional authority or pursuant to an Act of Congress, the courts have held that those actions are 

entitled to a strong presumption of regularity when they are challenged in court.

370 Indeed, 

this approach is specified in the statutory provisions that Congress has enacted authorizing judicial review of government action in most contexts,371 and it is meant as a safeguard 

against what we today might call inappropriate “judicial activism.”372 On the other hand, 

when the government enters into contractual relations, it is frequently engaged in the kinds 

of actions that might be taken by any party to a contract. In the latter situation, we do not 

believe there is any sufficient policy or legal justification for extending to the government 

an extraordinary presumption of good faith or of regularity that is well-nigh impossible to 

overcome. Yet some judicial decisions have done just that. Our recommendation would not 

mean that the rights of the government and of the contractor under government contracts 

are identical in all respects, however. Congress and its authorized delegates have concluded 

that public policy requires the inclusion in most government contracts of provisions giving 

the government certain special prerogatives deemed necessary for the protection of the public 

interest. Nonetheless, to the extent permitted by the terms of the government contract, we see 

no reason not to make any presumptions of regularity and good faith even-handed in their 

application to the government and the contractor.

This recommendation would not place the burden on government contract officials 

of showing that they have acted in good faith. Nor would it make the good faith of either 

party an issue to be litigated in every case. Rather, our recommendation simply requires 

that any presumption of good faith and regularity be applied equally to the government 

and to contractors in disputes arising from the performance of a government contract.

Thus, where good faith is relevant to any issue in a government contract dispute, the party 

claiming that the other failed to act in good faith would bear the ordinary civil litigation 

burden of proof by a preponderance of the evidence and would also bear the burden of 

going forward with evidence to prove the allegation of failure to act in good faith.

370 Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415, 416 (1971)

371 Administrative Procedure Act, 5 U.S.C. §706(2)(A) (arbitrary and capricious standard of review).

372 Citizens to Preserve Overton Park, 401 U.S. at 416 (“The court is not empowered to substitute its 

judgment for that of the agency.”)

110
111

(b) Recommendation: 

In enacting new statutory and regulatory provisions, the same rules for contract interpretation, performance, and liabilities should be applied equally 

to contractors and the government unless otherwise required by the United 

States Constitution or the public interest.

Discussion:

The parties to any contract should expect and receive fair dealing from others. It is 

sometimes said that, in order for there to be fair dealing, “the door must swing both ways.” 

In order for this to occur, the same rules must apply to both the government and contractors unless there is a compelling public interest requiring a different rule. This principle 

should be applied in enacting new statutory and regulatory provisions.

113

Appendix A

Statutory Evolution of “Commercial Item”

This appendix traces the statutory and regulatory evolution of the term “Commercial 

Item” beginning with the Federal Acquisition Streamlining Act of 1994. Successive changes 

to the FAR are marked and highlighted.

1. Federal Acquisition Streamlining Act of 19941

The term ‘commercial item’ means any of the following:

(A) Any item, other than real property, that is of a type customarily used by the general 

public or by nongovernmental entities for purposes other than governmental purposes, and that—

(i) has been sold, leased, or licensed to the general public; or

(ii) has been offered for sale, lease, or license to the general public.

(B) Any item that evolved from an item described in subparagraph (A) through 

advances in technology or performance and that is not yet available in the commercial marketplace, but will be available in the commercial marketplace in time 

to satisfy the delivery requirements under a Federal Government solicitation.

(C) Any item that, but for—

(i) modifications of a type customarily available in the commercial marketplace, or

(ii) minor modifications made to meet Federal Government requirements, would 

satisfy the criteria in subparagraph (A) or (B).

(D) Any combination of items meeting the requirements of subparagraph (A), (B), 

(C), or (E) that are of a type customarily combined and sold in combination to the general 

public.

(E) Installation services, maintenance services, repair services, training services, and 

other services if such services are procured for support of an item referred to in subparagraph (A), (B), (C), or (D) and if the source of such services—

(i) offers such services to the general public and the Federal Government contemporaneously and under similar terms and conditions; and

(ii) offers to use the same work force for providing the Federal Government with 

such services as the source uses for providing such services to the general public.

(F) Services offered and sold competitively, in substantial quantities, in the commercial 

marketplace based on established catalog prices for specific tasks performed and under 

standard commercial terms and conditions.

(G) Any item, combination of items, or service referred to in subparagraphs (A) 

through (F) notwithstanding the fact that the item, combination of items, or service is 

transferred between or among separate divisions, subsidiaries, or affiliates of a contractor.

(H) A nondevelopmental item, if the procuring agency determines, in accordance with 

conditions set forth in the Federal Acquisition Regulation, that the item was developed 

exclusively at private expense and has been sold in substantial quantities, on a competitive 

basis, to multiple State and local governments.

1 Pub. L. No. 103-355, § 8001(a) (Oct. 13, 1994).

CHAPTER 1–APPENDICES
114

2. The Clinger-Cohen Act of 19962

The term ‘commercial item’ means any of the following:

(A) Any item, other than real property, that is of a type customarily used by the general 

public or by nongovernmental entities for purposes other than governmental purposes, 

and that—

(i) has been sold, leased, or licensed to the general public; or

(ii) has been offered for sale, lease, or license to the general public.

(B) Any item that evolved from an item described in subparagraph (A) through 

advances in technology or performance and that is not yet available in the commercial 

marketplace, but will be available in the commercial marketplace in time to satisfy the 

delivery requirements under a Federal Government solicitation.

(C) Any item that, but for—

(i) modifications of a type customarily available in the commercial marketplace, 

or

(ii) minor modifications made to meet Federal Government requirements, would 

satisfy the criteria in subparagraph (A) or (B).

(D) Any combination of items meeting the requirements of subparagraph (A), (B), 

(C), or (E) that are of a type customarily combined and sold in combination to the general 

public.

(E) Installation services, maintenance services, repair services, training services, and 

other services if such services are procured for support of an item referred to in subparagraph (A), (B), (C), or (D) and if the source of such services—

(i) offers such services to the general public and the Federal Government contemporaneously and under similar terms and conditions; and

(ii) offers to use the same work force for providing the Federal Government with 

such services as the source uses for providing such services to the general public.

(F) Services offered and sold competitively, in substantial quantities, in the commercial 

marketplace based on established catalog or market prices for specific tasks performed and 

under standard commercial terms and conditions.” 3

(G) Any item, combination of items, or service referred to in subparagraphs (A) 

through (F) notwithstanding the fact that the item, combination of items, or service is 

transferred between or among separate divisions, subsidiaries, or affiliates of a contractor.

(H) A nondevelopmental item, if the procuring agency determines, in accordance with 

conditions set forth in the Federal Acquisition Regulation, that the item was developed 

exclusively at private expense and has been sold in substantial quantities, on a competitive 

basis, to multiple State and local governments.

3. The National Defense Authorization Act for Fiscal Year 20004

The term ‘commercial item’ means any of the following:

2

 Pub. L. No. 103-355, § 8001(a) (Oct. 13, 1994), as modified by Pub. L. No. 104-106 § 4204, 101 Stat 

at 655, (Feb. 10, 1996).

3

 Pub. L. No. 104-106, § 4204, 101 Stat at 655, (Feb. 10, 1996). Note that this language was already 

present in the FAR definition of “commercial item.” See also 60 Fed. Reg. 48231 (Sept. 18, 1995).

4

 Pub. L. No. 103-355, § 8001(a) (Oct. 13, 1994), as modified by Pub. L. No. 104-106 § 4204 (Feb. 10, 

1996) and Pub. L. No. 106-65 §805 (Oct. 5, 1999).
115

(A) Any item, other than real property, that is of a type customarily used by the general 

public or by nongovernmental entities for purposes other than governmental purposes, 

and that—

(i) has been sold, leased, or licensed to the general public; or

(ii) has been offered for sale, lease, or license to the general public.

(B) Any item that evolved from an item described in subparagraph (A) through 

advances in technology or performance and that is not yet available in the commercial 

marketplace, but will be available in the commercial marketplace in time to satisfy the 

delivery requirements under a Federal Government solicitation.

(C) Any item that, but for—

(i) modifications of a type customarily available in the commercial marketplace, 

or

(ii) minor modifications made to meet Federal Government requirements, would 

satisfy the criteria in subparagraph (A) or (B).

(D) Any combination of items meeting the requirements of subparagraph (A), (B), 

(C), or (E) that are of a type customarily combined and sold in combination to the general 

public.

(E) Installation services, maintenance services, repair services, training services, and 

other services if such services are procured for support of an item referred to in subparagraph (A), (B), (C), or (D) and if the source of such services—

(i) offers such services to the general public and the Federal Government contemporaneously and under similar terms and conditions the services are procured 

for support of an item referred to in subparagraph (A), (B), (C), or (D), regardless of whether such services are provided by the same source or at the same 

time as the item; and

(ii) offers to use the same work force for providing the Federal Government with 

such services as the source uses for providing such services to the general public 

the source of the services provides similar services contemporaneously to the 

general public under terms and conditions similar to those offered to the Federal 

Government.

(F) Services offered and sold competitively, in substantial quantities, in the commercial 

marketplace based on established catalog or market prices for specific tasks performed and 

under standard commercial terms and conditions.” 

(G) Any item, combination of items, or service referred to in subparagraphs (A) 

through (F) notwithstanding the fact that the item, combination of items, or service is 

transferred between or among separate divisions, subsidiaries, or affiliates of a contractor.

(H) A nondevelopmental item, if the procuring agency determines, in accordance with 

conditions set forth in the Federal Acquisition Regulation, that the item was developed 

exclusively at private expense and has been sold in substantial quantities, on a competitive 

basis, to multiple State and local governments.

4. The Services Acquisition Reform Act of 20035

The term ‘commercial item’ means any of the following:

5

 Pub. L. No. 103-355, § 8001(a) (Oct. 13, 1994), as modified by Pub. L. No. 104-106 § 4204 (Feb. 10, 

1996), Pub. L. No. 106-65 §805 (Oct. 5, 1999), and Pub. L. No. 108-136, §1433 (Nov. 24, 2003).
116

(A) Any item, other than real property, that is of a type customarily used by the general 

public or by nongovernmental entities for purposes other than governmental purposes, 

and that—

(i) has been sold, leased, or licensed to the general public; or

(ii) has been offered for sale, lease, or license to the general public.

(B) Any item that evolved from an item described in subparagraph (A) through 

advances in technology or performance and that is not yet available in the commercial 

marketplace, but will be available in the commercial marketplace in time to satisfy the 

delivery requirements under a Federal Government solicitation.

(C) Any item that, but for—

(i) modifications of a type customarily available in the commercial marketplace, 

or

(ii) minor modifications made to meet Federal Government requirements, would 

satisfy the criteria in subparagraph (A) or (B).

(D) Any combination of items meeting the requirements of subparagraph (A), (B), 

(C), or (E) that are of a type customarily combined and sold in combination to the general 

public.

(E) Installation services, maintenance services, repair services, training services, and 

other services if—

(i) the services are procured for support of an item referred to in subparagraph 

(A), (B), (C), or (D), regardless of whether such services are provided by the 

same source or at the same time as the item; and

(ii) the source of the services provides similar services contemporaneously to the 

general public under terms and conditions similar to those offered to the Federal 

Government.

(F) Services offered and sold competitively, in substantial quantities, in the commercial 

marketplace based on established catalog or market prices for specific tasks performed or 

specific outcomes to be achieved and under standard commercial terms and conditions.

(G) Any item, combination of items, or service referred to in subparagraphs (A) 

through (F) notwithstanding the fact that the item, combination of items, or service is 

transferred between or among separate divisions, subsidiaries, or affiliates of a contractor.

(H) A nondevelopmental item, if the procuring agency determines, in accordance with 

conditions set forth in the Federal Acquisition Regulation, that the item was developed 

exclusively at private expense and has been sold in substantial quantities, on a competitive 

basis, to multiple State and local governments.

5. Current FAR Definition of “Commercial Item” (as distinguished from the current 

statutory definition)

“Commercial item” means—

(1) Any item, other than real property, that is of a type customarily used by the 

general public or by non-governmental entities for purposes other than governmental 

purposes, and—

(i) Has been sold, leased, or licensed to the general public; or,

(ii) Has been offered for sale, lease, or license to the general public;
117

(2) Any item that evolved from an item described in paragraph (1) of this definition 

through advances in technology or performance and that is not yet available in the commercial marketplace, but will be available in the commercial marketplace in time to satisfy 

the delivery requirements under a Government solicitation;

(3) Any item that would satisfy a criterion expressed in paragraphs (1) or (2) of this 

definition, but for–

(i) Modifications of a type customarily available in the commercial marketplace; 

or

(ii) Minor modifications of a type not customarily available in the commercial 

marketplace made to meet Federal Government requirements. Minor modifications means modifications that do not significantly alter the nongovernmental function or essential physical characteristics of an item or component, 

or change the purpose of a process. Factors to be considered in determining 

whether a modification is minor include the value and size of the modification and the comparative value and size of the final product. Dollar values and 

percentages may be used as guideposts, but are not conclusive evidence that a 

modification is minor;

(4) Any combination of items meeting the requirements of paragraphs (1), (2), (3), or 

(5) of this definition that are of a type customarily combined and sold in combination to 

the general public;

(5) Installation services, maintenance services, repair services, training services, and 

other services if­­–

(i) Such services are procured for support of an item referred to in paragraph (1), 

(2), (3), or (4) of this definition, regardless of whether such services are provided by the same source or at the same time as the item; and

(ii) The source of such services provides similar services contemporaneously to 

the general public under terms and conditions similar to those offered to 

the Federal Government;

(6) Services of a type offered and sold competitively in substantial quantities in the 

commercial marketplace based on established catalog or market prices for specific tasks 

performed or specific outcomes to be achieved and under standard commercial terms and 

conditions. This does not include services that are sold based on hourly rates without an 

established catalog or market price for a specific service performed or a specific outcome to 

be achieved. For purposes of these services—

(i) “Catalog price” means a price included in a catalog, price list, schedule, or 

other form that is regularly maintained by the manufacturer or vendor, is either 

published or otherwise available for inspection by customers, and states prices 

at which sales are currently, or were last, made to a significant number of buyers constituting the general public; and

(ii) “Market prices” means current prices that are established in the course of ordinary trade between buyers and sellers free to bargain and that can be substantiated through competition or from sources independent of the offerors.

(7) Any item, combination of items, or service referred to in paragraphs (1) through (6) 

of this definition, notwithstanding the fact that the item, combination of items, or service is 

transferred between or among separate divisions, subsidiaries, or affiliates of a contractor; or
118

(8) A nondevelopmental item, if the procuring agency determines the item was developed exclusively at private expense and sold in substantial quantities, on a competitive 

basis, to multiple State and local governments.

6

6

 FAR 2.101
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136

Appendix C

Statutory Revision for Recommendation 4 - New Competitive 

Services Schedule

SUGGESTED PLACEMENT: 41 U.S.C. § 253h(g); add the following as related guidance.

AUTHORITY TO ESTABLISH A NEW MULTIPLE AWARDS SCHEDULE FOR PROFESSIONAL SERVICES

(1) GSA Federal Supply Schedules program.– Under the Multiple Awards Schedule program of the General Services Administration referred to in section 309(b)(3) of the Federal 

Property and Administrative Services Act of 1949 (41 U.S.C. 259(b)(3)) that is administered as the Federal Supply Schedules program, the Administrator of General Services may 

establish a new information technology (IT) Multiple Awards Schedule for professional 

services under which prices for each order are established by competition and not based 

on posted rates. Under this new Schedule model, prices would be determined exclusively 

at the order level based on competition for the specific requirement to be performed in 

accordance with the ordering procedures established by the General Services Administration. The ordering procedures for the new Schedule shall strongly encourage the use of “eBuy,” GSA’s electronic request for quote (RFQ) tool, as a means to assure competition. This 

new Schedule model shall be reviewed in two years after implementation to see whether 

the process is producing competition and better pricing. If so, the Administrator of General 

Services may expand the new Schedule model to the other professional services Schedules.
137

Appendix D

Proposed Changes to FAR Parts 12 and 15 to Implement Recommendation 8 Pricing When No or Limited 

Competition Exists

12.209 Determination of price reasonableness. 

(a) While tThe contracting officer must establish price reasonableness in accordance 

with 13.106-3, 14.408-2, or Subpart 15.4, as applicable for any commercial item, which 

includes commercial services. aAs discussed below, the contracting officer should be aware 

of customary commercial business terms and conditions when pricing commercial items.

Commercial item prices are affected by factors that include, but are not limited to, speed of 

delivery, length and extent of warranty, limitations of seller’s liability, quantities ordered, 

length of the performance period, and specific performance requirements. The contracting 

officer must ensure that contract terms, conditions, and prices are commensurate with the 

Government’s need.

(b) Competition, market research, and comparisons to prior prices that have been 

determined to be reasonable typically should enable the contracting officer to determine 

that an offered price for a commercial item is fair and reasonable without further information from the offeror. If the contracting officer is unable to make such a determination on 

that basis (e.g., no offers are solicited), the contracting officer may request the information 

in (i) or (ii) below from the offeror in the following order of preference, provided that the 

contracting officer should not request more information than is necessary to determine 

that an offered price is reasonable:

(i) Prices paid for the same or similar commercial items under comparable terms 

and conditions by both government and commercial customers. The contracting officer 

must limit requests for sales data relating to such items during a relevant time period.

(10 U.S.C. 2306a(d)(2) and 41 U.S.C. 254b(d)).

(ii) Available information regarding price or cost that may support the price 

offered, such as wages, subcontracts, or material costs. The contracting officer must, to 

the maximum extent practicable, limit the scope of the request to information that is in 

the form regularly maintained by the offeror as part of its commercial operations. (10 U.

S.C. 2306a(d)(2) and 41 U.S.C. 254b(d)). The contracting officer shall not require the 

offeror to provide information regarding all cost elements, detailed cost breakdowns, or 

profit, but instead shall rely on price analysis (see 15.404-1(b)).

(c) A determination of price reasonableness shall be based on the information referenced in paragraph (b) of this section. The contracting officer shall not request that any 

information provided by the offeror pursuant to paragraph (b) be certified as accurate, 

complete, or current, nor shall such information be the subject of any postaward audit with 

regard to price reasonableness.

(d) The Government must not disclose outside the Government information 

obtained relating to commercial items that is exempt from disclosure under 24.202(a) 

or the Freedom of Information Act (5 U.S.C. 552(b)). (10 U.S.C. 2306a(d)(2) and 41 U.

S.C. 254b(d)).
138

15.402 Pricing policy. 

Contracting officers must— 

(a) Purchase supplies and services from responsible sources at fair and reasonable 

prices. In establishing the reasonableness of the offered prices, the contracting officer must 

not obtain more information than is necessary. To the extent that cost or pricing data are 

not required by 15.403-4, the contracting officer must generally use the following order of 

preference in determining the type of information required: 

(1) No additional information from the offeror, if the price is based on adequate price 

competition, except as provided by 15.403-3(b).

(2) Information other than cost or pricing data: 

(i) Information related to prices (e.g., established catalog or market prices, sales,

or previous contract prices), relying first on information available within the 

Government; second, on information obtained from sources other than the 

offeror; and, if necessary, on information obtained from the offeror. When 

obtaining information from the offeror is necessary, unless an exception under 

15.403-1(b)(1) or (2) applies, such information submitted by the offeror shall 

include, at a minimum, appropriate information on the prices at which the 

same or similar items have been sold previously, adequate for evaluating the 

reasonableness of the price.

(ii) Cost information, that does not meet the definition of but in no event shall the 

offeror be requested to provide cost or pricing data as that term is defined in at

2.101 or to certify any such information.

(3) Cost or pricing data. The contracting officer should use every means available to 

ascertain whether a fair and reasonable price can be determined before requesting cost or 

pricing data. Contracting officers must not require unnecessarily the submission of cost 

or pricing data, because it leads to increased proposal preparation costs, generally extends 

acquisition lead time, and consumes additional contractor and Government resources.

(b) Price each contract separately and independently and not— 

(1) Use proposed price reductions under other contracts as an evaluation factor; or 

(2) Consider losses or profits realized or anticipated under other contracts.

(c) Not include in a contract price any amount for a specified contingency to the extent 

that the contract provides for a price adjustment based upon the occurrence of that contingency.

15.403-3 Requiring information other than cost or pricing data. 

(a) General.

(1) The contracting officer is responsible for obtaining information that is adequate for 

evaluating the reasonableness of the price or determining cost realism, but the contracting 

officer should not obtain more information than is necessary (see 15.402(a)). If the contracting officer cannot obtain adequate information from sources other than the offeror, 

the contracting officer must require submission of information other than cost or pricing data from the offeror that is adequate to determine a fair and reasonable price (10 U.

S.C. 2306a(d)(1) and 41 U.S.C. 254b(d)(1)). Unless an exception under 15.403-1(b)(1) or 

(2) applies, the contracting officer must may require that the information submitted by the 

offeror include, at a minimum, appropriate information on the prices at which the same 

item or similar items have previously been sold, adequate for determining the reasonable-
139

ness of the price. To determine the information an offeror should be required to submit, 

the contracting officer should consider the guidance in Section 3.3, Chapter 3, Volume I, of 

the Contract Pricing Reference Guide cited at 15.404-1(a)(7).

(2) The contractor’s format for submitting the information should be used (see 15.403-

5(b)(2)).

(3) The contracting officer must ensure that information used to support price negotiations is sufficiently current to permit negotiation of a fair and reasonable price. Requests 

for updated offeror information should be limited to information that affects the adequacy 

of the proposal for negotiations, such as changes in price lists.

(4) As specified in Section 808 of Public Law 105-261, an offeror who does not comply 

with a requirement to submit information for a contract or subcontract in accordance with 

paragraph (a)(1) of this subsection is ineligible for award unless the HCA determines that it 

is in the best interest of the Government to make the award to that offeror, based on consideration of the following: 

 (i) The effort made to obtain the data.

 (ii) The need for the item or service.

 (iii) Increased cost or significant harm to the Government if award is not made.

(b) Adequate price competition. When adequate price competition exists (see 15.403-

1(c)(1)), generally no additional information is necessary to determine the reasonableness 

of price. However, if there are unusual circumstances where it is concluded that additional 

information is necessary to determine the reasonableness of price, the contracting officer 

shall, to the maximum extent practicable, obtain the additional information from sources 

other than the offeror. In addition, the contracting officer may request information to 

determine the cost realism of competing offers or to evaluate competing approaches.

(c) Commercial items.

 (1) At a minimum, tThe contracting officer must should use price analysis to determine 

whether the price is fair and reasonable whenever the contracting officer acquires a commercial item (see 15.404-1(b)12.209). The fact that a price is included in a catalog does not, in 

and of itself, make it fair and reasonable. If the contracting officer cannot determine whether 

an offered price is fair and reasonable, even after obtaining additional information from 

sources other than the offeror, then the contracting officer must require the offeror to submit 

information other than cost or pricing data to support further analysis (see 15.404-1).

 (2) Limitations relating to commercial items (10 U.S.C. 2306a(d)(2) and 41 U.

S.C. 254b(d)).

 (i) The contracting officer must limit requests for sales data relating to commercial 

items to data for the same or similar items during a relevant time period.

 (ii) The contracting officer must, to the maximum extent practicable, limit the 

scope of the request for information relating to commercial items to include only information that is in the form regularly maintained by the offeror as part of its commercial operations.

 (iii) The Government must not disclose outside the Government information 

obtained relating to commercial items that is exempt from disclosure under 24.202(a) or 

the Freedom of Information Act (5 U.S.C. 552(b)).

141

Supplemental Views of Marshall J. Doke, Jr. 

[Not Approved by the Panel]

Improving Competition

A. Introduction

The Panel’s report makes significant recommendations regarding competition. There 

are, however, additional changes that can be made to improve the quality and transparency 

of the acquisition process and impact the current procurement environment, which has 

increased fraud and abuse.

1

The allegations of fraud in Iraq and Katrina government contracts have been widely 

publicized. Other recent acquisition abuses may reflect more systemic issues. A senior Air 

Force acquisition official pleaded guilty for favoring a contractor in a competition while 

discussing employment with the company.

2

 A senior Department of Defense official was 

sentenced to prison for directing over $18 million to a contractor who was giving him 

$500,000 in kickbacks.

3

 Two top officials of another defense agency resigned after federal 

prosecutors named them as the source of tens of millions of dollars in inflated contracts 

to a company whose chief executive allegedly made illicit payments to a U.S. Congressman.

4

 The Inspector General of one government agency accused top officials of that agency 

of appearances of impropriety, favoritism, and bias.

5

 And the Secretary of another department, according to its Inspector General, told his aids they should consider political leanings of contractors in awarding agency contracts.

6

If fraud and favoritism occur in these high places, the opportunities for abuse of the 

acquisition process are multiplied many times over in lower levels of the government. It 

was recently reported that investigative activities by federal inspectors general in fiscal year 

2005 resulted in more than 9,900 suspensions or debarments of businesses and individuals for inappropriate activity with the government, nearly double the number from the 

previous year.

7

In sentencing one former senior official, a federal judge referred to a growing culture of 

corruption in Washington and that the environment has become more and more corrupt.

8

When government solicitations do not describe what the government really wants, permits 

1

 Deputy Attorney General Paul McNulty said on October 10, 2006, that he estimated that 5% of all 

federal spending in 2005 was lost to fraud. Dawn Kopecki, Business Week Online (Oct. 11, 2006).

2

 82 Fed. Cont. Rep. 335 (Oct. 5, 2004).

3

 Kimberly Palmer, Former Acquisition Official at Defense Agency Sentenced to 11 Years, GOVEXEC.com 

(April 7, 2006).

4

 David D. Kirkpatrik, Pentagon Officials Quit at Agency Linked to Bribes, New York Times National A14 

(Aug. 11, 2006).

5

 Edmund L. Andrews, Interior Official Faults Agency Over Its Ethics, New York Times A1 (Sept. 14, 2006).

6

 David Stout, HUD Chief’s Remarks Aside, Study Finds No Favoritism, New York Times National A16 

(Sept. 26, 2006).

7 OMB Moving to Provide More Data On Contractor Suspensions, Debarments, 86 Fed. Cont. Rep.

249 (Sept. 19, 2006).

8

 Philip Shenon, Man Linked to Abramoff Is Sentenced to 18 Months, New York Times A9 (Oct. 28, 2006).

Supplemental Views
142

evaluation credits for exceeding the government’s requirements, fails to disclose all factors 

to be used in evaluating proposals (and the weight each factor has), and permits the use of 

subjective criteria in evaluating proposals, it is possible for a government official to award a 

contract for whatever and to whomever it wants.

Improvements in the quality of competition for government contracts can reduce these 

opportunities for fraud, favoritism, and other abuse and result in cost savings providing 

funds for other government requirements. As bad as the “high profile” abuses are, the risk 

to the taxpayers is even greater from a procurement system that both permits and encourages honest government officials to buy more than the government needs and pay more 

than necessary for what the government does need. There are, fortunately, specific steps 

that can be taken to increase transparency and otherwise improve the competitive process 

leading to greater accountability for procurement decisions. The current problems, opportunities, and recommendations are discussed below.

B. The Competition Process

The requirement for competition in public contracting has a long history and has been 

imposed in all 50 states.

9

 The purposes of the requirement include preventing unjust favoritism, collusion, or fraud in the procurement process.

10 As one court recently said:

The public’s interest is clearly served when suppliers engage in fair and 

robust competition for government contracts. Healthy competition ensures 

that the costs to the taxpayer will be minimized.

11

There are, however, qualitative differences in the types and process of competition, 

whether in contracting, sports, games, or other competitive activities. Few would conclude 

that professional wrestling is “real” competition. Similarly, the fact that a law defines a contracting process as “competition” does not mean the process satisfies fundamental principles 

of competition. As Abraham Lincoln said, calling a dog’s tail a leg doesn’t make it a leg.

In federal contracting, basic fundamentals of competition have been developed in decisions by the courts and the Comptroller General of the United States in bid protest cases 

involving virtually all aspects of the competitive process. In 1998, the American Bar Association adopted ten “Principles of Competition in Public Procurement” derived from these 

decisions. The ten principles are:

1. Use full and open competition to the maximum extent practicable.

2. Permit acquisitions without competition only when authorized by law.

3. Restrict competition only when necessary to satisfy a reasonable public requirement.

4. Provide clear, adequate, and sufficiently definite information about public needs 

to allow offerors to enter the public acquisition on an equal basis.

5. Use reasonable methods to publicize requirements and timely provide solicitation 

documents (including amendments, clarifications and changes in requirements).

6. State in solicitations the basis to be used for evaluating bids and proposals and for 

making award.

9

 Board of County Commissioners, Wabaunsee County v. Umbehr, 116 S. Ct. 2342, 2351 (1996).

10 United States v. Brookridge Farm, Inc., 111 F.2d 461, 463 (10th Cir. 1940).

11 Consolidated Engineering Services, Inc. v. United States, et al., 64 Fed. Cl. 617, 641 (2005).
143

7. Evaluate bids and proposals and make award based solely on the criteria in the solicitation and applicable law.

8. Grant maximum public access to procurement information consistent with the 

protection of trade secrets, proprietary or confidential source selection information, and personal privacy rights.

9. Insure that all parties involved in the acquisition process must participate fairly, honestly, and in good faith.

10. Recognize that adherence to the principles of competition is essential to maintenance of the integrity of the acquisition system.

All of these principles are supported by decisions of courts and the Comptroller General of the United States and, therefore, are useful in evaluating the competitive effectiveness of any public acquisition process.

C. The Government’s Requirements

One fundamental aspect of federal acquisitions that is different from commercial contracting is that the government can buy only what it needs, not what it wants.

12 This limitation is 

reflected in the old adage of “the government drives Chevrolets, not Cadillacs.”13 The limitation 

is based on a long-standing doctrine expressed by the Comptroller General as follows:

It has long been the rule, enforced uniformly by the accounting officers 

and the courts, that an appropriation of public moneys by the Congress, 

made in general terms, is available only to accomplish the particular thing 

authorized by the appropriation to be done. It is equally well established 

that public moneys so appropriated are available only for uses reasonably 

and clearly necessary to the accomplishment of the thing authorized by the 

appropriation to be done. (emphasis added).

14

In the absence of a specific statute authorizing the procurement (a “contract authorization act”), an appropriation of money to fund an acquisition is necessary for an agency to 

support an actual “need” for an item or service.

15 The doctrine also is recognized in FAR 

§ 10.001(a)(1) expressing the policy that agencies must assure that “legitimate needs” are 

identified. The appropriation of funds is what provides the Congressional “authority” to 

contract (if there is not a specific contract authorization act).

The determination of the government’s minimum needs and the best methods of 

accommodating those needs are primarily matters within the contracting agency’s discretion. However, the Competition in Contracting Act of 1984 requires that agencies specify 

their needs and solicit offers in a manner designed to achieve full and open competition 

so that all responsible sources are permitted to compete.

16 If a specification is challenged as 

unduly restrictive of competition, the procuring agency has the responsibility to establish 

12 Maremont Corp., Comp. Gen. No. B-186276, 76-2 CPD ¶ 181 at 18 (specifications should be based 

on minimum needs required and not the maximum desired).

13 See Greenhorne & O’Mara, Comp. Gen. No. B-247116 (Recon.), 92-2 CPD ¶ 229 at 203.

14 10 Comp. Gen. 294, 300 (1931).

15 See Management Systems Designers, Inc., et al., Comp. Gen. No. B-244383, 91-2 CPD ¶ 518 at 4-5.

16 Allied Protection Services, Inc., Comp. Gen. B-297825, 2006 CPD ¶ 57 at 2.
144

that the specification requirement is reasonably necessary to meet its needs.

17 Overstatement of the government’s needs is a material solicitation deficiency requiring cancellation 

of the solicitation,18 because agencies are only permitted to include requirements that meet 

their minimum needs.

19

Even though overstating the government’s minimum needs is improper, it is not 

uncommon for solicitations to give evaluation credit in competitive procurements for proposed features that exceed the solicitation’s objectives, specified performance, or capability requirements.

20 Some solicitations give significant points for the “degree” to which the 

proposal exceeds the specifications,21 or even offer no evaluation points unless the product 

exceeds the specifications.

22 The Comptroller General has held that agencies may use evaluation methods giving extra credit for exceeding the requirements of the solicitation.

23

D. Best Value Procurements

1. General. Most major competitive acquisitions of services and products are conducted under a “best value” source selection.

24 This method permits an agency to pay a 

higher price (“price premium”) to an offeror whose proposal is rated higher for technical 

evaluation factors than a competitor’s proposal offering a lower price. Increasingly, Congress has been critical of the cost of major acquisitions, including weapons systems and 

services. While FAR Part 15 requires agencies to justify their source selection in a best value 

procurement, the documentation supporting that selection is maintained in the agency’s 

files. No process exists for collecting and making available the information in the source 

selection files discussing the price premiums paid for the selection of other than the lowestprice of an acceptable proposal.

2. Method of Evaluation. An agency’s method of evaluating the relative merits of competing proposals is a matter within the agency’s discretion, because the agency is responsible for defining its’ needs and the best method for accommodating them.

25 Therefore, 

source selection officials in a negotiated procurement have broad discretion in determining the manner and extent to which they will make use of the technical and cost evaluation 

results.

26 Agencies have broad discretion in selecting evaluation factors appropriate for an 

17 Carahsoft Technology Corp., Comp. Gen. B-297112 2005 CPD ¶ 208 at 3.

18 West Alabama Remodeling, Inc., B-220574, 85-2 CPD ¶ 718 at 2-3.

19 Ramco Equipment Corp., Comp. Gen. B-254979, 94-1 CPD ¶ 67 (at 4); J.A. Reyes Associates, Inc., 

Comp. Gen. B-230170, 88-1 CPD ¶ 536 at 3-4.

20 See Engineered Air Systems, Inc., et al., Comp. Gen. B-283011, 99-2 CPD ¶ 63 at 3; CVB Co., Comp 

Gen. B-278478, 98-2 CPD ¶ 109 at 6.

21 Heimann Systems, Inc., Comp. Gen. B-272182, 96-2 CPD ¶ 120 at 1-2.

22 Nicolet Instrument Corp., Comp. Gen. No. B-258569, 95-1 CPD ¶ 48 at 4, note 3.

23 American Material Handling, Inc., Comp. Gen. No. B-297536, 2006 CPD ¶ 28 at 4; IAP World Services, 

Inc., Comp. Gen. No. B-297084, 2005 CPD ¶ 199 at 2-3.

24 A “best value” procurement is one in which the award is made to the offeror whose proposal 

“provides the greatest overall benefit in response to the requirement.” FAR 2.101. This method of 

procurement has been used for many years but called a cost-technical tradeoff. See Information Systems & 

Networks Corp., Comp. Gen. No. B-220661, 86-1 CPD ¶ 30 at 5.

25 Crofton Diving Corp., Comp. Gen. No. B-289271, 2002 CPD ¶ 32 at 10.

26 Creative Apparel Associates, Comp. Gen. No. B-275139, 97-1 CPD ¶ 65 at 6.
145

acquisition.

27 An agency’s source selection plan is an internal agency instruction and, as 

such, need not be disclosed in the solicitation. The plan does not give outside parties any 

rights.

28 Thus, an agency’s failure to follow its own plan cannot be the basis of a protest.

3. Evaluation Factors. The requirements for Requests for Proposals, evaluation factors, and significant subfactors are set out in the FAR §§ 15.205 and 15.304. There is little 

guidance in the regulations regarding evaluation factors and significant subfactors except 

that they must (i) represent the key areas of importance and emphasis to be considered in 

the source selection decision and (ii) support meaningful comparison and discrimination 

between and among competing proposals.

29 The only required evaluation factors are cost 

and (generally) past performance.

30 Otherwise, there is no regulatory guidance relating to 

the number, type, or weights (except relative weights) to be given to evaluation factors and 

significant subfactors.

In many acquisitions, the sheer number and types of evaluation factors and significant 

subfactors make it difficult, if not impossible, to determine if they comply with the regulatory requirement to represent the “key” areas of importance and significance and support 

meaningful comparisons among competing proposals.

31 Agencies are required by the 

Competition in Contracting Act to “clearly establish the relative importance assigned to 

the evaluation factors and subfactors and whether all evaluation factors (other than cost or 

price) are significantly more important, approximately equal in importance, or significantly 

less important than cost or price.

32 If a solicitation does not indicate the relative weights of 

technical and price factors, the Comptroller General will presume that they were of equal 

weight.

33 In other words, if the relative weights are not stated, they are considered to be of 

equal importance to each other.

34 Agencies are not required to disclose internal evaluation 

guidelines for rating proposal features as more desirable or less desirable because they are 

not required to inform offerors of their specific rating methodology.

35

Agencies are required to identify all “significant” evaluation factors and subfactors in 

a solicitation, but they are not required to identify all “areas of each factor” which may be 

taken into account by the evaluators, provided that the unidentified areas are reasonably 

related to or encompassed by the stated criteria.

36 Therefore, agencies are not required to 

27 Oceanometrics, Inc., Comp. Gen. No. B-278647.2, 98-1 CPD ¶ 159 at 3-4; Staber Industries, Inc., 

Comp. Gen. No. B-276077, 97-1 CPD ¶ 174 at 2.

28 Centech Group, Inc., Comp. Gen. No. B-278904.4, 98-1 CPD ¶ 149 Note 4 at 7.

29 FAR 15.304(b).

30 FAR 15.304(c)(1) and 15.304(c)(3).

31 Examples of such solicitations and the number of evaluation factors and subfactors include L-3 

Communications Westwood Corp., 2005 CPD ¶ 30 at 2 (17); United Coatings, 2003 CPD ¶ 146 at 2-3 (18); 

Pueblo Environmental Solution, LLC, 2003 CPD ¶ 14 at 3-4 (13); Basic Contracting Services, Inc., 2000 CPD 

¶ 120 at 2-3 (16); Matrix International Logistics, Inc., 97-2 CPD ¶ 89 at 2-3 (23); Lockheed Support Systems, 

Inc., 96-1 CPD ¶ 111 at 3 (17); Antenna Products Corp., 90-1 CPD ¶ 82 at 2 (21).

32 10 U.S.C. § 2305a (a) and (b); 41 U.S.C. 253a (a) and (b).

33 Intermagnetics General Corp., Comp. Gen. No. B-286596, 2001 CPD ¶ 10 Note 7 at 8; Carol Solomon &

Associates, Comp. Gen. No. B-271713, 96-2 CPD ¶ 28 Note 2 at 2.

34 Ogden Support Services, Inc., Comp. Gen. No. B-270354, 96-1 CPD ¶ 175 Note 2 at 2; Hellenic 

Technodomiki S.A., Comp. Gen. No. B-265930, 96-1 CPD ¶ 2 Note 1 at 1.

35 Olympus Building Services, Inc., Comp. Gen. No. B-285351, et al., 2000 CPD ¶ 178 at 5.

36 DSDJ, Inc., Comp. Gen. No. B-288438 et al., 2002 CPD ¶ 50 at 7; D.F. Zee’s Fire Fighter Catering, 

Comp. Gen. No. B-280767.4, 99-2 CPD ¶ 62 at 6; Borders Consulting, Inc., Comp. Gen. No. B-281606, 99-

1 CPD ¶ 56 at 1.
146

identify all areas of each factor or subfactor that might be taken into account in the evaluation.

37 Accordingly, a subfactor does not have to be disclosed if it is “logically” related or “reasonably” related to a disclosed factor.

38 Similarly, the subfactor does not have to be disclosed 

if it is “encompassed by” a disclosed factor.

39 The Comptroller General also has held that an 

area of evaluation need not be disclosed where it is (1) inherent in the evaluation of proposals, such as risk40 or safety,41 (2) implicit,

42 (3) or intrinsic to the stated factors.43 By way of 

example, the Comptroller General held that an offeror’s quality assurance procedures could 

be rated in the evaluating proposals because they were intrinsically related to and encompassed by the factor of “business practices.”44 Similarly, the Comptroller General held that 

consideration of “organizational structure and transition/startup plan” did not have to be 

disclosed because they were logically related to the disclosed “staffing plan” factor.

45

4. Subjective Evaluation Factors. The use of subjective evaluation factors may make it 

difficult for competitors to understand the real basis for evaluating proposals. The use of 

subjective factors permits an agency to influence the outcome of the competition without 

risk of a successful protest inasmuch as that there is no objective standard against which 

the evaluation can be measured. The use of such subjective factors can provide the environment and create the circumstances that competition is intended to avoid (favoritism, 

fraud, overspending, etc.). Examples of such subjective factors include (1) user friendliness,46 (2) aesthetics,47 (3) plan for contract management and contract operation,48 (4) 

employee appearance,49 (5) innovation,50 (6) intrinsic value,51 (7) level of confidence,52

(8) reputation,53 and (9) vision.

54

5. Responsibility-Type Factors. The quality of competition is diluted by the use of 

responsibility-type evaluation factors to compare the relative ability of offerors to perform the 

contract satisfactorily. The procurement regulations provide that contracts may be awarded 

only to “responsible” prospective contractors.

55 “Responsibility” is a term used to describe the 

37 North American Military Housing, LLC, Comp. Gen. No. B-289604, 2002 CPD ¶ 69 at 5; MCA 

Research Corp., Comp. Gen. No. B-278268.2, 98-1 CPD ¶ 129 at 8.

38 ManTech Security Technologies Corp., B-297133.3, 2006 CPD ¶ 77 at 7; Olympus Building Services, Inc., 

Comp. Gen. No. B-285351 et al., 2000 CPD ¶ 178 at 5; JoaQuin Manufacturing Corp., Comp. Gen. No. B275185, 97-1 CPD ¶ 48 at 2.

39 Mid-Atlantic Design & Graphics, Comp. Gen. No. B-276576, 98-1 CPD ¶ 132 at 3-4.

40 Keane Federal Systems, Inc., Comp. Gen. No. B-280595, 98-2 CPD ¶ 132 at 11-12.

41 Israel Aircraft Industries, Ltd., MATA Helicopters Division, Comp. Gen. No. B-274389 et al., 97-1 CPD ¶ 

41 at 6-7.

42 DSDJ, Inc., Comp. Gen. No. B-288438 et al., 2002 CPD ¶ 50 at 7.

43 Amtec Corp., Comp. Gen. No. B-261487, 95-2 CPD ¶ 164 at 4-5.

44 Techsys Corp., Comp. Gen. No. B-278904.3, 98-2 CPD ¶ 64 at 9.

45 NCLN20, Inc., Comp. Gen. No. B-287692, 2001 CPD ¶ 136 at 2.

46 Infection Control and Prevention Analysts, Inc., Comp. Gen. No. B-238964, 90-2 CPD ¶ 7 at 6.

47 Global Industries, Inc., Comp. Gen. No. B-270592.2 et al., 96-2 CPD ¶ 85 at 2.

48 Hughes STX Corp., Comp. Gen. No. B-278466, 98-1 CPD ¶ 52 at 2.

49 Scheduled Airlines Traffic Offices, Inc., Comp. Gen. No. B-253856.7, 95-1 CPD ¶ 33 at 21-22.

50 PRC, Inc., Comp. Gen. No. B-274698.2 et al., 97-1 CPD ¶ 115 Note 13 at 14.

51 National Steel and Shipbuilding Co., Comp. Gen. No. B-281142 et al., 99-2 CPD ¶ 95 at 3.

52 UNICCO Government Services, Inc., Comp. Gen. No. B-277658, 97-2 CPD ¶ 134 at 3-4.

53 Consultants on Family Addiction, Comp. Gen. No. B-274924.2, 97-1 CPD ¶ 80 at 1-2.

54 Research for Better Schools, Inc., Comp. Gen. No. B-270774.3, 96-2 CPD ¶ 41 at 7.

55 FAR § 9.103(a).
147

offeror’s ability to meet its contract obligations.

56 Thus, a “responsible” offeror is one the contracting officer determines can perform its contract obligations satisfactorily.

The general standards of responsibility are set forth in FAR § 9.104-1 and include factors 

such as adequate financial resources, ability to comply with delivery or performance schedules, satisfactory record of performance, satisfactory record of integrity and business ethics, 

and necessary organization experience, accounting and operational controls, and technical 

experience to perform the contract. Considerations that are used to determine responsibility 

also can be included as technical evaluation criteria, and proposals then may be comparatively

evaluated utilizing those criteria.

57 Examples of responsibility-type factors that have been 

used in the evaluation of proposals include (1) business systems,58 (2) compensation levels,59

(3) technical capability,60 (4) computer systems,61 (5) continuity of service,62 (6) contract 

management,63 (7) corporate experience,64 (8) efficiency,65 (9) quality control plan,66 (10) 

equipment,67 (11) experience,68 (12) financial capability,69 (13) key personnel,70 (14) management,71 (15) management plan,72 (16) managerial capacity,73 (17) plant, equipment, and 

tools,74 (18) vendor relationships,75 and (19) ISO certification.

76

6. Small Business Concerns. The use of responsibility-type evaluation factors in best 

value procurements has a direct impact on small business concerns. The Small Business 

Administration has “conclusive authority to determine the responsibility of a small business concern.”77 This determination was based on the SBA’s statutory power and duty 

under 15 U.S.C. § 637(b)(7)(A). When a procuring agency finds a small business concern nonresponsible, it must refer the matter to the SBA for a final determination.

78 As 

56 Vador Ventures, Inc., Comp. Gen. No. B-296394, et al., 2005 CPD ¶ 155 at 3.

57 A.I.A. Construzioni S.P.A., Comp. Gen. No. B-289870, 2002 CPD ¶ 71 at 2; Opti-Lite Optical, Comp.

Gen. No. B-281693.2, 99-2 CPD ¶ 20 at 5; Dual, Incorporated, Comp. Gen. No. B-280719, 98-2 CPD ¶ 133 

at 8.

58 Keane Federal Systems, Inc., Comp. Gen. No. B-280595, 98-2 CPD ¶ 132 at 8.

59 E.L. Enterprises, Inc., Comp. Gen. No. B-271251.2, 96-2 CPD ¶ 29 at 3-4.

60 Sigma One Corp., Comp. Gen. No. B-294719, et al., 2005 CPD ¶ 49 at 2.

61 Matrix International Logistics, Inc., Comp. Gen. No. B-272388.2, 97-2 CPD ¶ 89 at 2-3.

62 Quality Elevator Co., Inc., Comp. Gen. No. B-271899, 96-2 CPD ¶ 89 at 4.

63 Hughes STX Corp., Comp. Gen. No. B-278466, 98-1 CPD ¶ 52 at 2.

64 Burns & Roe Services Corp., Comp. Gen. No. B-296355, 2005 CPD ¶ 150 at 2.

65 Systems Research and Applications Corp., Comp. Gen. No. B-257939.5, 95-1 CPD ¶ 214 at 7.

66 SOS Interpreting, Ltd., Comp. Gen. No. B-293026.4, et al., 2005 CPD ¶ 25 at 2.

67 ATLIS Federal Services, Inc., Comp. Gen. No. B-275065.2, 97-1 CPD ¶ 84 at 2.

68 Chapman Law Firm, LPA, Comp. Gen. No. B-293105.6, et al., 2004 CPD ¶ 233 at 2.

69 Deployable Hospital Systems, Inc. – Reconsideration, Comp. Gen. No. B-260778.4, 96-2 CPD ¶ 6 Note 3 

at 3.

70 SWR Inc., Comp. Gen. No. B-286044.2 et al., 2000 CPD ¶ 174 at 3-4.

71 Ocean House Builders, Comp. Gen. No. B-283057, 99-2 CPD ¶ 53 at 1-2.

72 Davis Rail and Mechanical Works, Inc., Comp. Gen. No. B-278260.2, 98-1 CPD ¶ 134 at 2; Quality 

Elevator Co., Inc., Comp. Gen. No. B-271899, 96-2 CPD ¶ 89 at 5-6..

73 International Resources Group, Comp. Gen. No. B-286663, 2001 CPD ¶ 35 at 2.

74 Hadley Exhibits, Inc., Comp. Gen. No. B-274346, 96-2 CPD ¶ 172 at 1.

75 Telestar Corp., Comp. Gen. No. B-275855, 97-1 CPD ¶ 150 at 2.

76 LBM Inc., Comp. Gen. No. B-286271, 2000 CPD ¶ 194 at 4-5.

77 Advanced Resources International, Inc. – Recon., Comp. Gen. No. B-249679.2, 93-1 CPD ¶ 348.

78 T. Head & Co., Comp. Gen. No. B-275783, 97-1 CPD ¶ 169.
148

described in FAR Subpart 19.6, the SBA may issue a “Certificate of Competency” (COC) 

stating that the small business concern is responsible for the purpose of receiving and 

performing a government contract. The SBA’s issuance of a COC is conclusive on the 

agency, which must award the contract to the small business concern.

79

The Comptroller General holds, however, that procuring agencies may use responsibility-type factors in best value procurements for comparative evaluation of those areas, 

and this can result in a small business losing the contract to a large business with greater 

“capability” without referral to the SBA for a COC.

80 The Comptroller General’s reasoning 

is that the comparative evaluation is one of relative technical merit, not unacceptability.

81

The Comptroller General’s earlier decisions held that such comparative evaluations should 

be used only if “special circumstances” warrant a comparative evaluation.

82 The reason, as 

explained by the Comptroller General was that 

“Otherwise, an agency effectively would be determining the responsibility 

of an offeror under the guise of making a technical evaluation of proposals.

Under the Small Business Act, agencies may not find that a small business 

is nonresponsible without referring the matter to the SBA, which has the 

ultimate authority to determine the responsibility of small business concerns [citations omitted].”83

However, there is no guidance or specific requirements on what the “special circumstances” must be to use responsibility-type factors for comparative evaluations. Today, any 

requirement that there be “special” circumstances to warrant the use of responsibility-type 

evaluation factors has disappeared (if it ever existed).

E. Findings

1. The quality of competition could be improved if solicitations identified all 

evaluation factors or subfactors to be separately rated and the rating methodology to be used by the evaluators.

Discussion

One of the American Bar Association’s Principles of Competition in Public Procurement is that solicitations should state the basis to be used for evaluating bids and 

proposals. Doing so is essential to enable competitors to submit proposals for the same 

government requirement. The less competitors have to “guess” about what the government wants or believes is most important, the more competitive the proposals will be.

Identification of all evaluation factors and subfactors and the rating methodology is the 

best method to communicate to all competitors what the government deems to be most 

important. There is no logical reason why items to be separately rated should be “secret.” 

79 FAR § 19.602-4(b).

80 Capitol Creag LLC, Comp. Gen. No. B-294958.4, 2005 CPD ¶ 31, note 6 at 7; Dual, Inc., Comp. Gen.

No. B-280719, 98-2 CPD ¶ 133 at 8.

81 R.L. Campbell Roofing Co., Comp. Gen. No. B-289868, 2003 CPD ¶ 37 at 10.

82 Paragon Dynamics, Inc., Comp. Gen. No. B-251280, 93-1 CPD ¶ 248; Clegg Industries, Inc., Comp.

Gen. No. B-242204.3, 91-2 CPD ¶ 145.

83 Federal Support Corp., Comp. Gen. No. B-245573 92-1 CPD ¶ 81 at 4. See also, Paragon Dynamics, Inc., supra.
149

It is in the government’s interest to disclose this information in order that all competitors 

can offer the product or service that is most responsive to the government’s requirements 

and what the government desires to obtain.

2. The use of objective evaluation factors helps describe the government’s 

requirements and permits competitors to be more responsive to such 

requirements.

Discussion

Objective evaluation factors and subfactors communicate to competitors more specifically what the government is seeking to acquire. Subjective evaluation factors provide 

“fuzzy rules” for the competitive process and, often, substitute for planning and effort to 

describe the government’s requirements. The subjectivity allows the “measure” for evaluation to be determined by the evaluators after the proposals are submitted. The more objective the rules are for the competition, the better competition the government will obtain.

One of the purposes of competition in government contracting is to obtain better or 

cheaper goods and services.

84

3. The assignment of specific weights to evaluation factors and subfactors 

permits offerors to design their proposals in a manner that would be more 

responsive to the government’s requirements.

Discussion

Currently, FAR only requires that solicitations disclose the relative importance of evaluation factors and subfactors,85 and whether all non-price factors are significantly more, equal, 

or less important than cost or price.

86 The disclosure of specific weights would permit competitors to make better decisions in their proposal preparation for responding to the government’s requirements. Disclosing the specific weights for evaluation factors and subfactors will 

improve the integrity of the procurement process and add to the objectivity of the evaluation.

There is no good reason not to disclose specific weights, and it is common practice to do so 

in government solicitations.

87 The need for regulatory guidance is illustrated by instances in 

which cost/price is weighted at 10% or less in the evaluation of proposals.

88 

4. Responsibility-type evaluation factors give large business competitors 

an inherent advantage over small business concerns and can result in the 

84 Arch Chemicals, Inc. v. United States, 64 Fed. Cl. 380 (2005).

85 FAR 15.203(a)(4).

86 FAR 15.304(e).

87 Examples include Ace Info Solutions, Inc., 2005 CPD ¶ 75 at 3; Arora Group, 2004 CPD ¶ 61 at 2; 

Bechtel Hanford, Inc., 2003 CPD ¶ 199, note 1 at 2; Safety-Kleen (Pecatonica), Inc., 2002 CPD ¶ 176 at 2-3; 

Global Solutions Network, Inc., 2002 CPD ¶ 64 at Comp. Gen. No. B-289342.4; and Image One Technology & 

Mgmt, Ltd., 2002 CPD ¶ 18.

88 Examples include Vortec Corp., Comp. Gen. No. B-257568 et al., 94-2 CPD ¶ 145 (cost value at 5% 

for technology testing); Diversified Contract Services, Inc., Comp. Gen. No. B-228163.3, 88-1 CPD ¶ 463 

at 3 (cost valued at 10% for food and mess attendant services); Kay & Associates, Inc., Comp. Gen. No. B228434, 88-1 CPD ¶ 81 at 1 (cost valued at 10% for maintenance and repair of aircraft).
150

government paying a “price premium” for “more than” satisfactory performance and, thus, more than the government actually needs.

Discussion

In most cases, large companies will have more financial resources, facilities, personnel, 

experience (i.e., matters of responsibility) than small business concerns. In one case, the 

government paid a price premium of almost $385,000 based, in part, on the awardee’s having over 100 years of corporate experience.

89 But should the government be buying “more” 

capability or just “enough”? If a small business concern has “enough” to perform satisfactorily, why should the government pay a higher price in a competitive evaluation to a large 

business with “more” financial resources, facilities, etc.? In best value procurements using 

responsibility-type evaluation factors, small business concerns seldom will be able to compete successfully against large business concerns. Except in cases where the government’s 

requirements call for the highest level or quality of performance (such as in public health 

or national security), small business concerns should be evaluated on their “responsibility” 

(i.e., their ability to perform satisfactorily), and the government should not pay a higher 

price for more than satisfactory performance. If the government needs a level of performance higher than “satisfactory,” it should amend the specification or statement of work so 

that the competition can be for that higher level.

5. The absence of a government reporting mechanism for the price premium 

paid in a contract award prevents management and public review of the aggregate amounts being paid in source selections above the amount of the lowest 

price in an acceptable proposal.

Discussion

At the present time, there is no information available (except in individual government 

contract files) identifying the total dollars the government pays in awarding contracts to 

competitors at prices higher than the price of the lowest acceptable proposal. There is no 

way to know how much the government is paying in these price premiums and, certainly, 

no way to know what the government is paying such price premiums for. The absence of 

this information makes it difficult to understand or manage the value to the government of 

paying a higher price for proposals with higher technical ratings. If the government is paying for more than it actually needs in some procurements, the amount of those price premiums would be better spent for other products, services, or personnel for which funding 

is not available. The new Federal Funding Accountability and Transparency Act of 200690

requires the Office of Management and Budget to publish information relating to all federal awards over $25,000 on a searchable website accessible by the public. This website 

would be an ideal place to disclose the price premiums paid by the government. As Mr. Justice Holmes said, the government needs the “protection of publicity.”91

89 CACI, Inc.-Federal, Comp. Gen. No. 225444, 87-1 CPD ¶ 53 (corporate experience was weighted at 30%).

90 Pub. L. 109-282, 120 Stat. 1186 (Sept. 26, 2006).

91 United States v. New York & Puerto Rico Steamship Co., 239 U.S. 88, 93, (1915).
151

6. There is no regulatory guidance for determining the weights that should 

be given to different types of evaluation factors or even a minimum weight 

that should be given to cost or price.

The absence of regulatory guidance for the weights that should be given to evaluation 

factors is surprising in view of the impact those weights have in best value procurements.

Including 15 to 20 evaluation factors and subfactors to be rated suggests the agency is not 

sure what it wants and is seeking to use a “cafeteria style” selection method. It is obvious 

that different factors and weights (including cost) should be used for procurements of 

missile systems than for janitorial services or lawn care. The need, for example, to evaluate 

financial resources, years of experience, key personnel, and other technical areas obviously 

will be different for these different acquisitions. However, there is no regulatory guideline 

in these areas to assist purchasing activities in preparing their source selection plans. Guidance certainly is needed for the weight to be given to cost or price as an evaluation factor.

F. Recommendations

1. Regulatory guidance should be provided in FAR requiring that:

a. Solicitations identify the proposal rating methodology and all evaluation factors or subfactors that will be separately rated or require separate consideration 

by evaluators and preclude giving evaluation credits for exceeding the agency’s 

minimum needs.

b. Source selection plans give preference, to the maximum extent practicable, to 

objective-type evaluation factors and subfactors;

c. Solicitations identify specific weights that will be given to evaluation factors and 

subfactors in the evaluation of proposals; and

d. Unless there is a special justification for doing otherwise, solicitations should 

identify performance requirements in a manner that responsibility-type evaluation factors and subfactors will be evaluated on a pass-fail (satisfactory/unsatisfactory) basis.

2. Regulatory guidance should be provided in FAR for establishing the weights 

to be given to different types of evaluation factors, including a minimum 

weight to be given to cost/price, in the acquisition of various types of products or services.

3. The Federal Funding Accountability and Transparency Act of 2006 should 

be amended to require that, for all contract awards exceeding the simplified 

acquisition threshold, the price premium paid in fixed-price type contracts 

(i.e., the amount the contract award price exceeded the lowest price of an 

acceptable proposal) be reported and made publicly available with the other 

contract award information.

153

Supplemental Views of Marcia G. Madsen, 

James A. Hughes, and Marshall J. Doke, Jr. 

[Not Approved by the Panel]

Commercial Practices and Payment of Interest

A. Introduction

Various presentations to the Panel focused on commercial practices with respect to payment of interest, in general, and in connection with government contract claims and disputes, in particular. These presentations—summarized here—(1) delineate inconsistencies 

between commercial and government practice regarding the payment of interest to contractors resulting in unfair treatment of contractors, as well as (2) set forth inherent inequities 

in the government payment of interest. Given the volume and press of its other work, the 

Commercial Practices Working Group and the Panel did not have the resources to make 

findings or recommendations on this subject. However, we were concerned that this matter 

may deserve further exploration and have provided this summary to explain the issue.

Commercial practices with respect to payment of interest relevant to government payment of interest in claims and disputes include the following: 

(1) In disputes between private parties, the injured party usually has interest recovery 

rights. The Supreme Court has recognized in a variety of contexts that interest is 

awarded because of considerations of fairness, as a step toward making a party reasonably whole for another party’s act or omission. See, e.g., Milwaukee v. Cement Div., 

Nat’l Gypsum Co., 515 U.S., 189, 194-97 (1995) (citing numerous authorities), and the 

RESTATEMENT (SECOND) OF CONTRACTS § 354 (1981).

1

(2) Pre-judgment interest is generally recognized as necessary to provide injured parties 

fair compensation in suits between private parties. In the past 50 years, most states in 

the United States have enacted statutes allowing pre-judgment interest on verdicts or 

awards in court. Award of pre-judgment interest is the usual rule in patent cases generally, including where the government is the infringer, and is routine in patent suits 

between private parties.

(3) In the commercial world, interest—whether on borrowed or equity capital—is recognized as a real cost. When companies, or individuals, fail to pay their suppliers for 

purchased goods or services, real estate or income taxes, utility bills, or credit card and 

bank debt, these companies and individuals are routinely assessed interest charges 

from the time failure to make timely payment occurred. The interest rates charged by 

the supplying vendor, taxing authority, utility company, bank or credit card company, 

1

 As long ago as 1896, the Supreme Court stated, “Every one who contracts to pay money on a certain 

day knows that, if he fails to fulfill his contract, he must pay the established rate of interest as damages 

for his non-performance...It is no hardship for one who has had the use of money owing to another to 

be required to pay interest thereon from the time when the payment should have been made.” Spalding V. 

Mason, 161 U.S. 375, 396 (1896) (citations omitted).
154

are usually at or near commercial market interest rates and the resulting interest is 

usually compounded. The Internal Revenue Service follows such practices, assessing 

compound interest at rates higher than government borrowing rates from the time the 

taxpayer fails to make the required payment. Compounding of interest at commercial 

rates, such as prime, is also frequent in patent litigation.

B. Summary of Presentations to the Panel on Recovery 

of Interest by Government Contractors on Claims and 

Disputes 

Presenters to the Panel maintain that government payment of interest is inconsistent 

with commercial practices and produces unfair results, in at least the following ways: (1) 

Not all government contracts provide contractors with interest recovery rights2, and (2) 

Interest calculated pursuant to the Contract Disputes Act is below actual financing costs 

when claims and disputes occur.

The payment of interest to contractors by the federal government on amounts found 

due in connection with claims and disputes on procurement contracts is determined by 

the Contract Disputes Act of 1978 (the “CDA”) and interpretive case law. In a letter to the 

Acquisition Advisory Panel (the “Panel”) dated June 30, 2006, the Section of Public Contract Law of the American Bar Association (the “Section of Public Contract Law”) presented 

commentary on certain “fundamental inequities” of the CDA, together with recommendations for improving the CDA. On July 7, 2006, representatives of the Section made a presentation to the Panel on these matters.

3

The interest issues described by the Section of Public Contract Law can be summarized 

as follows:

(1) Because there are gaps in CDA interest coverage, certain government contracts confer no 

interest recovery rights to contractors. The result is that many contractors are not made 

whole, because their contracts are not covered by the CDA and they cannot recover 

interest on damages caused by a government breach of contract. In contrast, however, 

the government has broad rights to recover interest from contractors. The need for 

legislative reform in this interest coverage area has been articulated in an opinion by 

the Court of Federal Claims, which noted that, without interest recovery, damages to 

the party harmed were “grossly inadequate in view of the damages actually suffered” 

and that in similar cases, harmed parties “will not be made fully whole.” Moreover, the 

Court said it was particularly ironic that the injured party was “prevented under the law 

from being made whole because it cannot obtain interest on damages caused by the 

government’s breach, but the government itself claims massive interest assessments” on 

the tax the government contends was owed. (Robert Suess et.al. v. United States, 52 Fed.

Cl. 221, 232 (2002)).

2

 The doctrine of sovereign immunity and other statutes and regulations are relied upon by 

government to avoid paying any pre-judgment interest.

3

 Test. of John S. Pachter and Judge (Ret.) Ruth C. Burg, Section of Public Contract Law of the American 

Bar Association, AAP Pub. Meeting (July 7, 2006) and Written Public Statement to the AAP from the 

Section of Public Contract Law (June 30, 2006).
155

The Section of Public Contract Law recommends that the interest provisions of the 

CDA be extended to all government contracts. The Section of Public Contract Law 

believes such a change could be accomplished easily without applying other provisions 

of the CDA to those non-CDA contracts and without affecting the jurisdiction of any 

forum to consider and adjudicate disputes.

(2) Various Boards of Contract Appeals and Courts have held that current law denies recovery to contractors of damages in the form of interest when represented as interest on a 

“standalone” or “interest only” basis; i.e., interest that is not incurred as a result of financing another element or elements constituting an amount found due, and is claimed 

without an accompanying claim for the principal amount from which the interest cost 

derives. Such claimed pre-judgment interest costs have been denied, even though the 

interest costs have been acknowledged to have been incurred as a result of a government 

breach. In denying these interest claims, the Boards and Courts rely on the doctrine of 

sovereign immunity, the statute at 28 U.S.C. §2516(a), or both, as well as, at times, the 

cost principle prohibiting interest in contract pricing (FAR 31.205-20). In such cases, contractors are forced to suffer economic damage in the form of unreimbursed additional 

interest caused by the government without recognition of interest entitlement.

The Section of Public Contract Law recommends that the CDA be amended to allow 

“standalone” or “interest only” type claims. The Section of Public Contract Law 

believes that such a change could be accomplished easily, without altering requirements to demonstrate a contractor’s basis of entitlement, fact of damage and causation, 

and without changing relevant burden of proof requirements.

(3) When contractors are entitled to interest recovery under the CDA, the CDA provides 

that the interest amount is determined by applying simple interest “Treasury Rates” 

(the old “Renegotiation Board” rates) to the amounts found due. The Section of Public 

Contract Law believes that these rates are grossly inadequate to compensate contractors 

for the financing costs incurred as a result of government actions and omissions.

4

 The 

disparities are even greater for small businesses.

Moreover, in the commercial market place, whenever a cost determination involving 

interest is required, compound interest is the rule; compounding is considered absolutely necessary for proper determination of total financing cost. The Internal Revenue 

Service assesses compound interest at rates higher than government financing rates 

from the time the taxpayer fails to make the required tax payment. But the CDA limits 

interest recovery to simple interest. These CDA interest rates, used to pay contractors, 

usually are considerably lower than the interest rates the government uses to collect 

interest on amounts owed to the government when contractors violate Truth-In-Negotiations Act or Cost Accounting Standards requirements.

The Section of Public Contact Law believes that the CDA interest rate should be adjusted to 

a rate that more equitably compensates contractors and reflects the huge disparity between 

4

 This inadequacy of recovery is demonstrated by comparing CDA interest rates to various commercial 

market place benchmark rates, to rates used by the Internal Revenue Service to collect interest for 

underpayment of taxes, and to common determinations of the cost of capital.
156

government and private sector financing costs. The Section of Public Contract Law recommends the Internal Revenue Service rate for large corporate tax underpayments.

5

In its presentations, the Section of Public Contract Law emphasizes the need for fairness. The CDA was designed to encourage more timely resolution of disputes and to provide more fairness. Benefits perceived by the Section of Public Contract Law from its recommendations include: (1) encouragement of more timely resolution of disputes, and (2) 

making the government marketplace more attractive to qualified competitors by bringing 

government contracting more in line with commercial practices.

Many of the issues and points raised by the Section of Public Contract Law were made 

in a previous presentation and submissions to the Panel.

6

5

 Alternatively, an increase to the CDA rate to at least the same rate used for Truth-In-Negotiations Act 

and Cost Accounting Standards violations would be an improvement.

6

 Recommendations in these materials included clarifying the statute at 28 U.S.C. §1961 (c) (2) to 

assure interest applies to all judgments of the Federal Circuit. See Written Public Statements to the Panel 

from Alan E. Peterson, Alan V. Washburn, and Thomas Patrick (Aug. 15, 2005 and May 8, 2006).
157

Commercial Practices Observation: 

Impact of Funding Delays

Observation: Impact of Funding Delays

Although the Panel’s Report makes no recommendations in this area, we believed that 

we should note our concern about the impact of the appropriations process on the acquisition system. Many Panel witnesses, both government and contractor, noted problems 

caused for meaningful acquisition planning, requirements development, and competition 

by uncertain funding that is limited to annual appropriations. Virtually every commission 

that has looked at the acquisition process has noted this point. Given the constitutional 

and statutory issues involved, the Panel did not believe that we had the resources to make 

recommendations. Nonetheless, because of the obvious impact of these issues on acquisition practices, the Panel offers the following observations with the hope that a future Panel 

may be given the capacity to study this matter with the aim of making meaningful changes.

Federal Procurement Problems Resulting From Delays In Federal Procurement 

Officials Receiving Spending Authority

Each year, after the federal budget and appropriations processes are completed, federal 

procurement officials are allocated specific amounts of money to be expended on government programs for which they are responsible. Generally, the procurement officials must 

then reconcile spend plans against actual dollars appropriated to determine the best and 

most efficient course of action for that fiscal year. Once procurement officials decide how 

the allocated amounts of money will be most efficiently used, they then perform all necessary steps (such as perform competitions or justify sole source procurements) in order to 

obligate those funds, i.e., enter binding agreements that will result in the outlays of funds, 

either immediately or in the future, before the end of the fiscal year.

Contracting inefficiencies resulting from the one-year nature of most government procurement have been noted in previous studies and reports regarding federal contracting, 

are the subject of substantial debate, and are discussed in other sections of this Report.

Even taking the notion that most appropriations will continue to be annual as a given, 

however, the problems associated with yearly contracting have been exacerbated in recent 

years by the growing length of time required to complete the congressional budget and 

appropriations processes, as well as the uncertainties resulting from the DoD’s increasing 

dependence on supplemental appropriations. Uncertainty regarding when final appropriations will occur and how much will be allocated for specific programs decreases the 

amount of time in which procurement officials can complete their yearly tasks. That delay 

and uncertainty also reduces the efficiency of government spending.

A. Legal Requirements That Must Be Completed Before 

Federal Money Can Be Obligated 

Federal law requires that before the procurement officials may begin their annual task 

of determining the most efficient manner to spend government funds allocated to certain 

CHAPTER 1A
158

programs, numerous steps must be completed by the nation’s political leaders and the 

heads of the various departments and agencies. A general understanding of the steps that 

must occur before procurement officials may obligate government funds will be helpful in 

understanding the problems described below.

At the conclusion of the annual congressional budget and appropriations processes, 13 

appropriations bills are enacted to fund the government’s discretionary spending for the next 

fiscal year.

1

 Technically, federal funds are made available for obligation and expenditure by 

procurement officials by means of those appropriations acts (or by other legislation, such as 

supplemental appropriations) and the subsequent administrative actions that release appropriations to the spending agencies.

2

 The Executive Branch process required to release those 

funds to the spending agencies (and to procurement officials) requires several separate steps.

Congressional appropriations must first be apportioned by the Office of Management 

and Budget (OMB). Apportionments are plans to spend resources provided by law. The 

apportionment system distributes budget authority by time periods (usually quarterly) or 

by activities, and is “intended to achieve an effective and orderly use of available budget 

authority and to reduce the need for supplemental or deficiency appropriations.”3

 Thus, for 

instance, if Congress appropriates a certain amount of money for a given program, OMB generally will require that specified percentages of the appropriated amount be spent each quarter. Mechanically, the apportionment process begins when the appropriations bill is enacted 

and an affected spending agency submits a Form SF 132 to OMB seeking approval for the 

proposed spending plan. OMB then considers and approves that plan, occasionally with 

limitations or restrictions. This process generally takes from one to three weeks.

4

At the same time OMB is receiving, considering, and approving agencies’ apportionment requests, the Treasury Department has a separate process by which it issues warrants 

authorizing spending. The appropriations legislation designates an amount of money 

that will be provided to the relevant “appropriations account” maintained by the Treasury 

Department, and the Treasury warrant is required before the funds that are appropriated to 

a specific account can be obligated.

After the apportionment and warranting processes are complete, authority to spend 

appropriated amounts is provided to the relevant department or agency. A series of steps 

must occur within the department or agency before the procurement official ultimately 

receives authority to obligate funds. For instance, in the Department of Defense, the funds 

must be released by the Office of the Secretary of Defense, (2) allocated by the Secretary of 

the relevant service; and (3) sub-allocated (or allotted) by the comptroller of the relevant 

program authority.

5

 Each of those administrative approvals can be delayed or can, sometimes 

1

 Although the result of the presidential and congressional budget processes are discussed here, the 

details of those processes are beyond the scope of this discussion, because they occur before the Executive 

Branch allocates the money and provides authorizations to procurement officials. The congressional 

budget process is described at http://budget.senate.gov/republican/major_documents/budgetprocess.

pdf, and the appropriations process is explained at http://appropriations.senate.gov/budgetprocess/

budgetprocess.htm. A flow chart explaining the overlap between the budget and appropriations processes 

can be found at http://budget.senate.gov/republican/analysis/budgetprocess.pdf.

2

 III GAO, Principles of Federal Appropriations Law, ch.1, at 1-2.

3

 Id. at 1-31.

4

 Id.; 31 U.S.C. §§ 1511-16.

5

 See 31 U.S.C. §§ 1513(d), 1514.
159

unexpectedly, involve holding back some portion of the funds apportioned to the program.

After these steps are completed, the relevant program management office is authorized 

to obligate the funds to specified program activities and execute agreements to spend the 

money. Although there is more variation in the length of time required to complete the different department’s and Agencies’ release and allocation processes, those processes generally 

require approximately three weeks to complete. Thus, the overall apportionment, release, and 

allocation process requires approximately six weeks from the date the appropriations bill is 

enacted until the procurement official is empowered to obligate funds.

B. The Decreasing Amount of Time Available to 

Obligate Federal Funds Resulting from Delays in the 

Appropriations Process

Federal procurement officials do not know the precise amount of money their programs 

will be finally provided in any given year until the congressional budgeting and appropriations processes, and the Executive Branch apportionment, release, allocation, and any suballocation processes are all completed. Although the congressional appropriations processes 

should be completed before the beginning of the fiscal year,6 in practice, they may not be 

finalized until several months of the fiscal year have passed. Although some necessary spending occurs in the interim pursuant to continuing resolutions, agencies generally may not 

spend, or commit themselves to spend, money in advance of or in excess of appropriations.

7

Although procurement officials may experience substantial delay before the annual 

spending may be initiated, the date at the end of the fiscal year by which most funds must be 

obligated is inflexible. Many appropriations acts expressly provide that the appropriations are 

annual (or 1-year) appropriations, and all appropriations are presumed to be annual, unless 

the relevant appropriations act expressly provides otherwise.

8

 “If an agency fails to obligate 

its annual funds by the end of the fiscal year for which they were appropriated, they cease to 

be available for incurring and recording new obligations and are said to have expired.”9

 In 

addition, if money is not obligated, the potential to use those funds “may not be extended 

beyond the fiscal year for which [the appropriation] is made absent express indication in the 

appropriation act itself.”10

In sum, procurement officials are caught in a bind. They do not control when the congressional and Executive Branch processes will ultimately release funds for obligation, but 

regardless of when that authority arrives, most of the money must be obligated by the end 

of the fiscal year. As a matter of standard operating procedure, procurement officials are 

warned that they will never receive the money for which they are responsible as quickly as 

they expect, and once the funds are received, they must be executed quickly or be lost.

6

 See, e.g., OMB Circular No. A-11, § 10.5 (available at http://www.whitehouse.gov/omb/circulars/a11/

current_year/a11_toc.html).

7

 The Antideficiency Act, 31 U.S.C. § 1341.

8

 31 U.S.C. § 1301(c); III GAO, Principles of Federal Appropriations Law, ch.5, at 5-4.

9

 III GAO, Principles of Federal Appropriations Law, ch.5, at 5-6.

10 Id. at 5-5; 71 Comp. Gen. 39 (1991).
160

During hearings and as part of other information gathering, the Panel received numerous complaints from procurement officials that, in practice, the amount of time available 

for obligating funds has been declining during recent years. Procurement officials generally 

perceive that this tightening of the annual schedule results in inefficiencies.

To analyze the source and extent of the delay in delivering spending authority to procurement officials, as explained above, there are two potential sources: (1) the congressional budget and appropriations processes, or (2) the Executive Branch apportionment and 

allocation processes.

Although the Executive Branch processes require some decision-making with respect 

to difficult or disputed apportionment or allocation issues, these processes appear to 

operate more mechanically than the congressional budget process. This results, in part, 

from the fact that the projections which were used to formulate the congressional budget 

originate in the spending agencies,11 and those agencies monitor the congressional budget and appropriations processes closely. In short, Executive Branch procurement officials 

become adept at obtaining authorization to obligate funds as soon as possible following 

final appropriation. Moreover, technology expedites the apportionment and allocation 

processes, as the relevant forms are submitted electronically to OMB and the relevant agencies.

12 Approvals from OMB generally follow within one to three weeks of submission of 

an apportionment requests,13 and from our discussions with relevant officials, there is no 

reason to believe that inordinate delays occur during the agencies’ allocation processes. 

The delay experienced by procurement officials with respect to receiving final authorization to obligate monies needed to operate government programs—and the decreasing 

amount of time they have to complete their annual procurement responsibilities—appears 

to result primarily from the congressional budget and appropriations processes. During the 

past 10 years, there have been years in which the appropriations process experienced particularly severe delays. For instance, for fiscal year 2003, 11 of the appropriations bills were 

completed on February 20—four and one-half months into the subject fiscal year—and 

were enacted as part of a large omnibus bill.

14 But even putting aside the worst years, the 

trend is clearly toward delayed completion of the appropriations process. For instance, for 

fiscal years 2004–2006, the median completion date for appropriations bills was December 

1; in contrast, the median completion date for the years 1997–1999 was more than one 

and one-half months earlier, October 13.

15

11 See OMB Circular A-11, § 10.5.

12 For instance, a SF 132 form proposing an apportionment plan must be submitted by the spending 

agencies as part of an Excel spreadsheet. See OMB Circular A-11, § 121 (available at http://www.

whitehouse.gov/omb/circulars/a11/current_year/s121.pdf).

13 See OMB Circular A-11, § 10.5.

14 See http://thomas.loc.gov/home/approp/app03.html.

15 See Exhibit 1 (tracking annual information available from Congress’ “Thomas” site, http://thomas.

loc.gov/home/approp/app07.html, and, for earlier years, from the Congressional Quarterly Almanac); 

see also Exhibit 2 (illustrating data from Exhibit 1). This analysis is admittedly imperfect, as it does not 

adjust (or weight) the appropriations bills by size. For instance, the Defense appropriations are by far the 

largest and generally are among the earliest appropriations bills completed. In addition to the notion that 

other spending departments and agencies should not be given short shrift merely because their spending 

requirements are relatively small, the Defense Department’s reliance on supplemental appropriations for 

substantial parts of its funding in recent years presents different, pressing problems.
161

In addition to the increasing delays in finalizing appropriations legislation, Congress’ 

increasing use of supplemental appropriations to fund substantial parts of DoD’s budget 

are causing difficulties with planning and executing procurements efficiently. Officials 

interviewed by the Panel explained that the delays with respect to when the Global War 

on Terrorism (GWOT) funding will be enacted each year, and uncertainty as to the final 

amount of that funding, are causing extreme difficulties for procurement officials. For 

instance, in fiscal years 2002, 2003, 2005, and 2006, supplemental appropriations were 

enacted during the second half of the year and provided a substantial part of the total budget of significant offices within DoD. That money then had to be obligated by September 

30, causing a rush to execute those procurements at the last minute.

C. Effect of Decreasing Amount of Time to Obligate 

Funds and Procedures Procurement Officials Use to Mitigate the Negative Effect of Appropriation-Related Delay

Among other negative effects resulting from delays in receiving final authorization to 

obligate funds in a given fiscal year, and uncertainty regarding the amount of those funds, 

are at least three major problems: (1) procurement officials believe they are unable to efficiently begin work on annual procurements until later in the year; (2) they have substantial 

uncertainty related to the amount and timing of supplemental appropriations needed to 

fund program activities; and (3) the compression of the schedule in which procurement 

decisions can be made results in inefficient year-end spending.

First, it must be noted that previous procurement panels have recognized that funding 

delay and instability are substantial factors reducing the efficiency of government procurement. For instance, in 1986, the Packard Commission complained: 

[D]efense managers and defense procurement personnel around the 

world must implement late congressional decisions after the fiscal year 

has started. They are confronted with numerous changes that alter and 

delay their program plans, schedules, and contract decisions. This instability, in turn, spreads outward to the defense industry, whose investment 

and production plans must be hastily adjusted annually as a result of late 

congressional appropriations.

16

As demonstrated above, the problem identified by the Packard Commission has 

become more substantial over time.

17

In most years when the appropriations bills are not completed by the beginning of the 

fiscal year, the government does not shut down. Generally, the government continues to 

operate under a continuing resolution, which is a stop-gap legislative measure that does 

little to mitigate the harm of delayed final appropriations.

16 Packard Commission Report, at 22 (available at www.ndu.edu/library.pbrc/36ex2.pdf).

17 Indeed, the January 2006 Defense Acquisition Performance Assessment Report explained (at p.74) that 

when interview respondents (from government and industry) “were asked to identify areas” of concern 

that were not addressed by that panel’s initial study areas, “the area most identified, by a factor of three to 

one, was ‘budget and funding instability.’”
162

When operating under a continuing resolution, a department or agency can spend 

money at a rate set by an OMB formula, which requires spending at a smaller daily rate 

than the rate at which the agency expended money during the previous year.

18 Although 

the operations of the department or agency continue, continuing resolutions result in 

what officials interviewed by the Panel referred to as “procurement paralysis.” Procurement officials are not, by law, permitted to execute contracts and obligate funds until 

the appropriation bill is signed. Because they do not know when that enactment will 

occur—or whether the amount requested for a program will be appropriated—procurement officials generally refrain from beginning competitions, even though such preparatory activities will be required (assuming the funds are appropriated) and are permissible 

while operating under a continuing resolution. In sum, procurement officials tend to “sit 

on their hands,” understandably waiting until the uncertainty is resolved—as opposed to 

potentially wasting effort on procurements that cannot be completed if not funded in the 

appropriation bill.

Second, as noted above, since the events of September 11, 2001, Congress has appropriated a substantial part of DoD’s overall budget as part of supplemental appropriations 

legislation. Procurement officials interviewed by the Panel explained that Service Commands are declining to release part of the funds needed by procurement officials responsible for various programs (i.e., holding back part of sub-allocations) until they know the 

total amount of funding that will be provided in the GWOT supplemental appropriation.

Procurement officials, in turn, have tended to exacerbate the problem, as we are informed 

they tend to decline to obligate funds until they know exactly how much will be allocated 

to the program for the year. Because the GWOT supplemental appropriations have been 

enacted relatively late in the recent fiscal years, the delayed obligations that have resulted 

have required procurement officials to engage in a “mad scramble” to execute contracts at 

the end of the fiscal year.

Third, there is a general understanding among procurement officials that the 

compression of the amount of time during which procurement decisions can be 

made is resulting in less than optimal procurement decisions ultimately being made.

Although one would likely assume that attempting to effect a significant percentage 

of a program office’s contract execution in a relatively short amount of time at the 

end of the year would result in inefficient decisions, the Government Accountability 

Office has noted that it previously “conducted several studies of year-end spending and has consistently reported that year-end spending is not inherently more or 

less wasteful than spending at any other time of the year.”19 However, it must be 

noted that the most recent GAO study was performed in 1998,20 before the substantial delays in appropriations legislation described above, and before the substantial 

supplemental appropriations being used for a substantial percentage of DoD’s total 

18 See OMB Circular A-11, § 123. When the final appropriation is executed, spending under 

the continuing resolution ultimately has to be reconciled with the spending permitted by the final 

appropriation.

19 III GAO, Principles of Federal Appropriations Law, ch.5, at 5-17 (citing, among others, Federal Year-End 

Spending: Symptom of a Larger Problem, GAO/PAD-81-18 (Oct. 23, 1980)).

20 See id. (citing Year-End Spending: Reforms Underway But Better Reporting and Oversight Needed, GAO/

AIMD-98-185 (July 31, 1998)).
163

funding. In light of these recent developments, the Panel believes that the large volume of procurement execution being effected late in the year is having a negative 

effect on the contracting process and is a significant motivator for many of the issues 

we have noted with respect to, among other things, lack of competition and poor 

management of interagency contracts.
164

Chapter 1A-Exhibit 1

Federal Appropriations Legislation, 1997–2006

Appropriations FY-1997 FY-1998 FY-1999 FY-2000 FY-2001

Agriculture 8/6/96 11/18/97 10/21/98 (O) 10/22/99 10/28/00

Commerce, Justice (Judiciary), 

State

9/30/96 (O) 11/26/97 10/21/98 (O) 11/29/99 (O) 12/21/00

Defense 9/30/96 (O) 10/8/97 10/17/98 10/25/99 8/9/00

DC 9/9/96 11/19/97 10/21/98 (O) 11/29/99 (O) 11/22/00

Energy and Water Develop 9/30/96 10/13/97 10/7/98 9/29/99 10/27/00

Foreign Operations 9/30/96 (O) 11/26/97 10/21/98 (O) 11/29/99 (O) 11/6/00

Homeland Security

Interior 9/30/96 (O) 11/14/97 10/21/98 (O) 11/29/99 (O) 10/11/00

Labor, HSS, Education 9/30/96 (O) 11/13/97 10/21/98 (O) 11/29/99 (O) 12/21/00 (O)

Legislative Branch 9/16/96 10/7/97 10/21/98 9/29/99 12/21/00 (O)

Military Construction 9/16/96 9/30/97 9/20/98 8/17/99 7/13/00

Transportation 9/30/96 10/27/97 10/21/98 (O) 10/9/99 10/23/00

Treasury 9/30/96 (O) 10/10/97 10/21/98 (O) 9/29/99 12/21/00 (O)

VA/HUD (Indep Agen) 9/26/96 10/27/97 10/21/98 10/20/99 10/27/00

Supplemental Apps 6/12/97

Notes: 

Appropriations FY-2002 FY-2003 FY-2004 FY-2005 FY-2006

Agriculture 11/28/01 02/20/03 (O) 01/23/04 (O) 12/08/04 (O) 11/10/2005

Commerce, Justice (Judiciary), 

State

11/28/01 02/20/03 (O) 01/23/04 (O) 12/08/04 (O) 11/22/05 *

Defense 01/10/02 10/23/02 09/30/03 08/05/04 12/30/05

DC 12/21/01 02/20/03 (O) 01/23/04 (O) 10/18/04 11/30/05 (O)

Energy and Water Develop 11/12/01 02/20/03 (O) 12/01/03 12/08/04 (O) 11/19/05

Foreign Operations 01/10/02 02/20/03 (O) 01/23/04 (O) 12/08/04 (O) 11/14/2005

Homeland Security 10/01/03 

(1st year)

10/18/04 10/18/2005

Interior 11/05/01 02/20/03 (O) 11/10/03 12/08/04 (O) 08/02/2005

Labor, HSS, Education 01/10/02 02/20/03 (O) 01/23/04 (O) 12/08/04 (O) 12/30/05

Legislative Branch 11/12/01 02/20/03 (O) 09/30/03 12/08/04 (O) 08/02/2005

Military Construction 11/05/01 10/23/02 11/22/03 10/13/04 11/30/05 (O)

Transportation 12/18/01 02/20/03 (O) 01/23/04 (O) 12/08/04 (O) 11/30/05 (O)

Treasury 11/12/01 02/20/03 (O) 01/23/04 (O) 12/08/04 (O) 11/30/05 (O)

VA/HUD (Indep Agen) 11/26/01 02/20/03 (O) 01/23/04 (O) 12/08/04 (O) 11/30/05 (O)

Supplemental Apps 8/2/02 04/16/03 9/30/03 05/11/05 06/15/06

Notes: * Includes “

science”

Source: Library of Congress, Thomas System, http://thomas.loc.gov/home/approp/app06.html.
165

Chapter 1A-Exhibit 2

Federal Appropriations Legislation 1997–2006

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Fiscal Year

Agriculture

Commerce, Justice (Judiciary), State

Defense

DC

Energy and Water Develop

Foreign Operations

Homeland Security

Interior

Labor, HSS, Education

Legislative Branch

Military Construction

Transportation

Treasury

VA/HUD (Indep Agen)

Supplemental Apps

July

June

May

April

March

February

January

December

November 

October

September

August

167

Table of Contents

I. Introduction and Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

	 A. Introduction to Performance-Based Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . 171

	 B. Current Federal Implementation of Performance-Based Acquisition. . . . . . . . 172

	 C. PBA Regulatory Guidance and Recent Efforts to Improve the

FAR’s PBA Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

II. Statement of the Issue and Findings: 

Why Has Performance-Based Acquisition Not Been Fully

Implemented in the Federal Government?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

III. Recommendations: 

Improving Implementation of Performance-Based Acquisition

in the Federal Government. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

Appendix A: Bibliography of PBA Reports and Studies. . . . . . . . . . . . . . . . . . . . . . . . . 207

Appendix B: Final PBA Rule and Side-by-Side Comparison . . . . . . . . . . . . . . . . . . . . . 211

CHAPTER 2

Improving Implementation 

of Performance-Based 

Acquisition (PBA) in the 

Federal Government

169

I. Introduction and Background

In keeping with the statutory charter of the Panel to review federal acquisition laws and

regulations as well as government-wide acquisition policies “with a view toward ensuring

effective and appropriate use of commercial practices and performance-based contracting,”

the Panel has conducted an in-depth exploration of the technique1 with an aim of discerning why the methodology has fallen short of expectations, and to make constructive recommendations for enhancing it in the future.

Findings Recommendations

1: Despite OMB Target, Agencies Remain 

Unsure When to Use PBA

1: OMB’s Government-Wide Quota of 

Requiring 40 percent of Acquisitions be 

Performance-based Should be Adjusted 

to Reflect Individual Agency Assessments 

and Plans for Using PBA

2: Modify FAR Parts 7 and 37 to Include Two 

Levels of Performance-based acquisition: 

Transformational and Transactional. OFPP 

Should Issue More Explicit Implementation 

Guidance and Create a PBA “Opportunity Assessment” Tool to Help Agencies 

Identify When They Should Consider Using 

Performance-based Acquisition Vehicles

2: PBA Solicitations and Contracts Continue 

to Focus on Activities and Processes, 

Rather than Performance and Results

3: PBA’s Potential for Generating Transformational Solutions to Agency Challenges 

Remains Largely Untapped

4: Within Federal Acquisition Functions, 

There Still Exists a Cultural Emphasis on 

“Getting to Award”

5: Post-Award Contract Performance 

Monitoring and Management Needs to 

Be Improved

3: Publish a Best Practice Guide on Development of Measurable Performance 

Standards for Contracts

4: Modify FAR Parts 7 and 37 to Include 

an Identification of the Government’s 

Need/Requirements by Defining “Baseline 

Performance Case” in the PWS or SOO. 

OFPP should Issue Guidance as to the 

Content of Baseline Performance Cases

5: Improve Post-Award Contract Performance 

Monitoring and Management, Including 

Methods for Continuous Improvement and 

Communication through the Creation of a 

Contract-Specific “Performance Improvement Plan” that would be Appropriately 

Tailored to the Specific Acquisition

1

The term performance-based contracting (“PBC”) has generally been replaced with performance-based 

service acquisition (“PBSA”) and even more recently with performance-based acquisition (“PBA”). The terms

can be used interchangeably for purposes of this chapter.
170

Findings Recommendations

6: OFPP Should Provide Improved Guidance 

on Types of Incentives Appropriate for Various Contract Vehicles

7: OFPP Should Revise the Seven 

Step Process to Reflect the Panel’s new 

PBA Recommendations

8: Contracting Officer Technical Representatives (COTR’s) should Receive Additional 

Training and be Re-Designated as Contracting Officer Performance Representatives 

(COPR’s)

6: Available Data Suggest that Contract 

Incentives Are Still Not Aligned to Maximize 

Performance and Continuous Improvement

7: FPDS Data Are Insufficient and Perhaps 

Misleading Regarding Use and Success 

of PBA

9: Improved Data on PBA Usage and 

Enhanced Oversight by OFPP on Proper 

PBA Implementation Using an “Acquisition Performance Assessment Rating Tool” 

A-PART

10: OFPP Should Undertake a Systematic 

Study on the Challenges, Costs and Benefits of Using Performance-Based Acquisition Techniques Five Years from the Date 

of the Panel’s Delivery of Its Final Report
171

A. Introduction to Performance-Based Acquisition

Performance-Based Acquisition (“PBA”) is an approach to acquisition that focuses on

describing end results (rather than dictating the manner in which the contracted work is to

be done) and measuring and compensating vendors on the basis of whether or not those

results were obtained. 

PBA employs a number of techniques, strategies and frameworks for the definition of

program requirements, acquisition planning, competition management, performance measurement, contract structure, payment structure, and post-award contract monitoring and

management. PBA was developed as part of an overall movement in government management toward commercial business practices. PBA is also reflective of the government-wide

movement toward performance-based program management as reflected in the passage of

the landmark Government Performance and Results Act (Pub. L. No. 103-64).

Proponents of PBA believed the government’s acquisition system was characterized by

a lack of opportunity for innovation, a focus on process not results, and higher than anticipated costs. Those failings, it was asserted, could be addressed through a more commercial

approach to services acquisition—one that focused on mission outcomes to be achieved,

rather than day-to-day management of contractors.

History offers a myriad of attempts by the federal government to exploit performancebased approaches to acquire services. The first attempts to implement performance-based

approaches can be documented as far back as 1969 with an outcomes-based approach to

contracting developed by the then-Department of Health, Education and Welfare. Several

other government agencies (particularly the Department of Defense) issued internal policies

to encourage the use of performance standards in certain kinds of contracts.

Government-wide PBA policy was first contained in Office of Federal Procurement

Policy (“OFPP”) Letter 91-2 on service contracting that was issued on April 9, 1991—

instructing federal agencies to use PBA “to the maximum extent practicable.”1 This document stated that the new policy was prompted by internal agency investigations, General

Accounting Office reports and OFPP studies that documented numerous instances of

unsatisfactory performance and contract administration problems that coincided with an

increase in the government’s acquisition of services.

To reinforce its policy encouraging the use of PBA, OFPP has developed a PBA support

website that identifies several purported benefits when contracts are structured to focus on

the desired business outcomes. These possible benefits include:

•	Increased likelihood of meeting mission needs

•	Focus on intended results, not process

•	Better value and enhanced performance

•	Less performance risk

•	No detailed specification or process description needed

•	Contractor flexibility in proposing solution

•	Better competition: not just contractors, but solutions

•	Contractor buy-in and shared interests

•	Shared incentives permit innovation and cost effectiveness

1

OFPP Policy Letter 91-2, Service Contracting (Apr. 9, 1991) (rescinded: on file with OFPP).
172

•	Surveillance: less frequent, more meaningful

•	Variety of solutions from which to choose2

In 2001, the current Administration elevated performance-based acquisition to a Presidential initiative and assigned specific implementation goals. The Office of Management

and Budget (“OMB”) directed that agencies use performance-based techniques on a specific

percentage of the total eligible service contracting dollars each fiscal year as follows:

	Fiscal Year	 Percent

	 2002	 20

	 2003	 30

	 2004	 40

	 2005	 40 (changed from original 50 percent by OFPP3

)

In 2003, the Congress weighed in with its strong support for performance-based acquisition when it passed the Services Acquisition Reform Act (“SARA”) of 2003.

B. Current Federal Implementation of PerformanceBased Acquisition

Over the past year and a half, the Panel received a wide range of testimony, and reviewed

a number of studies, reports and audits regarding performance-based contracting methodologies and their implementation. Several private sector and federal agency witnesses gave a

strong endorsement for the methodology, and were able to cite acquisitions where PBA had

been used effectively to both enhance performance and achieve cost savings. Others paint a

less rosy picture. Various review organizations, including the Government Accountability Office

(“GAO”), have raised concerns about PBA implementation, calling into question whether there

is adequate understanding among agencies on when and how to successfully carry out performance-based service acquisition. Additionally, there is a concern that insufficient data exists on

the impact of PBA on the government-wide acquisition process, cost and performance.

Indeed, one of the issues the Panel seeks to address is the dichotomy between the relatively positive information on performance-based practices the Panel received from private

sector experts–particularly those involved in transformational business process change–and

the skepticism expressed by a number of government practitioners on how well senior

leadership, and acquisition and program staff understand and apply PBA methods.

1. Progress on Meeting PBA Targets, But Data Seems Suspect

As federal agencies responded to the initial 1991 OFPP PBA policy as well as the 2001

PBA targets, the federal acquisition landscape changed. The result–whether through erudite

PBA application or brute force—has been a steady increase in spending on contract vehicles that agencies identify as performance-based. 

2

See OFPP, Seven Steps to Performance-Based Services Acquisition, http://acquisition.gov/comp/seven_

steps/home.html

3

Memorandum from Robert Burton, Associate Administrator of OFPP to Chief Acquisition Officers

and Senior Procurement Executives, Increasing the Use of Performance-Based Service Acquisition (Sept. 7,

2004), http://www.whitehouse.gov/omb/procurement/pbsa/pbsc_increasing-070704.pdf.
173

Data from the Federal Procurement Data System–Next Generation (“FPDS-NG”) shows

federal agencies are meeting the Administration’s goals. According to agency reporting, in

2001, 25.5 percent of eligible contract dollars were identified as PBA. In 2004, that number

moved up to 40.5 percent - exceeding the goal by .5 percent.4

For goaling purposes, determining whether a contract qualifies as a PBA is a three-step

process. First, agencies must determine that the sum of the ultimate contract value or sum

of the dollars obligated will be over $25,000. Next, agencies must establish whether the

contract is eligible for PBA methodologies.

For this determination, OFPP excludes services exempted by the Federal Acquisition

Regulation (“FAR”): Architect-engineer services acquired in accordance with 40 U.S.C. 1101

(FAR Part 36); Construction (FAR Part 36); Utility services (FAR Part 41); or services that

are incidental to supply purchases (FAR 37.102).5

Once a contract is determined to be PBA-eligible, FPDS-NG requires that more than

50 percent of the requirement, as measured in dollars, be performance-based in order to

receive the PBA designation. The table below depicts, from fiscal years 2001 to 2005, the

total number of contract dollars found to be eligible for PBA methodologies as reported by

federal agencies. That number is then divided into two categories: 1) PBA-eligible contracts

implemented as performance-based, and 2) PBA-eligible contracts that were not implemented with PBA methodologies.6

4

While PBA data for fiscal years 2005 and 2006 is available, the eligible base of service contracts

declined sharply and this decline, as of the printing of this Report, was unexplained.

5

In addition to FAR exemptions, OFPP excludes the following services: Research and Development,

to include Basic Research, Applied Research, Advanced Technology Development, Demonstration and

Validation, and Engineering and Manufacturing Development (FPDS-NG codes A**1-A**5); Professional

Medical Services (not facility-related, Codes Q501-Q527); and Tuition, Registration and Membership Fees

(Code U005).

6 Data drawn from the FPDS-NG database.

Growth in PBA contracts between 2001 & 2004,

shown as a percentage of contracts dollars considered

to qualify as eligible for performance-based methods

 Not PBA Not PBA

FY 2001 FY 2004

25.5%

74.5% 59.5%

40.5%

PBA PBA

Growth in PBA Usage Among Eligible Contracts FY 2001–FY 2005

76.6

61.2

49.6

30.8

0 50 100 150 200 250

Total Eligible Contract Dollars (in Billions of Dollars)

2004-$193.9B

2003-$175.4B

2002-$145.6B

2001-$120.7B

PBA Contracts

Non-PBA Contracts

115.3

114.2

96.1

89.9
174

The Panel notes there is significant discussion about the nature of the PBA data being

reported to FPDS-NG. A number of commenters have expressed concern that some contracts reported as PBAs may not, in fact, meet the letter or spirit of performance-based

acquisition. In one example, when testifying before the Panel, Ms. Jan Menker of Concurrent Technologies Corporation remarked, “There are any number of solicitations coming

out that say, we’re performance based. But when you read them, there’s no outcomes;

there’s no real objectives identified. Statements of work are still fairly specific. It’s an area

that needs additional investigation. . . . ”7

In light of these concerns, the Panel initiated a study to examine the kinds of contracts

that are being reported as PBA’s in FPDS-NG. Results of the Panel’s survey of contracts are

outlined in Finding 7—but demonstrated significant miscoding of contracts as PBAs when

in fact more than half of the contracts originally coded in FPDS-NG as PBAs were deemed

to not be PBAs by either the agency or the Panel in its review.

2. Types of Services Procured Through PBA Methods

At one time, PBA was confined to basic, non-technical and support services such as

security, laundry, grounds maintenance, and facility maintenance. Today, use has expanded

considerably, particularly in the information technology (“IT”) arena. The Department of

Health and Human Services website, for example, outlines a broad range of services suitable for performance-based methodologies:8

U.S. Department of Health and Human Services–Services Suitable for PBA

Facility support services 

e.g., security, laundry, grounds maintenance, facility maintenance, equipment repair, other than IT

Administrative and clerical support, e.g., data entry, 

court reporting, typing, editing, distribution

Aircraft maintenance and test range support Transportation, travel and relocation services

Logistics/conference support Medical services

Research and Development Research support services

Telephone call center operations Training

Environmental remediation Technical assistance

Management support IT and telecommunications services to include 

maintenance and support services

Studies and analyses Surveys

Growing experience with PBA has also helped agencies to identify services that are not

well suited to the methodology. Government officials anticipate continued refinement in

their understanding of what services are suitable for PBAs. In testifying before the Panel,

David Sutfin, Chief, GovWorks Division of the Department of Interior noted, “...the proper

application of performance based contracting is an area where I think we’re all weak, and

we need help. Not every service contract lends itself to a performance based contract, and

there is, I think, a rush now to use this contracting technique without fully understanding

7 AAP Pub. Meeting (May 17, 2005) Tr. at 45.

 KNOWnet, the Acquisition SuperSite, http://www.knownet.hhs.gov/acquisition/performdr/LAI/

UnitOne/program.htm
175

when it works and when it doesn’t work: what are the risks inherent in using performance

based contracting and what are the advantages?”9

3. Training and Support on PBA Implementation

Since the 1991 OMB policy endorsing PBA and the creation of PBA targets in 2001, a

loose-knit PBA support infrastructure has developed—albeit with widely varying levels of

sophistication both across government and within agencies. Best practices have begun to

appear in the form of performance-based centers of excellence (e.g., the U.S. Coast Guard),

and the institutionalization of highly developed, team-oriented PBA processes (e.g., the

U.S. Air Force). In addition, training and support resources available to PBA practitioners

have also grown in number and accessibility.

OFPP’s official guide, ‘Seven Steps to Performance-Based Service Acquisition’ provides an

organized methodology, breaking the PBA process down into a logical sequence. OFPP’s

Seven Step support website10 features an ever-growing body of information, including

detailed discussions of each of the seven steps, sample materials, best practice examples,

links to relevant articles and agency guidelines, and an “Ask the Expert” link. The ACE for

Services website maintained by OMB also provides PBA support.11 A significant virtual

community has developed in recent years providing guidance and technical support to

both agencies and private contractors seeking to take advantage of PBA. 

Seven Steps to Performance-Based Service Acquisition

1. Establish an integrated solutions team

2. Describe the problem that needs solving

3. Examine private sector and public sector solutions

4. Develop a performance work statement (PWS) or statement of objectives (SOO)

5. Decide how to measure and manage performance

6. Select the right contractor

7. Manage performance

The Defense Acquisition University (“DAU”) continues to deploy courses in areas important

to PBSA, from general introductory classes to detailed case studies of Performance Work Statements (“PWS”)/Statement of Objective (“SOO”) challenges in a mission-focused contracting

environment. An upcoming class will focus on planning, executing and assessing mission-focused

service acquisitions in a team-oriented environment.

A number of private sector firms offer in-depth PBA workshops. These firms offer training in PBA methods to both government staff as well as private entities seeking to successfully engage with the government in a performance-based environment.

While current training and support resources are not insignificant, those who testified

before the Panel unanimously expressed support for more training—particularly cross-functional training where acquisition teams are expanded to include not only the contracting

9

AAP Pub. Meeting (June 14, 2005) Tr. at 327.

10 See http://acquisition.gov/comp/seven_steps/home.html. Additional information on the Seven Steps 

to Performance-Based Services Acquisition is provided in Appendix A of this chapter.

11 See http://acquisition.gov/comp/ace/index.html.
176

staff, but senior management, program management, the user community, quality assurance teams, and subject matter experts. For example, Barbara Kinosky from Centre Consulting pointed out to the Panel during her testimony, “When individuals without the proper

training and experience attempt to implement a performance-based contract, the results are

understandably and expectedly poor. The issue here is not that performance-based contracting doesn’t work or is flawed as a concept, but rather there is trouble consistently implementing it by an inconsistently trained workforce.”12

4. Studies on PBA Implementation

The Panel sought out and reviewed reports and studies of PBA implementation, with

the goal of assessing implementation status and any data on benefits from the use of PBA.

In a May 1998 study entitled A Report on the Performance-Based Service Contracting Pilot 

Project, OFPP cited specific cost and program gains. OFPP reviewed 26 different contracts

from 15 agencies with a combined award value of $585 million. The contracts ranged in

value from $100,000 to $325 million. On average, as a result of the shift to PBA, contract

price decreased by 15 percent. In addition, customer satisfaction improved over 18 percent,

from 3.3 to 3.9 on a scale of 1 to 5. The report cited other benefits as well. For example, the

number of offers increased from 5.3 to 7.3 when PBA was introduced and the total number

of contract audits decreased 93 percent.

It is important to note, however, that the OFPP study found the average total procurement lead time increased by 38 days, from 237 to 275. Since agencies had significant leeway in identifying which contracts to include, the study cannot be considered definitive.

However, it is the best systematic evaluation of this issue available. Unfortunately there is

no more recent analysis that attempts to examine and document this type of information

from a cross agency perspective. And other reviews have called into question the likely savings purported to be achieved through PBA.

In September 2002, the GAO released a study of a small sample of contracts that were

identified by the agencies involved as PBAs. Notwithstanding the agency identification of the

contracts as embodying performance-based characteristics, GAO concluded that there was a

wide range in the degree to which these contracts in fact exhibited these characteristics. For this

reason, GAO concluded that the study “raise[s] concern as to whether agencies have a good

understanding of performance-based contracting and how to take full advantage of it.”13

The GAO in its analysis reviewed 25 contracts designated as performance-based by

the Department of Defense (“DoD”), the Department of Treasury, Department of Energy

(“DOE”), the National Aeronautics and Space Administration (“NASA”) and the General

Services Administration (“GSA”). Although most contracts exhibited at least one performance-based attribute, only nine possessed all of the required elements. Moreover, the

GAO found that many of the contracts contained extremely restrictive work specifications.

The problem is not as simple as agency resistance to a clear mandate. In roughly half the

cases with incomplete adherence to the elements of PBA, GAO identified a recurring pattern; the contracts entailed “unique and complex services” which entailed such significant

12 AAP Pub. Meeting (July 12, 2005) Tr. at 141.

13 U.S. GAO, Contract Management: Guidance Needed for Using Performance-Based Service Contracting,

GAO-02-1049, 2 (Sept. 2002).
177

“safety, cost and/or technical risks” that the agencies “appropriately” concluded that they

needed to be more “prescriptive” as to how the work was to be done, and exercise more

oversight as to methods for achievement of objectives.14

This raises questions as to both the proper definition of performance-based acquisition, and the proper scope of contracting that is subject to the mandate to employ PBA.

And, it raises a specific question about the use of performance-based methods to the greatest extent appropriate in cases where there may be legitimate constraints on complete

adherence to the performance-based model.

The GAO’s findings were echoed by a 2002 study of the U.S. Air Force Air Logistics and

Product Centers’ experiences with PBA conducted by the Rand Corporation.15 The review

found that many service contracts do, in fact, incorporate performance-based practices

currently being promoted in government. However, the study identified uncertainty over

which services are suitable for purchase via PBA, confusion with SOW/SOO semantics, and

reservations about what constitutes measurable performance standards.16

Of the studies available, the most recent is a September 2005 GAO review of Performance-Based Logistics Contracting.17 In the review, GAO found that DoD failed to verify

that actual cost savings were achieved in fourteen out of fifteen performance-based logistic contracts. Moreover, in the one contract where actual cost results were assessed, there

proved to be no savings from employing performance-based techniques.

5. Testimony Taken by the Panel on PBA Implementation

The Panel scheduled numerous witnesses on PBA implementation throughout its public hearing process. Several issues related to the implementation of PBA were raised in testimony, including the following:

a. Requirements Definition

Tim Beyland, U.S. Air Force Director, Plans and Integration, Deputy Chief of Staff, Personnel (and the former Air Force Program Executive Officer for Services), commented in

testimony to the Panel that, “. . .The problem with performance-based services acquisition

is our inability to write good requirements documents.”18 In response to questions, Director Beyland discussed his organization’s current practices for addressing the difficulty in

capturing requirements: “[We] build our own acquisition team and all the people that will

be affected by this services acquisition, pre-award and post-award, and we start building it.

We do a lot of stuff by the internet. [We] now have several people on the team that we consider as close as we’ve got to experts on how to write performance based requirements documents, and sometimes, we’ll just keep rewriting them and rewriting them until we think

we’ve got them right. We post them. We have industry days. We send them out to industry

and say tell us what you think.”19

14 Id. at 2, 7.

15 John Ausink et al, Implementing Performance-based service acquisition: Perspectives from an Air Logistics 

Center and a Product Center (The Rand Corp. 2002).

16 Id. at 43-44.

17 U.S. GAO, Defense Management: DOD Needs to Demonstrate That Performance-Based Logistics 

Contracts Are Achieving Expected Benefits, GAO-05-966 (2005).

18 AAP Pub. Meeting (Oct. 27, 2005) Tr. at 82.

19 Id. at 108.
178

b. Market Research

Panel witness Ronne Rogin, of Acquisition Solutions, Inc. attributed the problem in

part to contracting agencies’ failure to conduct sufficient market research. “[B]efore they

write their statement of objectives or performance work statement, they’re not really going

out to industry and talking to the practitioners to find out what is the market doing, where

is the market going. . . . [O]nce agencies start to do that, first of all, that opens up the line

of communications with the vendor community, which is excellent, but it also helps the

agency shape their requirement so that it’s not slanted towards what the agency has always

done in the past or slant it in any other direction.”20

c. Performance Measurement

With regard to measuring outcomes, in the September 2005 issue of Contract Management, Jeffrey A. Renshaw discussed Quality Assurance Surveillance Plans (“QASPs”), in his

article ”The QT on Quality Assurance versus Quality Control.” The article points out that,

even when attempting to complete the QASP, there can be confusion between the government’s role in monitoring the contractor’s performance and the need for an internal contractor quality assurance program to ensure the integrity of the contractor’s processes. Mr. Renshaw’s sentiments were echoed in comments made by many government and private sector

individuals speaking to the Panel. His insights regarding QASP confusion are also relevant to

the questions of what performance measures to use, and what incentives to adopt.

Tim Beyland also testified that it isn’t just knowing how to write metrics and measures,

but also having the skill sets to assess and measure them. “The contracting officer or the procurement specialist or the acquisition specialist is not your quality assurance specialist. . . .

I can’t tell you how many times I’ve had a quality assurance person come to me and say I

do not know how to measure performance-based. He says, when I had a firm requirement

that said you will go out and cut the grass every Thursday, and it will be 2.5 inches tall to 3.5

inches tall, and it will be nicely trimmed and there will be no clippings left, I could go out

and measure that. When you tell me to go out and measure whether the grass looks nice, I

don’t know what to do. . . . There is a big gap between the acquisition community and the

people who use these services.”21

d. Contract Monitoring and Management

Panel witness Linda Dearing, Chief of General Contracts Division for the U.S. Coast

Guard, agreed that there is a disconnect between pre- and post-award activities. “With

the workload that we have right now, with all the requirements that we have, the focus is

primarily on the pre-award and so that always takes precedence over getting the money

obligated versus the performance side of it. It’s always a challenge.”22

Another performance monitoring issue Chief Dearing highlighted is the lack of funding to support incentives for contractors delivering exceptional performance. Lack of funding can lead to a reliance on disincentives and penalties, with little or no financial recognition for reaching desired outcomes. During her testimony, Chief Dearing pointed out that a

lack of funding frequently drives organizations to rely solely on penalties in a manner that

20 AAP Pub. Meeting (July 12, 2005) Tr. at 137.

21 AAP Pub. Meeting (Oct. 27, 2005) Tr. at 78.

22 AAP Pub. Meeting (July 12, 2005) Tr. at 197.
179

is “inconsistent with what we’re trying to achieve.” One outcome for contractors facing disincentives, she noted, is that they increase their costs to cover the potential losses, “and it’s

difficult to negotiate those.”23

e. Selecting a Limited Set of Measures

Barbara Kinosky believes federal agencies measure too many things. In testimony

before the Panel, Ms. Kinosky reported, “The government needs to learn not to create

overly burdensome surveillance plans that will ultimately create a bureaucracy of contractors, monitoring contractors, monitoring contractors for compliance, only evaluate what is

necessary to accurately measure success.”24

Robert Zahler, a Partner at Pillsbury, Winthrop, Shaw, and Pittman told the Panel the

problem of identifying the right number and level of measures is not just a problem for federal agencies. His private sector clients also grapple with performance metrics. “People tend

to measure too many things at too low a level. It serves no purpose. Our clients universally

tell us—universally the suppliers meet every service level, yet my end-users say the service

stinks. And the reason is because they’re not measuring what the end-user sees as the relationship: the end-to-end result. To be able to measure the end-to-end result—not easy. . . . But

to be able to do it, you have to give the [contractor] some end-to-end responsibility.”25

f. Impact of the Agency Centers of Excellence

This does not mean that all agencies are stumbling with regard to either requirements

or performance monitoring. In fact, centers of excellence exist throughout government. The

United States Coast Guard, for example, has established a Customer Advocacy and Assistance Team to assist other Coast Guard contracting offices in crafting PWS/SOOs. This centralized office sustains a high degree of expertise and, according to Brian Jones, the team’s

Chief, has created more than 400 performance work statements. While the Coast Guard

has not tracked the organization’s impact on overall effectiveness or efficiency, they do

conduct customer satisfaction and employee satisfactions surveys. The surveys report strong

satisfaction, Mr. Jones reports, “They’ve been pretty consistently in the eighties. That’s an

indicator that our programs are much happier with the job that contracting is doing in getting them what they require.”26

Another example is found at NASA. As early as the fall of 2000, an internal review

assessing PBA implementation reported that, “all NASA centers were found to have the

ability to clearly articulate performance requirements, and have made great improvements

in developing performance standards. Clear linkages between contractor performance,

NASA surveillance, and contractor awards were also observed in multiple contracts.”27 The

team also noted that best practices in PBA were observed at every NASA center.

23 Id. at 153-54.

24 Id. at 144.

25 AAP Pub. Meeting (Apr. 19, 2005) Tr. at 25.

26 AAP Pub. Meeting (July 12, 2005) Tr. at 203-06.

27 Office of Procurement , NASA Headquarters, NASA-wide Performance Based Contracting (PBC) 

Assessment: Final Report (2002).
180

g. Cultural Change and Resistance

At the same time, the NASA report raises the issue of cultural impediments to PBA

implementation, including an uncertainty as to how risk is managed in a performancebased environment. This was evidenced by reluctance throughout the organization to

adopt PBA and a hesitance to abandon models where NASA maintains a significant

amount of management control over contractor activities and personnel.

Cultural impediments were reported by multiple sources. In some cases it appears

to be a result of internal pressures to quickly achieve contract award combined with the

expectation that PBAs will take longer and require more resources than other contracts.

Written testimony received by the Panel from a multi-association industry group acknowledged this struggle. “While culture encourages the ‘Get to Award’ mentality, the process is

also constrained by time and people resources to do the upfront work. To lead a cultural

change, senior leadership needs to support the efforts and show commitment by providing

additional staffing and scheduling time in procurement planning for market research.”28

Chief Dearing testified regarding the importance of the Coast Guard’s strong top-down

management direction to its success with performance-based initiatives. “Until that was

actually directed by our top management, it wasn’t going to happen. There was resistance

by the contracting officer and there was resistance by the program people because they

didn’t want to relinquish control of the work statement, even thought someone was going

to write it for them and the [contracting officer] was somewhat threatened by it. Not to

mention the contracting staff had to give up billets to support the technical writers, and

there was still some resistance there for that.”29

Witnesses reported a disconnect among the functional organizations of the larger

acquisition workforce. Ronne Rogan discussed her experience in classrooms: “I’ve taught

many classes where it’s all contracting people and they say, oh man, we’d love to do this,

but our program people will never go for it. Now I teach a class of all program people and

they say, well, this sounds fabulous, but my contracting officer will never do this. Then

thirdly, boy, great ideas, but our general counsel will never let this happen. We need to get

those people together in a room and make sure everybody’s on the same page. Until that

happens, we’re not going to see a lot of changes.”30

h. Private Sector Experience and Transformational Change

The Panel received compelling testimony on current contracting practices in the

private sector, where PBA is being used to achieve transformational business process

change. Private sector practitioners chiefly discussed functional outsourcing (e.g., an

entire corporate Human Resources function). Several witnesses emphasized the importance of an organization identifying and understanding its high-level strategic objectives. Those objectives support the definition of program outcomes. Witnesses stressed

that, in order be successful in achieving strategic goals, entities must let go of current

and past practices to make room for fundamental change.

Robert Zahler testified, “Too much time is spent focusing on the inputs to these processes, and not enough time on the outputs: what do you want from the result? . . .Classic

28 Test. of Multi-Association, AAP Pub. Meeting (Jan. 31, 2006) Tr. at 4.

29 AAP Pub. Meeting (July 12, 2005) Tr. at 152.

30 Id. at 178.
181

RFPs in my industry—and I think probably in the federal side, also—spend enormously

too much time documenting historical facts: what did we do, how did we do it, what did it

cost. They have some high-level stuff of maybe what they want in the future, but all too little of that. Rather, the RFP should say, “Here are my objectives. Here are my requirements.

Here’s how I want to interrelate with you. Come back and give me a solution.”31

Michael Bridges, an attorney with General Motors (“GM”), said they even go as far

as trying to keep current practitioners out of the procurement process. The purpose is

twofold: 1) to give competitors freedom to suggest a broad range of end-to-end solutions, and 2) to ensure the selected supplier has authority in the day-to-day management

of new systems and processes. “We have attempted to avoid the how of contracting. Very

much back to our model: we are not the experts. We expect the integrators who come

into GM and want to bid on major services projects to bring that expertise. You know,

with the 2,000 egos . . . we try to keep them out of that process and let our suppliers provide that expertise. So to the point that was made a moment ago, the how is left to the

suppliers as much as possible, and we feel that the best way to do that is to stay out of

the day-to-day management. Bid at a high level in terms of high level, firm fixed price

requirements and turn the suppliers loose to deliver the value that they feel they need to

deliver to get that done and innovate to add to margin.”32

Todd Furniss, Chief Operating Officer of the Everest Group, also emphasized the need

to move beyond current practices. “So you can see that if you’re focused on the myopic,

you can actually do something quite counterproductive to corporate objectives. In fact,

one of the terms that’s frequently used . . . is your mess for less, okay? You’re not focused

on changing much; you’re just talking about doing it less expensively.”33 The opposite of

which, he explains, is transformational change. Instead of duplicating functions previously

performed by corporate resources, suppliers focus on “changing more and offering more

feature function benefit with a different set of economic alignments in the interest of driving the business forward at the organizational level.”34

Commercial practitioners also emphasized the need to avoid prescriptive behaviors

on the part of both buyers and suppliers that could limit the opportunity to achieve value.

Todd Furniss noted that in his firm’s experience, “...we do find that all buyers and all suppliers are, in fact, different. Now, if all buyers and all suppliers are different, then, it begs

the question why, in fact, would you have a standard approach to a buyer’s problem, and

second, why would you dictate the solution to the suppliers who are bidding on it? Inevitably, someone is going to have to do something unnatural. And it seems to follow to us to

be something that is decidedly overlooked in the procurement process generally across the

industry. So what that means is there necessarily may be a number of optimal, quote, optimal solutions for a particular problem.”35

31 AAP Pub. Meeting (Apr. 19, 2005) Tr. at 28.

32 AAP Pub. Meeting (Aug. 18, 2005) Tr. at 158-59.

33 AAP Pub. Meeting (Mar. 30, 2005) Tr. at 121.

34 Id. at 122.

35 Id. at 117.
182

C. PBA Regulatory Guidance and Recent Efforts to 

Improve the FAR’s PBSA Provisions

Reflecting many of the implementation challenges described in Section C, in July 2003

an Interagency Task Force on PBSA established by OFPP issued a report designed to make

recommendations for amendments to the FAR to address observed problems in implementing the mandate for PBSA.36

The following table summarizes the recommendations developed by the Interagency

Group and highlights their status while the narrative below addresses the proposed FAR

changes in further detail.

36 Interagency Task Force on Performance-Based Service Acquisition, OFPP, Performance-Based Service 

Acquisition: Contracting for the Future (Jul. 2003).
183

Status of OFPP Implementation Recommendations

Findings Implementation Status

1. Modify the FAR Part 2 to include definitions 

for: 1) performance work statement, 2) quality 

assurance surveillance plan, 3) statement of 

objectives, and 4) statement of work to support changes to Part 37. Modify FAR Parts 11 

and 37 to broaden the scope of PBSA and 

give agencies more flexibility in applying PBSA 

to contracts and orders of varying complexity.

Partially Addressed in January 3, 2006 Final Rule

2. Modify the list of eligible service codes for 

PBSA, as articulated in the Federal Procurement Data System (FPDS) or FPDS-Next 

Generation (FPDS-NG) manual, to more 

accurately reflect services to which PBSA can 

be applied.

Implemented by OFPP Memorandum of 

9/7/04 entitled “Increasing the Use of Performance-Based Acquisition.”

3. Revise FPDS instructions to ensure agencies code contracts and orders as PBSA if 

more than 50 percent of the requirement is 

performance based, as opposed to the current 

80 percent requirement. 

Implemented by OFPP Memorandum of 9/7/04 

entitled “Increasing the Use of PerformanceBased Acquisition.”

4. Allow agencies that do not input data to 

FPDS to submit supplemental reports in order 

to accurately reflect their progress toward 

meeting goals.

Implemented by OFPP Memorandum of 9/7/04 

entitled “Increasing the Use of PerformanceBased Acquisition.”

5. Consider allowing agencies to establish 

interim goals but expect agencies to apply 

PBSA to 50 percent of their eligible service 

contracts (see recommendation 2 above) by 

2005, in line with DoD policy.

Original target of 50 percent changed to 40 

percent by OFPP Memorandum of 9/7/04 

entitled “Increasing the Use of PerformanceBased Acquisition.”

6. OFPP should rescind its 1998 Best 

Practices Guide and consider developing 

web-based guidance to assist agencies in 

implementing PBSA. This guidance should 

be kept current and should include practical 

information, such as samples and templates 

that agencies would find useful. The website 

should include “The Seven-Steps to Performance-Based Service Acquisition Guide” and 

may include elements of existing guidance. 

The working group will explore the development of a web-based PBSA site for guidance, 

samples, and templates.

Implemented by OFPP Memorandum of 

9/7/04 entitled “Increasing the Use of Performance-Based Acquisition.”
184

On July 21, 2004, the Civilian and Defense FAR Councils proposed amendments to the

FAR to implement many, but not all of the Interagency Task Force recommendations.37 The

general thrust of the proposed FAR amendments was to give federal agencies more flexibility so as to encourage its consistent use where appropriate.

In the definitional provisions, the proposed FAR changes would recast the definition

of performance-based contracting presently found in FAR 2.101 to a definition of performance-based acquisition.

The FAR includes a general definition of performance-based contracting (FAR 2.101),

a conditional mandate for use of performance-based contracting (FAR 37.102), and more

concrete guidance as to the mechanics of performance-based acquisition (FAR 37.601). As

published in the January 3, 2006 edition of the Federal Register,38 FAR 37.6 was revised to

reflect a Final Rule prescribing policies and procedures for acquiring services using performance-based acquisition methods. This new rule went into effect on February 2, 2006. 

FAR 2.101 now defines the category of performance-based acquisition as follows:

“’Performance-based acquisition (PBA)’ means an acquisition structured around the 

results to be achieved as opposed to the manner by which the work is to be performed.”

The final rule implementing FAR 37.602 further elaborates on how PBA is to be

applied, as follows:

Agencies shall, to the maximum extent practicable—(1) Describe the work in 

terms of the required results rather than either “how” the work is to be accomplished or the number of hours to be provided (see 11.002(a)(2) and 11.101); 

(2) Enable assessment of work performance against measurable performance 

standards; (3) Rely on the use of measurable performance standards and financial 

incentives in a competitive environment to encourage competitors to develop and 

institute innovative and cost-effective methods of performing the work.

The definitional provisions of the FAR would also be supplemented by introducing

definitions of PWS and SOO as follows:

Performance Work Statement (PWS) means a statement that identifies the

agency’s requirements in clear, specific and objective terms that describe

technical, functional and performance characteristics.

Statement of Objectives (SOO) means a statement that identifies the agency’s

high-level requirements by summarizing key agency objectives, desired outcomes, or both.

The relationship contemplated appears to be that the PWS is considered to be the more

detailed and objective statement of agency requirements, while the SOO may be drawn at a

higher level of generality. The major distinction made in the Final Rule is that if the agency

drafts an SOO, then the contractor will prepare the PWS to respond to the agency request.

The Final Rule also makes it clear that the SOO does not become part of the contract. Also,

37 69 Fed. Reg. 43712 (July 21, 2004).

38 71 FR 211.
185

as defined, the SOO does not insist on complete specification in objective terms of the

results desired from contract performance.

Although the Interagency Task Force had recommended an amendment to FAR 37.102

to add term type contracts to the list of exclusions from the mandate for use of performance-based contracting techniques where practicable, that recommendation did not

appear in the proposed FAR revisions nor in the Final Rule.39

The proposal to amend the FAR provisions applicable to PBA also addressed performance standards and quality assurance surveillance plans. The proposed revisions would

have provided the following at FAR 37.601(c):

(2) Measurable performance standards. These standards may be objective

(e.g., response time) or subjective (e.g., customer satisfaction), but shall

reflect the level of service required by the Government to meet mission

objectives. Standards shall enable assessment of contractor performance to

determine whether performance objectives and/or desired outcomes are

being met.

The proposed revisions would have also provided the following at FAR 37.601:

(d) PBSA contracts or orders may include performance incentives to promote contractor achievement of the desired outcomes and/or performance

objectives articulated in the contract or order. Performance incentives may

be of any type, including positive, negative, monetary, or non-monetary.

Performance incentives, if used, shall correspond to the performance standards set forth in the contract or order.

The provisions in the final rule however failed to provide the same level of detail as

that offered above. The February 2, 2006 provisions read as follows:

37.603 Performance standards. (a) Performance standards establish the

performance level required by the Government to meet the contract

requirements. The standards shall be measurable and structured to permit

an assessment of the contractor’s performance. (b) When offerors propose

performance standards in response to a SOO, agencies shall evaluate the

proposed standards to determine if they meet agency needs.40

One additional feature of the proposed FAR revisions that should be mentioned

here is the proposed revisions to FAR 37.602-2, governing quality assurance. The proposed language would:

•	First, make clear the commonsense proposition that the level of quality assurance

surveillance should be appropriate to the dollar value risk and complexity of the

particular acquisition.

39 Compare 69 FR 43712 (proposed rule) and 71 FR 211 (final rule), with “Performance-Based Service 

Acquisition-Contracting for the Future,” Interagency Task Force on Performance-Based Service Acquisition at 3.

40 FAR 37.603.
186

•	Second, expressly introduce the philosophy of adherence to commercial practices, which

would have to be followed, “to the maximum extent practicable” in framing quality

assurance mechanisms.

•	Third, make explicit that, in the case of some simplified acquisitions, no special QASP,

beyond that inherent in the inspection provisions of the contract, is required.

The final rule basically deletes all of these provisions, referring only to the general provisions of FAR Subpart 46.4 as follows:

37.604 Quality assurance surveillance plans. Requirements for quality

assurance and quality assurance surveillance plans are in Subpart 46.4.

The Government may either prepare the quality assurance surveillance

plan or require the offerors to submit a proposed quality assurance surveillance plan for the Government’s consideration in development of the

Government’s plan.41

Finally, the proposed language of FAR 37.601 appears to make clear that the use of

incentive payment provisions, whether positive or negative, is a discretionary, rather than a

mandatory element of PBA and this approach was adopted in the Final Rule. As such, this

offers a significant degree of clarification of the existing language of the FAR.

Appendix B provides both the basic provisions on how PBA is to be applied as well as a

comparison between the new language and the previously existing FAR language.

Most recently, in a July 21, 2006 memorandum to Chief Acquisition Officers and

Senior Procurement Executives, Associate OFPP Administrator Robert A. Burton updated

agencies on actions being taken regarding PBA and requested that agencies submit a PBA

plan back to OFPP by October 1, 2006. This plan was to “describe the agency’s current and

future PBA activities that will result in an annual increase in the number of PBA’s.”42

II. Statement of the Issue and Findings: Why 

Has Performance-Based Acquisition Not Been 

Fully Implemented in the Federal Government?

The Panel has selected this question as its overall statement of issue. From prior reviews

of PBA’s implementation as well as testimony taken by the Panel, it is clear that implementation challenges hamper the full and effective implementation of PBA and the complete

realization of PBA’s benefits to the taxpayer.

In April 2003, GAO reported, “According to our recent reviews, agencies may have

missed opportunities to take advantage of the benefits offered by. . . performance based

service contracting, because of inadequate guidance and training, a weak internal control environment, limited performance measures, and data that agencies can use to make

informed decisions.”43 The September 2005 GAO report on performance-based logistics

41 FAR 37.604.

42 Memorandum from Robert Burton, Associate Administrator of OFPP, to Chief Acquisition Officers

and Senior Procurement Executives, Use of Performance-Based Acquisitions (Jul. 21, 2006), http://www.

whitehouse.gov/omb/procurement/pbsa/pba_2006-memo.pdf.

43 U.S. GAO, Federal Procurement: Spending and Workforce Trends, GAO-03-443, 3 (Apr. 2003).
187

raises additional questions about the savings potential associated with this contracting

technique.44 It is the Panel’s general impression that little has changed since GAO published its 2003 report.

As described earlier in this report, there are various suppositions as to why PBA has not

been fully implemented. Some suggest that the requirement is ill-conceived. Others have

suggested that there has been a lack of commitment to implementing the requirement in

the agencies. Still others suggest the problem is a lack of training and resources on when

and how appropriately to use PBA. In scheduling testimony and analyzing evidence, the

Panel has looked at this issue, bearing in mind each of these perspectives.

The following sections describe in detail the Panel’s findings on these and other factors

that continue to hamper effective implementation of PBA techniques.

Finding 1: 

Despite OMB target, agencies remain unsure when to use PBA

As noted above, the FAR requires that agencies use PBA “to the maximum extent practicable” with the exception of certain contracts dealing with architect and engineer services,

construction, utility services, services incidental to supply purchases and additional services

identified by OFPP. While, initially, the focus of PBA was on relatively low-level support

services with straightforward metrics, PBA techniques today are applied to a wide variety of

contracts including professional support and information technology services. Information

Technology (“IT”) services, in particular, constitute a large portion of the federal government’s services funding today and require sophisticated measures to account for contractor

success in achieving agency business outcomes. The HHS website described above gives a

sample of the breadth of coverage.

In spite of both the breadth of service offerings eligible to use performance-based

techniques and OMB’s requirement to pursue the approach, the Panel has heard from a

number of commenters that there remains uncertainty on when and how to use performance-based contracting methods to acquire services. Ronne Rogin points out that there

is an issue in determining where performance-based contracting has the best fit. She states

that in spite of the regulatory definition, not everyone understands the best application of

it. Her comments are very similar to those cited earlier in various GAO reports.

The Panel heard similar issues raised by government staff of various agencies attempting to put performance-based contracts in place as well as from various industry associations citing the same complaint. The Multi-Association’s testimony to the Panel noted

that “agencies do not seem to understand how to define requirements, write SOW/SOO’s,

identify meaningful quality baselines and measures, identify effective incentives, and manage the contract and outcomes post-award.”45 The Procurement Round Table (PRT) in its

White Paper, “A Proposal for a New Approach to Performance-Based Service Acquisition”

raises a similar concern about the practicality of employing “clear, specific, objective and

measurable terms when future needs are not fully known or understood, requirements and

priorities are expected to change during performance and the circumstances and conditions

44 GAO-05-966.

45 Testimony of Multi-Association, AAP Pub. Meeting (Jan. 31, 2006) Tr. at 18.
188

of performance are not reliably foreseeable.”46 The PRT proposes to limit PBA usage to

“common, routine, and relatively simple services.”47 They propose a quality based selection

process similar to that followed by the Brooks Architecture and Engineer Act for acquiring

“long-term and complex” services.48

As noted above, the Final Rule on PBA, published in the January 3, 2006 Federal Register and effective on February 2, 2006, makes a number of improvements to both the definition and to the implementation to address some of these concerns. For example, the new

rule stresses that the technique is not only a contracting effort, but also an agency management approach that requires the assistance of program officials as well as contracting staff

for successful implementation. In that regard, the rule adopts the name “PerformanceBased Acquisition,” eliminating the word “Contracting” to buttress that point. In addition,

it makes clear that task orders as well as contracts may be performance-based and suggests

the use of either a PWS or SOO approach for implementation. Under an SOO, the government identifies the performance objectives while the contractor rather than the government

develops the PWS for government review and acceptance.

However, based on Panel findings and testimony received, considerably more guidance is needed to assist agencies in determining when and how to apply PBA techniques

than is provided in the new rule. In July 2003 an Interagency Task Force on PBA established

by OFPP recommended a number of modifications to the FAR to address problems they

observed in implementing this acquisition approach. They stressed one area in particular

that the Panel believes requires further treatment than that offered in the new rule. Providing agencies more insight as to when to apply PBA techniques and offering agencies more

flexibility on usage would directly address the criticism that a one-size-fits-all approach is

not appropriate for this acquisition technique.

The GAO in particular, in a number of its reviews, has questioned both the capability

of federal staff to effectively use PBA techniques as well as the appropriateness of applying

PBA to some of the contracts they reviewed. The Panel has heard a number of commenters

who have similarly expressed reservations about the use of PBA techniques. There is a lack

of a systematic, rigorous effort by the government to document both how PBA techniques

are being used across the federal government as well as the benefits to be achieved through

their use. While there are many indicators that suggest that real gains can be achieved

in focusing on performance and business outcomes, better information on these results

would certainly add more credibility to the strong management focus on PBA.

Along these lines, the Panel finds that current PBA targets (40 percent of all services

acquisitions must be performance-based, as noted previously) fail to acknowledge that PBA

is not suitable for all service acquisitions. An unintended outcome of applying these targets

may be that the number of PBA designations increase when an agency is behind on targets

(with little regard to the type of service being procured, or the applicability of performancebased techniques). While the Panel recognizes that targets have value, they should be tailored to avoid unintended effects. The following table offers one way to address the question of how best to tailor PBA methods to meet differing agency needs.

46 Procurement Round Table, A Proposal for a New Approach to Performance-Based Service Acquisition at 2

(Aug. 2006), http://www.procurementroundtable.org.

47 Id. at 1.

48 Id. at 5.
189

Degree of PBA Implementation Difficulty by Contract Type

Type of Service Current 

Contract Type

PBSA 

Implementation 

Difficulty 

Low/Moderate/High

Specific

Challenges

Basic logistical and 

support services

Firm fixed price Low None.

CPIF of CPAF Low None.

CPFF or Time and 

Materials

Moderate Overcoming reliance 

on buying hours in 

favor of developing 

performance standards.

Linking performance to 

meaningful incentives/

disincentives.

Indefinite Quantity 

Contract (IQC)

Moderate Developing relevant 

performance standards 

in advance of specific 

requirements.

Complex professional 

and technical services

Firm fixed price Moderate Establishing outcomes 

and performance standards attributable to 

the contractor’s efforts.

CPIF of CPAF Moderate Establishing outcomes 

and performance standards attributable to 

the contractor’s efforts.

CPFF or Time and 

Materials

High Establishing outcomes 

and performance standards attributable to 

the contractor’s efforts.

Overcoming reliance 

on buying hours in 

favor of developing performance standards.

Linking performance to 

meaningful incentives/

disincentives.

IQC High Establishing outcomes 

and performance standards attributable to 

the contractor’s efforts.

Developing relevant 

performance standards 

in advance of specific 

requirements.
190

Finding 2:

PBA solicitations and contracts continue to focus on activities and processes, rather than performance and results

By definition, PBA should focus on results achieved, and not the effort or activities

undertaken to deliver those results. Unfortunately, GAO’s PBA report49 found that some

of the contracts reviewed, billed as PBAs, tended to add a veneer of PBA elements, such as

positive or negative performance incentives, on top of lengthy and prescriptive SOWs.

There are three major drivers behind the focus on activity rather than performance

in current PBSA contracts: 1) poor “needs” definition by government in acquisitions; 2)

cultural preference in federal acquisition to dictate work activity; and 3) a difficulty with

developing performance measures.

First, the federal government has done a poor job in defining its “needs” in clear and

results-oriented terms in its solicitations. Clearly defining government’s needs up-front is

not something the procurement community can do alone–program and financial elements

within the government must also participate and contribute to clearly define outcomes

of an acquisition. Creating high-level business objectives demands multiple stakeholder

involvement and a joint and strategic understanding of where the agency wants to be, as

well as where industry and technology are going. Agency users at all levels (procurement,

administration, financial programs, audit) need to be educated to understand how PBAs

work and what they can and cannot do.

Second, from a cultural perspective, it has proved very difficult for agencies (not just

procurement organizations but their client organizations as well) to let go of simpler traditional ways of writing contract specifications—telling vendors exactly what to do. Even

when performance goals are used, detailed requirements can still slip in—if not in the

PWS/SOO during the pre-award phase, then in performance measurement during contract

performance. The buyer must be willing to release control over the vendor’s day-to-day

performance. To successfully manage an organization into an objective-driven performance

approach requires a daunting cultural shift away from business as usual.

In some cases, a “risk adverse” culture limits the level of results-oriented focus in a PBA

contract. In roughly half the cases in which GAO found incomplete adherence to the elements of PBA, GAO identified a recurring pattern: the contracts entailed “unique and complex

services” which entailed such significant “safety, cost and/or technical risks” that the agencies

“appropriately” concluded that they needed to be more “prescriptive” as to how the work was to

be done, and exercise more oversight as to methods for achievement of objectives.50

Third, determining clear, results-oriented performance measures to include in contracts

is also a challenge. Some contracts contain performance measures focused on activities and

work processes, rather than results or impact to the agency from the work performed. In

other cases, contracts have too many performance measures attached to them—imposing a

significant data collection and reporting burden.

In his testimony to the Panel, Brian Jones of the United States Coast Guard discussed

his experience with developing measures: “People have a hard time doing that. I’ve been

working in measurement and analysis for 15 years and the thing I find is people will sit

49 GAO-02-1049 at 2, 6-7.

50 Id. at 2, 7-8.
191

there and they’ll try to measure everything. They’ll come up with 25 measures, which is, I

think, the wrong approach. We take a very simple approach, as few measures as possible,

the ones that are really critical to your success.”51

Finding 3: 

PBA’s potential for generating transformational solutions to agency challenges 

remains largely untapped 

While in theory PBA offers great potential for allowing for transformational solutions

to the federal government’s needs, current implementation of PBA has not fully delivered

on this promised benefit. This is largely driven by the focus on activities and work processes outlined in Finding 2. However, it is also grounded in a lack of market research and

understanding by government of what innovative solutions are available to their needs.

The Panel notes that enhanced examination of public and private sector solutions is

part of the “Seven Steps” implementation approach. PBA has resulted in increased market

research in federal acquisitions. Witnesses before the Panel reinforced this point.52

Todd Furniss of the Everest Group illustrated with a graphic (See page 192), the consequences of focusing on existing work processes rather than clearly defining agency’s needs/

performance outcomes. In discussing the graphic below, Furniss noted: “So you can see that

if you’re focused on the myopic, you can actually do something quite counterproductive to

corporate objectives. In fact, one of the terms that’s frequently used in... the lower left [orange

square] is your mess for less. Here you’re not focused on changing much; you’re just talking

about doing it less expensively. And the term that tends to be used in the upper right hand corner [blue square] tends to be transformational in nature, meaning that the suppliers are focused

on changing more and offering more feature function benefit with a different set of economic

alignments in the interest of driving the business forward at the organizational level.”53

The Panel is concerned that there may be a tendency of contractors to not be open to

a broader set of responses outside the government’s original statement of work. Contractors are fearful of losing the bid if they do not mimic the statement of work closely in their

responses. As a result, many competitions are reduced to careful alignment of proposals

with the government’s specific approach and/or price “shoot-outs,” and the potential for

innovation is largely forfeited. 

The Panel concedes that defining a strategic vision and compelling an institution to

coalesce around it are extremely difficult endeavors. Stove-piped organizations, and institutional and cultural conservatism greatly inhibit the ability to define and execute against

strategic objectives. The right people must be involved, including senior leadership and

vital stakeholders, to bring a broad perspective on what to buy, as well as which vehicle to

51 AAP Pub. Meeting (Jul. 12, 2005) Tr. at 187.

52 Rogin Test. at 137,

“[O]ne thing that agencies are not doing well is market research, as intended in FAR Part 10....[B]efore

they write their statement of objectives or performance work statement, they’re not really going out to

industry and talking to the practitioners to find out what is the market doing, where is the market going,

where is the technology going, if you were us, how would you do that, that just very basic question.

[O]nce agencies start to do that, first of all, that opens up the line of communications with the vendor

community, which is excellent, but it also helps the agency shape their requirement so that it’s not slanted

towards what the agency has always done in the past or slant it in any other direction.”

53 Furniss Test. at 132.
192

use. If the critical parties are not at the table, it is extremely difficult to break through cultural barriers that inhibit success.

Finding 4: 

Within federal acquisition functions, there still exists a cultural emphasis on 

“Getting to Award” 

Many witnesses reinforced the notion that PBA is a process that requires a significant

preliminary effort to clarify agency needs, engage in innovative solutions development, and

craft the right measures and incentives. This increased up-front investment of time, training

and resources flies in contrast to the traditional culture of most acquisition shops under

significant pressure from internal clients to get contracts awarded quickly. Client demand

is exacerbated by an under-resourcing in today’s federal acquisition workforce. In many

organizations, the personnel and skill sets required to undertake the up-front research and

planning simply do not exist. Chip Mather, from Acquisition Solutions met with the Working Group. In our discussion, Mr. Mather expressed his experience that the focus of most

federal contracting shops is on “getting to award, over the process of due diligence.”54

The upfront investments required to produce a successful PBA make it an impractical

technique for certain contracts. For example, a lengthy Request for Information (“RFI”)/

RFP process is not suitable for a contract with a duration of only twenty-four months. A

certain degree of flexibility is required for federal program and acquisition teams to determine whether PBA is appropriate.

54 Working Group meeting with Chip Mather, Acquisition Solutions, Inc. (Sept. 7, 2005).

As An Example, Buyers of HR Services Can Realize Tangible 

Benefits on the Enterprise Level

Process 

Expertise

High

Domain 

Expertise

Low High

Strategic Focus

• Create sustainable competitive

 advantage as an “employer of choice” 

• Improve employee loyalty and 

 enterprise productivity

• Create more responsive and customized

 benefit/pension program, increasing

 employees’ NPV 

• Reduce absenteeism through better

 remote monitoring and follow-up

Outsourcing/Offshoring

• HR admin. staff and related costs 

• Technology

• Third Party Admin
193

Finding 5: 

Post-award contract performance monitoring and management needs to 

be improved

PBA does not end with the award of the contract; it is an ongoing process of monitoring

and managing existing contracts for improved performance. Multiple witnesses expressed

concern that the government does not adequately collect performance information for individual contracts, let alone review and provide ongoing feedback and corrective action on

vendor performance. Moreover, as we have seen from various GAO reviews previously cited,

there is not a systematic effort to identify the real cost savings that can result from adopting

performance-based procedures. It is difficult to put the time and effort into developing these

kinds of acquisition approaches when the benefits can be so easily questioned.

Reviews of selected contracts conducted by the Panel have revealed that contracts

asserting to be performance-based often lack one or more of the key elements for determining whether or not a contract meets the FAR requirements. This finding is very much in

line with the GAO criticisms noted earlier. For example, while contracts may contain useful measures by which to assess successful performance, they often lack a QASP, integral to

qualifying the effort as performance-based.

Furthermore, neither the metadata nor the processes exist to track lessons learned, or

capture successes. As another witness noted, “there’s no means to track whether we’re successful in [our measuring] or whether we’re getting the objectives that we’re putting on

paper, so we need to get better in that area.”55

It is important to note that this challenge is not limited to the federal contracting environment. It is also evident in the private-sector’s use of performance contracting. Robert

Miller from Procter and Gamble testified, “In reality, over a five to seven year term, or as

people start to put a contract in place, what you sometimes find out is that the folks actually on the front line managing the interface don’t often check the contract as they go

through; sometimes, the deal is put on the shelf and largely forgotten, and actually, the

vendors like to encourage this. That gives them more flexibility. Often, some of the people

who are involved in managing the project were not involved in the negotiation of the

transaction. They may not have a full knowledge of the contract. As events unfold, where

there are departures from the agreement, sometimes, those aren’t recognized by the people

in the front line. Life being what it is, not everything is anticipated; even the best lawyers

and people who work in the area substantively are not going to be able to anticipate everything, and so, there are going to be modifications, and sometimes, those just get executed.

They’re not in the agreements. There are often tools for monitoring the agreements that

sometimes are not really utilized to the fullest by the people managing the arrangement.”56

Vernon Edwards and the late John Cibinic point out in an April 2005 report entitled

“Procurement Management, A Chance to Fix Performance-Based Contracting” the difficulties in specifying the level of services that might be required from a contractor, particularly

if a long-term contract is at issue. It is hard to specify objectives in “clear, specific and

55 Test. of Linda Dearing, U.S. Coast Guard, AAP Pub. Meeting (July 12, 2005) Tr. at 154-55.

56 Test. of Robert Miller, Procter & Gamble, AAP Pub. Meeting (Mar. 30, 2005) Tr. at 82-83.
194

objectively measurable terms at the outset, ex ante.”57 They recommend more flexibility be

afforded to the project team on setting measures while continuing to hold the contractor

accountable for results. Under any circumstances, it is critical that the government and the

contractor be clear on the outcomes to be achieved and the means by which the government will monitor and evaluate the contractor’s level of success in achieving its business

objectives. As noted above there appears to be some confusion on exactly what role the

QASP should play. It is not the contractor’s internal quality control system. This distinction

needs to be made clear.

In addition, this confusion can lead to a failure of the government to emphasize

how it will measure performance as it is developing its SOO or PWS. This issue comes to

play both in the early stages of developing the measurement approach as well as the later

requirements for the government to actually follow through on its contract management/

contract administration responsibilities. A number of reviewers have commented on the

intense pressures on contracting staff to focus on getting contracts out, as noted in Finding

4. If the government fails to follow through on assessing the contractor’s level of success,

then clearly there is little benefit from taking the extra up-front time to lay out a strong PBA

approach. Having adequate staff to perform the contract administration role and ensuring

they are adequately trained to effectively assess performance are two measures that would

seem to be important in ensuring successful results. 

Finding 6: 

Available data suggest that contract incentives are still not aligned to 

maximize performance and continuous improvement

An important element of PBA is the use of incentives, both financial and non-financial, to

promote improved results both agencies and the taxpayer expect. Many PBA vehicles rely on

fixed price approaches to provide contractors incentives to improve efficiency. Nevertheless,

many other avenues to provide incentives exist. In many cases, incentives are not fully aligned

to encourage continuous improvement or innovation by the contractors for the government.

Barbara Kinosky commented to the Panel, “[W]hen acquisition professionals are working from limited templates, and using only financial penalties and disincentives to enforce

the quality assurance surveillance plan, then that risk is understandably going to be priced

by the contractor and included in the contract price. An adequate library and resource center will enable the acquisition team to think in terms of alternative approaches, such as the

exercise of an option year as an incentive, rather than just disincentives. This approach will

ultimately save the government money because it reduces the risk to the contractor.”58

Brian Jones stated, “[O]ne of the challenges that we face is the incentives and the disincentives, and when we get to that part of it, it’s very challenging because we don’t have any

additional funding for incentives, so it ends up being, you know, putting those disincentives out there and sometimes they’re just--they are inconsistent with what it is that we’re

trying to achieve. For instance, ...we just had a failure on a contract, almost a failure. We

57 Vernon Edwards & John Cibinic, A Chance to Fix Performance-Based Contracting, 19 No. 4 Nash and

Cibinic Report 6 18 (Apr. 2005) at 52-53.

58 Test. of Barbara Kinosky, Centre Consulting & Federal Consulting Institute, AAP Pub. Meeting (July

12, 2005) Tr. at 143-44.
195

almost went into termination. It was an IT contract. It was so ridiculous. [T]here was $500

per hour [fine for] downtime and it’s down for weeks. It just didn’t make sense.”59

The Panel recognizes the difficulties agencies face in getting “extra” money allotted to

reward contractor performance. A number of agencies have used “award term” contracts

as a way to deal with this issue. This innovative approach allows superior contractor performance to be rewarded through contract term extensions as opposed to extra money. As

the government and vendor community gain PBA experience, the Panel anticipates other

pioneering incentive methodologies will be put in to practice. Performance incentives

must be simple, clearly articulated, understood by all parties, and encourage overall program success. No one benefits from reward systems that result in burdensome processes or

encourage the wrong things, or worse, perverse incentives that work to save the government

money by promoting contractor failure.

Initially many agencies relied basically on “deduction schedules” as ways to tie incentives—really disincentives—to contractor performance. Rather than focusing on rewarding

contractors for achieving business outcomes, deduction schedules emphasize the negative consequences of failure to perform. The Panel believes that positive incentives can be

effectively used to promote superior results. It is important, however, that the project team

explicitly acknowledge the business benefits to be achieved through use of the incentives.

And then, if the results are obtained, the incentives should be willingly paid.

Finding 7: 

FPDS data are insufficient and perhaps misleading regarding use and 

success of PBA

As noted previously there have been few efforts to document the use and benefits of

PBA methods in a systematic fashion. The 1998 OFPP study cited earlier offers some information on PBA benefits, but that is now considerably out of date. In addition, reviews of

contracts described as performance-based have raised questions about whether all performance-based elements as noted in the FAR definition were in fact being used. A number

of GAO studies have called into question the cost and performance benefits purportedly

achieved through performance-based techniques. Clear data on both usage and effects are

needed to address fully the benefits and provide agencies and OFPP a stronger basis for

continuing to promote its use.

Panel-Initiated Review of Selected Federal Contracts

To further test the conclusions on usage provided by the ad hoc studies available, the

Panel initiated its own review of agency PBA contracts with a goal of making its own determination of how effectively the PBA methodology has been applied.

Based on an FPDS-NG report on fiscal year 2004 transactions coded as performancebased, the Panel selected orders and contracts from the top ten contracting agencies. A total

of 80 orders or contracts were selected randomly using the following general guidelines:

1. Actions reported in excess of $20 million, where possible

2. Actions falling generally within the service codes of management and professional or IT,

to allow for comparisons

59 Test. of Brian Jones, U.S. Coast Guard, AAP Pub. Meeting (July 12, 2005) Tr. at 153-54.
196

In a memo dated March 17, 2006, OFPP requested pertinent documentation for these

80 orders and contracts on behalf of the Panel from the following agencies:

•	Department of Defense

•	Department of Agriculture

•	Department of Energy

•	General Services Administration

•	Health and Human Services

•	Department of Homeland Security

•	Department of Interior

•	Department of Justice

•	National Aeronautics and Space Administration

•	Department of Veterans Affairs

Due to various circumstances and mutual agreement to remove several contracts from

the request, an actual total of 76 orders and contracts were requested. The Panel received

and reviewed 64 of the 76 requested transactions. Nine of the 64 were missing documentation necessary to complete the assessment, and although the Panel staff had initiated a

follow-up request for information, none was received. Therefore, the following analysis is

based on a total of 55 reviewed orders and contracts submitted by 10 agencies or 72 percent of the sample.60 All agencies responded.

The review evaluated requirements, metrics and standards, surveillance plans, and the

inclusion of any incentives. Similar to the findings in the September 2002 GAO study, the

Panel-initiated review found a range in the degree to which the contracts exhibited PBA

characteristics. A total of 36 percent61 of the contracts reviewed contained all the elements

of a PBA. Another 22 percent required significant improvement in one or more of the elements characteristic of a PBA.

Of the orders and contracts coded as performance-based in FPDS-NG and reviewed, 42

percent were clearly not performance-based. This assessment often came directly from the

agency in responding to the request. One agency response noted “You may include all contracts referenced under Paragraph B and C as NOT PBSA (4 Total).” Another agency stated

“Reviewed: determined not to be performance based.” And yet another agency said they

had researched a particular contract finding that “It is not a PBSA contract. The 279 was

erroneously coded in the FPDS-NG system at the time of initial award. I have corrected all

of the 279s62 to avoid any further misinformation.”63

The largest weakness found, in those that required significant improvement in one or

more elements of a PBA, was in the metrics and standards. Although requirements were often

stated as outcomes appropriately, some more prescriptive than others, the measures were not

adequately linked to the specific outcome, and/or the quality attribute being measured was

inadequate or insufficient (e.g., timeliness). Although timeliness is a valid attribute, it is insufficient as a stand-alone performance measure, as any contract expectation is on-time delivery.

It was clear throughout these orders and contracts that a performance-based approach was

60 Contracts other than requested or agreed to for substitution were not included herein.

61 Percentages rounded.

62 Refers to the Standard Form 279 used for reporting transactions to FPDS-NG.

63 Information provided to Panel staff.
197

intended, but the execution was lacking to some degree. The greatest success appears to be

with IT service contracts where service level agreements (“SLAs”) define performance levels

and objective measurements and standards.

Another repeating shortfall was in the area of QASPs. There appears to be some confusion with respect to the difference between a QASP and a contractor submitted Quality

Control Plan (“QCP”). In some cases, where a QCP was submitted by the contractor as a

requirement of the contract, there was no correlating translation, QASP or otherwise, for

government surveillance. It was often unclear as to how the performance data would be

collected or monitored.

Other observations include the interchangeable use of the terms SOW, SOO, and PWS.

In several instances, all three were used within the context of the contract.

There were very few instances of any quality incentive clauses. Award fee criteria appear

to be the norm, with some attempt at weighted formulas. They were often tied to criteria

other than that specific to the contracted service. The review did not seek to determine

or make conclusions as to the actual effectiveness of incentives, only that when used, the

incentives were related to the outcomes described in the requirements.

The OFPP letter included a request from the agencies for any recommendations for

improving the regulations, policies, training or reporting of PBAs. One response stated, “It

would be helpful if it was emphasized that more training of technical personnel on writing, implementing, and monitoring PBSA-related requirements is needed.”64

An additional six contracts above those requested were received from four agencies and

were also reviewed, but not included in the statistics above. Five of the six contained PBA

characteristics and one required improvement.

III. Recommendations: Improving Implementation of Performance-Based Acquisition in the 

Federal Government

Recommendation 1:

OMB’s government-wide quota of requiring 40 percent of acquisitions be 

performance-based should be adjusted to reflect individual agency assessments and plans for using PBA

Initial implementation of PBA has been driven by OMB’s establishing and enforcing

a quota that 40 percent of major contract dollars be covered under PBA contracts. While

a government-wide quota has been helpful in jump-starting implementation of PBA, a

universal, one-size-fits-all quota should be abandoned in favor of a more strategic and proactive approach for establishing PBA targets.

While the Panel firmly believes in the accountability created by PBA targets, the Panel

recommends that OMB establish PBA targets on an agency-by-agency basis. In establishing

these agency-specific PBA targets, OMB should review each agency’s analysis of its unique

acquisition portfolio based on clearer OFPP PBA guidance (see Recommendation 2).

64 Comment on file with Panel.
198

Notwithstanding this modification in how targets are set, the Panel strongly endorses

the notion that OMB should continue to establish and enforce “stretch” goals for individual agency implementation of PBA.

Recommendation 2:

FAR Parts 7 and 37 should be modified to include two levels of PBA: Transformational and Transactional. OFPP should issue more explicit implementation 

guidance and create a PBA “Opportunity Assessment” Tool to help agencies 

identify when they should consider using PBA vehicles 

The Panel recommends that OFPP issue clear and illustrative guidance to agencies on

when to use PBAs. This recommendation responds to agency confusion over which contracts should use PBA techniques as well as some concerns over agencies applying PBA to

contracts where its use provides little benefit.

In issuing guidance on when to use PBA, OFPP should address the following:

Define Two Categories of PBA

The Panel recommends the guidance create two categories of PBAs, one reflecting an

aggressive application of the tool and another reflecting a streamlined and targeted application of the tool. This guidance reflects the notion that not all PBAs are equal in terms of

complexity faced and investment required to implement the model. By creating two categories, agencies can calibrate their investment in PBA to fit the level of benefit they seek.

To reinforce the OFPP guidance, the Panel further recommends that FAR Parts 7 and 37

be formally modified to reflect these two categories.

Option 1: Transformational Performance-Based Acquisitions

Definition: Transformational PBAs typically use an SOO approach for acquiring services.

Under this model, the agency identifies a baseline need/problem, but is not in a position to

specify the work that will be done. In this case, the agency should establish outcomes and

allow vendors to offer unique (and potentially adjust post-award) solutions proposing the

specific approach to solving the baseline need/problem. The agency thus places the risk that

the work being done may not solve the baseline need/problem squarely with the vendor.

Under this approach, measurable performance standards would relate to the impact of

the acquisition on the agency’s need/problem, but not the work actually done by the vendor in solving the agency’s need/problem.

Option 2: Transactional Performance-Based Acquisitions

Definition: Transactional PBAs typically use a PWS approach for acquiring services. Under

this model, the agency identifies a baseline need/problem, and has already substantially determined what work is to be done. In this case, the agency is more concerned with ensuring that

work being done meets certain cost, quality, or timeliness attributes. The agency is willing to

assume the risk that the work being done may not solve the baseline need/problem.

Under this approach, measurable performance standards would relate to the quality

and attributes of the work actually done, with limited or no measurement on impact of

work on agency’s need/problem.

The guidance should provide explicit examples of cases where Transformational vs.

Transactional PBA models would be used, as well as examples of cases of acquisitions that
199

would not be ripe candidates for PBA. In compiling these examples, OFPP should depict

actual agency experiences in using PBA in different service areas. Ideally, the complete implementation of Recommendation 10 will help create an evolving database of PBA examples.

Provide an Agency PBA “Opportunity Assessment” Tool

The Panel recommends the guidance include a self-assessment tool that would include

standardized questions an agency should consider when evaluating its acquisition portfolio for PBA opportunities. Among other factors pertinent to PBA, the self-assessment tool

included in the guidance should help an agency analyze a service to determine:

a) whether a performance-related baseline problem exists (cost, quality, timeliness, impact

to agency mission);

b) the level of risk associated with the service not being optimally provided (importance

to mission of the service being provided optimally);

c) the level of confidence the agency has in its own “work statement” to solve the baseline

problem;

d) the amount of risk the agency wants to assume for managing the service impact on its

own versus shifting to a vendor;

e) the readiness of the Program to measure the impact of the service on its program performance goals/mission, as well as the readiness of Program staff to participate in a

PBA process.

The creation of a PBA Opportunity Assessment Tool reflects the Panel’s view that

implementing this new approach to acquisition in government will take time—requiring a

more prioritized and strategic approach to when to use PBA models. By focusing on “low

hanging fruit,” agencies can build competency and experience in PBA and achieve early

“wins” for the taxpayer.

In devising this guidance, OFPP should seek the input of the OFPP PBA Interagency

Working Group that it has already established.

Recommendation 3: 

Publish a best practice guide on development of measurable performance 

standards for contracts

OFPP should issue a “Best Practice Measures Guide” on the development and selection

of performance measures for PBA contracts. This recommendation is driven by testimony

taken by the Panel, as well as numerous reviews of individual PBAs, that has underscored

the difficulty agencies face in devising and selecting good performance measures to include

in both PBA solicitations as well as inclusion in contract awards.

As part of OMB Circular A-11, OMB has already issued general guidance on the development of performance measures. However, this guidance relates to programmatic performance, rather than performance standards for individual contracts. The Panel believes that

a Best Practice Measures Guide is critical to providing instruction and illustration in the use

of measures as part of PBA.

In developing a Best Practice Measures Guide, the following criteria should be, as a

minimum, addressed to guide agency selection of PBA performance measures:
200

Measurement “Chain” or “Logic Model”

Performance measures should be defined using a structured framework (such as a

Value Chain or Logic Model) that define expected performance from an acquisition: starting first with the outcomes the agency seeks to achieve with the acquisition and then proceeding to demonstrate alignment between the specific outputs and/or activities conducted

under a PBA contract and those outcomes.

Baseline & Outcome Measure(s)

PBAs should be grounded in at least one or more measures that directly assess the agency’s baseline need/problem relating to the service being acquired. Baseline measures will not

only help provide a “starting point” of current performance from which vendors can analyze

and propose innovative solutions, but also can be used during and after an acquisition to

indicate whether a service has had the desired outcome on the agency. Common baseline

measures will largely assess how an acquisition has resulted in the program being able to:

•	Achieve improved performance toward program goals, including improved service levels

or impact to agency customers, and/or

•	Address a major cost management issue facing the program, resulting in cost savings or

enhanced ability by the program to operate in a more economical or efficient manner.

For Transactional PBAs, baseline measures might not be included in the final contract awarded, but would be helpful to include in a PWS to improve the quality of vendor

responses as well as serve to assist in an agency’s own internal review of a contract’s impact

to the agency.

Contract Management and Monitoring Measures

Other performance measures used in a PBSA should relate to the work actually being

done by the vendor—with particular focus not on effort or activities conducted, but actual

service “attributes” such as:

•	Timeliness: the services are provided in a timely manner

•	Accessibility: the service is available to users in a user-friendly manner

•	Quality: the service is provided in a manner free of flaws or errors

•	Workload levels: the quantity of services provided or clients served meets the demand

•	Economy: for contracts that are not fixed price, an agency may consider some cost-related

performance measures (for example, some agencies not using fixed price contract vehicles have measured actual costs against original cost estimates)

Limiting Measures

Particularly when using contract management measures, agencies should be highly

selective in the measures they use, limiting the number of core performance measures to a

handful. Agencies have been tempted to measure everything to ensure everything gets done

by the vendor. Instead of using this approach, agencies should “sample” measures across

the spectrum of their measurement chain or logic model to create a basket of indicators

that balance the need to assess service outcomes (impact on the baseline) with measures

for contract management and monitoring. The Panel strongly endorses the use of sampling
201

and “representative indices” to measure large service areas rather than measures for each

service area.

Subjective vs. Objective Measures

Reflecting recent revisions in the FAR, the guidance should address when and how to

use subjective performance measures, including customer satisfaction scores.

Measurement Selection Process: The guidance should provide helpful practices to guide

the process by which measures are developed—ensuring that program and subject matter expertise are used to select measures. The guidance should also encourage agencies to

survey users of the service to identify and rank core service “attributes” they expect. In addition, the guidance should encourage agencies to allow the supplier to propose the measures as part of the technical proposal in a PBA response.

Evolution of Measures

The guidance should address a process by which measures WILL and MUST change

over time. There can be adjustments of expectations during performance that were not

anticipated during the acquisition planning phase, as well as a need to provide for continuous improvement and refinement of the measures over time. Agencies should be explicitly

encouraged to evolve their measures, provided that a justification is provided. It is likely

that contract management and monitoring measures will evolve over time, while the baseline outcome measures will remain the same.

Recommendation 4:

Modify FAR Parts 7 and 37 to include an identification of the government’s 

need/requirements by defining a “Baseline Performance Case” in the PWS 

or SOO. OFPP should issue guidance as to the content of Baseline Performance Cases 

The Panel received consistent testimony indicating that the private sector considers the

definition of client needs/requirements upfront in an acquisition is one of the most important aspects of PBA. There are questions whether the federal government has been consistent in clearly defining its needs/requirements up-front—a deficiency that some believe

may have led to poorly executed contracts and, in some cases, contract failures. In addition,

the importance of conducting extensive market research before proceeding with a PBA was

underscored by numerous private sector experts.

The Panel recommends that the FAR be revised to require that agencies publish a formal “Baseline Performance Case” as part of their use of a PBA. As part of the OFPP guidance, the Baseline Performance Case would include:

Outcome Performance Measures: Identifying and explaining performance measures

that capture the outcome sought by an agency in a particular service area (as defined in the

guidance required in Recommendation 4).

Baseline Performance State

Using the outcome performance measures, the agency would assess the current level of

performance in a particular service area. In addition to measuring the baseline, some qualitative description of the performance problems/needs would be provided.
202

State-of-Practice: The agency would describe the current “state-of-practice” in the service

area as determined from its market research. Stating the assumptions of the agency in this

regard would allow outside bidders to identify areas of innovation that the agency might have

missed in reviewing potential private and public sector solutions to its need/requirement.

PBSA Approach

Based on the analysis described above, the agency would then select and justify either

the use of a Transformational PBA or a Transactional PBA.

SOO or PWS: The agency would include the SOO or PWS as part of the “Baseline Performance Case” and solicit proposals from vendors.

The creation of a Baseline Performance Case (to include the SOO and PWS) would

provide the much needed structure and discipline to ensure that the federal government

improves its definition of performance needs/requirements up-front in an acquisition.

Recommendation 5: 

Improve post-award contract performance monitoring and management, 

including methods for continuous improvement and communication through 

the creation of a “Performance Improvement Plan” that would be appropriately 

tailored to the specific acquisition

One of the challenges of long-term complex service contracts is the fact that needs

change over time and that, as a result, performance priorities may also need to be adjusted

to reflect these changing circumstances. In addition, as some have noted, relationships play

a key role in the assessment of contractor performance. Responsiveness and customer satisfaction are as important in many cases as technical achievement. Many practitioners have

stressed the need for effective ongoing communications between the government and the

contractor to ensure that contractor performance remains on target in meeting the mission

needs of the agency.

To reflect that need for addressing shifting priorities and again to respond to Finding 5

regarding the need for improved post-award contract management, the Panel recommends

that contractors be required to develop and submit at pre-determined milestones a Performance Improvement Plan (“PIP”) that agency staff would assess and approve. This plan

would serve as a means for ensuring that both the agency and the contractor are regularly

communicating and assessing the need, both for continuous improvement and responsiveness to shifting priorities. The PIP should, at a minimum, do the following:

•	Include reporting of required performance standards under the QASP,

•	Identify gaps in performance along with an explanation for them,

•	Suggest changes in work product to achieve improved performance and reflect changing

circumstances, and

•	Identify eligibility for contract incentives, if any.

Recommendation 6: 

OFPP should provide improved guidance on types of incentives appropriate 

for various contract vehicles

As the Panel noted in Finding 6, the use of incentives remains troublesome, with confusion

existing about what types of incentives are appropriate and with some expressing difficulties in
203

being able to acquire the additional up-front funding to meet these requirements. A number of

agency PBA guides, including that of the Office of the Secretary of Defense, address the types of

incentives available and offer tips on how best to use them.

However, there is no useful database for identifying the level of use of various types

of incentives in PBA efforts, nor does there exist in-depth guidance for practitioners on

how best to apply them. A continuing theme of many of the witnesses who have appeared

before the Panel is that more guidance and more training are needed for the basic elements

of PBA to be effectively applied. Therefore, the Panel recommends that OFPP take the leadership initiative and use the existing PBA inter-agency working group, if appropriate, to

prepare the following:

•	A catalog of the various types of incentives appropriate for use in PBA efforts (both financial

and non-financial),

•	A critique of how such incentives are currently being applied in selected performancebased awards, 

•	An assessment of the applicability of award fee and award term approaches to PBA (making it clear that while subjective, these techniques offer perfectly acceptable means for measuring performance), and

•	Discussion of challenges posed in managing PBAs under existing budget and appropriation

rules that limit multi-year financial commitments and incentive-based budget projections.

Recommendation 7: 

OFPP should revise the Seven Step process to reflect the Panel’s new PBA 

recommendations 

The Panel believes that the Seven Steps to Performance-Based Service Acquisition guide

continues to offer useful templates and information for agency staff to use in developing

performance-based awards. However, in light of the changes proposed above, as well as

based on testimony from the private sector witnesses on their use of PBA models, the Panel

recommends that the Guide be modified to reflect the various suggestions for improvement. The following re-characterizes the seven steps in light of these recommendations:

1. Designate COPR and Form the Team (see Recommendation 8)

The modification of this step is meant to create the position of and place responsibility on

the Contracting Officer Performance Representative (“COPR”) to assist the Contracting Officer

in coordinating program and technical input for performance management throughout the life

cycle of the acquisition, as well as take responsibility for performance management.

2. Assess Baseline Performance and Desired Outcomes

The modification of this step is meant to reinforce the practice of selecting outcome

measures and assessing the existing baseline at the beginning of an acquisition—all with

an eye toward improving the performance need/requirements definition.

3. Examine Private Sector and Public Sector Solutions

This step remains the same, with the results of market research conducted included in

the “Baseline Performance Case” to ensure the agency has its finger on the pulse of market

innovation in a particular service area.
204

4. Select Transformational or Transactional PBA Model

This step reflects the two categories of PBSA suggested by the Panel—as part of an

effort to move beyond a one-size-fits-all use of PBA and provide clarification on when

to use an SOO versus PWS.

5. Focus on Key Performance Indicators

This refinement reflects the Panel’s desire to limit the number of performance measures

included in a PBA contract to a “sampling” or representative index of measures.

6. Select the Right Contractor

This step remains the same.

7. Manage, Monitor, and Improve Performance

This step would be modified to include the establishment of milestones for the vendor

to prepare “Performance Improvement Plans” as well as the agency’s review and use of

those plans to monitor and improve performance.

Recommendation 8:

Contracting Officer Technical Representatives (“COTRs”) in PBA’s should 

receive additional training and be re-designated as Contracting Officer 

Performance Representatives (“COPRs”).

Both Findings 4 and 5 point to deficiencies in post-award contract performance monitoring and management, with contracting staff in particular continually being pressured to

focus on getting to contract award. For a performance-based contract to be successful, both

elements of the process must be pursued: identifying desired business results up-front and

then being able to monitor performance.

The Panel believes that improvements in workforce capacity and capability regarding

contract oversight in particular may make a significant difference in seeing that PBAs are

successfully carried out. One way to recognize the importance of this performance monitoring role and to shift the culture is, in circumstances where that individual is overseeing

PBAs, to re-designate the COTR as a COPR. Making this change highlights the distinctive

nature of the position while affording those filling it with sufficient education and training

to meet demanding oversight requirements. In addition to the traditional contract management and monitoring responsibilities of a COTR, the COPR would also assist the Integrated Project Team and contracting officer in

•	Soliciting input from program and technical staff regarding the approach to be used for

acquisition performance management,

•	Creating a baseline performance case,

•	Developing the SOO or PWS and,

•	Selecting key performance measures.

In addition, the Panel recommends that program staff and line contracting officers associated with performance-based acquisitions be given advanced training in performance management—particularly in the development of performance measures and post-award contract

performance monitoring and management. Specifically for the creation of the COPR, the DAU

and the Federal Acquisition Institute (“FAI”) should jointly develop a formal educational certification program for those occupying this new position. For Transformational PBAs, every effort

should be made to see that key staff receive appropriate training and skill sets.
205

Recommendation 9:

Improved data on PBA usage and enhanced oversight by OFPP on proper 

PBA implementation using an Acquisition Performance Assessment Rating 

Tool (“A-PART”)

Under Finding 7, the Panel noted the lack of good data on the use and success of PBA

across the government. In addition, where agencies have purported to have conducted

PBAs, the GAO in a number of cases has questioned whether the procurement would actually meet the criteria included in the FAR. As one way to regularize and make more consistent the Administration’s ability to oversee and assess the performance of PBAs, the Panel

recommends that OFPP see that a tool similar to OMB’s Program Assessment Rating Tool

(“PART”) is developed.

OMB uses the PART as a systematic method for measuring program performance across

the federal government. It essentially includes a series of questions that help the evaluator

to see whether the program is in fact meeting the mission requirements it was designed to

support. The use of the PART has helped improve the clarity of OMB guidance on the Government Performance and Results Act (“GPRA”) as well as engaged OMB more aggressively

in reviewing its implementation.

In a similar vein, the Panel is recommending that OFPP develop a checklist that reflects

how well a particular acquisition comports with the basic elements of the Seven Steps

guide. Using this methodological and accountable approach to PBA implementation not

only provides better data, but also helps agencies learn how to implement PBA in a more

structured and accountable manner. The Panel feels this rigor is needed in the early stages

of PBSA’s implementation until agencies are comfortable and competent in the use of the

tool. This requirement would sunset after three years, unless OMB and agencies felt the use

of the A-PART process should continue.

Using the A-PART, agencies should then fill out the questions upon award of a performance-based contract and maintain the information on file. Each year OFPP should sample the A-PART documents to see if PBA implementation is, in fact, being handled properly

in each agency, with revised guidance provided to the agencies based on the results of these

annual assessments.

In addition, OMB guidance on FPDS-NG reporting should be revised to reflect the distinction between Transformational and Transactional PBAs (including both contracts and

task orders) as described in Recommendation 1. 

Recommendation 10: 

OFPP should undertake a systematic study on the challenges, costs and benefits of using performance-based acquisition techniques five years from the date 

of the Panel’s delivery of its final Report

While the Panel has heard many witnesses point to either the benefits or shortfalls of

adopting performance-based techniques for acquiring services, there has been no systematic government-wide effort to assess fully the merits of the process. As noted previously by

the Panel, the last such study was conducted by OFPP in 1998 and while the results were

positive, some questioned the validity of its findings. As such, the Panel recommendations

should not be interpreted as offering a long-term endorsement of PBA. Rather, the Panel
206

aims are directed at improving current implementation and at providing a solid fact-based

record for a more thorough assessment of its value.

In light of the concerns raised by so many witnesses on the lack of training and guidance for carrying out performance-based acquisitions, the Panel believes that a concerted

effort to address these deficiencies should help to make performance-based acquisitions

more effective. However, a systematic review would offer a much more solid basis for concluding whether significant cost and programmatic benefits are, in fact, achieved through

the adoption of performance-based acquisition methods.

As part of this review, OFPP should use FPDS-NG to identify the various types of PBAs

in use across the agencies, and examine selected A-PARTS assessments and agency Performance Improvement Plans to assess their contributions to improving the effectiveness of

performance-based acquisition awards. 
207

Appendix A: 

Bibliography of Government PBA Reports 

and Studies

Performance-based Contracting Working Group PBA 

Chronology

1.	 OFPP Policy Letter 91-2, “Service Contracting” April 9, 1991– rescinded: on file with OFPP.

2.	 “On March 15, 1993, the Office of Management and Budget (OMB) Director Leon

Panetta requested that 17 major Executive Departments and agencies review their

service contracting programs. The purpose of the review was to determine (1) if the

service contracts were accomplishing what was intended; (2) whether the contracts

were cost effective; and (3) whether inherently governmental functions were being

performed by contractors. The results of the reviews indicated that service contracting

practices and capabilities are uneven across the Executive branch and that various

common management problems need to be addressed.” (see intro to OFPP Policy

Letter 93-1).

3.	 OFPP Policy Letter 93-1 “Management Oversight of Service contracting,” May 18, 1994

http://www.whitehouse.gov/omb/procurement/index_policy.html

4.	 Former VP Gore designated PBC as an integral aspect of the National Performance

Review (http://govinfo.library.unt.edu/npr/library and then/nprrpt/annrpt/sysrpt93/

reinven.html) for the “Reinventing Federal Procurement” report. Pilot launched

October 1994. Director Rivlin led the kick-off ceremony where executive officials of the

participating agencies signed a government-wide pledge to participate in the project

(Exhibit 5 of OFPP “A Report on the Performance-Based Service Contracting Pilot

Project,” on file with OFPP).

5.	 OFPP Policy Letter “PBSC Checklist” August 8, 1997 http://www.whitehouse.gov/omb/

procurement/index_pbsa.html.

6.	 FAC 97-01 (Item VII) – FAR Case 95-311, implementing OFPP Policy Letter 91-2 (see 1

above), by revising FAR Parts 7, 37, 42, 46, and 52. Available in FAC Archives at http://

acquisition.gov/far/facsarchives.html or at 62 FR 44802.

7.	 “A Report on the Performance-Based Service Contracting Pilot Project” OFPP (May

1998). On file with OFPP.

8.	 Federal Acquisition Streamlining Act of 1994. See, among others, 10 USC 2220 and 41

USC 263.

9.	 Government Performance and Results Act of 1993

10.	 Clinger-Cohen Act of 1996

11.	 Best Practices for Performance-Based Service Contracting, Final Edition (Oct 1998),

Rescinded but available at http://www.whitehouse.gov/omb/procurement/index_

pbsa.html.

CHAPTER 2–Appendices
208

12.	U.S. GAO, Department of Energy: Lessons Learned Incorporated in PerformanceBased Incentive, GAO/RCED-98-223, July 23, 1998 – GAO Report to the Chairman,

Committee on Commerce, House of Representatives, http://www.gao.gov/

archive/1998/rc98223.pdf.

13.	National Laboratories: DOE Needs to Assess the Impact of Using 13. PerformanceBased Contracts, May 3, 1999 http://www.gao.gov/archive/1999/rc99141.pdf

14.	U.S. GAO, Contract Management: Trends and Challenges in Acquiring Services, GAO01-753T, May 22, 2001 – GAO Testimony before the Subcommittee on Technology and

Procurement Policy, Committee on Government Reform, House of Representatives.

15.	U.S. GAO, Contract management: Improving Services Acquisitions, GAO-02-179T,

October 30, 2001–GAO Testimony before the Subcommittee on Technology and

Procurement Policy, Committee on Government Reform, House of Representatives.

16.	U.S. GAO, Guidance Needed for Using Performance-Based Service Contracting, GAO02-1049, September 20, 2002.

17.	President’s Management Agenda http://www.whitehouse.gov/omb/budget/fy2002/

mgmt.pdf.

18.	U.S. GAO, Federal Procurement: Spending and Workforce Trends, GAO-03-443, April

30, 2003.

19.	“Performance-Based Service Acquisition—Contracting for the Future” Interagency Task

Force on Performance-Based Service Acquisition, July 2003 http://www.whitehouse.

gov/omb/procurement/0703pbsat.pdf.

20.	Section 1431 of the Services Acquisition Reform Act of 2003, Additional Incentive

for use of Performance-based Contracting for Services and Section 1433,

Clarification of Commercial Services Definition (Title XIV of the National Defense

Authorization Act for Fiscal Year 2004). http://reform.house.gov/UploadedFiles/

Title%20XIV%20of%20H.R.%201588%20Conference%20Report.pdf.

21.	 FAR Case 2004-004, Incentives for the Use of Performance-Based Contracting for

Services. This case implements Section 1431 and 1433 of the Services Acquisition

Reform Act of 2003, 70 FR 33657.

22.	FAR Case 2003-018, Implementing the Task Force Report, 71 FR 211.

23.	U.S. GAO, Defense Management: Opportunities to Enhance the Implementation of

Performance-Based Logistics, GAO-04-715, August 9, 2004.

24.	OFPP Memo, “Increasing the Use of Performance-Based Service Acquisitions,”

September 7, 2004 available at http://www.whitehouse.gov/omb/procurement/index_

pbsa.html.

25.	U.S. Air Force Instruction 63-124, Performance-based service acquisition. August 1,

2005. This publication is available at http://www.e-publishing.af.mil.

26.	U.S. GAO, Defense Management: DOD Needs to Demonstrate That Performance-Based

Logistics Contracts Are Achieving Expected Benefits, GAO-05-966, September 9, 2005.

27.	“Seven Steps to Performance-Based Service Acquisition Guide” available at http://www.

whitehouse.gov/omb/procurement/index_pbsa.html.
209

28.	Acquisition Center of Excellence (ACE) for Services established by Sec. 1431(b) of the

Services Acquisition Reform Act (SARA) of 2003 and available at http://acquisition.gov/

comp/ace/index.hmtl.

29.	OFPP Policy Letter 05-01 “Developing and Managing the Acquisition Workforce”

available at 70 FR 20181.

211

Appendix B:

FINAL PBA Rule and Side-by-Side Comparison

February 2, 2006 Effective PBA Far Regulation

SUBPART37.6—PERFORMANCE-BASED ACQUISITION 37.604

Subpart 37.6—Performance-Based Acquisition

37.600 Scope of subpart. This subpart prescribes policies and procedures for acquiring

services using performance-based acquisition methods.

37.601 General. (a) Solicitations may use either a performance work statement or a

statement of objectives (see 37.602). (b) Performance-based contracts for services shall

include— (1) A performance work statement (PWS); (2) Measurable performance standards (i.e., in terms of quality, timeliness, quantity, etc.) and the method of assessing contractor performance against performance standards; and (3) Performance incentives where

appropriate. When used, the performance incentives shall correspond to the performance

standards set forth in the contract (see 16.402-2). (c) See 12.102(g) for the use of Part 12

procedures for performance-based acquisitions.

37.602 Performance work statement. (a) A Performance work statement (PWS) may

be prepared by the Government or result from a Statement of objectives (SOO) prepared

by the Government where the offeror proposes the PWS. (b) Agencies shall, to the maximum extent practicable— (1) Describe the work in terms of the required results rather

than either “how” the work is to be accomplished or the number of hours to be provided

(see 11.002(a)(2) and 11.101); (2) Enable assessment of work performance against measurable performance standards; (3) Rely on the use of measurable performance standards and

financial incentives in a competitive environment to encourage competitors to develop

and institute innovative and cost-effective methods of performing the work. (c) Offerors

use the SOO to develop the PWS; however, the SOO does not become part of the contract.

The SOO shall, at a minimum, include—(1) Purpose; (2) Scope or mission; (3) Period and

place of performance; (4) Background; (5) Performance objectives, i.e., required results;

and (6) Any operating constraints.

37.603 Performance standards. (a) Performance standards establish the performance

level required by the Government to meet the contract requirements. The standards shall

be measurable and structured to permit an assessment of the contractor’s performance. (b)

When offerors propose performance standards in response to a SOO, agencies shall evaluate the proposed standards to determine if they meet agency needs.

37.604 Quality assurance surveillance plans. Requirements for quality assurance and

quality assurance surveillance plans are in Subpart 46.4. The Government may either prepare the quality assurance surveillance plan or require the offerors to submit a proposed

quality assurance surveillance plan for the Government’s consideration in development of

the Government’s plan.
212

Interim Rule Final Rule: February 2, 2006

FAR 2.101 Definitions:

“Performance-based contracting” means 

structuring all aspects of an acquisition around 

the purpose of the work to be performed with 

the contract requirements set forth, in clear, 

specific, and objective terms with measurable 

outcomes as opposed to either the manner by 

which the work is to be performed or broad 

and imprecise statements of work.

FAR 2.101 Definitions:

“Performance-based acquisition (PBA)” 

means an acquisition structured around the 

results to be achieved as opposed to the manner by which the work is to be performed.

FAR 7.103(r):

(r) Ensuring that knowledge gained from prior 

acquisitions is used to further refine requirements and acquisition strategies. For services, 

greater use of performance-based contracting 

methods and, therefore, fixed-price contracts 

(see 37.602-5) should occur for follow-on 

acquisitions.

FAR 7.103(r):

(r) Ensuring that knowledge gained from prior 

acquisitions is used to further refine requirements and acquisition strategies. For services, 

greater use of performance-based contracting 

methods (see 37.602-5) should occur for follow-on acquisitions.

FAR 7.103(r):

DELETED “and, therefore, fixed-price contracts” from the statement “For services, 

greater use of performance-based acquisition 

methods and, therefore fixed-price contracts*** should occur for follow-on acquisitions” because the Councils believe the 

appropriate contract type is based on the level 

of risk and not the acquisition method.

FAR 11.101(a)(2) and (a)(3):

(a) Agencies may select from existing requirements documents, modify or combine existing requirements documents, or create new 

requirements documents to meet agency 

needs, consistent with the following order of 

precedence:

(1) Documents mandated for use by law.

(2) Performance-oriented documents or function.

(3) Detailed design-oriented documents. 

FAR 11.101(a)(2) and (a)(3):

(a) Agencies may select from existing requirements documents, modify or combine existing requirements documents, or create new 

requirements documents to meet agency 

needs, consistent with the following order of 

precedence:...

(2) Performance-oriented documents...

FAR 11.101(a)(2):

DELETED “or function” because the Councils 

concluded that the term “function” could be 

confused with “detailed design-oriented documents” at 11.101(a)(3) thus confusing the order 

of precedence for requirements documents.
213

Interim Rule Final Rule: February 2, 2006

FAR 16.505(a)(3):

(3) Performance-based work statements must 

be used to the maximum extent practicable, 

if the contract or order is for services (see 

37.102(a)).

FAR 16.505(a)(3):

(3) Performance-based acquisition methods 

must be used to the maximum extent practicable, if the contract or order is for services 

(see 37.102(a)).

FAR 16.505(a)(3):

CHANGED “performance work statements 

must be used to the maximum extent practicable” to “Performance-based acquisition 

methods must be used to the maximum extent 

practicable” since either a SOO or PWS can 

be used in the solicitation.

FAR 37.000:

This part prescribes policy and procedures 

that are specific to the acquisition and management of services by contract. This part 

applies to all contracts for services regardless 

of the type of contract or kind of service being 

acquired. This part requires the use of performance-based contracting to the maximum 

extent practicable and prescribes policies and 

procedures for use of performance-based 

contracting methods (see subpart 37.6). Additional guidance for research and development 

services is in Part 35; architect-engineering 

services is in Part 36; information technology 

is in Part 39; and transportation services is in 

Part 47. Parts 35, 36, 39, and 47 take precedence over this part in the event of inconsistencies. This part includes, but is not limited 

to, contracts for services to which the Service 

Contract Act of 1965, as amended, applies 

(see Subpart 22.10).

FAR 37.000:

This part prescribes policy and procedures 

that are specific to the acquisition and management of services by contract or orders. 

This part applies to all contracts for services 

regardless of the type of contract or kind of 

service being acquired. This part requires 

the use of performance-based acquisition to the maximum extent practicable and 

prescribes policies and procedures for use 

of performance-based acquisition methods 

(see subpart 37.6). Additional guidance for 

research and development services is in Part 

35; architect-engineering services is in Part 

36; information technology is in Part 39; and 

transportation services is in Part 47. Parts 

35, 36, 39, and 47 take precedence over this 

part in the event of inconsistencies. This part 

includes, but is not limited to, contracts for 

services to which the Service Contract Act 

of 1965, as amended, applies (see Subpart 

22.10).

FAR 37.000

ADDED “or orders” after “contracts” to clarify 

the Subpart applies to contracts and orders.

Various Subparts in Part 37:

CHANGED the terminology from “performance-based service acquisitions” to “performance-based acquisitions” since Part 37 only 

relates to service acquisitions.
214

Interim Rule Final Rule: February 2, 2006

FAR 37.102(e):

Did not exist.

FAR 37.102(e):

(e) Agency program officials are responsible 

for accurately describing the need to be filled, 

or problem to be resolved, through service 

contracting in a manner that ensures full understanding and responsive performance by contractors and, in so doing, should obtain assistance from contracting officials, as needed.

FAR 37.102(e)

ADDED a requirement that the agency program officials describe the need to be filled 

using performance-based acquisition methods to the maximum extent practicable to 

facilitate performance-based acquisitions.

FAR 37.601

(a) Performance-based contracting methods 

are intended to ensure that required performance quality levels are achieved and that 

total payment is related to the degree that 

services performed or outcomes achieved 

meet contract standards. Performance-based 

contracts or task orders--

(1) Describe the requirements in terms of 

results required rather than the methods of 

performance of the work;

(2) Use measurable performance standards 

(i.e., in terms of quality, timeliness, quantity, 

etc.) and quality assurance surveillance plans 

(see 46.103(a) and 46.401(a));

(3) Specify procedures for reductions of fee 

or for reductions to the price of a fixed-price 

contract when services are not performed 

or do not meet contract requirements (see 

46.407); and

(4) Include performance incentives 

where appropriate.

(b) See 12.102(g) for the use of Part 12 procedures for performance-based contracting.

FAR 37.601

(Deleted and moved to a new FAR section, 

37.603)

FAR 37.601(a):

DELETED 37.601(a) of the proposed rule 

which stated the principal objectives of 

PBSAs since the principal objectives are 

addressed in the definition. RELOCATED and 

revised the detailed provisions for performance standards to a new FAR section, 

37.603, to permit expanded coverage. The 

Councils clarified the language to indicate 

that performance standards must be measurable and ADDED “method of assessing 

contractor performance” to the required elements of a PBSA since the quality assurance 

surveillance plan is not a mandatory element 

and contractors should know how they will 

be assessed during contract performance. 

REVISED the performance incentives 

coverage to simply refer to the provisions 

at 16.402-2 since the only unique requirement for PBSAs is the requirement that 

performance incentives correspond to the 

performance standards. 
215

Interim Rule Final Rule: February 2, 2006

FAR 37.602(b):

(b) When preparing statements of work, agencies shall, to the maximum extent practicable --

(1) Describe the work in terms of “what” is to 

be the required output rather than either “how” 

the work is to be accomplished or the number 

of hours to be provided (see 11.002(a)(2) and 

11.101);

(2) Enable assessment of work performance 

against measurable performance standards;

(3) Rely on the use of measurable performance standards and financial incentives 

in a competitive environment to encourage 

competitors to develop and institute innovative 

and cost-effective methods of performing the 

work; and

(4) Avoid combining requirements into a single 

acquisition that is too broad for the agency or 

a prospective contractor to manage effectively.

FAR 37.602(b):

In paragraph (b) REVERTED back to the 

existing FAR coverage with minor modifications because the Councils believe the prior 

coverage correctly detailed the requirements.

217

Table of Contents

I. Introduction and Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

	 A. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

	 B. Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

	 	 1. Types of Interagency Contract Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227

	 	 	 a. Multi-Agency Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227

	 	 	 b. Governmentwide Acquisition Contract (GWAC) . . . . . . . . . . . . . . . . . 229

	 	 	 c. GSA Schedules Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232

	 	 	 d. Enterprise-wide Contract Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235

	 	 	 e. Interagency Assisting Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

	 	 2. Parties Involved in Interagency Contracting. . . . . . . . . . . . . . . . . . . . . . . . . 238

	 	 3. Creation and Continuation in Interagency Contracting. . . . . . . . . . . . . . . 238

	 	 	 a. Incentives to Use Interagency Contract Vehicles. . . . . . . . . . . . . . . . . . 239

	 	 	 b. Incentives to Create Interagency Contract Vehicles. . . . . . . . . . . . . . . . 242

	 	 	 c. Oversight Concerns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243

	 	 4.	 Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243

	 	 	 a. Data on Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243

	 	 	 b. Data on Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244

	 	 	 c. Data and Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245

II. Issues and Findings - Creation and Continuation. . . . . . . . . . . . . . . . . . . . . . . . . 245

	 A. Proliferation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246

	 B. Inconsistent Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248

	 	 1. Lack of Transparency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248

	 	 2. Little Systematic Coordination Among Vehicles. . . . . . . . . . . . . . . . . . . . . 248

	 	 3. No Consistent Standards for Creation and Continuation. . . . . . . . . . . . . . 249

CHAPTER 3

Interagency Contracting
218

	 	 4. No Procedures for Aligning Vehicles to Leverage Government

Purchasing Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

	 	 5. No Central Database or Consistent Methodology to Help

Agencies Select Appropriate Contract Vehicles. . . . . . . . . . . . . . . . . . . . . . . 250

	 C.	 Incentives for Creation Don’t Always Translate Into Benefits

	 	 	 for the Taxpayer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

	 D.	 Some Diversity is Desirable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

	 E.	 Focus on Process of Creation and Continuation will Improve

	 	 	 Use of the Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

III. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

IV. Appendices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

Appendix A: Business Case to Support Executive Agent Redesignation. . . . . . . . . . . . 259

Appendix B: Agency Application for Franchise Fund Pilot Program . . . . . . . . . . . . . . 265
219

I. Introduction and Background

A. Introduction

Among the specific requirements for the Acquisition Advisory Panel outlined in Section 1423 is the review of the performance of acquisition functions across agency lines of

responsibility and the use of government-wide contracts.

The performance of acquisition functions across agency lines is almost exclusively

accomplished through the use of interagency contract vehicles described in detail in the

next section. The significant increase in the use of these vehicles by agencies over the last

ten years has raised a number of complex policy issues and has been the subject of extensive oversight by Congress, the Government Accountability Office (“GAO”), the inspectors

general (“IGs”) of various federal agencies, outside organizations, and the media. This

attention has highlighted significant benefits in award efficiencies these vehicles provide to

the federal government and the taxpayer. It has also uncovered past deficiencies in their creation and administration and continuing risks associated with their use. 

Several critical observations have been made regarding the creation and use of interagency contract vehicles. In its January 2005 High Risk Update, GAO observed that a number of factors contribute to making these vehicles high risk in certain circumstances: 

1) they are attracting rapid growth of taxpayer dollars;

2) they are being used and administered by some agencies with limited expertise in this

contracting method; and

3) they contribute to a significantly more complex environment in which accountability

has not always been clearly established.1

In light of these recent studies, it is interesting to note that most of the management

challenges in these recent studies were identified over eight years ago in “the Multiagency/

GWAC Program Managers Compact” signed by the major federal program managers in

September 1997. In this document, entitled, “a Consensus on Principles Applicable to the

Acquisition of Services under Multiagency Contracts and Governmentwide Acquisitions,”

federal program managers set forth and agreed to a series of principles that would guide

their business conduct. The “Compact” recognized that federal agencies, in the interest of

economy and efficiency, are placing increased emphasis on the use of multi-agency contracts and that “[w]hen properly developed and used,” these vehicles may enable agencies to

fulfill their missions.2

The Panel has identified all of the relevant laws, regulations and policies applicable to

interagency vehicles and assembled relevant GAO and IG audits. It also identified other studies,

reviews, hearing testimony, data, and information available on interagency contracts and similar enterprise-wide vehicles as well as their use by interagency assisting entities. In addition, the

Working Group conducted over 80 meetings and, among other things, interviewed key federal

managers involved with these vehicles and entities.

After receiving stakeholder input and reviewing the relevant source material, the Panel

concluded that interagency contract vehicles have played an important role in streamlining

1

U.S. GAO, GAO High-Risk Series: An Update, GAO-05-207, 25 (Jan. 2005).

2

See http://www.thecre.com/fedlaw/legal25/magycom.htm.
220

the federal government’s acquisition process. The 2005 GAO High Risk Update mentioned

above concluded that when managed properly these vehicles serve an important purpose.

The report stated that, “[t]hese contracts are designed to leverage the Government’s aggregate buying power and provide a much-needed simplified method for procuring commonly used goods and services.”3 The report went on to say that “[t]hese contract vehicles

offer the benefits of improved efficiency and timeliness; however, they need to be effectively managed.” The Panel agrees with the GAO’s view that interagency contract vehicles

are of significant value when managed properly.

Based on the growing challenges being faced by the acquisition community (e.g., growing workload, aging workforce), the Panel determined that interagency contract vehicles

play a critical role in allowing agencies to accomplish their missions. The Panel focused

its recommendations on maintaining the value and efficiencies created by interagency

contracts while responding to key management challenges that have arisen from their

increased use. 

As the Panel conducted its work, there was a great deal of activity concerning interagency contract vehicles in Congress and the Executive Branch. In response to internal reviews and congressional oversight, the General Services Administration (“GSA”)

embarked on a major reorganization of its schedules and assisted purchasing programs.

The reorganization was intended to address some of the issues raised in the audit and oversight reports considered by the Working Group.4 Concurrently, individual federal agencies,

such as the Department of Homeland Security (“DHS”) and elements within the Department of Defense (“DoD”), began the establishment of internal, enterprise-wide purchasing

programs for specific types of services that are offered under the GSA schedules program

and through other interagency vehicles and programs. These programs, such as the Navy’s

SeaPort-e program for engineering support services, are touted as offering similar support

to buying activities as the schedules, but with more effective administration, reduced overhead cost, and improved spend analysis insight. Due to their similarities to interagency

vehicles and as a result of the growing number being established within agencies, these

enterprise-wide vehicles may have adverse impacts on the overall administrative efficiencies

and cost savings associated with interagency vehicles. Consequently, the Panel expanded its

review and recommendations to cover these enterprise-wide vehicles.

Congress has also passed legislation that could significantly impact the use of interagency vehicles in the future. Section 811 of the National Defense Authorization Act for

Fiscal Year 2006 expanded the scope of the initial DoD IG compliance review of DoD’s use

of the GSA Client Support Centers, DoD’s use of interagency vehicles through the Department of Treasury and Department of Interior Franchise funds and the National Aeronautics

and Space Administration government-wide vehicles. Section 812 of the same bill requires

the establishment of a management structure within the DoD for the management of services acquisition, including those services procured through interagency contract vehicles.

Section 817 of the John Warner National Defense Authorization Act for Fiscal Year 2007

3

GAO-05-207 at 24.

4

The General Services Administration Modernization Act created the Federal Acquisition Service

(“FAS”) by consolidating the FTS and the Federal Supply Service. See Pub.L. 109-313, § 2(c), Oct. 6, 2006.

This organizational change does not affect the Federal Supply Schedule (“FSS”) program also known as

the Multiple Award Schedule (“MAS”) program.
221

further expands the scope of the DoD IG review of interagency contracts to include the

National Institutes of Health and the Department of Veterans Affairs. The Panel noted

these more recent developments in formulating its recommendations, but at this time has

refrained from drawing any conclusions about the specific proposals and actions.

Finally, criticism of the federal response to the Hurricane Katrina disaster has led to discussions about the degree to which interagency contract vehicles may be among the most

useful tools for allowing federal agencies to acquire goods and services for national emergencies. Interagency contract vehicles, such as the GSA Schedules program, can potentially

offer a broad range of goods and services to assist with disaster preparation and recovery.

In response, section 833 of the John Warner National Defense Authorization Act for Fiscal

Year 2007 provided that the GSA may authorize state and local governments to use Federal Supply Schedules for goods or services that are to be used to facilitate recovery from a

major disaster declared by the President or to facilitate recovery from terrorism or nuclear,

biological, chemical, or radiological attack.5 Beginning with sound agency advance planning, interagency vehicles could provide pre-negotiated line items and special terms and

conditions that would allow for rapid deployment of assistance to affected communities.

Although the identification of sources and issues continued to the end of the review

process, the Panel focused on identifying the scope of the issues it would consider in making its recommendations. Four basic questions concerning interagency contract vehicles

were identified:

What are they? 

Why do agencies use them? 

How do agencies use them? 

How should agencies use them? 

As in other areas, the Panel believes that there is no privileged perspective from which to

answer these four questions. There are a number of valid stakeholders with disparate points

of view that must be considered. These stakeholders are identified in the next section. 

In reviewing the various audits, studies, reviews, presentations and commentaries, the

panel strove to avoid duplicating the audit work of the GAO or agency IGs. It attempted

to look at higher-level policy issues of a systemic nature appropriate for review by such an

independent panel. In following the Section 1423 charter, the Panel has developed recommendations for changes to laws, regulations, and policies to: 

•	 Establish overarching goals and acquisition planning mechanisms to balance competing

policy mandates;

•	Address systemic issues identified in GAO, IG and other reports;

•	 Foster restructuring and consolidation of programs and vehicles where appropriate;

•	Import applicable best practices from both government and private sector experience;

•	Increase the scope of competitive forces in interagency vehicle transactions; 

•	Address acquisition workforce issues related to the use of interagency vehicles; and

•	Establish reliable and meaningful data collection to allow for effective management

and oversight.

5 Pub. L. No. 109-364, § 833.
222

As will be seen below, the Panel’s recommendations fall into two broad categories. The

first set of issues is clustered around the creation and continuation of interagency vehicles

and the organizations that use them to provide acquisition assistance across the federal

government. The Panel concluded that some of the most fundamental issues associated

with interagency and enterprise-wide vehicles could be best addressed by establishing more

formal procedural requirements for initially establishing such vehicles and subsequently

for authorizing their continued use. The second related set of issues is associated with the

use of such vehicles by federal agencies. This category includes issues associated with competition, pricing, acquisition workforce requirements, and the methodology of choosing

the most appropriate vehicle for a specific procurement action.

Findings Recommendations

B1. Lack of Transparency 1: Increased transparency through identification of vehicles (e.g., GWACs, MACs, 

enterprise-wide) and Assisting Entities. OMB 

conduct a survey of existing vehicles and 

Assisting Entities to establish a baseline. The 

draft OFPP survey, developed during the 

Working Group’s deliberations, should include 

the appropriate vehicles and data elements.

B1. Lack of Transparency

B2. Little Systematic Coordination Among 

Vehicles

B5. No Central Database or Consistent Methodology to Help Agency Select

D. Some Diversity is Desirable

2: Make available the vehicle and assisting 

entity data for three distinct purposes. 

(a) Identification of vehicles and the features 

they offer to agencies in meeting their acquisition requirements (yellow pages). 

(b) Use by public and oversight organizations 

to monitor trends in use. 

i. Improved granularity in fee calculations 

ii. Standard FPDS-NG reports 

(c) Use by agencies in business case justification analysis for creation and continuation/

reauthorization of vehicles.

B1. Lack of Transparency 3: OMB institutionalize collection and public 

accessibility of the information, for example 

through a standalone database or module 

within transactions-based FPDS-NG.
223

Findings Recommendations

B4. No Procedures for Aligning Vehicles to 

Leverage Government Purchasing Power

E. Focus on Process of Creation and Continuation Will Improve Use of the Vehicles

C. Incentives for Creation Don’t Always Translate Into Benefits for the Taxpayer

4: OMB direct a review and revision, as 

appropriate, of the current procedures for 

the creation and continuation/reauthorization 

of GWACs and Franchise Funds to require 

greater emphasis on meeting specific agency 

needs and furthering the overall effectiveness 

of government-wide contracting. GSA should 

conduct a similar review of the Federal Supply Schedules. Any such revised procedures 

should include a requirement to consider the 

entire landscape of existing vehicles and entities to avoid unproductive duplication.

B4. No Procedures for Aligning Vehicles to 

Leverage Government Purchasing Power

5: For other than the vehicles and entities 

described in #4 above, institute a requirement that each agency, under guidance 

issued by OMB, formally authorize the creation or expansion of the following vehicles 

under its jurisdiction:

(a) Multi-agency contracts 

(b) Enterprise-wide vehicles 

(c) Assisting entities

B3. No Consistent Standards for Creation and 

Continuation

C. Incentives for Creation Don’t Always Translate Into Benefits for the Taxpayer

6: Institute a requirement that the cognizant 

agency, under guidance issued by OMB, formally authorize the continuation/reauthorization of 

the vehicles and entities addressed in #5 on an 

appropriate recurring basis consistent with the 

nature or type of the vehicle or entity. The criteria 

and timeframes included in the OMB guidance 

should be distinct from those used in making 

individual contract renewal or option decisions.

B3. No Consistent Standards for Creation and 

Continuation

7: Have the OMB interagency task force 

define the process and the mechanisms anticipated by recommendations #5 and #6.
224

Findings Recommendations

A. Proliferation

B2. Little Systematic Coordination Among 

Vehicles

B3. No Consistent Standards for Creation and 

Continuation

B4. No Procedures for Aligning Vehicles to 

Leverage Government Purchasing Power

C. Incentives for Creation Don’t Always Translate Into Benefits for the Taxpayer

D. Some Diversity is Desirable

E. Focus on Process of Creation and Continuation will Improve Use of the Vehicles

8: OMB promulgation of detailed policies, procedures, and requirements should include:

(a) Business case justification analysis 

(GWACs as model).

(b) Projected scope of use (products and 

services, customers, and dollar value).

(c) Explicit coordination with other vehicles/

entities.

(d) Ability of agency to apply resources to 

manage vehicle. 

(e) Projected life of vehicle including the establishment of a sunset, unless use of a sunset 

would be inappropriate given the acquisitions 

made under the vehicle.

(f) Structuring the contract to accommodate 

market changes associated with the offered 

supplies and services (e.g., market research, 

technology refreshment, and other innovations).

(g) Ground rules for use of support contractors 

in the creation and administration of the vehicle. 

(h) Criteria for upfront requirements planning by ordering agencies before access to 

vehicles is granted. 

(i) Defining post-award responsibilities of the 

vehicle holders and ordering activities before 

use of the vehicle is granted. These criteria 

should distinguish between the different sets 

of issues for direct order type vehicles versus 

vehicles used for assisted buys, including data 

input responsibilities. 

(j) Guidelines for calculating reasonable 

fees, including the type and nature of 

agency expenses that the fees are expected 

to recover. Also establish a requirement for 

visibility into the calculation.

(k) Procedures to preserve the integrity of the 

appropriation process, including guidelines 

for establishing bona fide need and obligating 

funds within the authorized period. 

(l) Require training for ordering agencies’ personnel before access to the vehicle is granted.

(m) Use of interagency vehicles for contracting 

during emergency response situations (e.g.,

natural disasters).
225

Findings Recommendations

(n) Competition process and requirements.

(o) Agency performance standards and metrics.

(p) Performance monitoring system.

(q) Process for ensuring transparency of 

vehicle features and use.

 • Defined point of contact for public 

–Ombudsman.

(r) Guidance on the relationship between 

agency mission requirements/core functions 

and the establishment of interagency vehicles 

(e.g., distinction between agency expansion of 

internal mission-related vehicles to other agencies vs. creation of vehicles from the ground 

up as interagency vehicles)

E. Focus on Process of Creation and Continuation will Improve Use of the Vehicles9: OMB conduct a comprehensive, detailed 

analysis of the effectiveness of Panel recommendations and agency actions in addressing the findings and deficiencies identified in 

the Acquisition Advisory Panel Report. This 

analysis should occur no later than three years 

after initial implementation with a continuing 

requirement to conduct a new analysis every 

three years.

B. Background 

Interagency contracting has been recognized as one of the fastest growing fields in federal acquisition. In Fiscal Year 2006, the two leading programs, the Federal Supply Schedules Program and the GSA’s Governmentwide Acquisition Contracts (“GWACs”) provided

over $46 billion of supplies and services to federal agencies (GSA-managed Schedules:

$35.1 billion; VA-managed Schedules: projected to be well over $8 billion [FY 2005 sales

were $7.9 billion]; GSA GWACs: $3.0 billion).6 These and other interagency contract vehicles, offered by other federal agencies under GWAC or multi-agency contract authorities,

have been gaining increasing popularity due to the ease of use associated with streamlined

ordering and the apparent value afforded by volume purchasing. Federal Procurement Data

System – Next Generation (“FPDS-NG”), in its first year of reporting the spending under

interagency contract vehicles, shows that 40 percent of total fiscal year 2004 obligations, or

$142 billion, was spent on these vehicles.

6

Source: GSA Data, “Contractors Report of Sales - Schedule Sales FY 2006 Final” dated 10/24/2006.
226

Source: Ad-Hoc Report prepared for Panel by the Federal Procurement Data Center (FPDC), Aug. 2006. 

Interagency contracting spend was defined, in part, as fiscal year obligations under any indefinite delivery vehicle 

that was not coded in FPDS-NG for use by only one agency. 

In addition to these interagency contract vehicles, GSA and other agencies, referred to

as “Interagency Assisting Entities” were authorized to provide interagency acquisition support services based on enactment of the Government Management Reform Act (“GMRA”)

of 1994 or other intragovernmental revolving (“IR”) fund authority. According to the 2003

GAO study, thirty-four IR funds were created to provide common support services to meet

federal agency requirements.7 Twelve of these IR funds, including five of the six franchise

fund pilots specifically authorized by GMRA, have “explicit authority” to charge and retain

fees for an operating reserve.8 To fulfill customer requirements, these interagency assisting entities either utilize existing interagency contract vehicles such as GSA’s Schedules

Program or other multi-agency contracts, or establish their own contracts utilizing Federal

Acquisition Regulation (“FAR”) procedures. Recently, several of these IR funds have come

under scrutiny because of improper use of the GSA Schedules Program and for questionable retention of expired customer funds.9 From a customer agency’s perspective, the

availability of numerous direct and indirect interagency contract vehicles, along with their

multilayered usage schemes, provides an array of useful tools to better meet agency requirements, but at the same time creates accountability challenges associated with effectively

managing contracts and tracking funds. 

Due to their heavy usage of interagency contract vehicles, several agencies, including

DoD, have become increasingly cognizant of the aggregate amount of the fees charged by

GSA and IR funds for use of their vehicles and services. There has also been a growing recognition, driven in part by congressional oversight, of the challenges of tracking the funding transferred to other agencies under such vehicles and ensuring compliance with the

7

U.S. GAO, Budget Issues: Franchise Fund Pilot Review, GAO-03-1069 (Aug. 2003).

8

Id. at 4.

9

See e.g., Shane Harris, Bad to Worse, Government Executive (Sept. 15, 2004), http://www.govexec.

com/features/0904-15/0904-15newsanalysis2.htm; U.S. DoD IG, DoD Purchases Made through

the General Services Administration, D-2005-096 (Jul. 2005); U.S. GAO, Franchise Funds Provide

Convenience, but Value to DoD is Not Demonstrated, GAO-05-456 (Jul. 2005).

Percent of Government-wide Spend 

on Interagency Contact Vehicles for FY 2004

Total Government Spend=$352,435,113,606

Interagency Contract

Spend ($142 Billion)

Non-Interagency Contract

Spend ($210 Billion) Non-Interagency

Contract Spend 60%

Interagency

Contract Spend 60%
227

Antideficiency Act (“ADA”) and other fiscal laws.10 Recently, the DoD IG issued a follow-up

audit of financial procedures for DoD use of non-DoD contracts, finding that the Department potentially incurred an additional 69 ADA violations using non-DoD contracts since

its previous audit.11 These are among the major concerns driving agencies to bring contracting for requirements in-house by establishing their own enterprise-wide contracting

vehicles. The U.S. Navy’s SeaPort and SeaPort-e are recent examples of this enterprise-wide

acquisition strategy. 

When examining federal interagency transactions, the Economy Act provides important

insight in classifying the type and authority associated with the transactions. Certain interagency transactions are governed exclusively by the Economy Act and its controls, which

most notably involve restrictions on funds transfer and usage. In addition, the Economy

Act currently serves as an overarching interagency transactional authority that applies when

more specific authority for the transaction does not exist. Increasingly a greater number of

transactions are falling outside the control of the Economy Act. Today, most of the widely

used interagency contract vehicles such as the GSA Schedules program and GWACs are

not governed by the Economy Act, but by specific statutes and regulations. To address this,

DoD issued guidance on financial management policy for non-Economy Act transactions

utilizing non-DoD contracts.12

Described below are brief overviews of these vehicles and entities.

1. Types of Interagency Contract Vehicles 

a. Multi-Agency Contract 

The authority for interagency acquisitions comes from specific statutory authority (e.g.,

Government Employees Training Act) or, when specific statutory authority does not exist, the

Economy Act. The Economy Act of 1932, as amended,13 authorizes an agency to place orders

for goods and services with another government agency when the head of the requesting

agency determines that it is in the best interest of the government and decides ordered goods

or services cannot be provided as conveniently or cheaply by contract with a commercial

enterprise. Congress amended the Act in 1942 to allow military servicing agencies the authority to contract and extended the authority to the civilian agencies in 1982. Congress further

amended the Act under the Federal Acquisition Streamlining Act of 1994 (“FASA”)14 to

require advance approval by a requesting agency’s Contracting Officer (or, as implemented in

FAR 17.503(c), an official designated by the agency head) as a condition for using Economy

Act authorities, as well as establishment of a system to monitor procurements awarded under

10 For example: U.S. DoD IG, FY 2005 DoD Purchases Made Through the General Services

Administration, D-2007-007 (Oct. 2006); U.S. DoD IG, Report on FY 2005 DoD Purchases Made Through

the Department of the Treasury, D-2007-032 (Dec. 2006); U.S. DoD IG, FY 2005 Purchases Made Through

the Department of Interior, D-2007-044 (Jan. 2007); Memorandum from the Under Secretary of Defense

(Comptroller) to Secretaries of the Military Departments, et al., Proper Use of Interagency Agreements

with Non-Department of Defense Entities Under Authorities Other Than the Economy Act (Mar. 27, 2006)

and Non-Economy Act Orders (Oct. 16, 2006) http://www.acq.osd.mil/dpap/specificpolicy.

11 U.S. DoD IG, Potential Antideficiency Act Violations on DoD Purchases Made Through Non-DoD

Agencies, D-2007-042, ii (Jan. 2007).

12 Memorandum from the Under Secretary of Defense (Comptroller) to Secretaries of the Military

Departments, Non-Economy Act Order, (Oct. 16, 2006) http://www.acq.osd.mil/dpap/specificpolicy.

13 31 U.S.C. 1535.

14 Pub. L. No. 103-355, Title I, § 1074, Oct. 13, 1994, 108 Stat. 3243, 3271.
228

the Act. FASA provided additional specific conditions that must be met before making Economy Act transactions. Namely, unless the servicing agency is specifically authorized by law or

regulation, in order to utilize a servicing agency’s contract, the requesting agency must document (verify or demonstrate or certify) that the servicing agency has either an appropriate

pre-existing contract available for use or that it has specialized expertise that is not resident

within the requesting agency.15

According to the FAR, “multi-agency contract” means “a task-order or delivery-order

contract established by one agency for use by Government agencies to obtain supplies and

services, consistent with the Economy Act.”16 As stated in the 1932 House Report of the

72d Congress, the legislative intent behind the creation of multi-agency contracts was the

administrative efficiency and cost savings associated with the utilization of an existing contract by other agencies with similar needs. 

Out of this broad interagency contracting authority evolved several more targeted initiatives, such as statutory authorities providing for the GWACs. GWACs were established

pursuant to the Clinger-Cohen Act, 40 U.S.C. 11314(a)(2) (formerly cited as 40 U.S.C.

1424(a)(2)), for information technology. GWACs, although a subset of multi-agency contracts, are distinguished from non-GWAC multi-agency contracts in terms of the governing

statute. For this reason, GWACs are often referred to as separate interagency contract vehicles throughout this report. In addition, executive agencies may enter into indefinite-delivery/indefinite-quantity (“IDIQ”) contracts under which delivery orders (for supplies) or

task orders (for services) may be issued.17 FASA clarified the authority for use of IDIQ task

and delivery order contracts. IDIQ contracts may be single award or multiple award, and,

in either instance, the contract may permit orders to be placed by agencies other than the

contract holder. The GSA Schedules are another form of interagency contract. Although the

Schedules were in use prior to 1984, the Competition in Contracting Act provided express

authority for the Schedules.18 Today, the Economy Act remains the overarching interagency

contracting authority and applies only when more specific statutory authority does not

exist (FAR 17.500(b)). 

When using those multi-agency contracts that are governed by the Economy Act,

the ordering agency (i.e., requirement agency) is required to support its action through

a written Determination and Finding (“D&F”) approved by its contracting officer or by

another official specifically designated by the agency head.19 A D&F is a special form of

written approval by an authorized official that is required by statute or regulation as a

prerequisite to taking certain contract actions.20 Once this D&F is in place, typical ordering procedures established by the multi-agency contract’s host agency include: a) customer agency submits a requirements package, including necessary funding and fees, to

the host agency contracting officer; b) the host agency contracting officer requests price/

cost and technical proposals from contractors in the program; c) customer and contracting officer evaluate proposals and make a best value determination; d) the host agency

15 FASA § 1074(b)(2).

16 FAR 2.101.

17 10 U.S.C. §§ 2304a-2304d; 41 U.S.C. § 253(h).

18 41 U.S.C. § 259.

19 FAR 17.503(c).

20 FAR 1.701.
229

contracting officer awards a task/delivery order to the winning vendor; and e) the order

is jointly administered by the host agency contracting officer and the customer agency’s

technical managers.21 The solicitation and evaluation of proposals for task/delivery

orders must be consistent with the fair opportunity requirement of FAR 16.505(b)(1).

Due to a lack of government-wide coordination and relative ease of creation, it is not

known how many non-GWAC multi-agency contracts (IDIQ contracts) are currently in

place or how many purchases have been made through these contracts (although FPDS-NG

gathers such information, the reliability of the data has yet to be verified). Several of the

relatively well known multi-agency contracts are managed by the Defense Information Systems Agency (“DISA”), which features thirteen multiple award IDIQ contracts available for

both internal and external agency customers (see http://www.disa.mil/main/support/contracts/idiq.html). Its “ENCORE” contracts provide Information Technology (“IT”) solutions

to DoD and other federal agencies. The multiple award IDIQ contracts have a seven-year,

$2 billion ceiling, and the orders are placed by the DISA contracting officers at one percent

fees. 

b. Governmentwide Acquisition Contracts 

Governmentwide Acquisition Contracts (“GWACs”) are a subset of multi-agency contracts. However, unlike non-GWAC multi-agency contracts, they are not subject to the

requirements and limitations of the Economy Act. The FAR defines a GWAC as–

A task-order or delivery-order contract for information technology established by one agency for Governmentwide use that is operated—

(1) By an executive agent designated by the Office of Management and

Budget pursuant [to section 5112(e) of the Clinger-Cohen Act, 40

U.S.C. 11302(e)]; or

(2) Under a delegation of procurement authority issued by the General

Services Administration (GSA) prior to August 7, 1996, under authority

granted GSA by former section 40 U.S.C. 759, repealed by Pub. L. 104-

106. The Economy Act does not apply to orders under a Governmentwide acquisition contract.22 

From 1965 until 1996, GSA was the sole authority for the acquisition of IT and telecommunications across the entire federal government. The authority was set forth in Section 111 of the Federal Property and Administrative Services Act of 1949 and was referred

to as the Brooks Act. The Brooks Act was repealed in 1996 by the Clinger-Cohen Act, which

vested government-wide responsibility for IT in the Office of Management and Budget

(“OMB”). Having been delegated IT procurement authority from GSA prior to the enactment of Clinger-Cohen Act, GSA’s Federal Technology Service (“FTS”) operated under the

previously granted authority. Beginning in 2000, all agencies offering GWAC programs

were required to report revenues and costs in accordance with OMB guidance and federal

financial accounting standards. 

21 See e.g. DISA ENCORE multi-agency contract ordering process at http://www.ditco.disa.mil/hq/

contracts/encorchar.asp.

22 FAR 2.101.
230

As of September 2005, there were four executive agents with GWAC authority: the

Department of Commerce (“DOC”), GSA23, the National Aeronautics and Space Administration (“NASA”), and the National Institutes of Health (“NIH”). (The ITOP GWAC

program previously managed by the Department of Transportation (DOT) was relocated

to GSA in June 2004). As part of its executive agent designation, OMB requires that these

agents submit an initial business case, annual activity reports, and a quality assurance plan

(“QAP”) covering, among other things, training of executive agent staff and customers,

order development and placement, procedures for implementation of orders including

contract administration responsibilities, and management review.24 OMB stated that it

intended the GWAC QAPs to “serve as models that may be adopted and tailored by other

agencies that manage a significant amount of interagency acquisitions.”25 Due to management controls by OMB over their creation and continuation, existing GWAC programs are

well-defined when compared to other IDIQ multi-agency contracts. 

Accessing a GWAC is done in two different ways. In a usual situation, a customer

agency (i.e., requesting agency) chooses an appropriate GWAC program to use and enters

into a memorandum of understanding or an interagency agreement with the host agency

(i.e., servicing agency). It then forwards a requirements package, including project funding and fees, to the host agency for assisted acquisition service. Typically, upon acceptance,

the host agency contracting officer issues a solicitation among the contractors within the

program and, with the assistance of the customer agency, evaluates the proposals received.

A task or delivery order is then issued by the host agency’s contracting officer and the

resulting order is managed jointly by the technical representatives of the customer agency

and the host agency’s contracting officer. In contrast, when direct order and direct billing authority is available, the customer agency may choose to manage its own project and

funding after receiving the delegation of authority from the host agency. In this scenario,

a customer agency follows the ordering procedures set forth by the host agency to solicit

proposals and make award directly to the contractor, and thus, no interagency transfer of

funds is needed.

The legislation authorizing GWACs did not provide meaningful guidance with respect

to how financial transactions should be accounted for and fees managed under these contracts. As a result, according to GAO, host agencies are left to choose on their own whether

these transaction fees “would be accounted for through existing revolving funds or in

standalone accounts.”26 As of July 2002, GSA and NIH operated under revolving funds,

while NASA and DOC operated their GWACs in standalone reimbursable accounts.27 This

issue of fee management is discussed in more detail in a later section of this report.

A closer look into each of the GWACs follows:

23 Initially managed by the Federal Technology Service (“FTS”) at GSA. However, the General Services

Administration Modernization Act created the Federal Acquisition Service (“FAS”) by consolidating the

FTS and the Federal Supply Service. See Pub.L. 109-313, § 2(c), Oct. 6, 2006.

24 Executive Agent Designation Letter and Additional Provisions (on file with OFPP).

25 Id.

26 U.S. GAO, Contract Management: Interagency Contract Programs Need More Oversight, GAO-02-743, 9

(July 2002).

27 Id.
231

Governmentwide Acquisition Contracts (GWACs)

Contract Description Ceiling # Contracts Term (incl. 

options)

Fee Top 

Customers

Department of Commerce (DOC)

COMMITS Commerce Information 

Technology Solutions 

(COMMITS) - Set-aside 

for SB

$1.5B N/A 8/2000-

6/2009

N/A DOC, EPA, 

DoD

COMMITS 

NexGen

Commerce Information 

Technology Solutions 

(COMMITS) NexGen - Setaside for SB

$8B 55 1/2005-

1/2015

0.5%-

1.75%

DOC

General Services Administration (GSA)

ANSWER Applications’ Support for 

Widely-diverse End-user 

Requirements (ANSWER)

$25B 10 12/1998-

4/2009

0.75% HHS, Air 

Force, Army

Millennia Provides Large System 

Integration and Development Projects

$25B 9 4/1999-

4/2009

0.75% 

(Capped at 

$25,000)

EPA, Army, 

DHS

Millennia Lite Provides IT Solutions in 

Four Functional Areas

$20B 36 4/2000-

4/2010

0.75% Army, Air 

Force, HHS

HUBZone Historically Underutilized 

Business Zone (HUBZone) 

- Set-aside for HUBZone 

SB

$2.5B 61 (36 

Awardees)

1/2003-

1/2008

0.75% DOJ, EPA, 

Navy

8(a) STARS 8(a) Streamlined Technology Acquisition Resources 

for Services (STARS) - Setaside for 8(a); Replaced 

8(a) FAST

$15B 423 6/2004-

6/2011

0.75% Air Force, 

Army, DoD

VETS Veterans Technology Services (VETS) - Set-aside for 

Service-Disabled VeteranOwned SB

$5B 44 est. 2007-2017 0.75% N/A

(Alliant) (Coming soon); Will 

replaces ANSWER, Millennia, & Millennia Lite

$50B 25-30 10yrs 0.75% N/A

(Alliant SB) (Coming soon); Set-aside 

for SB

$15B 20 est. 10yrs 0.75% N/A

Department of Health and Human Services (HHS)

CIO-SP2i Chief Information Officer 

Solutions and Partners 2 

Innovations

$19.5B 45 12/2000-

12/2010

0.5%-1% HHS, DoD, 

DOT

IW2nd Image World 2 New 

Dimensions

$15B 24 12/2000-

12/2010

0.25%-1% DoD, Treasury, USDA

ECS III Electronic Commodity 

Store (ECS) III

$6B 65 11/2002-

11/2012

1% DoD, HHS, 

DOJ
232

Governmentwide Acquisition Contracts (GWACs)

Contract Description Ceiling # Contracts Term (incl. 

options)

Fee Top 

Customers

National Aeronautics and Space Administration (NASA)

SEWP III Scientific and Engineering 

Workstation Procurement 

(SEWP) - IT Products

4-4.5B 25 (16 

Awardees)

Various 

(7/2001-

9/2007)

0.65% with 

$10,000 

Order Cap

DoD, GSA, 

NASA, 

DOJ, HHS

SEWP IV (Coming Soon); Scientific 

and Engineering Workstation Procurement(SEWP) IV 

- IT Products

$5.6B 26-39 est. 7yrs 0.65% with 

$10,000 

Order Cap

N/A

Source:Compiled by Panel staff from OFPP Survey/Data Call, Agency websites and publications, and Agency 

Representatives. 

c. GSA Schedules Program 

The GSA Schedules Program is also known as the Federal Supply Schedule (“FSS”) Program or the Multiple Award Schedules (“MAS”) Program. Pursuant to the authority granted

to GSA as a centralized federal procurement and property management agency, GSA took

over the management of the “General Schedule of Supplies” from the Department of the

Treasury, and this evolved into what is now known as the GSA Schedules Program. The

GSA Schedules have a separate authorizing statute.28

While the GSA’s pricing policies and procedures have evolved over time, GSA’s core objective has remained unchanged—“to use commercial terms and conditions and the leverage

of the Government’s volume buying to achieve the best possible prices and terms for both

customers and taxpayers.”29 To this end, GSA utilizes Most Favored Customer (“MFC”) pricing; an approach whereby GSA negotiates with its vendors for the best prices afforded their

preferred customers for like requirements of similar scale. Accordingly, the essence of GSA

Schedule contract price analysis is comparison of the offered prices to prices paid by others for the same or similar items (including services), under similar conditions. This pricing

approach, combined with GSA’s Price Reductions clause,30 is intended to operate to ensure

that a specific pricing relationship is maintained throughout the duration of the contract.

There has been, however, some criticism of MFC pricing, in that it may inflate prices

by forcing contractors to set prices based on a minimum order quantity. It is argued that,

without any firm commitment for a definite order quantity, and to avoid trigging the Price

Reductions clause, contractors attempt to avoid risk by offering a ceiling price for a single

unit rather than the most competitive price. In addition, witnesses before the Panel suggested that the MFC price technique may not be suitable for pricing commercial services.

They pointed out that the commercial market, in contrast to the MFC pricing technique,

utilizes dynamic pricing for services based on the labor mix for a specific task rather than

relying on prearranged standard labor rates.31

28 41 U.S.C. § 259.

29 FSS Procurement Information Bulletin 04-2 (internal GSA document).

30 GSAM 552.238-75.

31 Test. of Geraldine Watson, GSA, AAP Pub. Meeting (Aug. 18, 2005) Tr. at 16-20; Test. of Bhavneet

Bajaj, Technology Partners, Inc., AAP Pub. Meeting (Mar. 17, 2006) Tr. at 161-167.
233

As of October 2006, GSA administered 42 Schedules providing more than 11.2 million different commercial services and products through its 17,862 contracts.32 Within

each Schedule, supplies and services are categorized by what are referred to as Special Item

Numbers (“SINs”). SIN 132-51 for “Information Technology Services” under Schedule 70

(General Purpose Commercial Information Technology Equipment, Software, and Services) is one of the most widely used SINs in the entire Schedules program. There are 1,278

SINs under the 42 Schedules. 

The significance of the GSA Schedules Program in today’s federal contracting landscape

is easily seen by looking at the sales figures in recent years. In Fiscal Year 2006, sales under

the program were $35.1 billion,33 representing 3.8 percent annual growth (note: this is a

significant drop from 8.9 percent during FY 2005 and 21.5 percent growth during the previous year). During the last ten years, GSA Schedule sales have experienced over 20 percent

average annual growth.34 

Within the GSA Schedules Program, the professional services offerings, such as the Mission Oriented Business Integrated Services (“MOBIS”), the Professional Engineering Services

(“PES”), and the Financial and Business Solutions (“FABS”) Schedules, have shown a notable

increase in sales in recent years. Combined, the sales under the three Schedules in Fiscal Year

2006 were $6.5 billion.35 During the last three years, their combined sales have grown by 79

percent, indicating a growing demand for professional services. In comparison, after rapid

growth in the late 1990s, the sales under the IT Schedule (Schedule 70), have shown signs

of continued but less dramatic growth. Its sales grew by less than one percent during Fiscal

Year 2006.36 Still, the IT Schedule sales in Fiscal Year 2006 were $17.0 billion, accounting for

approximately 48.3 percent of total Schedule sales.

32 Source: GSA Data, “October FY 2007 MONTH END Sales and Contracts in Effect Reports” dated

11/30/2006.

33 In addition, sales under the medical Federal Supply Schedules program managed by the Department of

Veterans Affairs are estimated to be well over $8 billion in FY 2006. Its sales in FY 2005 were $7.9 billion.

34 Source: GSA Data, “October FY 2007 MONTH END Sales and Contracts in Effect Reports” dated

11/30/2006.

35 Individually, FY 2006 sales under the three Schedules are as follows: 874 MOBIS ($3.19 billion),

871 PES ($2.57 billion), 520 FABS ($749 million). GSA Data, “October FY 2007 MONTH END Sales and

Contracts in Effect Reports” dated 11/30/2006.

36 Sales under the 70 IT Schedule grew by 0.47 percent in FY 2006. GSA Data, “October FY 2007

MONTH END Sales and Contracts in Effect Reports” dated 11/30/2006.

0

5

10

15

20

25

30

35

40

FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

4.0 4.1 5.6

7.7

10.5

13.6

16.5

21.1

25.6

31.1

33.9 35.1

Sales Under the GSA Schedules Program (Excluding VA Schedules)
234

As of October 2006, of the 17,862 Schedule contracts, about 81 percent were awarded

to small businesses. Small business received 37.6 percent or $13.2 billion of the $35.1 billion Schedule sales in FY 2006. Compared to the previous three fiscal years, the small business participation in the Schedules Program has grown steadily greater.37

The Program is intended to provide federal agencies with a simplified process for

obtaining commonly used commercial supplies and services at prices associated with volume buying. Using commercial item acquisition procedures in FAR Parts 12, 15, 16, and

38, GSA awards indefinite delivery contracts to commercial firms to provide supplies and

services at stated prices for given periods of time. The operating assumption is that the

price for such supplies and services has been tested in the market, and that a price can be

established as fair and reasonable without an initial price competition among multiple

offerors. Schedule contracts allow for orders to be issued on a firm-fixed-price, fixed-price

with economic price adjustment, or on a time-and-materials basis. The contracts are

known as “evergreen” and are typically awarded with a 5-year base period and three 5-year

options. They include conditions under which a contractor may offer a price discount to

authorized users without triggering mandatory across-the-board price reductions. Under

the GSA Schedule Program’s continuous open solicitation policy, offers for commercial

supplies or services may be submitted at any time. Similarly, contractors may request to

add supplies/services to their contracts at any time during the term of their contracts.

Prior to awarding a Schedule contract, GSA determines the contractor to be responsible

in accordance with FAR Subpart 9.1, negotiates and approves an acceptable subcontracting

plan from large businesses, and negotiates and awards fair and reasonable pricing based on

the firm’s Most Favored Customer rates. Because GSA performs much of the up-front work,

agencies then benefit from a streamlined ordering process. A study conducted by GSA

indicates that, notwithstanding the difference in the items being acquired, it takes users an

average of 15 days to issue an order under a Schedule contract compared to an average of

268 days to put a stand alone contract in place.38

Competition and the Use of e-Tools 

e-Buy is an online Request for Quotation (“RFQ”) tool designed to facilitate the request

for and submission of quotations or proposals under the Schedules program. It is also

available for GSA GWACs. When using the e-Buy system, ordering agencies first prepare

a simple RFQ or a detailed RFQ including Statement of Work and evaluation criteria per

FAR 8.405-2(c). The agencies then select one or more appropriate Special Item Numbers

(“SINs”) under applicable Schedules. Among the list of vendors under the selected SINs,

the agencies select the ones to send e-mail notifications. The rest of the vendors within the

selected SINs can still view the RFQ under the bulletin board and submit quotations.

For example, an ordering agency with a requirement for an IT business improvement

task may choose SIN 132-51, IT Services, under the Schedule 70-Information Technology

and SIN 874-1, Consulting Services, under the Schedule 874- MOBIS. The e-Buy system

will show the list of 3,966 vendors available under SIN 132-51 and 1,703 vendors under

37 Source: GSA Data, “Final FY 2006 Schedule Data - Contracts in Effect, “Contractors Report of Sales

- Schedule Sales FY 2006 Final” dated 10/24/2006.

38 John W. Chierichella & Jonathan S. Aronie, Multiple Award Schedule Contracting, 41 (Xlibris Corp.

2002) (citing Impact of FAR 8.4 Comparison Analysis of Customer-Elapsed Time Savings (1998)).
235

SIN 874-1 (numbers as of 1/13/2006). The agency will then select the vendors to whom to

send e-mail notifications about the RFQ (“select all vendors” is also an available option).

However, the rest of the vendors within the two SINs may still view the RFQ in the bulletin

board and submit quotes. Under FAR 8.405-2(d), the ordering agencies must evaluate all

responses received. The agency can determine a reasonable response time.

Postings on e-Buy have been continually increasing since its inception in August 2002.

In FY 2003, 13,282 notices were posted. Postings increased to 25,582 in FY 2004 and

41,179 in FY 2005. Finally, in FY 2006, there have been 48,423 postings representing an

approximately 18 percent increase in usage over the previous year. On average, three quotes

have been received per closed RFQ during FY 2005 and FY 2006. 

d. Enterprise-wide Contract Vehicles 

An emerging contract vehicle that is modeled after interagency vehicles is the socalled enterprise-wide contract. As these vehicles are intended to serve as an alternative

to interagency contracts, they share certain features with those vehicles (IDIQ ordering

vehicles), but their use is generally confined within the boundaries of a single agency.

Because of their similarities to interagency vehicles and the fact that a growing number are

being established within agencies as alternatives to existing interagency vehicles, the Panel

expanded its review and recommendations to cover these vehicles. 

Enterprise-wide contract vehicles are intra-agency IDIQ contracts established solely

for use by an agency’s major internal constituent sub-organizations. Such vehicles do not,

however, operate under the more flexible statutory authority enjoyed by GSA for the Schedules program. The agency creates these vehicles for a variety of reasons, which include:

ability to tailor requirements for agency-unique purposes; improved consistency of processes and requirements across the enterprise; ability to establish and enforce inclusion of

tailored terms and conditions; perception of reduced administrative overhead, availability

of better spend analysis information; ability to aggregate requirements; and avoidance of

incurring the fees that would otherwise be sent to the GSA or another outside agency. 

60,000

50,000

40,000

30,000

20,000

10,000

0

5

4

3

2

1

0

FY 03 FY 04 FY 05 FY 06

Number of RFQs Posted Average Number of Quotes Received

e-Buy Usage

3 3 3 3

13282

25582

41179

48423
236

An example of such a vehicle is the SeaPort-e program administered by Naval Sea Systems Command (“NAVSEA”). SeaPort-e is a program intended to improve the acquisition

of services across 22 functional areas using IDIQ contracts awarded in seven regional zones

covering the United States. NAVSEA claims that SeaPort-e offers many of the same advantages as interagency contract vehicles, such as streamlined acquisition of services, while

also providing for improved collection of business intelligence data,39 additional competition, and the ability to measure performance in such areas as customer satisfaction. Other

agencies, such as DHS and the United States Postal Service have established additional

enterprise-wide vehicles as alternatives to existing interagency contract vehicles. 

As of December 2006, the SeaPort-e program awarded 935 prime contracts with a

yearly rolling admissions process.40 SeaPort-e is described as the Virtual SYSCOM’s41 “mandatory acquisition vehicle of choice,” meaning that SYSCOM customers must obtain Senior

Executive Service (“SES”) or Flag Officer level approval to use an Interagency Assisting

Entity other than SeaPort-e.42 Even if a SYSCOM contracting officer executes an unassisted

award, he must obtain business case approval to use a vehicle other than SeaPort-e, such as

GSA’s Federal Supply Schedules program. 

The stated goal of SeaPort-e is to eventually ensure that all Virtual SYSCOM work

within its scope falls under SeaPort-e unless it does not make business sense to do so.

Existing NAVSEA contracts will be allowed to expire and the work under them will be

migrated into SeaPort-e. The SeaPort-e program manager testified to the Panel that the

business intelligence data uniquely available under SeaPort-e should facilitate improved

strategic purchasing in the Virtual SYSCOM. He also testified that no additional Navy personnel were added or needed to manage the SeaPort-e program representing a significant

administrative savings to the Navy especially when compared to fees otherwise paid for the

use of other interagency contracts.43

e. Interagency Assisting Entities 

Interagency Assisting Entities, such as the franchise funds, are not contracts, but are

part of the interagency contracting landscape. The Working Group decided to include

consideration of assisting entities in its review and recommendations for several reasons.

An agency’s use of an assisting entity involves relying on an outside organization for performance of contracting functions. Assisting entities also rely almost exclusively on interagency vehicles to meet customer agencies’ needs. Use of an assisting entity also involves

the transfer of funds from one agency to another.

While interagency funds transfer is generally prohibited by law, the Economy Act of

1932 provides a broad exception by allowing an agency to enter into an agreement to

provide goods or services to another federal agency. Under the Economy Act, the payment

from the client agency must be based on the “actual cost of goods or service” provided and

39 Relevant business intelligence data include information on spending by individual activities under

specific task orders for specific engineering services. Testimony of Jerome Punderson, NAVSEA, AAP Pub.

Meeting, (August 18, 2005) Tr. at 304.

40 See the List of Prime Vendors at: https://auction.seaport.navy.mil/Bid/PPContractListing.aspx.

41 The Virtual SYSCOM for purposes of SeaPort-e includes: NAVAIR, NAVFAC, NAVSUP, SPAWAR, and

NAVSEA. Punderson Test. at 296-297.

42 Id. at 299-303.

43 Id. at 345.
237

the client agency is required to deobligate fiscal year funds at the end of the period of availability to the extent that these funds have not been obligated by the performing entity.44

However, when an interagency agreement is based on specific statutory authority other

than the Economy Act, funds availability and retention are governed by the specific legal

authorities. These specific legal authorities creating IR funds at the agency level describe the

funds’ purpose and authorized uses, and detail the receipts or collections the agency may

credit to the fund. In general, compared to the Economy Act, they provide “more flexibility

by allowing client agency funds to remain obligated, even after the end of the fiscal year, to

pay the performing IR fund.”45

According to the study conducted by GAO in 2003, there were 34 IR funds operated

by various federal agencies providing common administrative support services on a reimbursable basis to other agencies.46 While most of these funds operate under similar legal

authorities providing “advances and reimbursements, as well as the carryover of unobligated balances to recover the costs of accrued leave and depreciation,” twelve of these IR

funds, including five of the six franchise fund pilots, have explicit authority to charge for an

operating reserve and/or to retain funds for the acquisition of capital equipment and financial management improvements.47

The Government Management Reform Act of 199448 authorized OMB to designate

six franchise fund pilots, and OMB subsequently designated pilots at the Departments of

Commerce, Veterans Affairs, Health and Human Services, Interior, and Treasury, and at

the Environmental Protection Agency. As a subset of IR funds, these franchise funds were

designed to be “[s]elf-supporting business-like entities providing common administrative

services on a fully reimbursable basis.”49 With the exception of the Interior and HHS, these

franchise funds have been granted permanent authorization.

Accordingly, most of the Interagency Assisting Entities provide contract support services

under IR fund authorities rather than the Economy Act. In particular, franchise funds are

provided in many cases with explicit or implicit authority to retain funds to maintain a current operating reserve (e.g., depreciation, accrued leave, and contingencies) and to retain up

to an additional four percent of total annual income for the acquisition of capital equipment, and for the improvement and implementation of capital improvements in financial

management, IT, and other support systems. This authority to retain funds provides great

operating flexibility to those six agencies that are granted franchise fund authority.

From a contract administration standpoint, this arrangement creates unique challenges. A typical transaction may involve multiple parties including the customer agency’s

program office, its contracting officer, its finance office, the assisting entity’s contracting

officer, the assisting entity’s finance office, and the contractor. A recent GAO report pointed

out that the customer agency and the franchise fund, who “share responsibility for ensuring value through sound contracting practices such as defining contract outcomes and overseeing contractor performance,” had not adequately defined requirements and delineated

44 GAO-03-1069 at 15.

45 Id.

46 Id. at App III.

47 Id. at 4.

48 Pub. L. No. 103-356 § 403.

49 GAO-03-1069 at 9.
238

responsibilities.50 The GAO report concluded that the two franchise funds, GovWorks and

FedSource, and DoD, had failed to coordinate to adequately “define outcomes,” “establish

criteria for quality,” and “specify necessary criteria for contract oversight” resulting in these

entities not being able to demonstrate value. 51 

Listed below are several well-known Interagency Assisting Entities:

Agency Program Name Fund Type Authorization

DOI GovWorks Franchise Fund 31 U.S.C. 501 note 

(GMRA), Reauthorization Required

National Business 

Center

Working Capital Fund 43 U.S.C. 1467; 31 

U.S.C. 1535 (Economy Act)

GSA Federal Systems Integration and Management Center (FEDSIM)Acquisition Services 

Fund

40 U.S.C. 321, 40 

USC 501; 40 U.S.C. 

11302(e); Permanent

FTS Client Support 

Center

Treasury FedSource Franchise Fund 31 U.S.C. 322, note 

(GMRA); Permanent 

(PL 108-447 §219)

Veterans Affairs BuyIT.gov Franchise Fund GMRA, Permanent (PL 

109-114 §208)

HHS Program Support 

Center

Service and Supply 

Fund, Franchise Fund

42 U.S.C. 231; 

GMRA, Reauthorization Required

2. Parties Involved in Interagency Contracting 

The Panel has identified four groups or stakeholders involved with interagency contract

vehicles who have distinct and different sets of interests and perspectives. The first group

includes the holders of the requirements within the agencies. The second includes the holders of the vehicles as well as the assisting entities who use the vehicles as a means of satisfying

the acquisition needs of the holder of a requirement in another agency or activity. The third

group consists of the contractors with the federal government under the vehicles. The fourth

group includes the oversight organization within the Executive Branch, as well as Congress,

charged with protecting the interest of the ultimate stakeholder, the taxpayer.

3. Creation and Continuation in Interagency Contracting 

Several types of interagency contract vehicles, as well as enterprise-wide contracts, provide for varying levels of internal procedural uniformity and monitoring with respect to

their creation. While these procedures and types of monitoring vary in their effectiveness, it

is important to review the current landscape.

50 GAO-05-456 at 2.

51 Id. at 21.
239

GSA’s Schedules Program. GSA has established a formal written policy for both the

establishment and continuation of schedules and SINs. The policy, contained in “GSA Form

1649–Notification of Federal Supply Schedule Improvement Process” requires business case

approval for establishment of new schedules and SINs. This policy also requires that existing

schedules and SINs must meet certain annual revenue criteria to continue in the program. 

GWACs. OMB’s Executive Agent Designation and Redesignation process requires GWAC

holders, or Executive Agents, to submit business cases and yearly reports to OMB for

review and approval or redesignation. Approved Executive Agents are required to submit a

business case (Appendix A) that addresses the agency’s continued suitability, the amount

and source of demand, value to the government including performance metrics, contracting practices (e.g., fair opportunity, small business participation, and performance-based

acquisition (“PBA”)), management structure, and the division of roles and responsibilities

between the Executive Agent and its customer agencies. 

Franchise Funds. The initial application process, issued by OMB in 1995, required

agencies to address criteria to help OMB determine agency suitability and capacity to

manage a franchise fund (Appendix B). The franchise funds are required, through the

budget process, to report on specific financial management elements but do not include

reporting on contracting practices. Such funds are evaluated on the basis of revenue and

customer satisfaction. 

IDIQ Contracts. Any agency may award IDIQ contracts–single or multiple award–that

permit orders to be placed by other agencies.

Enterprise-wide Contracts. There is no uniform policy for establishing or monitoring these IDIQ contracts. According to the SeaPort-e Program Manager’s testimony to the

Panel, the decision to make SeaPort-e an enterprise-wide contract was driven among other

considerations by the need for business intelligence data not readily available through the

various interagency contracts that had previously been used to fulfill requirements. SeaPort-e reports a number of performance metrics to include cycle time to award, business

volume, small business participation and workload.52 

a. Incentives to Use Interagency Contract Vehicles 

While acquisition reform streamlined the process for purchases under the simplified

acquisition threshold, purchasing above that threshold remains complex and technical.53

This is particularly true of services contracting which has become increasingly more sophisticated and complex especially in the areas of information technology and professional and

management support. Services now account for over 60 percent of the government’s yearly

contract spending.54 In response to a Panel request for data, FPDS-NG provided the following

breakout of supplies and services purchased in Fiscal Year 2004 using interagency contracts:

52 NAVSEA presentation, AAP Pub. Meeting (Aug. 18, 2005) Tr. at 28 et seq for public testimony to

Panel, August 18, 2005.

53 U.S. GAO, Contract Management: Taking a Strategic Approach to Improving Service Acquisitions, GAO-02-

499T (Mar. 2002).

54 Federal Procurement Report for FY 2005 available on-line at https://www.fpds.gov.
240

A number of factors have led agencies to turn to interagency contract vehicles to meet

demands for services. The major factors are summarized below.

(i) Workforce. The reliance on interagency contracts and their proliferation has been

driven to a significant degree by reductions in the acquisition workforce accompanied by

increased workloads and pressures to reduce procurement lead-times. In its testimony

on the High Risk Update in February 2005,55 GAO stated: “These types of contracts have

allowed customer agencies to meet the demands for goods and services at a time when

they face growing workloads, declines in the acquisition workforce, and the need for new

skill sets.” Interagency contracts allow requiring agencies to meet mission needs while

focusing human capital resources on core mission rather than procurement. For instance,

the chart below shows the interrelationship of the DoD workforce reductions mapped

against overall growth in GSA’s Federal Supply Schedules program. Although DoD and

NASA have recently issued guidance or procedures for activities to follow for using interagency vehicles, agencies have not issued general guidance or procedures for reviewing

and determining the best vehicles for meeting agencies’ mission needs.

55 U.S. GAO, GAO’s 2005 High-Risk Update, GAO-05-350T, at 18 (Feb. 2005).

Services to Product Breakout for FY 2004

Interagency Contract Spend

Total Interagency Contract Spend= $139,346,384,302

Services 62% Products 38%

Services ($86 Billion)

Products ($53 Billion)

Source: Ad-Hoc Report prepared for Panel by the Federal Procurement Data Center (FPDC), Nov. 2005
241

(ii) Funding Constraints. Workforce pressures alone have not fueled the increased use of

interagency contracts. The Panel heard testimony from government witnesses that the funding profiles have placed significant pressures on requiring agencies that can lead them to

want to “park” one-year money with holders of vehicles that can offer the benefit of extending the use of customer funds into a subsequent fiscal year.56 Franchise funds, in particular,

offer the ability to retain funds beyond an appropriations period to customers if they are able

to demonstrate a bona fide need for the acquisition during the period in which the funds

are available. In fact, the Department of Interior (“DOI”) GovWorks franchise fund website

(http://www.govworks.gov) until recently contained a slide presentation via a link called

“The Right Choice” that emphasized this benefit in its marketing material.57 

DoD, the largest user of interagency contract vehicles, has taken a series of actions

to control the use of DoD funds under interagency agreements not governed by the

Economy Act. The most recent guidance from the Under Secretary of Defense (Comptroller), dated October 16, 2006, requires that all non-Economy Act orders greater than

$500,000 be reviewed by a DoD contracting officer prior to sending the order to the

non-DoD activity.58 A memo issued on March 27 from the same source requires deobligation of expired funds and establishes an availability limit of one year from the date

of obligation for funding for severable services. Funding for the acquisition of goods

56 Test. of Lisa Akers, GSA, AAP Pub. Meeting (June 14, 2005) Tr. at 129; Test. of Timothy Tweed, DoD,

AAP Pub. Meeting (June 14, 2005) Tr. at 253.

57 GovWorks website now contains an explicit statement (answer #13 under Client Questions at http://

www.govworks.gov/home/faqs.asp) opposing the use of GovWorks to park funds. 

58 Memorandum from the Under Secretary of Defense (Comptroller) to Secretaries of the Military

Departments, et al., Non-Economy Act Orders (Oct. 16, 2006); (http://www.acq.osd.mil/dpap/

specificpolicy).

29534

30927

30045

29068

7.7

10.5

13.6

16.5

21.1

25.6

31.1

FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04

FSS Sales DoD Acquisition Workforce (Contracting/Purchasing)

35

30

25

20

15

10

5

0 20,000

25,000

30,000

35,000

40,000

Federal Schedules Use–DOD Workforce Comparison*

# Employees
242

requires a certification that the acquisition represents a specific, bona fide need of the

fiscal year in which the funds are obligated.59 

(iii) Perceived Flexibilities. Agencies have also used interagency vehicles to avoid and

waive competition in order to retain the services of incumbent contractors.60 This is most

likely due to the fact that public synopsis is not required on these vehicles. Also, multiple

award contracts are viewed as desirable because they are perceived by some to provide for a

reduced basis for oversight through the protest process. Current management and oversight

systems enforce laws, regulations, and policies that clarify requirements regarding proper

use of the flexibilities associated with these vehicles, but agencies have recognized the need

for improvements in such systems. 

According to a report by GAO, holders of the vehicles also added value to their offerings, attracting both contractors and consumers.

In August 1997, GSA revised its acquisition regulations to expand access to

commercial products and services and to implement greater use of commercial buying practices and streamline purchasing for customers. GSA

believed that these changes would lead to more participation in the MAS

[multiple award schedules] program by both large and small businesses—

procedures more consistent with commercial practice would increase competition and thereby provide federal agencies a wider range of goods and

services at competitive prices. Beginning in the late 1990s, MAS program

sales increased significantly.61 

b. Incentives to Create Interagency Contract Vehicles 

Interagency contracts also provide significant benefits to those agencies that create and

manage the vehicles. These contracts allow the holders of the vehicles to collect fees for

both assisted and unassisted buying. The GAO found that most of the interagency contracts

they reviewed reported excess revenues over costs for at least one year between 1999 and

2001.62 The agencies collecting the fees not only use these revenues to support the operational costs of the interagency contract, but excess revenue from these vehicles has funded

other agency programs. For instance, GAO found that those agencies operating GWACs

under revolving funds used excess revenue to maintain fund operations or support other

programs under the revolving fund. GSA’s Federal Supply Schedules Program, also a revolving fund, realized revenue in excess of costs in the amount of $210.8 million from 1997

to 2001.63 GAO noted in 2005 that this “...fee-for-service arrangement creates an incentive

to increase sales volume in order to support other programs of the agency that awards and

59 Memorandum from the Under Secretary of Defense (Comptroller) to Secretaries of the Military

Departments, et al., Proper Use of Interagency Agreements with Non-Department of Defense Entities Under 

Authorities Other Than the Economy Act (Mar. 27, 2006) (http://www.acq.osd.mil/dpap/specificpolicy).

60 GAO-05-207 at 27.

61 U.S. GAO, Contract Management: Opportunities to Improve Pricing of GSA Multiple Award Schedules 

Contracts, GAO-05-229, at 5 (Feb. 2005).

62 U.S. GAO, Contract Management: Interagency Contract Program Fees Need More Oversight, GAO-02-734,

2 (July 2002).

63 GSA subsequently lowered the Industrial Funding Fee from 1 percent to 0.75 percent.
243

administers an interagency contract. This may lead to an inordinate focus on meeting customer demands at the expense of complying with required ordering procedures.”64

c. Oversight Concerns 

The lack of transparency and internal controls over the use and management of interagency contracts has been at the core of the recent GAO and IG findings on the misuse of

these contracts in particular, and services contracts in general. Recent reports have been

particularly critical of Interagency Assisting Entities, such as the DOI’s GovWorks Franchise

Funds, GSA’s Federal Technology Service’s Customer Support Centers and Department of

Treasury FedSource. 65 In its High Risk Update Testimony in February 2005, GAO asserted

that it is not always clear where the responsibility for oversight lies.66 GAO’s High Risk

Series Update notes that interagency contracts are increasingly being used for the purchase

of services.67 Internal control weaknesses continued to be of concern in fiscal year 2007

with the DoD IG finding internal control weaknesses with assisting entity purchasing for

DoD.68 GAO has made similar findings with respect to the use of interagency contract

vehicles by DHS.69 

4. Transparency

a. Data on Use

In 2003, the FAR Council implemented a long-standing OFPP request to identify the

universe of interagency contracts, through a tool known as the Interagency Contract Directory (“ICD”). The Federal Register notice on the proposed rule identified the purpose

for the directory as twofold: first, to provide a source for market research for government

program managers and contracting officers; and second, to provide OFPP with visibility

into the government-wide coverage of requirements provided by the vehicles. The ICD was

implemented through the Federal Acquisition Regulation (“FAR”) under Federal Acquisition Circular 2001-15. However, within a year’s time of its launch, the Acquisition Committee for E-Gov (“ACE”) cut the project’s funding due to funding constraints of the Integrated

Acquisition Environment (“IAE”) under the E-Gov initiatives. 

The next attempt to collect data on interagency contracts came in fiscal year 2004.

While not designed to accomplish the same purpose as the ICD, FPDS-NG began collecting

data on the award and use of interagency contract vehicles. Beginning with FY 2004, FPDSNG required identification of these contracts and assigned delivery and task order obligations to the contracts by type (e.g., GWACs, GSA Federal Supply Schedules, BPAs, Basic

Ordering Agreements (“BOAs”), and IDIQs that do not fall under any other category).

However, the FPDS-NG data element was not implemented to specifically assign order

obligations by type of interagency contract if the contract was awarded prior to FY 2004 but

rather can assign such obligations as “Other.” Along with this limitation, there is significant

64 GAO-05-229.

65 GAO-07-044, GAO-07-032, GAO-07-007.

66 GAO-05-350T at 19.

67 GAO-05-207 at 26.

68 D-2007-044 at 3; D-2007-032 at 4; D-2007-007 at 4.

69 U.S. GAO, Interagency Contracting: Improved Guidance, Planning, and Oversight Would Enable the 

Department of Homeland Security to Address Risks, GAO-06-996, at 3 (Sept. 2006).
244

evidence that orders reported by agencies in FPDS-NG may be incorrectly reported. This is

most likely caused by the improper coding of orders that results from a lack of understanding of the differences between various types of interagency contracts. The Panel bases this

conclusion on OFPP’s and IAE’s discovery of obvious errors in agency classification of contracts during development of the now defunct ICD. For example, many non-GWAC contracts were improperly classified as GWACs and there was a misunderstanding of when the

Economy Act applied to multi-agency contracts. Additionally, traditional problems with

incorrect coding will impact the accuracy of the information in FPDS-NG. For instance,

data obtained from DoD indicates that from 2001 to 2005 nearly $185 million had been

spent by the Department on soybean farming or establishments that produce soybean

seeds. A DoD representative stated that they believe this large dollar value is attributable to

those inputting the award data simply selecting the first NAICS code in the list, 111110 for

soybean farming, rather than selecting the correct code. While inaccurate contract reporting

is not unique to interagency contracts, the absence of reliable and timely data contributes

to the problem of linking use and accountability. The Panel has adopted a number of recommendations to improve the reliability of FPDS-NG data as discussed in Chapter 7 of

this Report. 

b. Data on Management 

Agencies that hold interagency contract vehicles also maintain differing levels and types

of post-award data. For instance, while GWAC holders report yearly to OMB using uniform

reporting elements on performance and financial management and Franchise Funds report

to the Chief Financial Officer’s Council (“CFOC”), there is no consistent approach across

the government for collecting and reporting performance data on interagency contracts.

Additionally, the data that has been collected and reported has been identified by GAO

as lacking or inaccurate. In 2002, GAO found that agencies were not accurately identifying or reporting the full cost of the GWAC programs they were managing. This precluded

GAO from discerning if the fees collected were a reflection of costs incurred by the vehicle

holder.70 In its High Risk Series Update testimony, GAO stated that the fee-for-service feature of these interagency contracts creates an incentive to increase volume to support other

programs and leads to focusing “on meeting customer demands at the expense of complying with required ordering procedures.”71 In a report on DoD’s use of franchise funds, GAO

stated that while the franchise funds business-operating principles require that they “maintain and evaluate cost and performance benchmarks against their competitors,”

. . . the funds did not perform analyses that DoD could use to assess whether

the funds deliver good value. Their performance measures generally focus on

customer satisfaction and generating revenues, rather than compliance with

contracting regulations. The fee-for-service arrangement provides incentives

to emphasize customer service to ensure sustainability of the contracting

operation at the expense of proper use of contracts and good value.72

70 GAO-02-734 at 14.

71 GAO-05-350T at 19.

72 U.S. GAO, Interagency Contracting: Franchise Funds Provide Convenience, but Value to DOD is Not 

Demonstrated, GAO-05-456, at 3 (July 2005).
245

c. Data and Transparency 

As we begin to think in more strategic terms, we also note that procurement data

reporting through FPDS-NG and its predecessor dating back to the 1970s, has been exclusively transaction-based. But the system is capable, with enhancement, of providing data

that can inform strategic decision-making both during the creation and continuation phase

as well as at the point of use. OMB’s Memorandum “Implementing Strategic Sourcing,”

dated May 20, 2005, states that strategic sourcing is a 

. . . collaborative and structured process of critically analyzing an organization’s spending and using this information to make business decisions

about acquiring commodities and services more effectively and efficiently.

This process helps agencies optimize performance, minimize price, increase

achievement of socio-economic acquisition goals, evaluate total life cycle

management costs, improve vendor access to business opportunities, and

otherwise increase the value of each dollar spent.

Before an agency creates or continues an interagency or enterprise-wide vehicle and

applies the resources necessary to manage such a vehicle, data on similar vehicles would

provide essential market research for informing a cost-benefit analysis. Data on the costs

and performance measures of such vehicles would also inform rational decisions on their

use, driving the market to more efficiently “cull” the numbers of such vehicles to only the

highest performing most cost-effective ones. 

II. Issues and Findings–Creation and Continuation 

Given the increased amount of taxpayer dollars flowing through these vehicles for

the fulfillment of mission-critical requirements, the lack of a consistent government-wide

policy on the creation and continuation of interagency contracts is notable. There are no

uniform standards for their creation and no government-wide measures to support their

continuation based on desired performance. Certainly, industry witnesses have told the

Panel repeatedly that aligning incentives is essential for success.73 

There is little doubt that interagency contracts can and do provide significant benefits

and efficiencies, but these efficiencies have been narrowly viewed primarily as transaction

efficiencies such as reduced pre-award lead time and protest risk. Interagency contracts

broadly defined are important to the operation of the federal acquisition process. Witnesses speaking on the subject before the Panel identified the benefits of interagency contracts and several remarked that they viewed them as essential for meeting mission needs.74

However, the focus on transaction-based value hides the even greater efficiencies to be

gained if interagency contracts are employed toward the goal of creating strategic government-wide efficiencies. Unfortunately, the lack of readily available, reliable and timely data

73 Test. of Todd Furniss, Everest Group, AAP Pub. Meeting (Mar. 30, 2005); Test. of Peter Allen, TPI,

AAP Pub. Meeting (Apr. 19, 2005) Tr. at 155-56; Test. of Daniel Masur, Outsourcing Attorney, AAP Pub.

Meeting (Sept. 27, 2005) Tr. at 88-9.

74 Test. of Scott Amey, Project on Government Oversight (“POGO”), AAP Pub. Meeting (May 17, 2005)

Tr. at 341; Test. of Ashley Lewis, Department of Homeland Security (“DHS”), AAP Pub. Meeting (Jun. 14,

2005); Test. of David Sutfin, Department of the Interior, AAP Pub. Meeting (Jun. 14, 2005) Tr. at 336;

Testimony of Tim Tweed at 229.
246

on the use and management of interagency contracts has hampered the government’s ability to realize the more strategic value of these contracts. This lack of data is a barrier to strategic planning as well as oversight, on both an enterprise-wide and government-wide basis. 

The Panel believes that meaningful improvements to interagency contracting practices can be achieved by agencies focusing their efforts on a sound and consistent process

that provides oversight during the creation and the continuation (or reauthorization)

of these contracts. Many of the issues identified by GAO and agency IGs dealing with

the misuse of these vehicles are related to the internal controls, management and oversight, and division of roles and responsibilities between the vehicle holder and ordering

agency. These issues can best be addressed with a government-wide policy that requires

agencies to specifically and deliberately address these matters at the point of creation and

continuation rather than attempting to remedy these problems at the point of use. The

current lack of an established process and limited transparency allows for the proliferation of these vehicles in a largely uncoordinated, bottom-up fashion, focusing attention

on the short term, transaction-based benefits of reduced procurement lead time. The

Panel and the Working Group received testimony from government witnesses who stated

that interagency vehicles are often utilized when an agency does not have ample time

to fully define its acquisition requirements. Establishing guidelines for the creation and

continuation of these vehicles will help to ensure they are used as an effective tool for

enterprise-wide and government-wide strategic sourcing. 

A. Proliferation 

The pressures and incentives to create and use these vehicles, coupled with inconsistent

or lacking oversight and little transparency has created an environment biased towards the

uncoordinated proliferation of interagency contracts. GAO has noted that they are attracting

rapid growth of taxpayer dollars75 with Fiscal Year 2004 FPDS-NG data showing total obligations of $142 Billion or 40 percent of the total government-wide spend for the year.76 In

addition, the Panel is concerned about the impact of using IDIQ contracts for enterprise-wide

programs, such as the Navy’s Seaport-e and the Department of Homeland Security’s (DHS)

Enterprise Acquisition Gateway for Leading Edge (Eagle) for IT Services and First Source for

IT commodities, replicating vehicles within the confines of a single agency similar in purpose

to interagency vehicles. 

An uncoordinated proliferation of these contracts has consequences on the stakeholders, which include requiring agencies, holders of the vehicles, industry, and those agencies

responsible for oversight. That is why the Panel has determined it necessary to include both

interagency and enterprise-wide contracts within the scope of its recommendations. Failing

to do so could lead to the unintended consequence of fostering even greater uncoordinated

enterprise-wide contract creation, exacerbating negative consequences for stakeholders.

In addition, holders of interagency contracts and their customer agencies must have

the necessary expertise to award and manage orders under these interagency contracts.

GAO and agency IGs have noted that curtailed investments in human capital have

75 GAO-05-207 at 25.

76 Data was reported as of Aug. 2006 in reports prepared by the Federal Procurement Data Center

(“FPDC”) in response to a Panel request.
247

produced an acquisition workforce that often lacks the training and resources to function effectively77 in an environment of more complex contracting vehicles and service

requirements. GAO testimony stated that contracting personnel are expected to have

greater knowledge of market conditions, industry trends, and technical details of the

commodities and services they procure.78 They also note that the use of interagency

contracts requires a higher degree of business acumen and flexibility. One of the risks

GAO cited with respect to interagency contracts is that they are being administered

and used by some agencies that have limited expertise with the contracting method.79

Another concern that has been raised is that agencies, because of competing demands

on acquisition organizations, have insufficient resources in existence or planned to systematically monitor and oversee the use and the outcomes associated with interagency

contracts.80 GAO noted that some of DoD’s problems with the use of interagency contracts stems from increasing pressures on the acquisition workforce and insufficient

and inadequate training.81 Insofar as holders of the vehicles are concerned, GAO noted

that while the number of GSA’s Federal Supply Schedule contracts increased, the contract specialist workforce remained relatively stable in terms of numbers.82 

Certainly, uncoordinated proliferation without adequate transparency into the establishment or use of these vehicles creates serious challenges for those organizations responsible for oversight. While GWACs, franchise funds, and schedules are readily identifiable,

the significant number of other interagency vehicles such as non-GWAC multi-agency contracts and the emerging trend in the proliferation of enterprise-wide contracts presents an

obstacle for oversight both in terms of sheer numbers and difficulty in identification. Lack

of transparency in both the use and management of these vehicles severely hampers the

government’s ability to maximize their effectiveness.

Finally, the burden on both large and small business has been clearly documented with

respect to the increasing number of interagency vehicles. These burdens include increased

bid and proposal costs in order to obtain contracts for similar work under numerous interagency and now, enterprise-wide contracts. This proliferation is especially burdensome

to small business. In reaction to the preference for multiple award IDIQ contracts (the

primary form of interagency contracts) and GSA’s Federal Supply Schedule program, one

observer remarked, “The problem is you invest heavily in the right to hunt, only to find

there isn’t enough game for everyone to bring home.”83 Proliferation of interagency contracts and enterprise-wide contracts exacerbates this problem by increasing the number of

“hunting reservations” that industry must seek out while the amount of potential business

77 GAO-05-350T at 18; U.S. GAO, Contract Management: Improving Services Acquisition, GAO-02-179T,

1 (Nov. 2001); U.S. GAO, Suveillance of DOD Service Contracts, GAO-05-274, 3 (Mar. 2005); U.S. GAO,

Continuing Progress in Implementing the Initiatives in the President’s Management Agenda, GAO-03-556T, 4

(Mar. 2003); GAO-05-207, January 2005; Test. of Eugene Waszily, GSA Office of Inspector General, AAP

Pub. Meeting (May 17, 2005) Tr. at 222; Test. of Terry McKinney, DoD Office of Inspector General, AAP

Pub. Meeting (May 17, 2005) Tr. at 177.

78 GAO-02-499T at 6.

79 GAO-05-207 at 25.

80 GAO-06-996 at 16-18.

81 GAO-05-350T at 19.

82 GAO-05-229 at 8.

83 Washington Technology, “Multiple Awards: A Protest-Proof Process,” James Fontana, 12/10/98.
248

across the government remains unaffected. Vic Avetissian, Chairman of the Public Policy

Council for the Contract Services Association of America (“CSA”), in his testimony before

the House Government Reform Committee on March 16, 2005, cited an inefficient overlapping of contracts for similar products and services as responsible for increased costs to

industry to prepare separate proposals.

B. Inconsistent Oversight 

1. Lack of Transparency

Increased visibility into this creation and continuation process, on a government-wide

basis, is an essential element in properly implementing interagency vehicles. It will provide

for the eventual rationalization of the numbers of interagency and enterprise-wide contracts

with the outcome of ensuring these vehicles are meeting the goals of reduced administrative costs and efficient competition. This will benefit all stakeholders. Therefore, the Panel

believes that a sound process for creation and continuation requires equally sound and transparent data. Such data would support effective decision-making for users and holders of the

vehicles, effective oversight, and the eventual use of these vehicles for more strategic sourcing.

As discussed earlier in the Data on Use section of this chapter, FPDS-NG required the separate identification of indefinite delivery vehicles beginning in Fiscal Year 2004. The system

was designed to accumulate cost by contract and is capable of identifying GWAC’s, Federal

Supply Schedules, Blanket Purchase Agreements (“BPAs”), Basic Ordering Agreements, and

non-GWAC multi-agency contracts. The system is also able to separately identify contracts

available for multi-agency use from those available for use by a single agency. The Panel has

been unable to verify the data provided, but proposes that individual agencies verify their

data once received from FPDS-NG. However, this data is contract-specific and, therefore,

transaction-based; there is no transparency into the creation of interagency or enterprise-wide

contracts nor information available to users sufficient to assist them in making well-informed

decisions about which vehicles are most appropriate to their needs. Nor does this transaction-based collection system provide sufficient transparency to support a rational government-wide decision process for the creation of these contracts or for monitoring their performance and relevance.

2. Little Systematic Coordination among Vehicles

The Panel has found that, aside from the processes internal to a particular type of interagency vehicle such as the OMB Executive Agent designation process for GWACs, there is

little or no coordination among the various types of products and services offered under

different vehicles. The inefficiencies created by such a lack of coordination were, in part, the

impetus for the recent GSA Federal Supply Service and Federal Technology Service restructuring. In GAO’s testimony on the subject of GSA’s restructuring, the impact of inefficient

overlap of similar IT products and services is cited as increasing the costs to GSA to administer the programs as well as the marketing and bid and proposal costs to industry to compete.84 In an effort to harmonize various contract vehicles it offers, GSA created a Contract

Vehicle Review Board with representatives from FSS, FTS, GSA’s Office of Governmentwide

84 Contract Management: Restructuring GSA’s Federal Supply Service and Federal Technology Service, GAO-04-

132T, 1-4 (Oct. 2003).
249

Policy, and its regional offices to ensure its existing contracts are rationalized and to evaluate the need for new contracts. As a result of this review, GSA decided not to recompete

the eight specialty GWAC vehicles because they overlap with other GWACs or schedule

contracts.85 In addition, the Board recommended that its three largest GWACs - Millennia,

Millennia Lite and Applications ’N Support for Widely Diverse End-User Requirements

(ANSWER)-be merged into a single GWAC. 

3. No Consistent Standards for Creation and Continuation 

There are no consistent government-wide standards applicable to the creation of interagency and enterprise-wide vehicles and no performance standards to justify their continuation or relevance. As discussed earlier, the GWACs, schedules, and franchise funds have

specific processes in place, but each focuses on different elements of a business case. There

is no standard process at all for the creation and continuation of non-GWAC multi-agency

IDIQ contracts and enterprise-wide programs. The treatment of various types of funding

within agencies may preclude the objective measurement of tradeoffs of costs versus the

benefits associated with the creation of such vehicles. As noted above, some of the justifications advanced for the creation of the Navy’s SeaPort-e program included the savings associated with fees that would no longer have to be paid to GSA and the fact that no additional

contracting personnel would be required in the Navy to administer the vehicle. While this

approach reflects well the financial incentives from an internal NAVSEA perspective, it is

not clear that that this calculation accurately captures the overall costs to the government

associated with the creation and operation of this or similar programs. Given the amount of

taxpayer dollars spent on interagency contracting, it is notable that there is no governmentwide policy focusing on rational business cases for creation and performance measures that

align incentives with desired behaviors and key management agenda initiatives. For instance,

business cases should require the identification of the mission need to be fulfilled, and the

management and governance structure, including the resources and tools that will be applied

by a servicing agency to manage an interagency contract. Proper business planning requires

management deliberation and accountability and identification of the roles and responsibilities of the requiring and servicing agency and the means by which this is communicated.

Currently, there are no consistent procedures or policies for allocating roles and responsibilities among the stakeholders in transactions using these vehicles. Measures that focus on

competition, performance-based contracting and small business goals would drive desired

behaviors. Clearly identifying those responsible for these measures would drive agencies to

allocate responsibility. But key to having such standards and measures is a system for the

government-wide monitoring of vehicle performance and relevance. Again, while individual

programs such as GWACs have such a system, interagency and enterprise-wide contracts, on a

government-wide basis, have no such process.

85 The eight specialty GWACs are: the Access Certificates for Electronic Services, Disaster Recovery,

Outsourcing Desktop Initiative for NASA, Reverse Auctions, Safeguard, Seat Management, Smart Card and

Virtual Data Centers.
250

4. No Procedures for Aligning Vehicles to Leverage Government 

Purchasing Power 

The lack of oversight and government-wide attention to these contracts precludes the

ability to manage them to leverage the government’s purchasing power. There is no process

or procedure in place and no systematic data report on the vehicles and their use to allow

for this to occur. The result is the dilution of buying power across the federal government.

Even within agencies, this dilution of buying power has been noted. For instance, GSA’s

Federal Supply and Federal Technology Services were competing for the same work from

the same customers and have only recently begun to address these inefficiencies through

their restructuring. With the emergence of enterprise-wide programs, such as SeaPort-e with

935 vendors, the impact goes even further. In addition to the increased costs to industry

and taxpayers, proliferation and lack of vehicle alignment also ignores one of the fundamental purposes of interagency contracts, namely, to drive down the administrative and

operational costs of procurement on a government-wide basis. The Panel believes that the

costs from not aligning the interagency contract vehicles must be more clearly identified

and weighed to allow for responsible and efficient management of interagency contracts.

5. No Central Database or Consistent Methodology to Help Agencies Select 

Appropriate Contract Vehicles

Too many choices without transparency into the performance and management of

these contracts make the cost-benefit analysis and market research needed to select an

appropriate acquisition vehicle impossible. None of the witnesses to the Panel were able

to clearly articulate an answer to Panel questions about how agencies select a particular

vehicle over another for a given acquisition. In fact, there is no guidance or methodology

for selection. Certainly, the GAO and IG reports as well as recent testimony to the House

Government Reform Committee have asserted that the decisions are not well-reasoned

and seem to be based largely on ease and convenience, with little thought into whether

the vehicle is actually appropriate for requiring agency needs.86 The proliferation of these

vehicles with little data available to help requiring agencies make well-informed decisions

on use clearly impacts the quality and value of the acquisition outcomes. 

C. Incentives for Creation Don’t Always Translate Into 

Benefits for the Taxpayer 

GAO noted in 2005 that the fee-for-service arrangement of interagency contracts “creates an incentive to increase sales volume in order to support other programs of the agency

that awards and administers an interagency contract. This may lead to an inordinate focus

on meeting customer demands at the expense of complying with required ordering procedures.”87 With the trend toward greater agency reliance on internal contracts such as enterprise-wide contracts, the competition for customers may put greater pressure on holders of

86 U. S. DoD IG, Multiple Award Contracts for Services, D-2001-189, 1-12 (Sept. 2001); U.S. GAO, Improved 

Guidance, Planning, and Oversight Would Enable the Department of Homeland Security to Address Risks, GAO-06-

996, 3 (Sept. 2006); Test. of Vic Avetissian, Northrop Grumman Corporation, Chairman of Public Policy

Council for the Contract Services Association of America (CSA), testimony before the House Committee on

Government Reform, Hearing on General Services Administration Operations, March 16, 2005.

87 GAO-05-207 at 27.
251

new and existing interagency contracts and the Interagency Assisting Entities to focus on

meeting demands that are counter to the interests of taxpayers, such as waiving competition to retain incumbent contractors.

D. Some Diversity is Desirable

While the Panel believes that proliferation dampens the potential benefits of interagency contracts, it does not find that administrative monopolies are beneficial either.

Some competition among vehicles is seen as desirable and even fundamental to maintaining the health of government contracting. Armed with the necessary information on how

many interagency and enterprise-wide vehicles exist, and institutionalizing standards for

their creation and continuation, the government can make informed decisions on how

many and what type of vehicles provide for appropriate leveraging and which vehicles are

best and most responsibly managed to obtain maximum taxpayer value. Agency contracting officials should have reasonable alternative contracting vehicles available for meeting

agency mission needs coupled with meaningful data and information about the different

options for contracting within their own agencies and through other entities. 

E. Focus on Process of Creation and Continuation will 

Improve Use of the Vehicles 

The Panel believes that maximum leverage for improving interagency contracting can

be gained by focusing its efforts on a sound and consistent process for the creation of

these vehicles along with a monitoring process for the continuation (or reauthorization)

of them. Many of the issues related to the misuse of these vehicles identified by the GAO

and IG reports relate to roles and responsibilities, internal controls, and management

and oversight. These issues can best be addressed with a government-wide policy that

requires agencies to specifically and deliberately address these matters at the point of creation and continuation rather than attempting to fix these problems at the point of use.

The current lack of process and visibility allows for the proliferation of these vehicles in a

largely uncoordinated, bottom-up fashion, focusing attention on the short term, transaction-based benefits of reduced procurement lead time instead of on their ultimate benefit

as a tool for effective enterprise-wide and government-wide strategic sourcing at reduced

administrative costs.

III. Recommendations 

1. Increased transparency through identification of vehicles (e.g., GWACs, 

MACs, enterprise-wide) and Assisting Entities. OMB conduct a survey of 

existing vehicles and Assisting Entities to establish a baseline. The draft 

OFPP survey, developed during the Working Group’s deliberations should 

include the appropriate vehicles and data elements. 

The Panel believes that the most important near-term task in the interagency contracting

creation and continuation area is establishing a database identifying existing vehicles and assisting entities as well as their characteristics. It is the view of the Panel the most expeditious means
252

of assembling such information is in the form of a survey as currently drafted by OFPP in support of the OMB task force examining Interagency and Agency-Wide Contracting. 

The OFPP survey is intended to gain a clearer understanding of the following:

•	The number of interagency contracts that are currently in operation; the scope of these

vehicles; the primary users; and the main rationale for their establishment;

•	The level of acquisition activity conducted by Intragovernmental Revolving Funds

(including the Franchise Funds) on behalf of other agencies;

•	The number of enterprise-wide contracts currently in operation to address common

needs that could be (or have been) satisfied through an existing interagency program, the

scope of these vehicles, and the main rationale for their establishment. 

The Panel recognizes that such a survey provides no more than a snapshot of agency

activities associated with interagency contracting. Such a survey will provide an immensely

greater degree of transparency for the stakeholders. The results of such a survey should

serve as a bridge to the more institutionalized database recommended in #3 below. In

order to better serve that end, the Panel also recommends that OFPP and the interagency

task force consider expanding the requirements of the draft survey to include vehicles currently in the planning stages.

2. Make available the vehicle and assisting entity data for three distinct purposes.

a. Identification of vehicles and the features they offer to agencies in meeting their 

acquisition requirements (yellow pages).

b. Use by public and oversight organizations to monitor trends in use. 

i. Improved granularity in fee calculations

ii. Standard FPDS-NG reports

c. Use by agencies in business case justification analysis for creation and continuation/reauthorization of vehicles. 

The Panel believes that the data gathered in the initial baseline survey should be

structured in such a way as to allow for agency and public use. As noted above, the information should be viewed as a bridge to an institutionalized collection process. The Panel

believes that three major purposes should guide the structuring of information consistent

with the findings. 

First, the data should provide a detailed overview of vehicles and services available

from assisting entities to allow agency procurement officials and managers to weigh the

best acquisition strategy for meeting agency mission needs. The information should be

structured in such a manner to allow “apples to apples” comparisons among the benefits

of using different vehicles and entities as well as the fees associated with their use. The data

should allow agency officials to make accurate comparisons between the cost to the agency

of the fees involved with using another agency vehicle and the internal costs of replicating

the capability within the agency.

Second, the data should be organized to allow oversight organizations, such as GAO and

the agency IGs, greater visibility into the existing and planned vehicles and entities, trends

in their use, and the degree and nature of any overlap among them. In particular, the initial

survey should provide the groundwork for a meaningful comparison of the manner in which
253

fees are calculated among different vehicles and entities to indicate whether a more systematic approach to fee establishment would be feasible or desirable. 

Third, consideration of the information from the survey should be standard practice

for any agency considering creating a new interagency or enterprise-wide vehicle or continuing an existing one. The Panel believes that a major component of a proper business

case justification must be a reasonable and detailed understanding of other alternative

acquisition approaches that are available in the federal government or to specific requirement holders in a prospective customer agency.

3. OMB institutionalize collection and public accessibility of the information, 

for example through a standalone database or module within transactionsbased FPDS-NG. 

The Panel believes that the initial OFPP survey should serve as the foundation for an

institutional base of data and information on vehicles and entities. An institutional database with timely updates will be critical for the agencies’ success in managing the vehicles

and entities under their jurisdiction. Such a database will also be critical for agency managers to develop sound acquisition strategies involving interagency contracting capabilities to

meet their agency’s mission needs. The Panel believes that such benefits will offset the costs

of collecting and maintaining this information.

OMB should explore various approaches to establishing such a database, whether as

an additional module in the transactions-based FPDS-NG or as a standalone system. The

Panel believes that the different approaches have merits and costs, and careful analysis of

the alternatives must be conducted before deciding on a single approach.

4. OMB direct a review and revision, as appropriate, of the current procedures 

for the creation and continuation/reauthorization of GWACs and Franchise 

Funds to require greater emphasis on meeting specific agency needs and furthering the overall effectiveness of government-wide contracting. GSA should 

conduct a similar review of the Federal Supply Schedules. Any such revised 

procedures should include a requirement to consider the entire landscape of 

existing vehicles and entities to avoid unproductive duplication. 

The Panel recognizes there is statutory authority for the creation and continuation of

GWACs, Franchise Funds, and the Federal Supply Schedules. The Panel recommends that

these statutory authorities should not be altered in any way. With respect to the GWACs, the

Panel further recommends that OMB reconsider the current requirement for annual review

and reauthorization of these vehicles. The Panel believes that this period is too short given

the complex nature and long-term nature of the work being undertaken under the GWACs.

The Panel does believe that the cognizant agency should review the procedures under

which these vehicles and entities are created and continued and revise them in ways they

deem appropriate to ensure that emphasis is placed on meeting specific agency needs and

the overall effectiveness of government-wide contracting. The availability of more comprehensive data on other existing vehicles and entities should allow for more effective procedures for avoiding duplication that does not serve such overarching goals. 
254

5. For other than the vehicles and entities described in #4 above, institute a 

requirement that each agency, under guidance issued by OMB, formally authorize the creation or expansion of the following vehicles under its jurisdiction:

a. Multi-agency contracts 

b. Enterprise-wide vehicles 

c. Assisting entities 

Although the Panel recommends review and revision of the current procedures for

the creation and continuation/reauthorization of GWACs, Franchise Funds, and Federal

Supply Schedules, it believes these procedures are fundamentally sound. However, there

are no comparable common procedures for other interagency vehicles and assisting entities. The Panel considered different approaches to address the problems associated with

the proliferation of these interagency vehicles and entities. One approach that was considered would be to allow agencies full discretion to establish vehicles or assisting entities

involved in interagency contracting. This “market approach” would rely on the extent of

agency utilization over time to determine the viability of a given vehicle or assisting entity.

Unfortunately, it does not appear that reliance on this approach alone would be effective in

addressing the negative impacts caused by the uncontrolled proliferation of vehicles. 

The approach at the other end of the spectrum that the Panel considered would be to

establish a process whereby OMB would formally authorize or reauthorize these vehicles

and assisting entities. Based on previous experience with centralized approval processes

(e.g., Brooks Act authorizations for automated data processing equipment and services),

the Panel believes this approach risks being too cumbersome and would be beyond the

scope of existing or likely OMB resources. The Panel also believes that this approach may

inhibit the establishment or creation of a diverse set of interagency vehicles. 

Rather than serving as a central approval authority, the Panel believes that the proper

role for OMB is to issue guidance and procedures to structure the agency decisions with

respect to the creation and continuation of individual vehicles or entities. The individual

agencies should retain the responsibility for making decisions regarding the creation and

continuation of these vehicles and assisting entities. The agencies have the personnel,

resources, and requirements to establish or expand vehicles or assisting entities within

the context of the agency mission. While recognizing this agency responsibility, the Panel

believes that achieving improvements in interagency contracting is best assured through

the establishment of a more formal process within these agencies for the creation and

reauthorization of these vehicles and entities. The heads of agencies should be accountable

for the implementation of this process. All these vehicles and entities, along with those

currently authorized by OMB and GSA, form the landscape of interagency contracting and

should be covered by more formal procedures where they do not currently exist. 

The Panel notes that defining “expansion” precisely for the purposes of these recommendations is challenging. The term is intended to apply not only to cases where an

existing vehicle or an assisting entity is opening up a new business line but also to cases

where there is a significant increase in scope or size of contracts under an interagency or

enterprise-wide vehicle.
255

6. Institute a requirement that the cognizant agency, under guidance issued 

by OMB, formally authorize the continuation/reauthorization of the vehicles 

and entities addressed in #5 on an appropriate recurring basis consistent 

with the nature or type of the vehicle or entity. The criteria and timeframes 

included in the OMB guidance should be distinct from those used in making 

individual contract renewal or option decisions. 

As noted above, certain of the interagency vehicles and assisting entities, such as the

GWACs, Federal Supply Schedules, and Franchise Funds, are subject to periodic review and

continuation/reauthorization. The Panel believes that the other interagency vehicles and

assisting entities should be subject at the agency level to periodic review and disestablishment if they do not continue to meet specific agency needs and support the effectiveness of

government-wide contracting. The result of such periodic reviews should be the elimination of vehicles and assisting entities that represent unproductive duplication or for which

there is no longer a valid business case. 

The Panel believes that this process must “have teeth” rather than be a pro forma

review. The standard for the review should be the degree to which the vehicle or assisting entity is tracking to (or meeting) the performance measurements established at its

inception. The OMB guidance on continuation should provide sufficient clarity to allow

agency decisions on continuation/reauthorization to be subject to meaningful review

and audit by oversight organizations. 

With respect to the appropriate review timeframes, the Panel believes that there is no

“one size fits all” approach. The Panel recognizes that each type of vehicle or class of assisting entity will justify OMB establishing different continuation/reauthorization review periods. A major consideration in establishing such review periods should be the nature and

length of contracts and options under the vehicles or being managed by the assisting entities. A continuation/reauthorization review period for a given vehicle that is significantly

shorter than the contract periods under the vehicle could present an agency with a serious

obstacle to appropriate action if a continuation/reauthorization review indicates that the

vehicle should be terminated rather than continued. 

7. Have the OMB interagency task force define the process and the mechanisms anticipated by recommendations #5 and #6. 

The Panel believes that OMB should be the responsible agency for preparing and issuing the guidance to implement recommendations #5 and #6. The process should be the

result of collaboration with the chief acquisition officers and senior procurement executives of the individual agencies having jurisdiction over interagency, enterprise-wide, or

assisting entities. The current OMB Task Force on Interagency Contracting, formed to

address the management concerns raised by GAO, has the breadth of participation to allow

a balance between the need for explicit guidance with clear performance measures and the

need for a reasonable degree of flexibility in implementation. The Panel believes that the

OMB Task Force should remain in existence until the task of promulgating procedures and

mechanisms for these vehicles and entities has been completed. 
256

8. OMB promulgation of detailed policies, procedures, and requirements 

should include:

a. Business case justification analysis (GWACs as model).

b. Projected scope of use (products and services, customers, and dollar value).

c. Explicit coordination with other vehicles/entities.

d. Ability of agency to apply resources to manage vehicle. 

e. Projected life of vehicle including the establishment of a sunset, unless use of a 

sunset would be inappropriate given the acquisitions made under the vehicle.

f. Structuring the contract to accommodate market changes associated with the 

offered supplies and services (e.g., market research, technology refreshment, 

and other innovations).

g. Ground rules for use of support contractors in the creation and administration of the vehicle. 

h. Criteria for upfront requirements planning by ordering agencies before access 

to vehicles is granted. 

i. Defining post-award responsibilities of the vehicle holders and ordering activities before use of the vehicle is granted. These criteria should distinguish 

between the different sets of issues for direct order type vehicles versus vehicles 

used for assisted buys, including data input responsibilities. 

j. Guidelines for calculating reasonable fees including the type and nature of 

agency expenses that the fees are expected to recover. Also establish a requirement for visibility into the calculation.

k. Procedures to preserve the integrity of the appropriation process, including 

guidelines for establishing bona fide need and obligating funds within the 

authorized period. 

l. Require training for ordering agencies’ personnel before access to the vehicle 

is granted.

m. Use of interagency vehicles for contracting during emergency response situations 

(e.g., natural disasters).

n. Competition process and requirements.

o. Agency performance standards and metrics.

p. Performance monitoring system.

q. Process for ensuring transparency of vehicle features and use.

 • Defined point of contact for public – Ombudsman.

r. Guidance on the relationship between agency mission requirements/core functions 

and the establishment of interagency vehicles (e.g., distinction between agency 
257

expansion of internal mission-related vehicles to other agencies versus creation of 

vehicles from the ground up as interagency vehicles) 

9. OMB conduct a comprehensive, detailed analysis of the effectiveness of 

Panel recommendations and agency actions in addressing the findings and 

deficiencies identified in the Acquisition Advisory Panel Report. This analysis should occur no later than three years after initial implementation with a 

continuing requirement to conduct a new analysis every three years. 

In order to achieve the greatest impact in performing its analysis, OMB should publish

a timeline for carrying out the analysis, including an identification of agencies’ responsibilities, as soon as practicable. In conducting its analysis, OMB should evaluate the degree

of compliance of a representative sample of vehicles with business case guidance stipulated

by OMB as well as an analysis of the degree to which the vehicles in the sample represent

unwarranted duplication or overlap with other interagency and enterprise-wide vehicles.

The evaluation should incorporate recommendations for consolidating or terminating

vehicles where unwarranted duplication or overlap has been identified. The analysis should

also include identification of any cost savings associated with the implementation of the

recommendations and proposed measures to address the unintended negative consequences of such recommendations. Finally, OMB should include in each analysis formal

consideration of whether to require OMB-level approval on a case-by-case basis of agency

decisions to create or continue vehicles or assisting entities that are not otherwise covered

under a statutorily mandated process.

259

CHAPTER 3–Appendices
260
261
262
263

265
266
267
268
269
270
271

273

Table of Contents

Table Chapter 4—Small Business Findings and Recommendations . . . . . . . . . . . . . 275

I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

A. Statement of Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278

B. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

II. The Process of Structuring Acquisition Strategies to Afford 

Small Business Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

A. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

 1. Guidance in Using Small Business Contracting Programs . . . . . . . . . . . . 280

 2. Guidance with Contract Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

B. Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287

 1. Guidance in Using Small Business Contracting Programs . . . . . . . . . . . . 287

 2. Guidance with Contract Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . 289

C. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292

 1. Guidance in Using Small Business Contracting Programs . . . . . . . . . . . . 292

 2. Guidance with Contract Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . 296

III. The Ability of Small Business to Compete in the Multiple Award 

Contracting Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

A. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

 1. Competition for Multiple Award Contracts . . . . . . . . . . . . . . . . . . . . . . . . 299

 2. Competition for Task Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300

B. Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302

 1. Competition for Multiple Award Contracts . . . . . . . . . . . . . . . . . . . . . . . . 302

 2. Competition for Task Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303

C. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306

 1. Competition for Multiple Award Contracts . . . . . . . . . . . . . . . . . . . . . . . . 306

 2. Competition for Task Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306

CHAPTER 4

Small Business
274

Appendices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

Appendix A: 2005 Small Business Goal Achievements 

by Major Federal Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

Appendix B: Summary of Small Business Subcontracting 

Requirements and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317
275

Chapter 4 – Small Business Findings and Recommendations

Findings Recommendations

Finding: Contracting officers need definitive 

guidance on the priority for applying the various small business contracting preferences to 

particular acquisitions.

Finding: Contracting officers need explicit 

guidance on how to exercise their discretion 

in selecting the appropriate small business 

contracting method for a procurement.

Finding: The current practice of cascading 

procurements fails to balance adequately the 

government’s interest in quick contracting with 

the requirement to provide maximum practicable small business contracting opportunities.

1. Guidance in Using Small Business 

Contracting Programs

(a) Recommendation: Amend the Small 

Business Act to provide consistent statutory 

language governing the applicability of the 

various small business preference programs.

(b) Recommendation: Provide guidance 

clarifying that contracting officer discretion in 

selecting small business contracting methods should be based on small business goal 

achievements and market research.

(c) Recommendation: Amend governing statutes and regulations to expressly preclude cascading procurements as an acquisition strategy.

Finding: The contracting community does 

not properly apply and follow the governing 

contract bundling definition and requirements 

in planning acquisitions.

Finding; Agency officials need targeted training to better acquaint them with the requirements and benefits of contracting with 

small businesses. 

2. Guidance with Contract Consolidation

(a) Recommendation: OFPP create an interagency task force to develop best practices 

and strategies to unbundle contracts and 

mitigate the effects of contract bundling.

(b) Recommendation: OFPP coordinate the 

development of a government-wide training 

module on small business contracting and 

subcontracting with small businesses.

Finding: The strategy of reserving prime 

contract awards for small businesses in full 

and open multiple award procurements may 

be effective in providing small business prime 

contracting opportunities.

3. Competition for Multiple Award Contracts

Recommendation: Provide express statutory 

authorization for small business reservations of 

prime contract awards in full and open multiple 

award procurements that are not suitable for 

competition exclusively by small businesses.

Finding: The contracting community needs 

explicit guidance on utilizing small business 

reservations for orders against multiple award 

IDIQ contracts.

4. Competition for Task Orders [under Multiple Award Contracts)

Recommendation: Provide a statutory and 

regulatory amendment granting agencies 

explicit discretion to limit competition for 

orders to small businesses.
276

I. Introduction

Small businesses have been long recognized as one of the Nation’s most valuable 

economic resources. As reflected in Table 1, small businesses participate in all major 

U.S. industries. Indeed, studies commissioned by the U.S. Small Business Administration (“SBA”) Office of Advocacy reveal that small businesses represent 99.7 percent of all 

employers and employ about half of all private sector employees.

1

 The Office of Advocacy 

studies further show that small businesses pay 44.3 percent of the total U.S. private payroll 

and have generated 60 to 80 percent of net new jobs annually.

2

 In addition, small businesses employ 39 percent of high tech workers (such as scientists, engineers, and computer 

workers) and produce 13 to 14 times more patents per employee than large firms.

Recognizing the vital role of small businesses in the U.S. economy, both the Legislative and Executive Branches have emphasized small business contracting as a fundamental 

socioeconomic goal underlying federal procurement policy. In Section 8(d) of the Small 

Business Act, for example, Congress explicitly declares that “[i]t is the policy of the United 

States that small business concerns . . . shall have the maximum practicable opportunity 

to participate in the performance of contracts let by any federal agency, including contracts 

and subcontracts for subsystems, assemblies, components, and related services for major 

systems.”3

 To effectuate that policy, Congress established a government-wide small business contracting goal of not less than 23 percent of the total value of all federal prime contract awards each fiscal year.

4

 Congress further established separate contracting goals for the 

various categories of small businesses, including a five percent goal for small disadvantaged 

businesses (“SDBs”); a five percent goal for Woman Owned Small Businesses (“WOSBs”); 

a three percent goal for HUBZone (Small Business Concerns (“SBCs”); and a three percent 

goal for Service Disabled Veteran Owned (“SDVO”) small businesses.

5

The Executive Branch also has consistently acknowledged the government’s fundamental interest in supporting small businesses through federal contracting. The current 

Small Business Agenda, which President George W. Bush unveiled in March 2002, outlines specific proposals to improve the access of small businesses to federal contracts.

6

As part of that Agenda, the President reiterated that small businesses are the heart of the 

American economy and that the contracting process should be fair and open to these businesses. More recently, President Bush issued an Executive Order designed to strengthen 

and increase contracting opportunities for SDVO small businesses.

7

 In that October 20, 

2004 Order, President Bush charged agencies with responsibility for developing strategies 

1

 See U.S. Small Bus. Admin., Frequently Asked Questions: Academic Research on Small Businesses (How 

important are small businesses to the U.S. economy?), available at http://app1.sba.gov/faqs/faqindex.

cfm?areaID=24 (last visited Aug. 31, 2005).

2 Id.

3 15 U.S.C. § 637(d). As the basis for the government’s small business contracting policy, Section 

3(a) of the Small Business Act explains that encouraging and developing the capacity of small business is 

critical to promoting the country’s economic well being and national security. 15 U.S.C. § 631(a).

4 15 U.S.C. § 644(g)(1).

5 Id.

6 President Bush’s Small Business Agenda is available on the official White House web site at http://

www.whitehouse.gov/infocus/smallbusiness/agenda.html (last visited Aug. 31, 2005). 7

 See “Executive Order: Service-Disabled Veterans Executive Order,” http://www.whitehouse.gov/news/

releases/2004/10/20041021-5.html (last visited Aug. 31, 2005).
277

to reserve contracts exclusively for SDVO small businesses and to encourage their participation in competitive contract awards.

Consistent with the national policy to maximize small business participation in procurements, the total small business share of federal contracting dollars has continued to 

grow in recent years. FPDS-NG reports that in Fiscal Year (“FY”) 2005, small businesses 

received a record $79.6 billion in federal prime contracts.

8

 Those dollars represent 25.4 

percent of the total $314 billion of federal prime contracting dollars awarded in FY 2005, 

as adjusted for goaling purposes.

9

 A list of the percent of small business contracting dollars for FY 2005, by major federal department and small business category is provided at 

Appendix A.

As reflected in Figure 1 below, many of the small business categories experienced a 

steady climb in the amount of prime contracting dollars in recent years. For example, the 

prime contracting dollars awarded to WOSBs increased by $814.6 million to a record $9.1 

billion. That represents about three percent of the total federal prime contracting dollars, up from 2.98 and 2.9 percent in FY 2003 and 2002, respectively. Likewise, HUBZone 

and SDVO SBCs received a record amount of contracting dollars in FY 2004. In particular, 

HUBZone SBC dollars increased by 40 percent, to $4.78 billion. Also in FY 2004, SDVO 

SBC dollars more than doubled, reaching $1.15 billion, up from $550 million in FY 2003.

Despite the increase in contracting dollars to WOSBs, HUBZone and SDVO SBCs, however, 

agencies have never achieved the statutory goals for any of those three categories of small 

businesses. In addition, even in the SDB category where the government has exceeded the 

government-wide statutory goal of five percent, the total dollars to SDBs decreased from 

7.01 percent in FY 2003, to 6.18 percent in FY 2004.

8 The complete Small Business Goaling Report is available at http://www.sba.gov/GC/goals/GoalingReport-08-21-2005.pdf.

9

 As explained in SBA’s Goaling Guidelines, the baseline for the total value of prime contract awards 

used to determine small business goal achievements excludes several categories of procurements that are 

not covered under the goaling program. Among the exclusions are procurements using non-appropriated 

funds; procurements using mandatory sources such as the Javits-Wagner-O’Day (“JWOD”) Act (41 U.S.C.

46-48c) participating nonprofit agencies; contracts for foreign governments or international organizations; 

and contracts not subject to the Federal Acquisition Regulation (“FAR”). See Goaling Guidelines for the Small 

Business Preference Programs, available at http://www.sba.gov/GC/goals/ggtotal71503.pdf (last visited on 

Nov. 10, 2005).
278

Figure 1: Small Business Percent 

of Total Federal Prime Contracting Dollars10

FY 2002–2004

As discussed in greater detail later in this chapter, the small business goal achievements 

on multiple award multi-agency contracting vehicles also has been mixed. The small business share of awards against GSA’s Federal Supply Schedule (“FSS” or “Schedule”) has been 

among the most significant, representing about 80 percent of the Schedule contract awards 

and 37.6 percent, or $13.2 billion, of FSS sales in FY 2006.

11

Taken together, federal agencies have made significant progress in expanding small 

business contracting. However, although the government has achieved the overall small 

business goal of not less than 23 percent of the total value of prime contract awards, agencies have fallen short of the statutory goals for the small business subcategories of WOSBs, 

HUBZone and SDVO SBCs.

A. Statement of Issues

In reviewing small business issues, the Panel focused on five general areas of consideration: commercial practices, performance-based service acquisitions, interagency contracts, 

workforce, and inherently governmental functions. The Panel identified two primary issues 

relating to interagency contracting, commercial practices and workforce.

First, the Panel analyzed the extent to which federal services acquisition strategies are 

structured to afford small business participation on the prime contracting level. Specifically, in light of the varied small business goal achievements, the Panel reviewed existing 

laws, regulations and policies to ensure that there is adequate guidance in selecting specific 

10 From FPDS Annual Reports, https://www.fpds.gov.

11 GSA Data, Contractors Report of Sales – Schedule Sales FY2006 Final (Oct. 24, 2006) (on file with GSA).

SB% SDB% 8(A) SDB% Non 8(a) 

SDB% HZ% WOSB% SDVOSB%

22.62 6.75 2.39 4.36 0.07 2.9 0.56

23.61

23.08

7.01

6.18

3.64

2.81

3.37

3.36

1.23

1.59

2.98

3.03

0.2

0.38

FY 02

FY 03

FY 04

25

20

15

10

5

0

FIGURE 1: Small Business Percent of Total 

Federal Prime Contracting Dollars FY 2002–2004
279

small business contracting mechanisms and appropriate interagency contracting vehicles 

to facilitate small business goal achievements. The Panel further analyzed the laws and 

policies governing the process for defining requirements. The Panel’s primary objective in 

this regard was to identify effective incentives and acquisition planning tools to encourage 

small business contracting in the face of a shrinking acquisition workforce and the recent 

initiative to leverage spending through strategic sourcing.

Second, the Panel examined the adequacy of guidance for utilizing small business contracting methods against multiple award task order contracts, including governmentwide 

agency contracts (“GWACs”) and the GSA schedules. The Panel’s underlying objective in 

this second area was to identify salient policies and practices that may be used to build on 

successful small business goal achievements, particularly in the context of commercial item 

buys from GSA’s Schedules. Further, the Panel sought strategies to promote small business 

contracting opportunities, without compromising the overarching goals of contracting 

integrity, competition and efficiency.

The Panel initially explored possible issues regarding compliance in small business 

subcontracting, as a result of early public statements recommending reforms in this area.

However, the Panel concluded that more accurate and reliable data is necessary to fully 

analyze small business subcontracting issues. The government recently launched a new 

electronic Subcontracting Reporting System (“eSRS”), which is designed to create higher 

visibility and transparency in the collection of federal subcontracting data and accomplishments. Once this web-based reporting tool is fully operational, it will provide more accurate and timely data, as well as analytical tools to permit a comprehensive examination of 

small business subcontracting activity. A summary of the relevant subcontracting requirements and eSRS reporting capabilities is provided at Appendix B to this chapter.

Further, the Panel recognized as a threshold matter that although there are many 

small business contracting issues of substantial importance to the federal procurement 

community, time and resources constraints would not permit examination of every issue.

Notable examples involve issues relating to small business size standards. The issue of 

small business recertification on multiple award contracts, for example, has garnered significant attention in recent years.

12 The Panel is aware that SBA has recently promulgated 

final regulatory amendments.

13

Likewise, the Panel also acknowledged the fundamental need for reforms to the system 

for defining and applying the size status of a business concern. Since SBA has already published an Advance Notice of Proposed Rulemaking (“ANPRM”) to simplify and restructure 

small business size standards,14 that issue was viewed as not appropriate for consideration 

here. Nonetheless, the Panel expresses its full support of SBA’s effort to simplify small business size standards.

12 See, e.g., U.S. GAO, Contract Management: Reporting of Small Business Contract Awards Does Not Reflect 

Current Business Size, GAO-03-704T (May 7, 2003).

13 See 70 Fed. Reg. 2976 (January 19, 2005). 

14 SBA published the ANPRM on December 3, 2004. It requested public input on how best to simplify 

and restructure small business size standards. 69 Fed. Reg. 70197 (Dec. 3, 2004). The ANPRM comment 

period was extended to April 3, 2005. SBA received more than 6,100 comments. In June 2005, SBA also 

conducted public hearings in 11 locations across the country to provide interested parties an opportunity 

to meet with SBA officials and discuss their views on the issues. See 70 Fed. Reg. 25133 (May 12, 2005)

(discussing the purpose, location and format of the scheduled hearings).
280

B. Methodology 

To analyze the two major issue areas, the Panel reviewed the relevant statutes, regulations and policies. It also analyzed available data from FPDS-NG, Inspector General and 

Government Accountability Office (“GAO”) reports, and Comptroller General bid protest 

decisions. In addition, the Panel reviewed records of various congressional hearings and 

interviewed procurement experts from both industry and the public sector to obtain information on best practices. Significantly, the Panel took into account public comments submitted to the Panel including those presented during the Panel’s public meetings held in 

Washington, DC, Texas and California.

This chapter describes the Panel’s findings and accompanying recommendations based 

on its analysis of the extensive information reviewed. The chapter has two main sections corresponding to each of the two general areas of consideration. Each section begins with a discussion of the relevant legal background and is followed by an analysis of the Panel’s findings and 

the supporting documentation. Each section then concludes with specific recommendations, 

including any necessary proposed line-in/line-out statutory and regulatory amendments.

II. The Process of Structuring Acquisition 

Strategies to Afford Small Business Participation

A. Background

The performance of acquisition functions generally cuts across different agency lines of 

responsibility. Thus, for example (and as discussed elsewhere in this Report), the contracting community must balance the need for quick and efficient contracting (especially in 

light of current workforce issues and the emphasis on strategic sourcing) with the achievement of socioeconomic, or small business, goals. Consequently, the Panel studied this balance with respect to two aspects of acquisition planning – guidance in using the various 

small business contracting programs and guidance in promoting small business participation in consolidated contracts.

1. Guidance in Using Small Business Contracting Programs

The Small Business Act (“ACT”) sets forth several specific contracting or business 

assistance programs, which include the 8(a) BD,15 HUBZone,16 SDVOSB17 and WOSB18

programs. These programs provide contracting preferences, either through a sole source or 

15 15 U.S.C. § 637(a) (if the SBA certifies to any officer of the government having procurement powers 

that there is a competent and responsible 8(a) Participant which can perform a specific government 

contract, the officer shall be authorized in his discretion to let such procurement contract). Section 8(a) 

awards can be made pursuant to competition restricted to 8(a) concerns, or on a sole source basis. Id.

§ 637(a)(1)(D) & (a)(1)(B).

16 15 U.S.C. § 657a(b)(2) (the statute provides that “[n]otwithstanding any other provision of law” ...

“a contract opportunity shall be awarded pursuant to this section on the basis of competition restricted to 

qualified HUBZone small business concerns....” and allows the contracting officer (“CO”) to make sole 

source awards to responsible HUBZone SBCs in limited situations).

17 15 U.S.C. § 657f(a) & (b) (permits agencies to award sole source and set aside contracts to SDVO 

SBCs when certain conditions are met).

18 15 U.S.C. § 637(m) (permits agencies to restrict competition to WOSBs in industries in which 

WOSBs are underrepresented).
281

reserve (set aside) award, or through use of a price evaluation preference, to eligible small 

businesses in federal contracting. The Act also sets forth requirements for reserving acquisitions for small businesses, depending on the dollar value of the procurement.

19 The government collects data on the number of contracts and the amount of contract dollars each of 

these small businesses receive from the different agencies.

20 The government uses this data 

to determine whether or not the agency is meeting its small business goals.

21

The SBA has attempted to reconcile the Act’s various programs, including the various 

set-aside and sole source provisions, in its regulations.

22 For example, the regulations provide discretion to the contracting officer by stating that the contracting officer should consider setting aside the SBA’s requirement for 8(a), HUBZone, or SDVO SBC participation 

before considering setting aside the requirement as a small business set-aside.

23

The FAR has also attempted to reconcile the various programs through its regulations.

24

For example, the FAR provides that before deciding to set aside an acquisition for SBCs, HUBZone SBCs, or SDVO SBCs, the contracting officer should review the acquisition for offering 

under the 8(a) program.

25 According to the FAR, if the acquisition is offered to the SBA, SBA 

regulations give first priority to HUBZone 8(a) concerns.

26 As noted above, this regulation 

now conflicts with the SBA’s regulations and leaves less discretion to the contracting officer.

The courts and GAO also have attempted to address the preferences within the Small 

Business Act and interpret the implementing regulations. In Contract Management, Inc. v. 

Rumsfeld, the court ruled that “the SBA and FAR regulations pertaining to the HUBZone 

program sufficiently promote the congressional objective of parity between the HUBZone 

and 8(a) programs.”27 In USA Fabrics, Inc., the protester challenged an agency’s decision 

19 15 U.S.C. §§ 644(a) & 644(j). The Act provides that contracts for the purchase of goods and services 

valued greater than $2,500 but not greater than $100,000 shall be reserved exclusively for SBCs unless 

there are less than two SBCs that will submit a competitive offer. Id. § 644(j)(1). In general, the Small 

Business Act also requires a fair proportion of contracts be let to SBCs. Id. § 644(a).

20 See FPDS-NG, https://www.fpds.gov, annual Federal Procurement Reports.

21 These goals are summarized as follows: SBCs-23%; SDBs-5%; WOSBs-5%; HUBZone–3%; 

and SDVO SBCs–3%. 15 U.S.C. § 644(g)(1). Because these statutory goals are government-wide, the 

percentages are based on the aggregate of all federal procurement. The Act also requires that each federal 

department and agency have an annual goal that presents, for that agency, the maximum practicable 

opportunity for SBCs. Id. This agency goal is separate from the government-wide goal.

22 The SBA implements its statutory programs in its regulations as follows: 8(a) BD, 13 C.F.R. pt. 124; 

SDB, 13 C.F.R. pt. 124; HUBZone, 13 C.F.R. pt. 126; and SDVO, 13 C.F.R. pt. 125. The SBA has not yet 

issued regulations implementing the WOSB program.

23 13 C.F.R. §§ 124.503(j), 125.19(b), & 126.607(b).

24 The FAR states that CO’s must set aside acquisitions exceeding the simplified acquisition threshold 

for competition restricted to HUBZone SBCs and must consider HUBZone set-asides before considering 

HUBZone sole source awards or small business set-asides. 48 C.F.R. § 19.1305(a). Further, the FAR 

provides that a CO shall set aside any acquisition over $100,000 for small business participation when 

there is a reasonable expectation that offers will be obtained from at least two responsible SBCs offering 

the products or services of different SBCs. Id. at § 19.502-2(b). Further, the FAR provides that the 

contracting officer may set-aside acquisitions exceeding the micro-purchase threshold for competition 

restricted to SDVO SBCs and shall consider service-disabled veteran-owned small business set-asides 

before considering SDVO SBC sole source awards. Id. § 19.1405(a).

25 48 C.F.R. § 19.800(e).

26 48 C.F.R. § 19.800(e). This is no longer true. The SBA amended its regulations to provide that “...

the contracting officer shall set aside the requirement for HUBZone, 8(a) or SDVO SBC contracting before 

setting aside the requirement as a small business set-aside.” 13 C.F.R. § 126.607(b).

27 Contract Mgmt., Inc. v. Rumsfeld, 291 F. Supp. 2d 1166, 1177 (D. Hawaii 2003); aff’d 434 F.3d 1145

(9th Cir. 2006).
282

to set aside the acquisition for SBCs and not to set aside the procurement for HUBZone 

SBCs.

28 The GAO ruled that the agency failed to conduct adequate market research to determine whether at least two HUBZone SBCs could submit an offer at fair market price and 

sustained the protest.

29

In an attempt to address the agency’s socioeconomic goals and need to quickly and 

efficiently conduct a procurement, some agencies are using “cascading” procurements.30 In 

other words, the agency will issue a solicitation that is open to 8(a), HUBZone, SDVO SBCs 

and other than SBCs and set a cascading order of priority in the solicitation.

31 The GAO has 

stated that it has no basis to object to the scheme since it has the effect of increasing the 

opportunity for SBCs under an otherwise unrestricted solicitation.

32 Currently, there is no 

statute or regulation that precludes a cascading procurement, and only recently has there 

been a statutory provision providing guidance on its use.

33 This has caused some problems 

with carrying out the acquisition.

34

Some businesses believe that cascading procurements allow the procuring agency to 

avoid performing the requisite market research and selecting its acquisition strategy at 

the outset of the acquisition at the expense of the needless expenditure of company bid 

and proposal costs – “a portion [of which] . . . are ultimately borne by the federal government.”35 At least one procurement official acknowledged that agencies appear to be using 

28 USA Fabrics, Inc., B-295737; B-295737.2, 2005 CPD ¶ 82 (Apr. 19, 2005).

29 Id.

30 See Carriage Abstract, Inc. B-290676 et al, 2002 CPD ¶ 148 (Aug. 15, 2002). In that protest, the GAO 

stated that although an agency may review a large business proposal submitted under a cascading set 

aside preference, the agency is not required to do so. GAO also stated it found no reason to question the 

use of cascading set aside preference provisions previously used by HUD. HUD argued that the approach 

promotes the interests of small business concerns and provides the agency with an efficient means to 

continue the procurement in the event that sufficient small business participation is not realized.

31 For example, the solicitation might state that the agency will first issue an award to an 8(a) BD 

concern, but if an award cannot be made to such a concern, it will issue an award to a HUBZone SBC, etc.

32 Carriage Abstract, Inc., supra. We note, however, that the GAO has not technically addressed whether 

such procurements are in accordance with the law since the GAO has only addressed this issue post award.

Also, agencies are using similar types of cascading procurements to address the Act’s preference programs 

as well as other programs, such as the Randolph-Sheppard Act (RSA). In Automated Commc’n Sys., Inc. v. 

United States, 49 Fed. Cl. 570, 578 (2001), the court ruled that the HUBZone price evaluation preference 

and the preference to certain blind persons licensed by a State agency pursuant to the RSA can be given its 

due and that the agency could issue the solicitation as a full and open competition and if the blind vendor 

submits a bid and the CO decides to conduct negotiations with that vendor, the RSA preference takes 

priority; if the blind vendor does not receive the contract award, the HUBZone SBCs receive the benefit 

of the price evaluation preference. See also Intermark, Inc., B-290925, 2002 CPD ¶ 180 (Oct. 23, 2002) 

(the GAO stated that the solicitation could contain a set of cascading preferences or priorities whereby 

competition is limited to SBCs and blind vendors).

33 See National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163, § 816, 119 Stat.

3382. Prior to this statute, there was no statutory or regulatory guidance. See Urban Group, Inc.; McSwain & 

Assocs., Inc., B-281352, B-281353, Jan. 28, 1999, 99-1 CPD ¶ 25 at 7.

34 Greenleaf Constr. Co. v. U.S., 67 Fed. Cl. 350 (2005). In Greenleaf, HUD had issued a cascading 

procurement. The initial competitive range offerors were SBCs. Later, however, one offeror was found to 

be other than small and another was found to be technically noncompetitive. Because this left only one 

offeror, the CO cascaded the procurement to the unrestricted category. The court ruled that HUD had 

adequate competition at the small business tier and the fact that only one SBC offeror remained in the 

competitive range did not compel a cascade to the unrestricted tier.

35 Prepared statement of Steve Ayers, SAIC, AAP Pub. Meeting (July 27, 2005) 2 (available at http://

acquisition.gov/comp/aap/documents/SAIC%20Prepared%20Statement%2007%2027%2005.pdf.) (and 

on file with the Panel).
283

cascading procurements at the end of the fiscal year, when fiscal year money is about to 

expire and “time to re-solicit is not available.”36 In addition, businesses must spend time 

and money preparing bids or proposals and yet, their bid or proposal may never be considered by the procuring agency.

37 

In sum, the Panel analyzed the myriad of different laws providing for preferences to 

SBCs to determine whether the contracting community has adequate guidance in deciding 

which preference is applicable to a particular procurement.

38 If not, this can create a burden (in time and administration, and cost if there is a subsequent protest) on the procuring agency. As a subset of this issue, the Panel reviewed a current, creative contracting practice—cascading procurements—to see if it addresses the agency’s socioeconomic requirements while at the same time providing an efficient contracting mechanism.

2. Guidance with Contract Consolidation

Contract bundling and consolidation are not new. For several years now, agencies have 

been consolidating contracts to streamline the procurement process, reduce administrative 

efforts and costs, and leverage their buying power.

39 Further, contract consolidation may 

be necessary if an agency is interested in strategic sourcing – which is the leveraging of an 

agency’s spending power to the maximum extent possible by acquiring commodities and 

services more effectively and efficiently.

40

However, the President, in his Small Business Agenda,41 and Congress have expressed 

concern about contract consolidation or bundling.

42 Thus, there are specific statutory 

provisions defining and addressing bundling.

43 Both the SBA and the FAR have further 

defined these bundling provisions in regulations.

44 Recently, the SBA and the FAR Council 

36 Test. of Paul Stone, U.S. SBA, AAP Pub. Meeting (May 23, 2005) Tr. at 194.

37 Ayers Statement at 2.

38 We note that in addition to the small business preferences set forth in the Small Business Act, there 

are several statutes that provide contracting preferences to other types of entities. This includes preferences 

for products and services of the Federal Prison Industries, 18 U.S.C. § 4124, preferences for supplies 

and services of certain nonprofit agencies employing people who are blind or who have other severe 

disabilities, 41 U.S.C. § 47(d)(2)(A), and a preference for the operation of vending facilities on federal 

property to blind persons licensed by a State agency, 20 U.S.C. § 107 (the RSA). We believe that it would 

be best to first address any problems associated with guidance in using the statutory preferences set forth 

in the Act before tackling the larger issue of guidance for the Act’s preference programs in conjunction 

with the ones set forth above.

39 U.S. GAO, GAO-04-454, Contract Management: Impact of Strategy to Mitigate Effects of Contract 

Bundling on Small Business is Uncertain, at 4 (May 2004).

40 Office of Management and Budget, Memorandum on Implementing Strategic Sourcing from Clay 

Johnson III, Deputy Director for Management to the Chief Acquisition Officers, Chief Financial Officers, 

Chief Information Officers, (May 20, 2005), available at http://www.whitehouse.gov/omb/procurement/ 

comp_src/implementing_strategic_sourcing.pdf (last visited on Oct. 26, 2005). The OMB explains that 

strategic sourcing will ultimately help agencies optimize performance, minimize price and increase 

achievement of socio-economic goals, among other things. Id.

41 President Bush’s Small Business Agenda is available on the official White House web site at http://

www.whitehouse.gov/infocus/smallbusiness/agenda.html (last visited on Aug. 31, 2005).

42 See 15 U.S.C. § 631(j); see also S. Rep. No. 105-62, at 21 (1997) (“Often bundling results in contracts 

of a size or geographic dispersion that small businesses cannot compete for or obtain. As a result, the 

government can experience a dramatic reduction in the number of offerors. This practice, intended 

to reduce short term administrative costs, can result in a monopolistic environment with a few large 

businesses controlling the market supply”).

43 15 U.S.C. §§ 632(o), 644(a) & 644(e).

44 See 13 C.F.R. § 125.2, 48 C.F.R. §§ 2.101, 7.104(d)(2)(i), 7.107 and subparts 19.2, 19.4.
284

amended their regulations to address interagency contract vehicles and bundling.

45 Specifically, these regulations state that orders placed against an FSS contract or multiple award 

indefinite delivery indefinite quantity (IDIQ) contract awarded by another agency must 

comply with all requirements for a bundled contract when the order meets the definition 

of “bundled contract.”46 

Bundling, as defined by the Small Business Act, is not per se prohibited. The statute 

allows an agency to bundle its requirements, if the agency has performed sufficient market 

research and has justified the bundled action.

47 In sum, a bundled procurement is justified 

if the agency will derive measurably substantial benefits as a result of consolidating the 

requirements into one large contract.

48 This is true even if the acquisition involves “substantial bundling.”49 

The Act requires all agencies to provide SBA’s Procurement Center Representative 

(PCR) with a copy of the solicitation when the procurement renders small business prime 

contractor participation unlikely and the statement of work includes goods or services currently being performed by SBCs.

50 If the bundling is justified, the PCR will work with the 

procuring activity to preserve small business prime and subcontract participation to the 

maximum extent practicable.

51 If the requirement involves “substantial bundling,” the 

agency is required to specify actions designed to maximize small business participation as subcontractors at various tiers under the contract.52 

Sometimes, the agency is amenable to the SBA’s suggestions to promote small business participation in a bundled procurement.

53 Other times, the agency itself attempts to 

45 48 C.F.R. §§ 2.101, 8.404(c)(2), 16.505(a)(7)(iii); 13 C.F.R. § 125.2(d)(1)(iii).

46 48 C.F.R. § 8.404(c)(2); see also 48 C.F.R. § 16.505(a)(7)(iii); 13 C.F.R. § 125.2(d)(1)(iii); 

Sigmatech, Inc., B-296401 (Aug. 10, 2005) (GAO sustained a protest challenging the bundling of system 

engineering and support services with other requirements under a single-award BPA issued under 

awardee’s FSS contract).

47 The Small Business Act requires the agency to perform certain “market research to determine 

whether consolidation of the requirements is necessary and justified” before proceeding with a 

bundled acquisition strategy. 15 U.S.C. § 644(e)(2)(A); see also 13 C.F.R. § 125.2(d)(3); 48 C.F.R. § 

10.001(a)(3)(vi).

48 15 U.S.C. § 644(e)(2)(B); see also 13 C.F.R. § 125.2(d)(5)(i); 48 C.F.R. § 7.107(a).

49 13 C.F.R. § 125.2(d)(7); 48 C.F.R. § 7.107(e). Substantial bundling is $7.5 million or more for the 

Department of Defense; $5.5 million or more for the National Aeronautics and Space Administration, 

the General Services Administration and the Department of Energy; and $2 million or more for all other 

agencies. 13 C.F.R. § 125.2(b)(2)(i); 48 C.F.R. § 7.104(d)(2)(i).

50 15 U.S.C. § 644(a); see also 13 C.F.R. § 125.2(b)(3); 48 C.F.R. § 19.202-1(e).

51 See 15 U.S.C. §§ 644(a) (create procurement that encourages small business prime participation); 15 

U.S.C. § 644(e) (To the maximum extent practicable, procurement strategies used by the various agencies 

having contracting authority shall facilitate the maximum participation of small business concerns 

as prime contracts, subcontractors, and suppliers); 15 U.S.C. § 644(e)(3) (maximize small business 

participation at the subcontract levels).

52 15 U.S.C. § 644(e)(3); see also 13 C.F.R. § 125.2(d)(7), 48 C.F.R. § 7.107(e). 53 See e.g. B.H. Aircraft Company, Inc., B-295399.2 (July 25, 2005) (SBA agreed to the bundling with 

certain conditions, intended to promote and preserve small business participation for these parts, and 

which were memorialized in writing between the SBA and DLA).
285

mitigate the impact.

54 For example, in Phoenix Scientific Corporation, the Air Force issued 

a multiple award IDIQ task order supply and support contract for maintenance of the 

agency’s weapons systems.

55 All offerors, including SBCs, could compete for four unrestricted awards.

56 After that selection process, the Air Force would consider any previously 

unselected SBCs for the award of two contracts reserved for SBCs.

57 At least 15 percent 

of the total value of all task orders would be awarded to SBCs as prime contractors and 

the large business primes would be required to subcontract a minimum of 23 percent of 

the total value of their task orders to SBCs.

58 The GAO ruled that this was not a bundled 

requirement pursuant to the Small Business Act because it was suitable for award to a SBC 

since SBCs would receive at least two awards as prime contractors and would receive a percentage of the task order awards.

59

Similarly, in Teximara, the GAO approved an Air Force acquisition in which the agency 

separated its requirement into two contracts—the Big BOS and the Little BOS.

60 The Air 

Force did not reserve any of the Big BOS for small business participation as prime contractors but reserved the Little BOS for SBCs.

61 The Air Force required a minimum of 25 percent 

small business participation under the Big BOS, encouraged a greater percentage of small 

business participation through the award fee incentive provisions of the RFP, and stated it 

would continue to reserve the performance of approximately $15 million in construction 

and other miscellaneous work for SBCs.

62 The GAO believed this satisfied the requirement 

to maximize small business participation on the requirement as a whole.

63

Nevertheless, reports issued by the Office of Federal Procurement Policy (“OFPP”) and 

the SBA’s Office of Advocacy indicate that the use of bundled and consolidated contracts 

54 The U.S. Department of Defense’s Office of Small and Disadvantaged Business Utilization 

has prepared a Contract Consolidation Guide, available at http://www.acq.osd.mil/sadbu/news/

contractconsolidation.pdf, which addresses mitigation of consolidated requirements. For example, the 

Guidebook recommends giving evaluation points and greater credit to offerors that have identified small 

business teaming partners, joint ventures, or other small business subcontractors in their proposals, or 

establishing an award fee or other incentive that monetarily rewards contractors for meeting or exceeding 

goals in subcontracting plans. Guidebook at 2-2 through 2-5.

55 Phoenix Scientific Corp., B-286817, 2001 CPD ¶ 24 (Feb. 22, 2001).

56 Id.

57 Id.

58 Id.

59 Id.

60 Teximara, B-293221.2, 2004 CPD ¶ 151 (July 9, 2004).

61 Id.

62 Id.

63 Id.
286

has resulted in a decline of awards to SBCs.

64 These reports also state that contract bundling 

and consolidation have grown with the increased use of interagency contracting vehicles.

65

Further, testimony received demonstrates that there are still SBCs that believe contract consolidation has resulted in a decline in contract awards to SBCs (despite the fact that federal 

purchasing has increased).

66

Meanwhile, other reports concerning contract bundling have commented on the need 

for timely and accurate data on bundling.

67 According to one GAO report, only 4 agencies 

reported a total of 24 bundled contracts in FY 2002 and 16 agencies reported no bundled 

contracts despite FPDS data indicating that there were 928 bundled contracts (of which 33 

percent were awarded to SBCs even though, by definition, a small business is precluded 

from award of a bundled contract).

68 Similarly, a report by the SBA’s Inspector General’s 

(“IG’s”) office reveals that procuring agencies are incorrectly applying the statutory definition of bundling to their requirements or simply failing to notify the SBA of such actions.

69

Specifically, the report stated that officials at two of four agencies contacted did not know 

they were mandated to report all potential bundled contracts.

70 Further, the IG noted three 

64 Office of Federal Procurement Policy, Contract Bundling: A Strategy for Increasing Federal Contracting 

Opportunities for Small Businesses, at 3-4 (Oct. 2002), available at http://www.whitehouse.gov/omb/

procurement/contract_bundling-Oct2002.pdf, citing to Office of Advocacy, U.S. Small Bus. Admin., The 

Impact of Contract Bundling on Small Business FY 1992 – FY 2001, at 5 (Oct. 2002), available at www.sba.

gov/advo/research/rs221tot.pdf (“for every increase of 100 bundled contracts there was a decrease of 

60 contracts to small business; and for every additional $100 awarded on bundled contracts there was 

a decrease of $12 to small business. At a level of $109 billion in FY 2001, bundled contracts cost small 

businesses $13 billion annually. This is making it increasingly difficult for small businesses to compete 

and survive in the federal marketplace.”). We note that the report issued by the Office of Advocacy utilized 

a definition for the term “bundling” different than set forth in statute but nevertheless provides data on a 

“type” of contract consolidation.

65 OFPP has stated that bundling has been “exacerbated by the use of contract vehicles that are not 

uniformly reviewed for contract bundling. Orders under agency multiple award contracts, multi-agency 

contracts, Governmentwide Acquisition Contracts (GWACs) and GSA’s Multiple Award Schedule program 

are not subject to uniform reviews for contract bundling issues.” OFPP, Contract Bundling: A Strategy for 

Increasing Federal Contracting Opportunities for Small Businesses, at 5. According to the report issued by the 

SBA’s Office of Advocacy, there were over 10,000 consolidated orders/modifications issued in FY 1992 - FY 

2001 off the FSS for a total of over $50 million. Office of Advocacy, U.S. Small Bus. Admin., The Impact 

of Contract Bundling on Small Business FY 1992 – FY 2001, at 5, 15, 27 (the most frequently used contract 

vehicles for bundling are GSA Schedules, multiple award contracts, BOAs and IDIQ contracts).

66 See Testimony of William Correa, Paragon Project Resources, AAP Pub. Meeting, (May 23, 2005) Tr. at 

30; see also Testimony of Scott Amey, Project on Government Oversight, AAP Pub. Meeting (May 17, 2005) 

Tr. at 329; written statement of Jorge Lozano, Condortech, to the AAP (July 18, 2006) at 1-2 (available at 

http://acquisition.gov/comp/aap/documents/condortech%20%20Inc%20-2018%20July%2006.pdf and 

on file with the Panel).

67 U.S. GAO, GAO-04-454, Impact of Strategy to Mitigate Effects of Contract Bundling on Small Business 

is Uncertain, at 6; Office of the Inspector General, U.S. Small Bus. Admin., Audit of the Contract Bundling 

Process, No. 5-20 at 8-9; OFPP, Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities 

for Small Businesses, at 8.

68 U.S. GAO, GAO-04-454, Impact of Strategy to Mitigate Effects of Contract Bundling on Small Business 

is Uncertain, at 2. The report takes issue with the data showing that 33% of the bundled contracts were 

awarded to SBCs since, by definition, a small business is precluded from award of a bundled contract. Id.

at 6.

69 SBAIG, Audit of the Contract Bundling Process, No. 5-20 at 4-5 (May 20, 2005).

70 Id. at 5.
287

instances where an agency did not classify a procurement as bundled, but the SBA Procurement Center Representative (“PCR”) did.

71

As evidenced from the above, the Panel studied current practices, law and available 

data to identify issues the contracting community faces with respect to defining requirements and particularly with respect to the practice of consolidating requirements. Specifically, the Panel considered whether the contracting community has adequate guidance in 

promoting the use of small businesses when consolidating requirements.

B. Findings 

1. Guidance in Using Small Business Contracting Programs

Based upon the Panel’s review of governing laws, policies, practices, available data, testimony, and court and administrative board decisions, the Panel has made several findings concerning the structuring of acquisition strategies to afford adequate small business participation.

The Panel made specific findings concerning the adequacy of guidance in selecting 

among the myriad of small business contracting mechanisms. The Panel determined that 

the contracting community needs better guidance in deciding which small business preference is applicable to an acquisition. This guidance should provide contracting officials with 

some flexibility to enable agencies to meet their small business goals. Further, the contracting community needs further training on the “newer” small business programs, as well 

as the use of all of SBA’s small business programs. Finally, cascading procurements curtail 

competition by SBCs who may not want to spend the time and money to submit a proposal that may never be evaluated. The specifics for each finding is set forth below.

First, the Panel determined that contracting officers need definitive guidance on the 

priority for applying the various small business contracting preferences to specific acquisitions. There are at least five small business “programs” – 8(a) BD, HUBZone, SDVO, WOSB 

and SBC – that contracting officials must consider during acquisition planning. Each program has its own statutory and regulatory requirements that provide guidance on its use.

For example, the Small Business Act’s provisions on the HUBZone program appear to provide a priority for HUBZone SBCs over all other SBCs, including 8(a) BD and SDVO SBCs.

Meanwhile, the statutory provisions regarding the 8(a) BD, SDVO and WOSB programs 

provide discretion to the contracting officer on the utilization of such programs. Both the 

SBA and the FAR Council have attempted to interpret these statutory provisions and have 

implemented such interpretations in different sections of the Code of Federal Regulations 

(13 C.F.R. parts 124, 125 and 126 for the SBA and 48 C.F.R. parts 19.5, 19.8, 19.13, and 

19.14 for the FAR). In general, the SBA’s regulations provide for parity among most of the 

programs and give discretion to the contracting officer by stating that the contracting officer should consider setting aside the requirement for 8(a), HUBZone, or SDVO SBC participation before considering setting aside the requirement as a small business set aside. The 

FAR provides some discretion to contracting officers; however, it currently conflicts with the 

SBA’s regulations.

In a time when the federal workforce is shrinking, but federal spending is increasing, agency officials do not have the time to research multiple statutory and regulatory 

71 Id.
288

directions to reconcile the use of the SBA’s small business programs. Thus, it is clear 

that the contracting community needs better guidance in deciding which preference is 

applicable to an acquisition. In addition, this guidance must be clear and concise, and 

if set forth in different regulations, consistent.

Second, the Panel finds that contracting officers need explicit guidance on how to exercise their discretion and flexibility in selecting the appropriate small business contracting 

method for a procurement. Agencies must meet the statutory government-wide goals, as 

well as the agency established goals, for all of the small business programs. An agency will 

have difficulty meeting its small business goals if any one small business program takes a 

priority over the others. As an example, testimony received from a small business reveals 

that if a priority is given to one “group” over another, it effectively eliminates the one 

“group” from competition for those products or services.

72

Further, according to FPDS data, in FY 2004 many agencies exceeded their small business goals and met or exceeded their 8(a) goals.

73 On the other hand, most agencies made a 

dismal number of awards to HUBZone and SDVO SBCs.

74 For example, in FY 2004, the DoD 

awarded 22 percent of its contracts to small businesses, but only 1.479 percent to HUBZone 

SBCs and .327 percent to SDVO SBCs.

75 It is clear from FPDS data that many contracting 

officials should be considering whether their acquisitions are suitable for award to HUBZone 

or SDVO SBCs as a result of their goals, rather than focusing on an established hierarchy of 

small business programs. Thus, the guidance must give the contracting officer discretion in 

utilizing the various programs, based upon the goals and needs of the agency. 

The Panel notes that the agencies must use the FPDS-NG in real time to assess whether 

or not the agencies are meeting their goals. The government uses FPDS-NG to collect data 

on the number of contracts and the amount of contract dollars each of the SBA’s small 

business programs receives from the different agencies. In the past, this data was used to 

evaluate the agency’s goal achievement in the prior fiscal year. Now, with the new FPDSNG, agencies have near real time information on their contracting actions.

76 Thus, the 

agencies can use this database to determine their goal achievement on a daily basis, rather 

than at the end of the fiscal year. This will enable agencies to determine which small business programs are being underutilized.

Third, the Panel finds that the current practice of cascading procurements fails to balance adequately the need for quick contracting with the requirement to provide maximum 

practicable opportunities to SBCs. If the agency structures the procurement to review 8(a) 

72 Testimony of Mark Toteff, Traverse Bay Manufacturing, AAP Pub. Meeting (Sept. 27, 2005) Tr. at 187 

(“Because of some of the rules and regulations under one of the JWOD programs, we just seemed to never 

get the opportunity to bid on them, and the opportunity that we did have when we were a subcontractor, 

it worked very well, but because of some rules and regulations that we’re really not accustomed to, don’t 

know a lot about, we are no longer able to assist in manufacturing.”).

73 See FPDS-NG Small Business Goaling Report FY 2004, http://www.sba.gov/GC/goals/GoalingReport-08-21-2005.pdf

74 Id.

75 Id.

76 According to FPDS Next Generation, generally, the contract data is available to the public when 

the contract is awarded to the vendor and thus the information is now available in “almost” real-time.

FPDS-NG Report Suite Information, http://www.fpds-ng.com/public_welcome_text.html. Prior to FPDS 

Next Generation, the data would not be available for up to nine months from the time the contract was 

awarded. Id. With FPDS-NG, the information is now available in near real-time. Id.
289

BD concerns first, then SDVO SBCs and then HUBZone SBCs, SDVO and HUBZone SBCs 

may not want to submit an offer knowing that the agency may never review it, given the 

costs associated with a proposal.

77 In addition, if the contracting officer performs adequate 

market research, which has been made easier through the merging of SBA’s PRO-Net into 

the Central Contractor Registration (www.ccr.gov), then he or she should know up-front 

whether the acquisition is suitable for one of the SBA’s small business programs and there 

would be no need for a cascading procurement. Consequently, cascading procurements 

appear to circumvent the requirement to perform market research.

2. Guidance with Contract Consolidation

The Panel made two findings in analyzing the issues concerning the adequacy of guidance in promoting small business participation in consolidated contracts. First, the Panel 

determined that the contracting community does not properly apply and follow the governing contract bundling definition and requirements in planning acquisitions. There is a 

misunderstanding of contract bundling, inaccurate bundling data, and disparate mitigation 

strategies for justified bundled contracts. These issues appear to stem from the complicated 

statutory provisions relating to bundling, including the reporting and review requirements.

These statutory provisions require the reporting of bundled requirements to the SBA’s 

PCR for a specific review process. These provisions attempt to create a check and balance 

on the use of bundling and require the procuring agency to decide whether the acquisition 

is bundled. If the agency determines it is, then the solicitation package must be sent to the 

PCR, regardless of whether the bundled procurement is justified or not. This reporting and 

review process appears to have confused officials at agencies, some of whom do not believe 

they have to report all bundled procurements to the SBA and others of whom are unsure 

whether they have to report the bundled procurements to the SBA without the SBA’s specific request for the solicitation. In addition, some agencies may believe that if they have 

justified the bundle, it is no longer considered a bundled contract and therefore there are 

no reporting and review requirements.

Testimony shows that staffing is short at the procuring agencies, and many experienced 

procurement officials are retiring, which leaves new and untrained procurement officials 

the task of structuring the acquisition.

78

If the contracting community better understands contract bundling, mitigation of bundled requirements, and the impact of such bundling on small businesses, it could alleviate 

some of the concern many have that bundling is detrimental to SBCs.

77 See Ralph C. Nash, John Cibinic, Cascading Set-Asides: A Legal and Fair Procedure? 19 No. 8 Nash & 

Cibinic Rep. 39 (Aug. 2005); see also CODSIA Asks OFPP to Prohibit Agencies’ Use of Cascading Set-Asides, 

200 BNA A-4 (Oct. 18, 2005); Ayers Statement at 2.

78 Testimony of Thomas Reynolds, AAP Pub. Meeting (Sept. 27, 2005) Tr. at 27-28 (“Currently where 

I am stationed at, we have got approximately 15 people trying to manage a $1.4 billion a year cost 

reimbursement contract. We are now getting pressure to try and award more small business contracts out 

of this large management contract, which is fine. There’s still only 15 people there. How are they going to 

do that?”).
290

Moreover, there have been several reports that attempt to address the impact of contract bundling, the results and findings of which differ.

79 Some reports directly attribute 

bundling to a decrease in contract awards to SBCs. However, one of these reports used a 

definition for the term “bundling” that differs from the statutory term for its analysis.

80

Meanwhile, a recent report showed that only 4 agencies reported a total of 24 bundled contracts in FY 2002 and 16 agencies reported no bundled contracts despite FPDS data indicating that there were 928 bundled contracts (of which 33 percent were awarded to SBCs 

despite the fact SBCs, by statute, cannot receive a bundled contract).

81

There is also confusion regarding the requirement of and need to mitigate the impact 

of contract bundling on small businesses. For example, if the bundling is justified, and 

assuming the agency realizes it must report the requirement to the SBA’s PCR, the PCR will 

work with the procuring activity to preserve small business prime and subcontract participation to the maximum extent practicable. If the requirement involves “substantial bundling,” 

the agency is required to specify actions designed to maximize small business participation 

as subcontractors at various tiers under the contract. Thus, the statute requires agencies to 

mitigate the effects of bundling on SBCs, but does not provide specific strategies on such 

mitigation. The implementing regulations provide a little more direction, but do not provide enforceable requirements. For example, the SBA’s regulations state that the agency will 

make “recommendations” on maximizing small business participation. Likewise, if the 

bundling is “substantial,” the agency must merely document actions designed to maximize 

small business participation as primes and subcontractors. There is no requirement that 

the agency take certain mitigation actions. At least one procurement official acknowledged 

that “every case is really an individual case. I don’t think you can just say we are going to 

consolidate all aspects of a base operation for every base. . . .”82 Another procurement official acknowledged that, in some cases, the procuring agency has taken steps to ensure “that 

a certain portion of the business needs to go to small business. In other cases, they haven’t 

been as explicit.”83 Therefore, the mitigation strategy must be tailored to fit the particulars 

of the acquisition, and should be readily apparent so that the small business is aware of the 

opportunities for potential contracts.

With respect to mitigation, generally, the SBA recommends that procuring agencies 

unbundle the requirement and break out specific parts of the bundle for award to SBCs.

Some agencies reserve a few of the contract awards for SBCs, if the agency plans to issue 

multiple awards.

84 Agency officials recognize it is necessary to “create opportunities within 

the multiple award service acquisitions for small business” or else small businesses will 

79 U.S. GAO, Impact of Strategy to Mitigate Effects of Contract Bundling on Small Business is Uncertain, 

GAO-04-454; SBA IG, Audit of the Contract Bundling Process, No. 5-20; OFPP, Contract Bundling: A Strategy 

for Increasing Federal Contracting Opportunities for Small Businesses; Office of Advocacy, U.S. Small Bus.

Admin., The Impact of Contract Bundling on Small Business FY 1992 – FY 2001, (Oct. 2002).

80 Office of Advocacy, U.S. Small Bus. Admin., The Impact of Contract Bundling on Small Businesses FY 

1992-FY 2001, at 6, 9-10, App. A (Oct. 2002).

81 GAO-04-454 at 6.

82 Testimony of Ronald Poussard, U.S. Air Force, AAP. Pub. Meeting (Sept. 27, 2005) Tr. at 165-166.

83 Testimony of Eugene Waszily, Office of Inspector General, General Services Administration, AAP 

Pub. Meeting (May 17, 2005) Tr. at 213.

84 See e.g. Phoenix Scientific Corp., B-286817, 2001 CPD ¶ 24 (Feb. 22, 2001).
291

lose their contracts to large business.

85 Other agencies separate a bundle into two requirements – one reserved for SBCs and the other for large businesses.

86 In addition, the DoD 

has issued a Guidebook with specific examples of ways to mitigate bundling.

87 For example, the Guidebook recommends giving evaluation points and greater credit to offerors that 

have identified small business teaming partners, joint ventures, or other small business 

subcontractors in their proposals, or establishing an award fee or other incentive that monetarily rewards contractors for meeting or exceeding goals in subcontracting plans.

88

It is not clear that such mitigation strategies, or the justification for such strategies, are 

a sufficient balance of the need to bundle and the need to ensure small businesses receive 

maximum practicable opportunities in federal contracting. Testimony reveals that even 

those SBCs that receive the subcontracts are hurt by the bundled procurement. Specifically, 

those SBCs are “beholden” to the large business prime contract and sometimes must perform the work at a lower rate than what they had on their original prime contract with the 

government or their work has actually been reduced.

89 

Accordingly, existing law offers little in the way of guidance or requirements for mitigating the potential harm caused by bundling on SBCs. Although implementing regulations provide some guidance, they are only recommendations. While some agencies, such 

as DoD, have attempted to create guidelines for mitigating bundling, these guidelines are 

not universal.

90 While it may be best to allow each agency to develop its own mitigation 

plan tailored to the particular acquisition, there must be some specific, core mitigation 

techniques that should be followed by and available to all agencies.

The Panel’s second finding with respect to contracting bundling, which also relates to 

the government’s small business contracting programs generally, is that the acquisition 

community needs more training on current small business contracting policies and programs. According to the most recent FPDS data, in FY 2004 many agencies exceeded their 

small business goals and met or exceeded their 8(a) goals.

91 On the other hand, most agencies made few awards to HUBZone and SDVO SBCs.

92 For example, in FY 2004, the DoD 

awarded 22 percent of its contracts to small businesses, but only 1.479 percent to HUBZone SBCs and .327 percent to SDVO SBCs.

93

One possible explanation is that agencies are familiar with and knowledgeable about 

the small business “rule of two” and the sole source and set aside provisions of the 8(a) BD 

program while at the same time less familiar with two of SBA’s newer programs – the HUBZone program and the SDVO SBC program, both created within the last ten years. Thus, 

these contracting officials may be more comfortable utilizing the “older” programs rather 

85 Poussard Test. at 164.

86 Teximara, B-293221.2, 2004 CPD ¶ 151 (July 9, 2004).

87 U.S. DoD’s Office of Small and Disadvantaged Business Utilization Contract Consolidation Guide, 

http://www.acq.osd.mil/sadbu/news/contractconsolidation.pdf.

88 Id. at 2-2 - 2-5.

89 Waszily Test. at 213.

90 See DoD’s Contract Consolidation Guide, http://www.acq.osd.mil/sadbu/news/

contractconsolidation.pdf.

91 Id.

92 Id.

93 See FPDS Next Generation Small Business Goaling Report FY 2004, http://www.sba.gov/GC/goals/

Goaling-Report-08-21-2005.pdf
292

than the “newer” ones. This could result in a perceived competition amongst the various 

small business contracting programs – a competition that is, in reality, nonexistent since 

ultimately each agency, and the federal government in total, must meet certain contracting 

goals for all of the small business programs. Training, as well as clearer guidance on the use 

of these programs, is therefore needed.

C. Recommendations

1. Guidance in Using Small Business Contracting Programs

The Panel has made several findings concerning the need to structure acquisition strategies to afford adequate small business participation. The Panel determined that there is 

currently inadequate guidance in both statute and regulation for deciding which small 

business preference is applicable to an acquisition. The Panel also determined that any 

guidance provided the contracting community must allow for flexibility to ensure that the 

agencies are able to achieve their small business goals. Thus, the Panel recommends several 

changes to both statute and regulation.

The Panel recommends amending the Small Business Act to remove any statutory provisions (such as the one contained in the HUBZone Act) that appear to provide for a hierarchy of small business contracting among certain small business programs. This is necessary because an agency will have difficulty meeting its small business goals if any one small 

business program takes a priority over the others.

94

The Panel also believes this amendment is necessary despite the fact the SBA has not 

interpreted the HUBZone language as providing a preference for one small business program (such as the 8(a) or SDVO SBC) over another, with the exception of small business 

set-asides. According to an August 17, 2001 letter issued by the SBA’s Acting General Counsel to the Honorable Christopher S. Bond, when the SBA promulgated its HUBZone regulations, the agency reviewed all of the provisions of the Small Business Act, including the 

provisions of the HUBZone program and the provisions of the 8(a) BD program.

95

The SBA stated that according to the rules of statutory construction, various provisions of 

a single statute must be read so that all provisions may have effect and that the statute be a 

“consistent and harmonious whole.”96 In addition, the SBA stated its belief that although the 

HUBZone Act provides that “[n]otwithstanding any other provision of law,” the contracting 

officer may award a HUBZone sole source and shall award a HUBZone set-aside if certain 

requirements are met, courts have held that the phrase “notwithstanding any other provision 

94 When the HUBZone Act was first introduced, it contained a priority for HUBZone awards over 8(a) 

awards. The bill was amended to include a provision on parity and the committee report states that the 

HUBZone program was not designed to compete with the 8(a) program. S. Rpt. 105-62 (Aug. 19, 1997).

Ultimately, the parity language was removed. Amendment No. 1543 to S. 1139 (Oct. 31, 1997).

95 Letter from SBA’s Acting General Counsel to the Honorable Christopher S. Bond, dated August 17, 

2001 (on file with the SBA).

96 Id. citing to 73 Am. Jur. 2d Statutes § 254 at 425 (1974).
293

of law” is not always dispositive.

97 Consequently, when promulgating the HUBZone regulations, the SBA took into consideration the requirement to read the Small Business Act, and all 

of its provisions, in concert so that it would be a “harmonious whole.”98 Thus, as explained in 

the preamble to the final HUBZone regulations, “SBA balanced HUBZone contracting with the 

stated Congressional purpose in the Small Business Act of maximizing 8(a) contracting, where 

practicable.”99 In doing so, the SBA determined that the phrase “notwithstanding any other provision of law,” contained in § 31 of the Small Business Act, is best interpreted as requiring the 

disregard only of provisions of law outside of the Small Business Act and not provisions of law 

contained in the Small Business Act, such as § 8(a).

100 At least one court has ruled that the SBA’s 

interpretation, i.e., parity for the 8(a) and HUBZone programs, is reasonable.

101

Nonetheless, there appears to be some confusion regarding this issue, including conflicting 

FAR and SBA regulations. Further, the Panel believes that more discretion should be afforded 

to contracting officers, and therefore believes that the contracting officer should have discretion when selecting which small business program to utilize. In other words, the Panel believes 

that the 8(a), HUBZone and SDVO set-asides programs should be given parity and priority 

over regular small business set-asides. A change to the HUBZone statute would be necessary to 

accomplish this goal.

The Panel does not believe such a change would harm the intent and purpose of any 

of the programs. For example, the purpose of the HUBZone program is to “help qualified 

small businesses located in economically distressed inner cities and rural areas create new 

jobs—new jobs for people without jobs today” and to “provide for an immediate infusion of cash through the creation of new jobs and investment in economically distressed 

areas.”102 The intent and purpose of the 8(a) BD program is business development for 

small business owned and controlled by socially and economically disadvantaged individuals.

103 The intent and purpose of the SDVO SBC program is to provide procurement 

opportunities for small businesses owned and controlled by service-disabled veterans.

104

The Panel believes that the provision of adequate guidance and parity among the programs 

will serve to enlighten and educate the contracting community on the powerful tools (setasides and sole source awards) available to enable them to meet their socio-economic 

requirements and the above-stated intent and purpose of each program.

Thus, the Panel recommends the following:

97 Id. citing to Oregon Natural Resources Council v. Thomas, 92 F.3d 792 (9th Cir. 1996) (statutory phrase 

“notwithstanding any other provision of law” is not always construed literally); E.P. Paup Co. v. U.S. 

Dept. of Labor, 999 F.2d 1341 (9th Cir. 1992) (phrase “notwithstanding any other provision of law” is not 

necessarily preemptive); In re The Glacier Bay, 944 F.2d 577 (9th Cir. 1991) (phrase “notwithstanding the 

provisions of any other law” was not dispositive of whether that statute implicitly repealed limitation of 

liability provisions of a different statute).

98 Id.

99 Id. citing to 63 Fed. Reg. 31897 (June 11, 1998).

100 Id.

101 Contract Management, Inc. v. Rumsfeld, 291 F.Supp.2d 1166, 1177 (D. Hawaii 2003), aff’d 434 F.3d 

1145 (9th Cir. 2006).

102 S. 208, The HUBZone Act of 1997: Hearing Before the Comm. On Small Business, 105th Cong., 1st

Sess. 1 (1997).

103 See 15 U.S.C. § 637(a); 13 C.F.R. § 124.1.

104 See 15 U.S.C. § 657f.
294

• Amend 15 U.S.C. § 657a(b)(2) to resolve any confusion and ensure that 

contracting officers have the discretion to award HUBZone set aside and 

sole source awards.

15 U.S.C. § 657a(b)(2):

(2) Authority of contracting officer

Notwithstanding any other provision of law--

(A) a A contracting officer may award sole source contracts under this section to any qualified HUBZone small business concern, if–

* * * * *

(B) a A contract opportunity shall may be awarded pursuant to this section 

on the basis of competition restricted to qualified HUBZone small business 

concerns if the contracting officer has a reasonable expectation that not less 

than 2 qualified HUBZone small business concerns will submit offers and 

that the award can be made at a fair market price; and 

* * * * *

The Panel also recommends that the implementing regulations provide the contracting 

community discretion in utilizing the various programs, based in part upon the goals and 

needs of the agency. This does not mean that the goals should become the sole determining 

factor in directing an agency’s contracting behavior. For example, when an agency has already 

met its HUBZone goal, but has not yet met its SDVO goal, the contracting officer would still 

have the discretion to utilize the HUBZone program’s contracting mechanisms. Further, the 

contracting officer must still comply with other statutory provisions for each program, e.g., 

anticipated award price limits for sole source or competitive awards, awards to be made at 

fair market price, etc.

Thus, the Panel recommends that the SBA and FAR regulations be amended to comply 

with these statutory changes and to resolve any current conflicts. The Panel recommends 

the following:

• Delete 48 C.F.R. § 19.800 (e) 

Before deciding to set aside an acquisition in accordance with subpart 19.5 

[small businesses], 19.13 [HZ], or 19.14 [SDVO] the contracting officer 

should review the acquisition for offering under the 8(a) program. If the 

acquisition is offered to the SBA, SBA regulations (13 C.F.R. § 126.607(b)) 

give first priority to HUBZone 8(a) concerns.

• Amend 48 C.F.R. § 19.201(c) to add the following at the end of the paragraph:

* * *In order to achieve the Government-wide and agency goals, the 

contracting officer is provided the discretion in deciding whether to 

utilize the 8(a) BD, HUBZone or SDVO SBC Programs for a specific procurement. The contracting officer must comply with all other statutory 

and regulatory requirements related to the conduct of market research 

and the use of the various small business programs.
295

• Amend 13 C.F.R. § 124.504(j) to read as follows:

The contracting officer should shall consider setting-aside the requirement 

for HUBZone, 8(a), or SDVO SBC participation before considering setting 

aside the requirement as a small business set aside.

• Redesignate paragraphs (b) through (e) as (c) through (f) and add a new 

paragraph (b) to 13 C.F.R. § 125.2 to read as follows:

In order to achieve the Government-wide and agency goals, the contracting officer is provided the discretion in deciding whether to utilize the 8(a) BD, HUBZone or SDVO SBC Programs for a specific procurement. The contracting officer must comply with all other statutory 

and regulatory requirements related to the conduct of market research 

and the use of the various small business programs. 

• Amend 13 C.F.R. § 125.19(b) to read as follows:

If the contracting officer determines that §125.18 does not apply, the contracting officer shall should consider setting aside the requirement for 8(a), 

HUBZone, or SDVO SBC participation before considering setting aside the 

requirement as a small business set aside.

• Amend 13 C.F.R. § 126.607(b) to read as follows:

If the contracting officer determines that §126.605 does not apply, the contracting officer shall consider setting aside the requirement for HUBZone, 

8(a), or SDVO SBC participation before setting aside the requirement as a 

small business set aside.

• Delete 13 C.F.R. §126.609:

If a contract opportunity for competition among qualified HUBZone SBCs 

does not exist under the provisions of §126.607, the contracting officer must 

first consider the possibility of making an award to a qualified HUBZone SBC 

on a sole source basis, and then to a small business under small business setaside procedures, in that order of precedence. If the criteria are not met for any 

of these special contracting authorities, then the contracting officer may solicit 

the procurement through another appropriate contracting method.
296

The Panel also found that the current practice of cascading procurements fails to balance adequately the need for efficient contracting with the requirement to provide maximum practicable opportunities to SBCs because it could impede competition and circumvent the requirement to perform market research. Congress believes the same and has 

recently issued guidance on the use of cascading procurements for the U.S. Department of 

Defense, set forth in § 816 of the National Defense Authorization Act for Fiscal Year 2006, 

Public Law No. 109-163.

105

Although this new statutory provision is meant to deter the use of cascading procurements, it nonetheless still allows such procurements in limited situations. For the reasons 

set forth in the findings and above, the Panel believes that the use of cascading procurements should be precluded. If a contracting officer performs adequate market research, 

he/she will know whether there are two or more 8(a), HUBZone, SDVO SBCs or small 

businesses that can offer on the requirement. Therefore, the Panel recommends that Congress repeal this new provision and that language should be added to preclude the use of 

cascading procurement. This language should be included in 41 U.S.C. § 253, to apply 

to the civilian agencies, and 10 U.S.C. § 2304 to apply to the DoD. The recommended 

amendments are as follows:

• Add a new paragraph to 10 U.S.C. § 2304 as follows: 

(l) The Secretary of Defense shall prescribe guidance for the military 

departments and the Defense Agencies prohibiting the use of a tiered 

evaluation of an offer for a contract or for a task or delivery order under 

a contract.

• Add a new paragraph to 41 U.S.C. § 253 as follows:

(j) The Federal Acquisition Regulation shall prescribe guidance for the 

executive agencies prohibiting the use of a tiered evaluation of an offer 

for a contract or for a task or delivery order under a contract.

2. Guidance with Contract Consolidation

As discussed above, in analyzing the issues involving small business participation in 

consolidated contracts, the Panel made two findings. First, the Panel determined that the 

contracting community does not properly apply and follow the governing contract bundling 

105 This statutory provision states:

GUIDANCE ON USE OF TIERED EVALUATIONS OF OFFERS FOR CONTRACTS AND TASK 

ORDERS UNDER CONTRACTS.

(a) Guidance Required. – The Secretary of Defense shall prescribe guidance for the military departments 

and the Defense Agencies on the use of tiered evaluations of offers for contracts and for task or delivery 

orders under contracts. (b) Elements.--The guidance prescribed under subsection (a) shall include a 

prohibition on the initiation by a contracting officer of a tiered evaluation of an offer for a contract or 

for a task or delivery order under a contract unless the contracting officer-- (1) has conducted market 

research in accordance with part 10 of the Federal Acquisition Regulation in order to determine whether or 

not a sufficient number of qualified small businesses are available to justify limiting competition for the 

award of such contract or task or delivery order under applicable law and regulations; (2) is unable, after 

conducting market research under paragraph (1), to make the determination described in that paragraph; 

and (3) includes in the contract file a written explanation of why such contracting officer was unable to 

make such determination.
297

definition and requirements. Second, the Panel determined that agency officials need targeted training on the general requirements and benefits of contracting with small businesses.

Specifically, the Panel recommends that:

• OFPP create an interagency task force to develop best practices and strategies to unbundle contracts and mitigate the effects of contract bundling.

• OFPP coordinate the development of a government-wide training 

module for all federal acquisition team members and program managers to acquaint them with the legislative and regulatory requirements 

of contracting with small business, as well as contract bundling. The 

training module should include a segment on the laws and regulations 

regarding bundling, and subcontracting with small businesses, with the 

goal of developing a common understanding and standard implementation of small business subcontracting goals across government. Training should emphasize uniform guidance to large businesses in relation 

to developing and/or specifying categorical small business goals for 

Small Business subcontracting plans. Training also should emphasize 

processes for determining realistic and achievable goals based on both 

the objective of achieving government-wide small business utilization 

goals, and consideration and analysis of the unique functional and programmatic requirements of each particular solicitation.

III. The Ability of Small Business to Compete in 

the Multiple Award Contracting Environment

A. Background

As discussed elsewhere in this Report, the Federal Acquisition Streamlining Act of 

1994 (FASA)106 formalized the task or delivery order contracting technique, whereby 

the government acquires supplies or services during the contract period by issuing an 

order to the contractor. Generally, the government is only obligated to acquire a stated 

minimum of supplies or services, and the contractor is only obligated to provide a 

stated maximum. Congress established a preference for the award of multiple contracts 

when utilizing the technique, and a requirement that each contractor be provided a “fair 

opportunity” to compete for an order, with limited exception.

107 Contracting officers 

were given wide latitude in conducting competitions for orders.

108 Thus, there are two 

levels of competition—offerors must compete for award of one of the contracts, and then 

must compete with other contract awardees for each order. 

106 Pub. L. No. 103-355, 108 Stat. 3423 (1994).

107 FAR 16.505(b).

108 FAR 16.505(b)(1)(ii).
298

The passage of FASA, the enactment of the Clinger-Cohen Act109 two years later, and the 

expansion of the General Services Administration’s (GSA’s) Multiple Award Schedules (MAS) 

program has led to a marked increase in the use of multiple award indefinite delivery, indefinite quantity (IDIQ) contracting vehicles.

110 The data suggests that small business concerns 

(SBCs) have been able to compete for and obtain multiple award IDIQ contracts and subsequent orders.

111 The reason may be due in large part to the creation of innovative procurement procedures by procuring agencies in an effort to meet their annual SBC prime contracting goals.

112 Some procuring agencies have “reserved” one or more prime contract awards for 

SBCs under solicitations that were competed “full and open,” although there is no express 

authority for such an action. Some procuring agencies have awarded IDIQ contracts that 

contain ordering procedures that provide that competition for an order may be limited to 

SBCs. However, it is unclear whether agencies have authority to limit competition for orders 

to SBCs, in light of the fair opportunity provisions mentioned above. Moreover, the Section 

803 procedures applicable to the Department of Defense (DoD) may prevent DoD from limiting order competitions to SBCs.

113 Under GSA’s MAS program, which has its own unique 

ordering procedures, procuring agencies have used a variety of methods to target small business MAS contractors. GSA has implemented policies and procedures that enhance procuring 

agencies’ ability to target small business MAS contractors, and SBCs received 37.6 percent of 

the dollars awarded under the MAS program in fiscal year 2006.

114

Given the fact that procuring agencies have created varying procurement procedures 

applicable to SBCs in the multiple award contracting environment, it may be time for 

policy-makers to address whether procuring agencies have the authority to reserve prime 

contract awards for SBCs under multiple award solicitations that are competed as full and 

109 The Clinger-Cohen Act authorizes agencies to award multiple information technology task or 

delivery order contracts which are open to other federal agencies and are referred to as Governmentwide 

Acquisition Contracts (GWACs). Divisions D and E of the National Defense Authorization Act for Fiscal 

Year 1996 (Pub. L. No. 104-106, 110 Stat. 186 (1996)).

110 According to the GAO, total federal government expenditures valued over $25,000 on Indefinite 

Delivery, Indefinite Quantity (IDIQ) contracts, Blanket Purchase Agreements (BPAs), and the General 

Service Administration’s (GSA’s) Multiple Award Schedules (MAS) program increased from 16 percent of 

federal procurement expenditures in fiscal year 1994 to 25 percent of federal procurement expenditures 

in fiscal year 1999. U.S. GAO, Small Business: Trends in Federal Procurement in the 1990s, GAO-01-119 at 20 

(Jan. 2001); Sales under the GSA’s MAS program have grown at least 21 percent sequentially for the past 

seven years, and totaled $31.1 billion in fiscal year 2004 (on file with GSA).

111 GAO-01-119 at 12-20 (Small business concerns (SBCs) “received the legislatively mandated goal for 

federal contract expenditures each fiscal year from 1993 to 1999” and the small business share of dollars 

awarded under task and delivery order vehicles increased from 24 percent in fiscal year 1994 to 32 percent 

in fiscal year 1999); U.S. GAO, Acquisition Reform: Multiple-Award Contracting at Six Federal Organizations, 

GAO/NSIAD-98-215 at 8-11 (Sept. 1998). SBCs received approximately 22-23 percent of total federal 

procurement expenditures for fiscal years 2000-2003 (see annual Federal Procurement Reports at https://

www.fpds.gov).

112 Congress has established an annual government-wide goal for prime contracting with small 

businesses of not less than 23 percent of the total value of awarded contracts. 15 U.S.C. § 644(g)(1). Each 

agency also establishes its own annual goals for small business prime contracting. 15 U.S.C. § 644(g)(2).

113 Section 803 of the National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 107-107, 

115 Stat. 1179 (2001); Defense Federal Acquisition Regulation (DFAR) §§ 208.405-70, 216.505-70.

114 As of the end of fiscal year 2006, approximately 80 percent of the 17,668 MAS contracts were held 

by SBCs. In fiscal year 2006, SBCs received $13.2 billion of the $35.1 billion in dollars awarded under the 

MAS program. See GSA Data, Final FY 2006 Schedule Data - Contracts in Effect; GSA Data, Contractors Report 

of Sales - Schedule Sales FY 2006 Final (Oct. 24, 2006) (on file with GSA).
299

open, and whether competition for orders under full and openly competed contracts can 

be limited to SBCs.

1. Competition for Multiple Award Contracts

The FAR provides that a contracting officer shall set aside any acquisition over $100,000 

for exclusive small business participation if there is a reasonable expectation that offers will 

be obtained from at least two responsible SBCs and award will be made at a fair market 

price.

115 Obviously, this regulation was written to address a single-award procurement. If a 

contracting officer expects to award five contracts, the fact that he or she reasonably expects 

two SBCs to submit offers does not compel a total small business set-aside of all five contracts. What some agencies have done is “reserve” one or more contracts for SBCs in the 

context of a full and open multiple award procurement.

116 However, such an action may be 

illegal under current law. Arguably, the Competition in Contracting Act and its implementing regulations strictly provide for competition that is either full and open, i.e., contracts 

awarded without regard to size status, or competition that is only open to SBCs.

117 

Under current law, a procuring agency receives full credit towards its small business 

goals for a prime contract awarded to an SBC, regardless of the method of competition, 

i.e., regardless of whether the SBC must perform any specific portion of the work.

118 However, if an SBC teams with a large business as a prime, or teams with other SBCs as a prime 

and they collectively exceed the size standard, the agency will get no credit for the award 

towards its small business prime contracting goals.

119 GSA has implemented a Contractor 

Team Arrangement policy applicable to MAS orders that allows an SBC to team with other 

MAS contractors, both large and small, and allows the procuring agency to receive credit 

115 FAR 19.502-2(b).

116 See Michael J. Benjamin, Multiple Award Task and Delivery Order Contracts: Expanding Protest Grounds 

and Other Heresies, 31 Pub. Con. L.J. 429, 465-6 (2002); Phoenix Scientific Corporation, B-286817, Feb. 22, 

2001, 2001 CPD ¶ 24; GAO/NSIAD-98-215 at 10-11. Some agencies have labeled these “reserves” as partial 

small business set-asides, but the partial small business set-aside FAR provisions only apply to definite 

quantity supply contracts - the acquisition must be divided into severable economic production runs or 

reasonable lots which have comparable terms and delivery schedules, and any small business which wants 

to compete for the set aside portion must submit a responsive offer on the non-set-aside portion. FAR 

19.502-3.

117 See 10 U.S.C. § 2304(b)(2) (“The head of an agency may provide for the procurement of property 

or services covered by this section using competitive procedures, but excluding concerns other than small 

business concerns in furtherance of sections 9 and 15 of the Small Business Act (15 U.S.C. 638, 644”); 

41 U.S.C. § 253(b)(2) (“An executive agency may provide for the procurement of property or services 

covered by this section using competitive procedures, but excluding other than small business concerns 

in furtherance of sections 638 and 644 of Title 15”); FAR 6.203(a) (“contracting officers may set aside 

solicitations to allow only such [small business] business concerns to compete”).

118 15 U.S.C. § 644(o); FAR 52.219-14; 13 C.F.R. § 125.6.

119 Concerns submitting an offer to perform a prime contract are generally considered to be joint 

venturers, and affiliated for purposes of determining size for that particular procurement. 13 C.F.R.

§ 121.103(h)(2). There are some exceptions to this general rule for bundled or very large contracts and 

joint ventures created pursuant to the Small Business Administration’s (SBA’s) 8(a) Business Development 

program Mentor-Protégé regulations. 13 C.F.R. § 121.103(h)(3).
300

towards its small business prime contracting goals for the portion of the order performed 

by SBCs.

120

2. Competition for Task Orders

The set aside requirements of FAR Part 19 generally apply before task or delivery order 

contracts are solicited and awarded, not when an order competition is conducted or the 

order is placed.

121 Nevertheless, agencies have awarded IDIQ contracts with ordering procedures that provide that certain orders will be competed exclusively among SBCs.

122 Limiting 

competition for orders to SBCs on a full and openly competed contract may be contrary to 

the fair opportunity requirements.

123 This issue was raised in a bid protest before the GAO, 

but the protest was dismissed on jurisdictional grounds.

124 Moreover, DoD may not be able 

to limit competition for orders to SBCs because of the Section 803 requirement to provide 

notice of a purchase to all contractors and fairly consider all responses.

125 If an order competition is limited to SBCs under a full and openly competed contract, it is unclear whether 

the winner of the order competition would have to comply with the limitations on subcontracting provisions, since the statute and regulations specifically reference “contracts” that 

are “set aside” for SBCs.

126 

GSA’s MAS program “provides federal agencies ... with a simplified process for obtaining commercial supplies and services at prices associated with volume buying.”127 Orders 

placed in accordance with FAR subpart 8.4 are considered to be issued using competitive 

120 These so-called Contractor Team Arrangements (CTA) allow the “team” to meet the government 

agency’s needs by providing a total solution that combines the supplies and/or services from the team 

members’ separate GSA MAS contracts. It permits contractors, especially SBCs with limited specialties, to 

complement each other’s capabilities to compete for orders for which they may not independently qualify.

A customer benefits from a CTA by buying a solution rather than making separate buys from various 

contractors. In light of increasing demand for total solutions, often at odds with the effort to curtail 

contract bundling, a CTA may be an effective way for an SBC to enhance its competitiveness. GSA’s CTA 

policy also promotes large-small business partnership, as opposed to subcontracting arrangements, which 

allows the small business team partner be paid in a timely manner. A procuring agency receives credit 

towards its small business prime contracting goals for the portion of the requirement that small business 

team members perform.

121 FAR 8.404(a), 38.101(e).

122 See Size Appeal of the Department of the Air Force, SBA No. SIZ-4732 (2005), where the SBA’s Office of 

Hearings and Appeals (OHA) held that an agency can set aside a solicitation for an order under an IDIQ 

contract, and can request new size certifications in connection with the order competition. The United 

States Court of Federal Claims denied an appeal of the OHA decision. LB&B Associates, Inc. v. U.S., 68 Fed.

Cl. 765 (Fed. Cl. 2005). 

123 FAR 16.505(b) provides that each contract awardee must be provided a “fair opportunity” to be 

considered for award of an order valued over $2,500, unless: (1) the need for the goods or services is 

so urgent that providing a fair opportunity would lead to unacceptable delays, (2) only one awardee is 

capable of providing the unique or highly specialized goods or services, (3) the order is a logical follow-on 

to a previous order and every awardee was provided with a fair opportunity to compete for the original 

order, or (4) the order is necessary to fulfill a minimum guarantee.

124 Professional Performance Development Group, Inc., B-294054.3, Sep. 30, 2004, 2004 CPD ¶ 191.

125 Section 803 of the National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 107-107, 

115 Stat. 1179 (2001); DFAR 216.505-70.

126 15 U.S.C. § 644(o) (“A concern may not be awarded a contract under subsection (a) as a small 

business concern unless the concern agrees that” it will perform a specific portion of the work); 13 C.F.R.

§ 125.6 (“In order to be awarded a full or partial small business set-aside contract” an SBC must agree to 

perform a specific portion of the work).

127 FAR 8.402(a).
301

procedures.

128 Ordering agencies are not generally required to notify all contractors on 

a particular Schedule of their intent to purchase.

129 For orders above the micro-purchase 

threshold ($3000), contracting officers generally must review the capabilities of, or solicit 

quotes from, at least three MAS contractors.

130 However, when DoD orders services valued 

over $100,000 under an MAS it must provide notice of its intent to purchase to: (1) all contractors under the applicable Schedule, or (2) as many MAS contractors as practicable to 

ensure that at least three quotes are received.

131 Posting a requirement on GSA’s electronic 

request for quotation system (e-Buy) is one way DoD can meet this requirement.

132 Procuring agencies on average receive three quotes in response to a solicitation posted on e-Buy.

The set aside requirements of FAR Part 19 also apply to the MAS program “at the acquisition planning stage prior to issuing” a solicitation for a contract, not at the order level.

133

Although there is no requirement to conduct small business set-aside analysis prior to placing an order under GSA’s MAS program, FAR subpart 8.4 provides that “Ordering activities 

may consider socio-economic status when identifying contractor(s) for consideration or 

competition for award of an order or BPA. At a minimum, ordering activities should consider, if available, at least one small business, veteran-owned small business, service disabled veteran-owned small business, HUBZone small business, women-owned small business, or small disadvantaged business schedule contractor(s).”134 In addition, agencies have 

limited consideration for orders exclusively to SBCs, and one GSA MAS contract (Schedule 

70, SIN 132-51) specifically authorized ordering agencies to limit competition for award of 

an order to SBCs.

135 However, under current MAS ordering procedures procuring agencies 

are required to provide solicitations to any MAS contractor that requests it, and to evaluate 

all quotes received in response.

136 Nevertheless, some agencies continue to limit competition for orders to SBCs, because there is no explicit prohibition in the FAR.

137 On June 30, 

128 FAR 8.404(a); 41 U.S.C. § 259(b)(3) provides that the schedule program is a “competitive 

procedure” if participation in the program is open to all responsible sources, and orders and contracts 

under such procedures result in the lowest overall cost to the government. The term “full and open 

competition” is defined in 41 U.S.C. § 403(6) to mean that “all responsible sources are permitted to 

submit sealed bids or competitive proposals on the procurement”.

129 The fair opportunity provisions of FAR subpart 16.5 do not apply to MAS orders. FAR 16.500(c). As 

discussed supra, there are additional notice requirements applicable to DoD when ordering services valued 

over $100,000 under the MAS program.

130 FAR 8.405-1, 8.405-2.

131 DFAR 208.405-70.

132 FAR 8.405-2(d); DFAR 208.405-70(c)(2).

133 FAR 8.404(a), 38.101(e).

134 FAR 8.405-5(b).

135 GAO upheld a procuring agency’s decision to require MAS contractors to submit size certifications 

along with their quotations in an order competition limited to SBCs that was conducted among Schedule 

70, SIN 132-51 MAS contractors. CMS Information Services, Inc., B-290541, Aug. 7, 2002, 2002 CPD ¶ 132.

The SBA’s OHA has held that if a procuring agency limits competition for an MAS order (or BPA) to SBCs, 

a concern must be small at the time of their quote in order to be eligible for award. Size Appeal of Advanced 

Management Technology, Inc., SBA No. SIZ-4638 (2004); Size Appeals of SETA Corporation, Federal Emergency 

Management Agency, SBA No. SIZ-4477 (2002). GSA requires contractors to re-certify their size status when 

an option is exercised, typically every five years. GSA Acquisition Letter MV-03-01, (February 21, 2003). 

136 FAR 8.405-2(c)(4), (d).

137 See Systems Plus, Inc., B-297215-4, Dec. 16, 2005, 2006 CPD ¶ 10.
302

2005, GSA issued an Acquisition Letter which allows ordering activities to “make socio-economic status a primary evaluation factor when making a best value determination.”138

B. Findings 

1. Competition for Multiple Award Contracts

Based upon its review of governing laws, policies, practices, available data, and court 

and administrative board decisions, the Panel has determined that the existing procurement strategy of reserving prime contract awards for small businesses in full and open 

multiple award procurements may be effective in providing small business prime contracting opportunities, if properly utilized. Specifically the Panel has determined that the procurement mechanism: helps ensure that SBCs have an opportunity to compete for orders 

at the prime contractor level; helps procuring agency achieve their annual small business 

prime contracting goals; and helps agencies mitigate the effects of bundling. The Panel has 

also recognized that because there is no express authority for the procurement mechanism, 

there are also no implementing regulations, which has resulted in inconsistent or confusing utilization of the procurement mechanism.

Some agencies are reserving prime contracts for SBCs in the context of full and open 

multiple award procurements, even though there is no express legal authority for reserving 

prime contracts for SBCs in the context of full and open multiple award procurements.

139 The 

mechanism has been cited in Federal Court decisions, General Services Administration Board 

of Contract Appeals decisions, GAO bid protest decisions, SBA’s regulations, GAO reports and 

legal journal articles.

140 Reserving prime contract awards for SBCs in the context of full and 

open multiple award procurements has been beneficial to both SBCs and procuring agencies.

Reserving prime contract awards for SBCs ensures that SBCs have an opportunity to compete, as prime contractors, for future orders. Without the mechanism, SBCs would be unable to 

compete for award for prime contracts under many of the broadly written statements of work 

utilized in today’s contracting environment,141 relegating SBCs exclusively to a subcontracting 

role. Procuring agencies created the reservation mechanism as a result of concern about their 

ability to achieve their small business prime contracting goals when utilizing multiple award 

contracts competed on a full and open basis.

142 In a report on multiple-award contracting, GAO 

examined the practices of six federal organizations and noted that most of the organizations 

had taken some action to enhance small business participation. Three of the six organizations 

that GAO reviewed had reserved one or more prime contract awards for SBCs under full and 

openly competed contracts.

143 GAO singled out the Department of Transportation’s (DOT’s) 

“comprehensive” initiative to promote small business competition, where the agency divided 

138 GSA Acquisition Letter V-05-12 (June 6, 2005).

139 See FAR subpart 16.5, part 19.

140 See Widnall v. B3H Corp., 75 F.3d 1577, 1578-9 (C.A. Fed. 1996), on remand B3H Corp. v. Dep’t of the 

Air Force, 96-2 BCA ¶ 28360, GSBCA No. 12813-P-REM (G.S.B.C.A. May 3, 1996); Phoenix Scientific Corp.

B-286817, Feb. 22, 2001, 2001 CPD ¶ 24; 13 C.F.R. § 125.2(b)(6)(i)(C); GAO/NSIAD-98-215 at 10-11.

Michael J. Benjamin, Multiple Award Task and Delivery Order Contracts: Expanding Protest Grounds and Other 

Heresies, 31 Pub. Con. L.J. 429, 465-6 (2002).

141 See Benjamin 31 Pub Con. L.J. at 440-1.

142 See GAO/NSIAD-98-215 at 8-11.

143 Id.
303

its information technology services requirement into three functional areas, and reserved one 

award in each functional area for a small business and a small disadvantaged business participating in the 8(a) BD program.

144 GAO concluded that DOT’s approach “appears to have been 

successful,” noting that ten of 20 contracts were awarded to small businesses, and small business prime contractors received 39 percent of the orders issued.

145 SBA’s regulations specifically 

cite the reservation of prime contract awards for SBCs in the context of full and open multiple 

award procurements as a way for agencies to mitigate bundling.

146 In fact, because GAO has 

held that if an agency reserves one or more prime contract awards for SBCs the procurement is 

“suitable” for award to an SBC and therefore does not meet the definition of bundling in the 

Small Business Act, agencies that reserve awards for SBCs do not have to comply with the regulatory bundling analysis and justification provisions.

147

Finally, without guidance, the procurement mechanism will continue to be applied, 

most likely inconsistently. There are infinite variations on the small business “reserve.” 

Agencies are reserving contracts for the various types of SBCs, “e.g., 8(a), SDB, HUBZone, 

SDVO.” Agencies reserve awards for SDBs, even though there is currently no authority 

to conduct SDB set-asides.

148 Contracts are reserved for 8(a) concerns, even though 8(a) 

contracts are defined by statute as contracts that are awarded sole source or on the basis 

of competition limited exclusively to 8(a) concerns.

149 In addition, the 8(a), HUBZone, 

and SDVO small business programs take precedence over the small business set-aside program.

150 Arguably, an agency could violate the law by reserving a contract for SBCs, if the 

contracting officer is aware that two or more responsible 8(a), HUBZone, or SDVO SBCs 

are likely to submit fair market price offers in response to the solicitation.

2. Competition for Task Orders 

Based upon the Small Business Working Group’s review of governing laws, policies, 

practices, available data, and court and administrative board decisions, the Panel developed one specific finding concerning the ability of SBCs to compete for orders under multiple award contracts. Specifically the Panel has determined that explicit guidance is necessary for utilizing small contracting reservations for orders against multiple award contracts.

The Panel recognizes that agencies are limiting competition for orders to SBCs under full 

and openly competed multiple award IDIQ contracts. The Panel has determined that the 

procurement mechanism is not contrary to the fair opportunity provisions, but contrary to 

144 Id. at 10-11.

145 Id. at 11.

146 13 C.F.R. § 125.2(b)(6)(i)(C).

147 See 15 U.S.C. § 632(o)(2); 13 C.F.R. § 125.2(d); Phoenix Scientific Corp., B-286817, Feb. 22, 2001, 

2001 CPD ¶ 24.

148 61 Fed. Reg. 26042, 26048 (1996).

149 Generally, dollars awarded to an 8(a) concern only count towards an agency’s 8(a) prime 

contracting goals if the contract was an 8(a) contract. In light of the narrow definition of an 8(a) contract, 

it is questionable whether SBA can accept a contract that has been reserved for 8(a) concerns into the 8(a) 

BD program, where orders will not be competed exclusively among 8(a) concerns. Assuming that SBA 

can accept such an offer, because competition for that particular contract is limited to 8(a) concerns, it is 

questionable whether any order awarded to the 8(a) concern can be counted towards the agency’s 8(a) 

prime contracting goals if the 8(a) concern competed with non-8(a) concerns for the order. 15 U.S.C.

§ 637(a)(1)(D); 13 C.F.R. § 124.501(b).

150 FAR 19.501(c)-(e); 13 C.F.R. § 125.19.
304

the Section 803 requirements applicable to DoD orders for services valued over $100,000.

However, in the context of orders under the MAS program, Section 803 does not prevent 

agencies from limiting competition for orders to SBCs. Finally, the Panel recognizes that 

because there is no express authority for the procurement mechanism, there are also no 

implementing regulations, which has resulted in inconsistent or confusing utilization of 

the procurement mechanism.

Agencies are awarding multiple-award contracts that allow competition for orders to be 

limited to SBCs,151 even though there is no express legal authority to limit competition for 

orders based on socioeconomic status.

152 Agencies are limiting competition for MAS orders 

to SBCs,153 even though there is no express legal authority to limit competition for MAS 

orders to SBCs,154 and the FAR appears to prohibit an agency from denying participation in 

a competition for an order based on socioeconomic status.

155

In the Panel’s view, limiting competition for orders is not contrary to the “fair opportunity” requirements. In contrast to the Section 803 requirements, the fair opportunity 

provisions do not require procuring agencies to formally notify all contractors offering the 

required services of their intent to make a purchase, or to fairly consider all offers to perform a particular order.

156 Moreover, the fair opportunity provisions do not prohibit a procuring agency from considering socioeconomic status when placing orders.

157 In contrast 

to the fair opportunity provisions, Section 803 and its implementing regulations provide 

that when ordering services valued over $100,000, DoD must provide notice of its intent to 

make a purchase to all contractors offering the required services, including a description of 

the work and the basis upon which selection will be made, unless one of the fair opportunity exceptions apply.

158 Further, DoD must afford “all contractors responding to the notice 

a fair opportunity to submit an offer and have that offer fairly considered.”159 However, the 

151 See LB&B Assoc., Inc. v. United States, Case No. 05-1066c, United States Court of Federal Claims; 

Prof’l Performance Dev. Group, Inc., B-294054.3, Sep. 30, 2004, 2004 CPD ¶ 191; Size Appeal of the Dep’t 

of the Air Force, SBA No. SIZ-4732 (2005); Mary Mosquera, 21 Firms to Compete in New Treasury Initiative, 

Wash. Post, Nov. 14, 2005, at D4 (Department of Treasury’s five-year, $3 billion TIPPS-3 contract, where 

orders under $250,000 will be set aside for SBCs).

152 See FAR subpart 16.5, part 19.

153 See Client Network Services, Inc. v. U.S., 64 Fed. Cl. 784 (Fed. Cl. 2005); Systems Plus, Inc., B-297215; 

Information Ventures, Inc., B-297225, Dec. 1, 2005, 2005 CPD ¶216; Planned Systems International, Inc., 

B-292319.7, Feb. 24, 2004, 2004 CPD ¶ 43; CMS Information Services, Inc. - Reconsideration, B-290541.2, 

Nov. 13, 2002; CMS Information Services, Inc., B-290541, Aug. 7, 2002, 2002 CPD ¶ 132; Size Appeal of 

Client Network Services, Inc., SBA No. SIZ-4686 (2005); Size Appeal of the MIL Corporation, SBA No. SIZ4641 (2004); Size Appeal of Advanced Management Technology, Inc., SBA No. SIZ-4638 (2004); Size Appeals 

of Vistronix, Inc. and Department of Justice, SBA No. SIZ-4585 (2003); Size Appeal of Vistronix, Inc., SBA 

No. SIZ-4550 (2003); Size Appeal of Jason Associates, Inc., SBA No. SIZ-4489 (2002); NAICS Appeal of 

SCI Consulting, Inc., SBA No. NAICS-4488 (2002); Size Appeal of Advanced Technologies and Laboratories 

International, Inc., SBA No. SIZ-4484 (2002); Size Appeals of SETA Corporation and Federal Emergency 

Management Agency, SBA No. SIZ-4477 (2002). 

154 See FAR subpart 8.4.

155 The FAR provides that “[t]he ordering activity shall provide the RFQ (including the statement 

of work and the evaluation criteria) to any schedule contractor who requests a copy of it” and “[t]he 

ordering activity shall evaluate all responses received using the evaluation criteria provided to the schedule 

contractors.” FAR 8.405-2(c)(4), (d). 

156 See FAR 16.505.

157 Id.

158 DFAR 216.505-70.

159 Id.
305

Panel finds that limiting competition for orders (under multiple award contracts, except 

for MAS) to SBCs is contrary to the “Section 803” requirements. In contrast to the fair 

opportunity provisions, Section 803 and its implementing regulations provide that when 

ordering services valued over $100,000, DoD must provide notice of its intent to make a 

purchase to all contractors offering the required services, including a description of the 

work and the basis upon which selection will be made, unless one of the fair opportunity 

exceptions apply.

160 Further, DoD must afford “all contractors responding to the notice a 

fair opportunity to submit an offer and have that offer fairly considered.”161

As discussed in Section III(A) of this chapter, while the fair opportunity provisions do 

not apply to MAS orders, Section 803 did impose additional requirements on DoD activities 

ordering services under the MAS program. In the Panel’s view, limiting competition for an 

MAS order to SBCs is not contrary to the “Section 803” requirements. Section 803 provides 

that “notice may be provided to fewer than all contractors offering such services” under a 

MAS contract “if notice is provided to as many contractors as practicable.”162 Section 803 

further provides that where notice is not provided to all contractors, a purchase may not 

be made unless: (1) offers were received from at least three qualified contractors or (2) a 

contracting officer determines in writing that that no additional qualified contractors could 

be identified despite reasonable efforts to do so.

163 As of September 2005, 4402 of 5086 

contractors on GSA’s Schedule 70 (General Purpose Commercial Information Technology 

Equipment, Software, and Services) were SBCs (approximately 87 percent). As of the same 

date, 1166 of 1666 contractors on GSA’s 874 MOBIS Schedule (Mission Oriented Business 

Integrated Services) were SBCs (approximately 70 percent). Thus, under these very popular 

Schedules, a DoD procuring activity could provide notice of its intent to purchase to a small 

percentage of SBCs on the Schedule and easily receive at least three offers.

Finally, without guidance, the procurement mechanism will continue to be applied, 

most likely inconsistently. As reflected in Section III(A) of this chapter, there have been 

numerous size protest and appeal decisions concerning size status, and thus eligibility, for 

orders that were awarded pursuant to competition limited to SBCs.

164

160 DFAR 216.505-70.

161 Id.

162 Section 803(b)(3) of the National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 107-

107, 115 Stat. 1179 (2001); see also DFAR 216.505-70.

163 Section 803(b)(4) of the National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 107-

107, 115 Stat. 1179 (2001); see also DFAR 216.505-70.

164 LB&B Assoc., Inc. v. U.S., 68 Fed. Cl. 765 (Fed. Cl. 2005); Client Network Servs., Inc. v. United States, 

64 Fed. Cl. 784 (2005); Sys. Plus, Inc., B-297215, Dec. 16, 2005; Planned Sys. Int’l, Inc., B-292319.7, Feb. 24, 

2004, 2004 CPD ¶ 43; CMS Info. Servs., Inc. - Reconsideration, B-290541.2, Nov. 13, 2002; CMS Info. Servs. 

Inc., B-290541, Aug. 7, 2002, 2002 CPD ¶ 132; Size Appeal of Client Network Servs., Inc., SBA No. SIZ-4686 

(2005); Size Appeal of the Dep’t of the Air Force, SBA No. SIZ-4732 (2005); Size Appeal of the MIL Corp., SBA 

No. SIZ-4641 (2004); Size Appeal of Advanced Mgmt. Tech., Inc., SBA No. SIZ-4638 (2004); Size Appeals 

of Vistronix, Inc. & Dep’t of J., SBA No. SIZ-4585 (2003); Size Appeal of Vistronix, Inc., SBA No. SIZ-4550 

(2003); Size Appeal of Jason Assoc., Inc., SBA No. SIZ-4489 (2002); NAICS Appeal of SCI Consulting, Inc., SBA 

No. NAICS-4488 (2002); Size Appeal of Advanced Techs. & Labs. Int’l, Inc., SBA No. SIZ-4484 (2002); Size 

Appeals of SETA Corp. & Fed. Emergency Mgmt. Agency, SBA No. SIZ-4477 (2002).
306

C. Recommendations

1. Competition for Multiple Award Contracts

An agency must conduct market research to determine whether a total or partial small 

business set-aside is appropriate before issuing any solicitation, including a solicitation 

where multiple contracts will be awarded. See FAR §§ 10.001, 10.002, 19.502-2, 19.800(e), 

19.1305, 19.1405, 38.101(e); 13 C.F.R. § 125.19(b). If a set-aside is not appropriate, then 

a solicitation for multiple awards will be issued on a full and open competitive basis. As 

discussed in the Background and Findings under Section III of this chapter, some procuring 

agencies are reserving one or more prime contracts for SBCs in the context of full and open 

multiple award procurements. The Working Group found that reserving multiple award 

contracts for SBCs helps procuring agencies achieve their annual small business prime contracting goals and mitigates the effects of bundling. There is no express legal authority for 

a small business reserve in the context of a full and open procurement. In fact, reserving 

contracts based on socio-economic status under full and open multiple award procurements may be contrary to the Competition in Contracting Act and its implementing regulations. Consequently, the Panel recommends that 10 U.S.C. § 2304a(d)(3) and 41 U.S.C.

§ 253h(d)(3) be amended to provide a new paragraph (C):

(3) The regulations implementing this subsection shall –

(A) establish a preference for awarding, to the maximum extent practicable, 

multiple task or delivery order contracts for the same or similar services or 

property under the authority of paragraph (1)(B); and

(B) establish criteria for determining when award of multiple task or 

delivery order contracts would not be in the best interest of the Federal 

Government.; and 

(C) establish criteria for reserving one or more contract awards for 

small business concerns under full and open multiple award procurements, including the subcategories of small business concerns identified in Section 15(g)(2) of the Small Business Act (15 U.S.C. 644(g)(2)), 

when a total set aside is not appropriate. 

Proposed paragraph (C) would give agencies the discretion to reserve contracts for 

HUBZone, SDB, SDVO and Women-Owned SBCs, but not 8(a) concerns, because of 

the way 8(a) procurements are conducted and the way dollars awarded to 8(a) concerns 

are counted. The authority to reserve contract for SBCs in full and open multiple award 

procurements would not supersede or diminish statutory or regulatory set-aside analysis requirements applicable to multiple award procurements. See FAR §§ 10.001, 10.002, 

19.502-2, 19.800(e), 19.1305, 19.1405, 38.101(e); 13 C.F.R. § 125.19(b). 

2. Competition for Task Orders 

As discussed in the Background and Findings, agencies are limiting competition for 

particular orders to SBCs. The Panel found that this practice benefits procuring agencies by 

enhancing their ability to meet their prime contracting goals, and benefits SBCs by providing them with an opportunity to compete for orders on a level playing field. The Panel 
307

found that the practice is probably not contrary to the fair opportunity provisions, but is 

contrary to the Section 803 provisions applicable to DoD. Thus, the Panel recommends 

that contracting agencies, including DoD, be given explicit discretion to limit competition 

for orders to SBCs. Consequently, the Panel recommends that 10 U.S.C. § 2304c and 41 

U.S.C. § 253j be amended to redesignate paragraphs (c), (d), (e) and (f) as paragraphs (d), 

(e), (f) and (g) and include a new paragraph (c):

(a) Issuance of orders.--The following actions are not required for issuance 

of a task or delivery order under a task or delivery order contract:

(1) A separate notice for such order under section 18 of the Office of Federal Procurement Policy Act (41 U.S.C. 416) or section 8(e) of the Small 

Business Act (15 U.S.C. 637(e)).

(2) Except as provided in subsection (b), a competition (or a waiver of 

competition approved in accordance with section 2304(f) of this title) that 

is separate from that used for entering into the contract.

(b) Multiple award contracts.--When multiple task or delivery order contracts are awarded under section 2304a(d)(1)(B) or 2304b(e) of this title, 

all contractors awarded such contracts shall be provided a fair opportunity 

to be considered, pursuant to procedures set forth in the contracts, for each 

task or delivery order in excess of $2,500 that is to be issued under any of 

the contracts unless–

(1) the agency’s need for the services or property ordered is of such unusual 

urgency that providing such opportunity to all such contractors would 

result in unacceptable delays in fulfilling that need;

(2) only one such contractor is capable of providing the services or property required at the level of quality required because the services or property ordered are unique or highly specialized;

(3)the task or delivery order should be issued on a sole-source basis in the 

interest of economy and efficiency because it is a logical follow-on to a task 

or delivery order already issued on a competitive basis; or

(4) it is necessary to place the order with a particular contractor in order to 

satisfy a minimum guarantee.

(c) Notwithstanding paragraph (b) and Section 803 of Pub. Law No. 

107-107, 115 Stat. 1012 (2002), a contracting officer has the discretion to 

set forth procedures in multiple award contracts that provide that competition for particular orders may be limited to small business concerns, 

including the subgroups identified in Section 15(g)(2) of the Small 

Business Act (15 U.S.C. 644(g)(2)).

The Panel recommends that FAR § 16.504 be amended to provide:
308

(a) Description. An indefinite-quantity contract provides for an indefinite 

quantity, within stated limits, of supplies or services during a fixed period.

The Government places orders for individual requirements. Quantity limits 

may be stated as number of units or as dollar values.

(1) The contract must require the Government to order and the contractor 

to furnish at least a stated minimum quantity of supplies or services. In 

addition, if ordered, the contractor must furnish any additional quantities, 

not to exceed the stated maximum. The contracting officer should establish a reasonable maximum quantity based on market research, trends on 

recent contracts for similar supplies or services, survey of potential users, or 

any other rational basis.

(2) To ensure that the contract is binding, the minimum quantity must be 

more than a nominal quantity, but it should not exceed the amount that 

the Government is fairly certain to order.

(3) The contract may also specify maximum or minimum quantities that 

the Government may order under each task or delivery order and the maximum that it may order during a specific period of time.

(4) A solicitation and contract for an indefinite quantity must— 

* * * * *

(iv) State the procedures that the Government will use in issuing orders, 

including the ordering media, and, if multiple awards may be made, state 

the procedures and selection criteria that the Government will use to 

provide awardees a fair opportunity to be considered for each order (see 

16.505(b)(1)) and state whether competition for particular orders may 

be limited based on socio-economic status; 

* * * * *

The Panel further recommends that FAR § 16.505 be amended to provide:

(b) Orders under multiple award contracts— 

(1) Fair opportunity.

(i) The contracting officer must provide each awardee a fair opportunity to 

be considered for each order exceeding $2,500 issued under multiple delivery-order contracts or multiple task-order contracts, except as provided for 

in paragraph (b)(2) of this section.

(ii) The contracting officer may exercise broad discretion in developing 

appropriate order placement procedures. The contracting officer should 

keep submission requirements to a minimum. Contracting officers may 

use streamlined procedures, including oral presentations. In addition, the 

contracting officer need not contact each of the multiple awardees under 

the contract before selecting an order awardee if the contracting officer has 
309

information available to ensure that each awardee is provided a fair opportunity to be considered for each order. The competition requirements in 

Part 6 and the policies in Subpart 15.3 do not apply to the ordering process. However, the contracting officer must— 

(A) Develop placement procedures that will provide each awardee a fair 

opportunity to be considered for each order and that reflect the requirement and other aspects of the contracting environment; 

(B) Not use any method (such as allocation or designation of any preferred 

awardee) that would not result in fair consideration being given to all 

awardees prior to placing each order; 

(C) Tailor the procedures to each acquisition; 

(D) Include the procedures in the solicitation and the contract; and 

(E) Consider price or cost under each order as one of the factors in the 

selection decision.

(iii) The contracting officer should consider the following when developing 

the procedures: 

(A) (1) Past performance on earlier orders under the contract, including 

quality, timeliness and cost control.

(2) Potential impact on other orders placed with the contractor.

(3) Minimum order requirements.

(4) The amount of time contractors need to make informed business decisions on whether to respond to potential orders.

(5) Whether contractors could be encouraged to respond to potential 

orders by outreach efforts to promote exchanges of information, such as— 

* * * * *

(6) Whether competition for orders will be limited based on socioeconomic status.

* * * * *

The Panel further recommends that DFAR § 216.505-70 be amended to provide:

(a) This subsection–

(1) Implements Section 803 of the National Defense Authorization Act for 

Fiscal Year 2002 (Pub. L. 107-107);

(2) Applies to orders for services exceeding $100,000 placed under multiple award contracts, instead of the procedures at FAR 16.505(b)(1) and 

(2) (see Subpart 208.4 for procedures applicable to orders placed against 

Federal Supply Schedules);
310

(3) Also applies to orders placed by non-DoD agencies on behalf of DoD; and

(4) Does not apply to orders for architect-engineer services, which shall be 

placed in accordance with the procedures in FAR Subpart 36.6.

* * * * *

(c) An order for services exceeding $100,000 is placed on a competitive 

basis only if the contracting officer--

(1)(i) Provides a fair notice of the intent to make the purchase, including 

a description of the work the contractor shall perform and the basis upon 

which the contracting officer will make the selection, to all contractors 

offering the required services under the multiple award contract; and

(2) (ii) Affords all contractors responding to the notice a fair opportunity 

to submit an offer and have that offer fairly considered; or

(2) (i) Provides a fair notice of the intent to make the purchase, including a description of the work the contractor shall perform and the basis 

upon which the contracting officer will make the selection, to all small 

business contractors offering the required services under the multiple 

award contract; and

(ii) Affords all small business contractors responding to the notice a 

fair opportunity to submit an offer and have that offer fairly considered.

* * * * *

With respect to the ability of procuring agencies to limit competitions for 

orders under the MAS program to SBCs, the Panel recommends that FAR 

§ 8.405-5 be amended to provide as follows:

(a) Although the mandatory preference programs of Part 19 do not apply, 

orders placed against schedule contracts may be credited toward the ordering activity’s small business goals. For purposes of reporting an order 

placed with a small business schedule contractor, an ordering agency may 

only take credit if the awardee meets a size standard that corresponds to 

the work performed. Ordering activities should rely on the small business 

representations made by schedule contractors at the contract level.

(b) Ordering activities may consider socio-economic status when identifying 

contractor(s) for consideration or competition for award of an order or BPA.

(1) Ordering activities may, in their sole discretion, explicitly limit 

competition for an order to small business concerns, including veteranowned small business, service disabled veteran-owned small business, 

HUBZone small business, women-owned small business, or small disadvantaged business schedule contractor(s).
311

(2) At a minimum, ordering activities should consider, if available, at 

least one small business, veteran-owned small business, service disabled 

veteran-owned small business, HUBZone small business, women-owned 

small business, or small disadvantaged business schedule contractor(s).

GSA Advantage! and Schedules e-Library at http://www.gsa.gov/fss contain 

information on the small business representations of Schedule contractors.

(c) For orders exceeding the micro-purchase threshold, ordering activities 

should give preference to the items of small business concerns when two or 

more items at the same delivered price will satisfy the requirement.

In addition, the Panel recommends that FAR § 8.405-2(d) be amended to provide:

(d) Evaluation. The ordering activity shall evaluate all responses received 

using the evaluation criteria provided to the schedule contractors (unless 

competition was limited based on socio-economic status (see 8.405-

5(b)(1)). The ordering activity is responsible for considering the level of 

effort and the mix of labor proposed to perform a specific task being ordered, 

and for determining that the total price is reasonable. Place the order, or 

establish the BPA, with the schedule contractor that represents the best value 

(see 8.404(d)). After award, ordering activities should provide timely notification to unsuccessful offerors. If an unsuccessful offeror requests information on an award that was based on factors other than price alone, a brief 

explanation of the basis for the award decision shall be provided.

The Panel also recommends that DFAR § 208.405-70 be amended to provide:

(a) This subsection--

(1) Implements Section 803 of the National Defense Authorization Act for 

Fiscal Year 2002 (Pub. L. 107-107) for the acquisition of services, and establishes similar policy for the acquisition of supplies;

(2) Applies to orders for supplies or services under Federal Supply Schedules, including orders under blanket purchase agreements established 

under Federal Supply Schedules; and

(3) Also applies to orders placed by non-DoD agencies on behalf of DoD.

* * * * *

(c) An order exceeding $100,000 is placed on a competitive basis only if 

the contracting officer provides a fair notice of the intent to make the purchase, including a description of the supplies to be delivered or the services 

to be performed and the basis upon which the contracting officer will 

make the selection, to–

(1) As many schedule contractors as practicable, consistent with market 

research appropriate to the circumstances, to reasonably ensure that offers 
will be received from at least three contractors that can fulfill the requirements, and the contracting officer–

(i)(A) Receives offers from at least three contractors that can fulfill the 

requirements; or

(B) Determines in writing that no additional contractors that can fulfill the 

requirements could be identified despite reasonable efforts to do so (documentation should clearly explain efforts made to obtain offers from at least 

three contractors); and

(ii) Ensures all offers received are fairly considered; or

(2) As many small business schedule contractors as practicable, consistent with market research appropriate under the circumstances, and 

the contracting officer receives offers from at least three small business 

schedule contractors that can fulfill the work requirements; or

(2)(3) All contractors offering the required supplies or services under the 

applicable multiple award schedule, and affords all contractors responding 

to the notice a fair opportunity to submit an offer and have that offer fairly 

considered.

(d) See PGI 208.405-70 (Pop-up Window or PGI Viewer Mode) for additional information regarding fair notice to contractors and requirements 

relating to the establishment of blanket purchase agreements under Federal 

Supply Schedules.

312
313

Appendix A

Federal Procurement Data System Small Business Goaling Report

Actions Reported Between FY 2005 (Q1) and FY 2005 (Q4)

Department Name Small 

Business 

Goal

Small

Business 

Actual

Total SDB 

Actual

8(a) Goal 8(a) 

Actual

Other 

SDB Goal

Other 

SDB 

Actual

Total Federal 23.00% 3.00% 5.00%

Dept of Defense (9700) 23.00% 24.57% 6.63% 2.60% 3.24% 3.10% 3.38%

Energy, Department of (8900) 5.50% 4.11% 1.35% 2.20% 0.85% 1.00% 0.50%

National

Aeronautics and Space

Administration (8000) 

16.16% 14.44% 6.47% 3.69% 3.21% 3.00% 3.25%

Health and

Human Services,

Department of (7500)

30.32% 36.43% 8.33% 5.50% 3.99% 11.12% 4.34%

General Services

Administration (4700)

43.00% 34.95% 10.79% 5.00% 5.43% 8.00% 5.35%

Homeland Security,

Department of (7000)

23.00% 46.30% 7.57% 2.50% 2.94% 2.50% 4.63%

Agriculture,

Department of (1200)

45.00% 49.53% 8.34% 5.00% 3.29% 5.00% 5.05%

Justice, Department of (1500) 31.50% 34.63% 5.18% 3.70% 2.20% 12.00% 2.97%

Interior,

Department of the (1400) 

56.14% 55.24% 21.67% 8.26% 11.41% 8.91% 10.26%

State, Department of (1900) 40.00% 35.32% 13.29% 7.00% 2.17% 7.00% 11.11%

Labor, Department of (1600) 26.00% 33.68% 11.20% 4.84% 2.95% 5.20% 8.25%

Education,

Department of (9100) 

23.00% 9.20% 3.01% 4.00% 1.13% 1.00% 1.87%

Commerce,

Department of (1300) 

44.80% 51.96% 15.53% 6.11% 6.11% 10.35% 9.41%

Environmental

Protection Agency (6800)

27.00% 33.76% 12.29% 6.30% 4.76% 3.00% 7.53%

Agency for International

Development (1152)

44.25% 4.10% 6.38% 1.23% 2.33% 24.56% 4.04%

Housing and Urban

Development,

Department of (8600)

38.13% 63.56% 37.20% 6.09% 18.73% 7.07% 18.46%

Social Security

Administration (2800)

33.50% 35.92% 10.12% 8.50% 6.73% 5.80% 3.38%

Office of Personnel

Management (2400)

19.90% 34.14% 6.03% 2.20% 0.25% 3.40% 5.78%

Executive Office of

the President (1100)

50.00% 15.19% 5.21% 15.00% 1.08% 25.00% 4.12%

Smithsonian Institution (3300) 50.00% 26.40% 11.09% 6.66% 1.60% 6.66% 9.49%

CHAPTER 4–APPENDIces
314

Federal Procurement Data System Small Business Goaling Report

Actions Reported Between FY 2005 (Q1) and FY 2005 (Q4)

Department Name HUBZone 

Goal

HUBZone 

Actual

Woman 

Owned 

Small 

Business 

Goal

Women 

Owned 

Small 

Business 

Actual

Service 

Disabled 

Veteran 

Owned 

Small 

Business 

Goal

Service 

Disabled 

Veteran 

Small 

Business 

Actual

Total Federal 3.00% 5.00% 3.00%

Dept of Defense (9700) 3.00% 1.94% 5.00% 3.00% 3.00% 0.49%

Energy, Department of 

(8900) 

1.50% 0.19% 3.30% 0.57% 1.50% 0.21%

National 

Aeronautics 

and Space 

Administration (8000)

3.00% 0.28% 5.00% 2.08% 3.00% 1.12%

Health and Human Services, 

Department of (7500) 

3.03% 1.67% 5.05% 4.99% 3.00% 0.44%

General Services 

Administration (4700) 

3.00% 4.06% 5.00% 6.19% 3.00% 1.20%

Homeland Security, 

Department of (7000) 

3.00% 2.05% 5.00% 4.53% 3.00% 0.48%

Agriculture, 

Department of (1200) 

3.00% 9.10% 5.00% 5.31% 3.00% 0.60%

Justice, Department of 

(1500) 

3.00% 1.15% 5.00% 6.40% 3.00% 0.78%

Interior, Department of the 

(1400)

3.13% 8.96% 5.47% 8.97% 3.00% 1.09%

State, Department of (1900) 3.00% 0.16% 5.00% 6.23% 3.00% 2.01%

Labor, Department of (1600) 3.00% 1.33% 5.20% 5.28% 3.00% 0.85%

Education, Department of 

(9100) 

3.00% 0.23% 5.00% 2.50% 3.00% 0.08%

Commerce, 

Department of (1300) 

3.00% 2.20% 7.80% 9.63% 3.00% 1.27%

Environmental Protection 

Agency (6800) 

3.00% 1.01% 5.00% 4.65% 3.00% 0.20%
315

Department Name HUBZone 

Goal

HUBZone 

Actual

Woman 

Owned 

Small 

Business 

Goal

Women 

Owned 

Small 

Business 

Actual

Service 

Disabled 

Veteran 

Owned 

Small 

Business 

Goal

Service 

Disabled 

Veteran 

Small 

Business 

Actual

Agency for International 

Development (1152) 

3.00% 0.08% 5.00% 1.27% 3.00% 0.18%

Housing and Urban 

Development, 

Department of (8600)

3.00% 6.74% 15.03% 24.30% 3.00% 1.52%

Social Security 

Administration (2800) 

3.00% 2.13% 5.00% 5.21% 3.00% 0.42%

Office of Personnel 

Management (2400) 

3.00% 0.05% 5.00% 15.97% 3.00% 0.13%

Executive Office of the 

President (1100) 

3.00% 0.67% 9.00% 2.51% 3.00% 0.10%

Smithsonian 

Institution (3300)

3.33% 3.40% 7.77% 5.26% 3.33% 0.01%

317

Appendix B

Subcontracting with Small Businesses

The Panel’s Small Business Working Group initially explored issues related to large 

entities subcontracting with small business concerns. Specifically, the Panel reviewed 

whether recommendations could be made to support greater integrity in the area of ‘other 

than small business’ (“OTSB”) subcontracting with small businesses. An OTSB is any entity 

that is not a small business. In most cases this includes large businesses, public utilities, 

universities, non-profits, and foreign-owned firms.

The Working Group spent significant time reviewing two primary facets of this question: prompt payments by OTSB to small businesses, and OSTB compliance with small 

business subcontracting plans. A review was conducted of the legal and regulatory history, 

oversight reports, and government contracting databases. Testimony was received from 

small business witnesses, interviews were conducted with leaders of the Small and Disadvantaged Business Offices from various federal agencies, and discussions were held with 

leaders from several large businesses.

Ultimately, the Panel’s Working Group was unable to assemble comprehensive data 

required to permit in-depth analysis and the crafting of recommendations.

The Panel’s Working Group does, however, believe an opportunity exists today to ensure 

that the next panel assigned to review this issue is in a better position to do so. The federal 

government recently launched the first generation of a new electronic Subcontract Reporting 

System (“eSRS” – see www.esrs.gov for more information), which is designed to expand visibility and transparency in the collection of federal subcontracting data and accomplishments.

In its initial release, the system will eliminate the need for paper submissions and processing 

of the SF 294’s, Individual Subcontracting Reports, and SF 295’s, Summary Subcontracting 

Reports, and replace the paper with an easy-to-use electronic process to collect the data. It is 

the Panel Working Group’s hope that once this web-based reporting tool is fully operational, 

it will provide more accurate and timely data, as well as analytical tools to permit a comprehensive examination of small business subcontracting activity. 

The Panel’s Working Group encourages eSRS program leadership to review the system 

to validate that it will capture data at a meta-level, as well as a contract-specific level, to 

permit future panels to better study the issues. The Working Group views this is an opportunity to further enhance the system’s capabilities prior to full utilization. We strongly 

encourage eSRS program leadership to take advantage of this period as an opportunity to 

be more aggressive in their approach to ensure compliance with various subcontracting 

program requirements.

The Panel’s Working Group recommends the eSRS program leadership review the following areas for inclusion in the eSRS system: 

1) A means of validating annual federal-wide small business subcontract award statistics; 

2) Characterization of the type of work being performed by a small business subcontractor 

on a given contract (e.g., technology, service, or product orientation);

3) Support for the gathering of small business subcontractor performance for past performance 

citations; and,
318

4) Finally, with regard to ‘stovepiping,’ the Panel strongly suggests that eSRS leverage existing data collection systems and methods (e.g., CCR) and support the integration of 

those systems, and related data, to allow for more robust data collection and analysis.

Background

Over the past 20 years, small businesses have succeeded in winning significant business 

as subcontractors. According to data from the Small Business Administration (SBA), in the 

period from 1985 to 2003, small businesses were awarded subcontracting dollars ranging 

from a low of $20.8 billion in FY 1993 to a high of $45.5 billion in FY 2003. During this 

period, the percentage of subcontracting dollars ranged from a low of 35.1 percent to a 

high of 41.9 percent. Within the context of this success, however, the Government Accountability Office (“GAO”), small businesses, agency representatives, and others have documented areas for improvement in the small business subcontracting program. 

During the Small Business Working Group’s initial investigation into subcontracting 

with small businesses, the Panel heard from many and widely varied small businesses. Two 

areas which emerged as common themes of concern included: 

1) Compliance by OTSBs with subcontracting plans; and, 

2) Prompt payments to small business subcontractors by their primes.

The degrees of concern expressed by witnesses, as well as anecdotal evidence brought 

by Panel members, drew the Panel to focus on these two areas.

With regard to subcontracting plans, the impression exists that small firms are tapped 

by larger primes for the purpose of achieving compliance with federal small business subcontracting requirements, with no real intent on the part of the prime to utilize the small 

businesses after an award is made. OTSB contractors must submit subcontracting plans 

establishing participation goals for small business and small disadvantaged businesses for 

all federal contracts or subcontracts for goods and services exceeding $1,000,000 in the 

case of construction contracts for public facilities, or $500,000 for all other contracts.

Prompt payment concerns emphasized the severe impact untimely payments can 

inflict on small businesses with limited working capital to float financial commitments to 

employees and suppliers. It is important, however, to note that in the testimony received, 

the prompt payment issue was not limited to prime contractors but was also raised with 

regard to payments from federal agencies working directly with small businesses.

The President’s Small Business Agenda reiterates that the small business contracting 

process should be fair, open, and straightforward. To successfully execute this agenda, all 

stakeholders must have confidence that the spirit of existing subcontracting laws and regulations are consistently and fairly implemented. Federal agencies, prime contractors, and 

small business subcontractors all deserve fair treatment.

Subcontracting with Small Businesses

Governing Law–In 1958, Congress passed, and the President signed, Public Law (P.L.) 

85-563, which amended the Small Business Act of 1953 and established a voluntary subcontracting program. An early mechanism used by federal agencies to award subcontracts 

to small and socially and economically disadvantaged businesses was a contractual clause 

set forth in the Armed Services Procurement Regulation (“ASPR”) 7-104.36. In 1977, a 
319

Comptroller General Report concluded that this clause was ineffective because it did not 

specifically detail how contractors were to promote the subcontracting. Therefore, in 1978, 

Congress acted to explicitly declare, with the enactment of P.L. 95-507, codified at 15 

U.S.C. § 637(d), that “[it] is the policy of the United States that small business concerns 

have the maximum practicable opportunity to participate in the performance of contracts 

let by any federal agency, including contracts and subcontracts for subsystems, assemblies, 

components, and related services for major systems.” Additionally, 15 U.S.C. § 644(a) also 

provides that it is in the interest of the government to ensure that “a fair proportion of the 

total purchases and contracts for property and services for the government in each industry 

category are placed with small-business concerns.” As the basis for this policy, Section 211 

of this Act provides that “no contract shall be awarded to any offeror unless the procurement authority determines that the plan of the proposed prime contractor offers such 

maximum practicable opportunity.” 

The Federal Acquisition Regulation (“FAR”) Part 19.7 implemented the requirements of 

P.L. 105-507 by setting forth the structure for a subcontracting program. The Small Business 

Subcontracting Program’s primary mission is to promote maximum possible use of small 

businesses by requiring OTSBs awarded federal contracts to submit a subcontracting plan 

if: 1) The contract exceeds $500,000 ($1 million for construction of a public facility); and, 

2) Offers further subcontracting opportunities. Among other elements, those small business subcontracting plans must contain the following information: 

• Goals stated in both dollars and percentages: The contractor must state the total subcontracting dollars, and then state separately the total dollars that will be subcontracted to 

SB, SDB, WOSB, HUBZone SB, VOSB and SD/VOSB. The SB dollar amount must include 

all the small business subset amounts. The percentages must be expressed as percentages 

of the total subcontracting dollars. Goals for option years must be broken out separately.

• Total dollars planned to be subcontracted to each group;

• A description of the types of supplies and services to be subcontracted to each group, 

including the supplies and services to be subcontracted to OTSB subcontractors; 

• A description of the method used to develop each of the goals;

• A description of the method used to identify potential sources;

• A statement as to whether or not indirect costs were included in the subcontracting goals.

OSTB compliance with subcontracting plans are tracked and audited via a number of 

avenues, including periodic reports, compliance reviews, and audits. For a detailed discussion of the subcontracting plan creation and management, reporting requirements and 

auditing functions, please see the Small Business Administration’s publication, Small Business Liaison Officer Handbook, published in January 2005.

Prompt Payment

Governing Law–With regard to the prompt payment of small business subcontractors, 

Public Law 95-507 established the framework for OTSBs to subcontract with small businesses.

Subsequent to the enactment of this law in the late 1970s, the Federal Acquisition Regulation 

Council implemented regulatory processes for agencies to comply with the law. FAR Clause 

52.219-8, Utilization of Small Business Concerns, states that “it is further the policy of the 
320

United States that its prime contractors establish procedures to ensure the timely payment of 

amounts due pursuant to the terms of their subcontracts with small business concerns.”

FAR 32.5, Progress Payments Based on Costs, established the “paid cost rule.” This rule 

required large businesses to pay a subcontractor before including the payment in progress 

payment billings to the government customer. In contrast, small businesses needed only 

have incurred those costs to include them in their billings, provided they paid their vendors in the ordinary course of business. In 2000, this FAR rule was eliminated. According 

to Department of Defense memoranda, this change meant that there would be consistent 

treatment of all incurred subcontract costs, without regard to whether the cost was incurred 

by a large or small business. Provisions now require that both large and small business 

prime contractors pay incurred subcontract amounts 1) in accordance with the terms of a 

subcontract or invoice and, 2) ordinarily before submittal of the next payment request sent 

to the government. 

FAR 32.112 addresses actions that contracting officers must take when a subcontractor 

alleges nonpayment, and requires immediate response on the part of contracting officers to 

subcontractor complaints. The Defense Contract Management Agency issued an Information Memorandum No. 05-022, August 24, 2005, that provides administrative contracting 

officers and contract administrators with guidance on the remedies available to them for 

the untimely payment to subcontractors. An inquiry has been made as to the existence of 

similar guidance for civilian agencies.

Since Public Law 95-507, subcontracting on large federal contracts has become important to small business. Based on data from the Small Business Administration (SBA), the 

dollars paid to small subcontractors increased by 40 percent from fiscal year 1993 to fiscal 

year 2001.

Prompt Payment–Background, Current Practices and Oversight

Federal agencies maintain a high degree of interest in their contractor teams efficiently 

working together to achieve program and mission goals. A program where prime contractors consistently pay subcontractors on time can indicate financial solvency on the part of 

all involved, as well as satisfactory subcontractor performance. Failure to pay, however, can 

portend financial difficulties on the part of the prime or unacceptable performance on the 

part of the subcontractor and, as a result, increase the risk of program failure.

According to Defense Contract Management Agency Memorandum No. 05-022, Contracting Officers and Contract Administrators have the following remedies available when 

prime contractors fail to pay subcontractors in accordance with the terms and conditions 

of a subcontractor or subcontract invoice:

• Recommend removal of the prime from the Direct Billing Program for not following 

approved payment procedures, in coordination with DCAA.

• Assign high risk ratings on prime contractor subcontracting plans for failure to manage 

subcontracts.

• Decrement billing rates, in coordination with DCAA.

• Implement fee or payment withholding.

• Suspend or reduce progress payments.

• Document poor subcontract management in contract performance ratings.

• Disallow unpaid subcontract costs for financing and interim payments.
321

Legislation and Regulations Affecting Federal Primes and Subcontracts

1. Public Law 85-536. Passed in 1958, this legislation amended the Small Business Act 

of 1953 and authorized a voluntary subcontracting program. Prior to 1978, this statute was implemented most effectively in the Armed Services Procurement Regulations 

(ASPR), a predecessor to the FAR. It required large contractors receiving contracts over 

$500,000 with substantial subcontracting opportunities to establish a program that 

would enable minority business concerns to be considered fairly as subcontractors or 

suppliers.

2. Public Law 95-507. Passed in 1978, this legislation amended Section 8(d) of the Small 

Business Act and created the foundation for the Subcontracting Assistance Program, as 

it is known today. It changed the participation of large contractors in the program from 

voluntary to mandatory, and it changed the language of the law from “best efforts” to 

“maximum practicable opportunities.” Key features include:

a. A requirement that all federal contracts in excess of $100,000 (as amended) provide maximum practicable opportunity for small and small disadvantaged business to participate; 

and

b. A requirement that all federal contracts in excess of $500,000 ($1,000,000 in the case 

of construction contracts for public facilities) is accompanied by a formal subcontracting plan containing separate goals for small business and small disadvantaged 

business.

3. Public Law 98-577 (The Small Business and Federal Procurement Enhancement Act 

of 1984). This legislation amended the Small Business Act as follows:

a. By providing that small and small disadvantaged businesses be given the maximum 

practicable opportunity to participate in contracts and subcontracts for subsystems, 

assemblies, components, and related services for major systems; and

b. By requiring federal agencies to establish procedures to ensure the timely payment 

of amounts due pursuant to the terms of their subcontracts with small and small 

disadvantaged businesses.

4. Public Law 99-661 (The National Defense Authorization Act of 1987). Section 1207 

of this statute required the Department of Defense to establish as its objective a goal 

of five percent of the total combined amount obligated for contracts and subcontracts 

entered into with small and small disadvantaged businesses in each of fiscal years 1987, 

1988, and 1989. Also, the use of SDB set-asides was authorized. (Subsequent legislation extended this period through the year 2000; however, the set-aside aspect of the 

program was suspended in FY 1996.)

5. Public Law 100-180 (The National Defense Authorization Act of 1988 and 1989).

Section 806 required the Secretary of Defense to increase awards to small and small disadvantaged business.

6. Public Law 100-656 (The Business Opportunity Reform Act of 1988). The principal 

focus of this legislation was the 8(a) Program, but it contained a number of other provisions which affected the Subcontracting Assistance Program. These other provisions 

included the following:
322

 a. Section 304 requires that the FAR be amended to include a requirement for a contract clause authorizing the government to assess liquidated damages against large 

contractors which fail to perform according to the terms of their subcontracting plans 

and cannot demonstrate that they have made a good faith effort to do so;

 b. Section 502, now codified at 15 U.S.C. Section 644(g)(1), requires the President 

to establish annual goals for procurement contracts of not less than 20 percent for 

small business prime contract awards and not less than 5 percent for small disadvantaged business prime contract and subcontract awards for each fiscal year [emphasis 

added]; and,

 c. Section 503 requires the SBA to compile and analyze reports each year submitted 

by individual agencies to assess their success in attaining government-wide goals for 

small and small disadvantaged businesses, and to submit the report to the President.

7. Public Law 101-189 (National Defense Authorization Act For Fiscal Year 1990). Section 

834 established the Test Program for the Negotiation of Comprehensive Subcontracting 

Plans. This statute authorized a pilot program limited to a few Department of Defense 

large business large contractors approved by the Office of Small and Disadvantaged Business Utilization (OSDBU) at the Pentagon. The program allows these companies to have 

one company-wide subcontracting plan for all defense contracts, rather than individual 

subcontracting plans for every contract over $500,000, and it waives the requirement for 

the semi-annual SF 294 Subcontracting Report for Individual Contracts. The large contractor 

is still required to submit the SF 295 semi-annually, and it is required to have individual 

subcontracting plans and to submit SF 294s on any contracts with other government 

agencies. Public Law 103-355, Section 7103, extended this test program through September 30, 1998; the program remains in effect through a series of annual extensions.

8. Public Law 101-510 (The National Defense Authorization Act for Fiscal Year 1991).

Section 831 established the Pilot Mentor Protégé Program to encourage assistance to 

small disadvantaged businesses through special incentives to companies approved as 

mentors. The government reimburses the mentor for the cost of assistance to its protégés, or, as an alternative, allows the mentor credit (a multiple of the dollars in assistance) toward subcontracting goals. Prior to receiving reimbursement or credit, mentors 

must submit formal applications.

9. Public Law 102-366 (The Small Business Credit and Business Opportunity Enhancement Act of 1992). Section 232(a)(6) removes the requirement from SBA to submit 

the Annual Report to Congress on Unacceptable Subcontracting Plans, which had been 

required in Section 8(d) of the Small Business Act.

10. Public Law 103-355 (The Federal Acquisition Streamlining Act of 1994 (FASA)).

FASA significantly simplifies and streamlines the federal procurement process. Section 

7106 of FASA revised Sections 8 and 15 of the Small Business Act to establish a government-wide goal of 5 percent participation by women-owned small businesses, in both 

prime and subcontracts. Women-owned small businesses are to be given equal standing with small and small disadvantaged business in subcontracting plans. In practical 

terms, this means that all subcontracting plans after October 1, 1995, must contain 

goals for women-owned small businesses and that all FAR references to small and small 
323

disadvantaged business have been changed to small, small disadvantaged and womenowned small business.

11. HUBZone Empowerment (Public Law 105-135). The HUBZone Empowerment Contracting Program, which is included in the Small Business Reauthorization Act of 1997, 

stimulates economic development and creates jobs in urban and rural communities 

by providing contracting preferences to small businesses that are located in HUBZones 

and hire employees who live in HUBZones.

12. The Veterans Entrepreneurship and Small Business Development Act of 1999 (Public Law 106-50). This Act established a goal for subcontracts awarded by prime contractors to service-disabled veteran-owned small business concerns of 3 percent. A best 

effort goal will be established for veteran-owned small businesses. Subcontracting plans 

must incorporate these goals.

13. FAR Part 19 (48 CFR). Implements the procurement sections of the Small Business Act.

Federal contracting agencies must conduct their acquisitions in compliance with these 

regulations. OTSB contractors are required to comply with certain clauses and provisions referenced in the FAR.

a. Subpart 19.1 prescribes policies and procedures for Size Standards. (Also in Title 13 

of the U.S. Code of Federal Regulations.)

b. Subpart 19.7 prescribes policies and procedures for subcontracting with SB, SDB, 

WOSB, VOSB, SD/VOSB, and HUBZone SB concerns.

c. Subpart 19.12 prescribes policies and procedures for the SDB Participation Program 

including incentive subcontracting with SDB concerns.

d. Subpart 19.13 prescribes policies and procedures for the HUBZone SB Program.

Source: Small Business Liaison Officer Handbook, 01/2005, produced by the Small Business 

Administration

325

Table of Contents

I. Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

	 A. Why Focus on the Acquisition Workforce?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

	 Table: Chapter 5—Acquisition Workforce Findings and Recommendations. . . . 330

	 B. The Problem of Counting the Workforce. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

	 C. The Beacon Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350

II. Issues to Consider. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

III. Acquisition Workforce-Related Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352

IV. Acquisition Workforce Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

CHAPTER 5

The Federal 

Acquisition Workforce

327

I. Background

A. Why Focus on the Acquisition Workforce?

At the outset, we should explain briefly how the federal acquisition workforce came

to be a focus of the work of the Acquisition Advisory Panel (“Panel”). Unlike most of the

other topics addressed by the Panel, the state of, and the problems of, the federal acquisition workforce was not one of the topics specifically identified by Congress in the legislation directing the establishment of the Panel. Although some might view the condition

of the federal acquisition workforce as an odd issue for this Panel to consider, there was a

clear understanding from the beginning that we could not provide the insight and assistance that Congress sought without addressing the problems presented by the federal

acquisition workforce.

Based on our experience, we recognized a significant mismatch between the demands

placed on the acquisition workforce and the personnel and skills available within that

workforce to meet those demands. Accordingly, we believed that there was a serious risk

that problems stemming from the shortcomings of the acquisition workforce would be

misunderstood as problems with the procurement system. More specifically, because of

workforce shortcomings, techniques that constitute important parts of the acquisition tool

kit of the federal government, such as performance-based acquisition (“PBA”), commercial item contracting, and interagency and government-wide contracts might be viewed as

unworkable without recognition that some issues affecting the use of these techniques are

workforce related.

The Panel’s findings and recommendations in the areas of PBA, Commercial Practices,

Interagency Contracting, Small Business and Data make clear how essential the acquisition

workforce is to the effectiveness of these elements of the federal acquisition system. Because

workforce issues cut across the Panel’s findings and recommendations, it is no accident that

the Panel has determined that recommendations for improvement in these aspects of the federal acquisition system result in additional demands on the federal acquisition workforce.

Of course, any change in the status quo will have an effect on the workforce. Some of

the Panel’s recommendations in each of these areas inevitably have workforce implications.

Consider the following recommendations:

• In the area of Interagency Contracting, the Panel has adopted recommendations that include: a survey and establishment of a database of all

interagency contracts (#1–3); review and revision of current procedures for

the creation and continuation of Governmentwide Acquisition Contracts

(“GWACs”) and Franchise Funds, and the GSA Schedule, as well as establishing a formal process for creation or expansion of multi-agency contracts, enterprise-wide vehicles, and assisting entities (#4–5); and requiring

each agency to authorize/reauthorize the use of such contracts pursuant to

detailed Office of Management and Budget (“OMB”) guidance (#6–8). 

• With respect to Commercial Practices, the Panel has adopted recommendations that include: requiring agencies to devote more resources
328

to requirements definition (#2); increasing competition under multiple

award Indefinite Delivery/Indefinite Quantity (“IDIQ”) contracts, as well

as under the GSA Schedule by applying Section 803 government-wide

and to services and supplies; providing enhanced competition for large

orders under such contracts (# 3a,b); providing a debriefing for large

orders (#5b); creating a new competitive services Schedule (#4); requiring a post-award synopsis of sole source orders under multiple award

IDIQ contracts; and allowing for protests of large orders under multiple

award IDIQs (#7).

• The Panel’s recommendations regarding Small Business would, among

other things: eliminate cascading procurements (#4); authorize small

business reservations of prime contract awards in full and open procurements for multiple award IDIQ contracts; authorize agencies to limit

competition for orders under multiple award IDIQs to small business.

• In the area of PBA, the Panel’s recommendations call for more detailed

guidance on the use of PBA (#2); improvement of post-award contract

performance monitoring and contract specific “Performance Improvement Plans” (#5); establishment of a “Contracting Officer’s Performance

Representative (COPR) with specialized training for PBA (#8); obtaining

improved data through use of A-PART (#9).

• Even the Workforce recommendations will result in additional burdens.

As discussed below, these recommendations include: a call for collection

of data government-wide and establishment of a new database using a

consistent definition of the acquisition workforce (#1–4); a requirement

for an improved human capital planning process (#2–3); more training

and additional training requirements (#3).

• In a series of recommendations regarding the Appropriate Role of

Contractors Supporting the Government, the Panel’s recommendations include: new principles for determining functions that must be

performed by government personnel (#1–2); new rules regarding use of

personal services contracts (#3–4); new rules with additional procedures

for identifying and addressing organizational conflicts of interest (#5);

potentially new guidance regarding personal conflicts of interest (#6);

and new rules regarding protection of contractor data (#5).

• The Panel also recommended that additional procedures be adopted for

accurate data collection and improvements to the Federal Procurement

Data System-Next Generation (“FPDS-NG”), including; specifically imposing responsibility for accurate data on the Head of the Agency (#4); requiring training to improve data accuracy (#5); an Independent Verification

and Validation to test the data validation rules (#3); audits that include

agency compliance in providing accurate data (#9); collection of data specifically on orders placed under interagency and enterprise-wide contracts
329

and reporting such data, including the level of competition in such orders;

and developing reports that show the dollar transactions by type of interagency vehicle (#11).

These recommendations will necessarily place additional demands on the acquisition workforce. That is part of the price of improving the acquisition system. Ultimately,

whether one focuses on the problem areas of the federal acquisition system, or on solutions designed to alleviate these problems for the future, the close link between the acquisition workforce and effective strategies for acquisition reform, is inescapable.

The importance of recognizing this point is that the bolstering of the acquisition workforce that we recommend is not undertaken for the sake of the acquisition workforce, but

because of the importance of the acquisition mission. Although strengthening of the acquisition workforce will by no means be cost-free, continuing failure to invest in an appropriate sized and skilled acquisition workforce will be far more expensive than making the

required investment.
330

Chapter 5 – Acquisition Workforce Findings and Recommendations

Findings Recommendations

Finding 1: The federal acquisition workforce 

is an essential key to success in achieving the 

government’s missions. Procurement is an 

increasingly central part of the government’s 

activities. Without a workforce that is qualitatively 

and quantitatively adequate and adapted to its 

mission, the procurement reforms of the last 

decade cannot achieve their potential, and successful federal procurement cannot be achieved.

Finding 4: There are substantial problems 

with the data that are available on the federal 

acquisition workforce.

Finding 4-1:

• Data has not been collected in a consistent 

fashion from year to year or across agencies.

Finding 4-2:

• The acquisition workforce has been defined 

differently for DoD and for civilian agencies 

over the period of the acquisition reforms 

and the acquisition workforce cutbacks that 

have occurred in the last 15 years.

Finding 4-3:

• A significant policy issue is presented as 

to how broadly to define the composition 

of the acquisition workforce—whether to 

include all of the functions that complement 

or support the acquisition function? A broad 

definition is more consistent with modern 

understanding and commercial practices 

regarding the acquisition function, but risks 

overstating acquisition workforce resources.

Recommendation 1-1: Data Collection and 

Workforce Definition

• OFPP needs to ensure, going forward, 

that consistent and sensible definitions of 

the acquisition workforce are in place, and 

that accurate data is consistently collected 

about all of the relevant categories, from 

year to year and across all agencies. 

• Data should be collected both about the 

narrow contracting specialties (along the 

lines of the current FAI count) and about 

the broader acquisition-related workforce 

(along the lines of the current DoD AT&L 

workforce count methodology).

[See Findings 1, 4, 4-1, 4-2, and 4-3 above] Recommendation 1-2: Data Collection and 

Workforce Definition

• OFPP should prescribe a consistent 

definition and a method for measuring the 

acquisition workforce of both civilian and 

military agencies.

• Definitions and measures should be completed by OFPP within one year from the 

date of this Report.
331

Findings Recommendations

[See Findings 1, 4, 4-1, 4-2, and 4-3 above] Recommendation 1-3: Acquisition Workforce 

Database 

• Consistent with Recommendations 1-1 and 

1-2, OFPP should be responsible for the 

creation, implementation, and maintenance 

of a mandatory single government-wide 

database for members of the acquisition 

workforce. The database should reflect the 

following purpose and elements:

 o Purpose: to provide information to support effective human capital management 

of the acquisition workforce.

 o Elements should include: employment 

experience, education, training, certifications, grade, pay, career series, and 

retirement eligibility.

Finding 1: The federal acquisition workforce 

is an essential key to success in achieving the 

government’s missions. Procurement is an 

increasingly central part of the government’s 

activities. Without a workforce that is qualitatively and quantitatively adequate and adapted 

to its mission, the procurement reforms of the 

last decade cannot achieve their potential, and 

successful federal procurement cannot be 

achieved.

Finding 3: Even though there are now 

available a variety of simplified acquisition 

techniques, the complexity of the federal 

acquisition system as a whole has markedly 

increased since the 1980s. 

Finding 6: Most federal agencies have not 

engaged systematically in human capital planning for the federal acquisition workforce. Few 

agencies have systematically assessed their 

acquisition workforce in the present or for the 

future.

Recommendation 2-1: Human Capital Planning for the Acquisition Workforce 

• In each agency, as part of the overall 

agency human capital management plan, 

the CAO should be responsible for creating and implementing a distinct acquisition 

workforce human capital strategic plan 

designed to assess and meet the agency’s 

needs for acquisition workforce.

Recommendation 2-2: Human Capital Planning for the Acquisition Workforce

• Agency CAOs should be responsible for 

measuring and predicting, to the extent possible, the agency’s needs for procurement 

personnel.

Recommendation 2-3: Human Capital Planning for the Acquisition Workforce

• It is not sufficient simply to try to retain 

and manage existing personnel resources. 

Resources needed must be identified and 

gaps between needed resources and 

available resources must be forthrightly 

acknowledged. 
332

Findings Recommendations

Finding 7: Despite the variations in the way the 

acquisition workforce has been defined and 

counted over time and among agencies, no one 

is counting contractor personnel that are used 

to assist, support, and augment the acquisition 

workforce. Thus we lack accurate information 

about the extent to which acquisition functions 

have been and are being carried out with the 

assistance of contractor personnel.

 - Evidence before the Panel and the experience of Panel members nonetheless 

makes clear that many agencies make 

substantial use of contractor resources to 

carry out their acquisition functions.

 - We also lack information with which to 

determine whether reliance on contractor 

personnel is saving money.

Recommendation 2-4: Human Capital Planning 

for the Acquisition Workforce

• Assessment of the role played by contractor personnel in the acquisition workforce 

should be part of the strategic plan. 

• The strategic plan should consider whether 

the current use of contractor personnel to 

supplement the acquisition workforce is 

efficient or not.

Finding 8: Use of contractor support for 

acquisition activities may be appropriate, but 

careful attention must be paid to the potential 

for organizational conflicts of interest that may 

be engendered by this practice.

[See Chapter 6 Recommendations]

[See Finding 7 above] Recommendation 2-5: Qualitative Assessment

• Agencies’ human capital planning for the 

acquisition workforce needs to address the 

adequacy of existing resources in meeting 

each agency’s procurement needs throughout the acquisition life cycle. The standard 

should be whether the government is able 

to optimize the contribution of private-sector 

capabilities, secured through the market, 

to the accomplishment of federal agency 

missions.
333

Findings Recommendations

Finding 2:

• Demands on the federal acquisition workforce have grown substantially:

Finding 2-1:

• The dollar volume of federal government procurement has increased dramatically since 

9/11/2001. Procurement obligations have 

increased 60 percent in the last five years. 

Finding 2-2:

• In the last twelve years the qualitative 

nature of the procurement activity has 

also changed, placing markedly greater 

demands on the Acquisition Workforce for 

capability, training, time, and sophistication.

Finding 2-2-1:

• There has been a pronounced shift from 

acquisition of goods to acquisition of services. Service contracting places additional 

demands on the acquisition workforce, 

both in the requirements definition and 

contract formation process, particularly in 

the realm of PBA, but also on the contract 

management side. 

Finding 2-2-2: 

• There has been a dramatic shift of federal 

procurement dollars to the Federal Supply 

Schedules and other forms of interagency 

contracting. Although this is often perceived, correctly, as part of the solution to 

the government’s procurement problems 

and its acquisition workforce shortcomings, 

it also opens the door to certain problems: 

 - Heavy reliance on the schedules and other 

forms of interagency contracting can alleviate the burdens on understaffed agencies 

insofar as “getting to the initial award,” but 

too often contributes to subsequent problems that arise when ordering agencies fail 

to define their requirements adequately, fail 

to use these vehicles appropriately, fail to 

secure competition in using these vehicles, 

or fail to manage contract performance 

under these vehicles. Some of these 

problems are more acute with respect 

to assisting entities as opposed to direct 

ordering vehicles. 

Recommendation 3: Workforce Improvements 

Need Prompt Attention

• Due to the severe lack of capacity in the 

acquisition workforce, aggressive action 

to improve the acquisition workforce must 

begin immediately. All agencies should 

begin acquisition workforce human capital 

planning immediately, if such plans are 

not already underway. Agencies should 

complete initial assessment and planning as 

quickly as possible. If initial human capital 

planning reveals gaps, agencies should 

take immediate steps to address such gaps, 

whether they arise in hiring, allocation of 

resources, training, or otherwise.
334

Findings Recommendations

Finding 2-3:

• Many transactions have been simplified 

by the federal acquisition reforms of the 

last decade. This is particularly true of the 

purchase card and the simplified acquisition 

threshold. These simplified transactions represent the overwhelming bulk of procurement 

transactions if we simply count transactions. 

However, even the simplified purchase card 

transactions have a more complex impact on 

the acquisition workforce than was initially 

appreciated, because of the need to institute 

and maintain appropriate purchase card 

management and controls. 

Finding 2-4:

• But the remaining share of procurement—

outside the ambit of simplified procedures—

is the portion that actually requires most of 

our attention going forward. For this critical 

share of the government’s procurement 

activity, the demands of procurement on the 

acquisition workforce have grown dramatically. The changes in our procurement 

system that produce these demands may be 

desirable, but they are not cost-free.

Finding 2-4-1:

• Procurement outside the simplified regimes 

is characterized by use of best value procurement procedures, which substantially 

increase the complexity of procurement and 

the demands on the acquisition workforce as 

compared with procurement on the basis of 

lowest price.

Finding 2-4-2:

• Procurement outside the simplified regimes 

is subject to requirements of past performance evaluation, which substantially 

increase the burdens of procurement on the 

acquisition workforce.

Finding 2-4-3:

• A substantial share of procurement outside 

the simplified regimes is PBA, which 

dramatically increases the complexity and 

burden of demands imposed on the federal 

acquisition workforce.
335

Findings Recommendations

Finding 2-4-4:

• Heightened requirements for use of commercial goods and services have increased 

the demand for a sophisticated acquisition 

workforce that has business skills appropriate to the rapidly changing commercial 

markets in which goods and services are to 

be secured.

Finding 3: Even though there are now 

available a variety of simplified acquisition 

techniques, the complexity of the federal 

acquisition system as a whole has markedly 

increased since the 1980s. 

 - Procurement reforms designed to accelerate mission accomplishment nonetheless 

burden the acquisition workforce, which 

needs to choose among available techniques. There are difficult decisions to 

make about when to use which approach. 

 - The acquisition workforce also needs to be 

equipped to exercise discretion in choosing 

the appropriate procedure for procurement.

 - While some procurement functions can be 

performed satisfactorily by personnel with 

mastery only over the simplified techniques, 

more complex federal acquisitions demand 

procurement personnel with mastery of the 

range of procurement techniques. Thus, 

the complexity of the acquisition system, 

taken as a whole, has become a major 

challenge to the acquisition workforce.

Finding 5: The federal government does not 

have the capacity in its current acquisition 

workforce necessary to meet the demands 

that have been placed on it. Because of the 

absence of human capital planning to date, the 

Panel cannot definitively conclude whether this 

is the result of a numbers problem, but has 

received testimony raising serious concerns 

about the number, skill sets, deployment, and 

role in the acquisition process of the acquisition workforce.

 - There were substantial reductions in the 

acquisition workforce during the decade of 

the 1990s. 

 - One result of this is that hiring of new 

acquisition professionals virtually ceased 

during this time period. 
336

Findings Recommendations

Finding 5.1:

• There were cuts in some agency training 

budgets in the 1990s that meant the existing workforce was not trained to adapt to 

the increasingly complex and demanding 

environment in which they were called upon 

to function.

• Despite recent efforts to devote more attention and funding to workforce training, in 

many agencies these efforts do not appear 

to meet the existing and future needs for a 

trained acquisition workforce.

• Since 1999 the size of the acquisition 

workforce has remained relatively stable, 

while the volume and complexity of federal 

contracting has mushroomed. 

Finding 5-2:

• The drought in hiring, the inadequacy of 

training in some agencies, and the increased 

demand for contracting have together created a situation in which there is not, in the 

pipeline, a sufficient cadre of mature acquisition professionals who have the skills and the 

training to assume responsibility for procurement in today’s demanding environment.

 - Frequently described as a “bathtub” 

situation, there appears to be an acute 

shortage of procurement personnel with 

between five and fifteen years of experience.

 - Moreover, the relative sufficiency of the 

senior end of the acquisition workforce is 

seriously threatened by retirements.

 - A key challenge, accordingly, is to retain 

a high proportion of the senior workforce 

while development of the mid-level workforce goes forward.

 - There is strong competition for a limited 

and shrinking pool of trained and skilled 

procurement professionals within the 

federal government.

 - This imbalance between supply and 

demand is exacerbated by the strong 

competition that the private sector offers 

the government in trying to recruit the 

shrinking pool of talented procurement 

professionals. The government is losing 

this competition.
337

Findings Recommendations

 - On the other hand, at least in major metropolitan areas, the government has not been 

able to compete very successfully for the 

services of talented procurement professionals who have been working within the 

private sector. The government does not 

have a salary structure and career ladders that are likely to attract experienced 

procurement professionals from the private 

sectors.

 - The slowness of the government’s hiring process has also been an obstacle to 

hiring talented people for the acquisition 

workforce.

Finding 5-3:

• A widely noted result of the inadequacy of 

Acquisition Workforce personnel resources 

to meet the demands of procurement government-wide is that scarce resources have 

been skewed toward contract formation and 

away from contract management.

Finding 5-4:

• The Panel concludes that one important way 

to improve retention of qualified personnel 

within the federal acquisition workforce is to 

expand opportunities for such personnel to 

secure advancement by moving to different 

organizations within the federal government. 

Finding 5-5:

• Inadequacy in the acquisition workforce is, 

ultimately, “penny wise and pound foolish,” 

as it seriously undermines the pursuit of good 

value for the expenditure of public resources.
338

Findings Recommendations

Finding 10:

The pace of acquisition reform initiatives has 

outstripped the ability of the federal acquisition workforce to assimilate and master their 

requirements so as to implement these initiatives in an optimal fashion. An important objective of acquisition workforce initiatives should 

be to allow the workforce to catch up with the 

last twelve years of acquisition reform, as well 

as to meet additional demands that will be 

imposed by the recommendations of this Panel 

on non-workforce topics.

 - Insisting that the acquisition workforce 

be enabled to catch up with the demands 

of the procurement workload and the 

transformed demands of procurement 

reform is not hostile to the cause of procurement reform. Rather, it is an essential 

step in attempting consistently to achieve 

good value for the expenditure of public 

resources. 

 - Investment in the acquisition workforce 

should therefore yield an extremely 

rewarding return on that investment. 
339

Findings Recommendations

[See Finding 5, 5-1 through 5-5 above] 

Finding 9-1:

• Testimony before the Acquisition Advisory 

Panel by leaders of private sector organizations indicates that sophisticated private 

sector organizations employ a corps of highly 

sophisticated, highly credentialed, and highly 

trained business managers to carry out the 

sourcing, procurement, and contract management functions that they undertake. 

Finding 9-2:

• The government lacks comparable resources 

for these functions. If we expect the government to take advantage of the practices of 

successful commercial organizations, we 

need to close this gap by recruiting, training, 

and retaining sufficient procurement professionals with appropriate capability.

 - For successful modern businesses, the 

acquisition function is regarded as a key 

contributor to the bottom line. Investment 

in a state-of-the-art acquisition workforce is 

essential to profitability.

 - Similarly, investment in a quality federal 

acquisition workforce is critical to mission 

success and obtaining best value for the 

expenditure of public resources.

Recommendation 3-1: Need to Recruit Talented Entry-Level Personnel

• OFPP should establish a government-wide 

acquisition internship program to attract 

first-rate entry-level personnel into acquisition careers.

[See Finding 5, 5-1 through 5-5 and 9-1 

through 9-2 above]]

Recommendation 3-2: Hiring Streamlining 

Necessary

• In order to compete effectively for desirable 

personnel, OFPP and agencies need to 

identify and eliminate obstacles to speedy 

hiring of acquisition workforce personnel.

[See Finding 5, 5-1 through 5-5 above] Recommendation 3-3: Need to Retain Senior 

Workforce

• OFPP and agencies need to create and use 

incentives for qualified senior, experienced 

acquisition workforce personnel to remain in 

the acquisition workforce.
340

Findings Recommendations

Finding 1: The federal acquisition workforce 

is an essential key to success in achieving the 

government’s missions. Procurement is an 

increasingly central part of the government’s 

activities. Without a workforce that is qualitatively and quantitatively adequate and adapted 

to its mission, the procurement reforms of the 

last decade cannot achieve their potential, and 

successful federal procurement cannot be 

achieved.

Finding 10: The pace of acquisition reform initiatives has outstripped the ability of the federal 

acquisition workforce to assimilate and master 

their requirements so as to implement these 

initiatives in an optimal fashion. An important 

objective of acquisition workforce initiatives 

should be to allow the workforce to catch up 

with the last twelve years of acquisition reform, 

as well as to meet additional demands that will 

be imposed by the recommendations of this 

Panel on non-workforce topics.

 - Insisting that the acquisition workforce 

be enabled to catch up with the demands 

of the procurement workload and the 

transformed demands of procurement 

reform is not hostile to the cause of procurement reform. Rather, it is an essential 

step in attempting consistently to achieve 

good value for the expenditure of public 

resources. 

 - Investment in the acquisition workforce 

should therefore yield an extremely rewarding return on that investment. 

Recommendation 3-4: Training

• In order to ensure the availability of sufficient funds to provide training to the 

acquisition workforce, OMB should issue 

guidance directing agencies to:

 o Assure that funds in agency budgets 

identified for acquisition workforce training are actually expended for workforce 

training purposes, by appropriate means 

including “fencing” of those funds.

 o Require head of agency approval for use 

of workforce training funds for any other 

purpose.

 o Provide OFPP an annual report on the 

expenditure of acquisition workforce 

training funds identifying any excesses or 

shortfalls.

• OFPP should conduct an annual review 

to determine whether the funds identified 

by each agency for training of its acquisition workforce are sufficient to meet the 

agency’s needs for acquisition workforce 

training. Once an agency’s human capital 

strategic plan for the acquisition workforce 

is in place, that plan should guide this 

determination. OFPP’s review should also 

ascertain whether funds identified for such 

training were actually expended for acquisition workforce training needs. 

• Congress should reauthorize the SARA 

Training Fund and provide direct funding/

appropriations for the fund.
341

Findings Recommendations

[See Finding 1 and 10 above] Recommendation 3-5: Acquisition Workforce 

Education and Training Requirements

• Currently, both the Defense Acquisition 

Workforce Improvement Act (DAWIA) and 

Clinger-Cohen provide for waivers to Congressionally established education and training requirements. In order to ensure that 

the government’s acquisition workforce has 

both the competencies and skills to manage 

the life cycle of the acquisition process:

 o Agencies should only grant permanent 

waivers to education and training requirements upon an objective demonstration 

that the grantee of the waiver possesses 

the competencies and skills necessary to 

perform his/her duties.

 o Agencies should only grant temporary 

waivers to allow the grantee of the waiver 

sufficient time to acquire the lacking education or training.

 o Agency CAOs (or equivalent) should report 

annually to OFPP on the agency’s usage of 

waivers to meet statutory training and education requirements, justifying their usage 

consistent with the foregoing requirements 

and reporting on plans to overcome the 

need to rely excessively on waivers.

 o OFPP should review these annual 

reports and provide an annual summary 

report on the use of waivers of DAWIA 

and Clinger-Cohen requirements.

[See Finding 1 and 10 above] Recommendation 3-6: Acquisition Workforce 

University 

• In order to promote consistent quality, 

efficiency, and effectiveness in the use of 

government training funds, OFPP should 

convene a twelve-month study panel to 

consider whether to establish a government-wide Federal Acquisition University 

and/or alternative recommendations to 

improve training.
342

Findings Recommendations

[See Finding 1 and 10 above] Recommendation 4: An Acquisition Workforce Focus is Needed in OFPP 

• There should be established in OFPP a 

senior executive with responsibility for 

acquisition workforce policy throughout the 

federal government.

• As part of OMB’s role in reviewing and 

approving agency human capital plans in 

conjunction with OPM, OFPP should be 

delegated responsibility for receiving and 

reviewing the agency acquisition workforce human capital strategic plans, and 

for identifying trends, good practices and 

shortcomings.

Recommendation 5: Waiving Unnecessary 

Paperwork

• To the extent that agencies can demonstrate 

they have implemented any recommendations (or parts thereof) that require a report 

to OFPP, the process established by OFPP 

should include criteria for a waiver from the 

reporting requirements; any waiver should 

include a requirement for a sunset.
343

B. The Problem of Counting the Workforce

In order to draw meaningful conclusions about the size of the federal government’s

acquisition workforce several conditions must be fulfilled:

1) We have to agree on what we are trying to measure.

2) We have to develop means for accurately measuring the Panels that we are trying to measure.

3) We have to implement those measures consistently in different agencies across the face

of the federal government.

4) We have to implement those measures consistently from year to year.

Looking backward, we are forced to conclude that these conditions have not been met.

What should we be measuring?

We are far from the first to recognize the need to gauge and improve the state of the federal acquisition workforce. In the early 1970s, the Commission on Government Procurement

emphasized the importance of timely and adequate information regarding the procurement

workforce.1 In a discussion reminiscent of our own efforts, the Commission noted that with

the increasing emphasis on improving the quality, efficiency, economy, and performance of

the procurement system, it was imperative that there be a focal point and a “comprehensive

Federal Procurement Personnel Information system” for overseeing the development and

maintenance of a competent acquisition workforce.2 In fact, the 1972 Commission had to

resort to its own survey in order to obtain information on the federal acquisition workforce

sufficient to perform its analysis.3 A recurring theme has been the need to reconceptualize

and reorganize the procurement function in a manner that helps to make procurement an

effective and efficient tool for achieving agency missions. Indeed, the Office of Federal Procurement Policy (“OFPP”) was created to address this very concern. The 1972 Commission

specifically recommended that OFPP be tasked with determining the overall acquisition

workforce needs of the government and seeing that they were met.4

In the 1990s, the National Performance Review echoed these sentiments, leading with

the statement, “No matter how good a policy may be on paper, it will not be effective

without well-motivated, competent people to implement it.”5 The NPR, while reducing the

federal workforce,6 made recommendations for changes in the management of the procurement system that emphasized a broader role for line managers, encouraged the creation of

competitive enterprises within government; expanded the use of the GSA Schedules, and

emphasized acquisition of commercial items (as did the Section 800 Panel Report). Many

1

Report of the Comm’n on Gov’t Procurement, Summary 17 (Dec. 1972).

2

Id.

3

Id.

4

Id.

5

Nat’l Performance Review, Reinventing Federal Procurement, PROC02 (Sept. 14, 1993); compare the

statement of the 1972 Commission “People are the most critical part of any effective procurement process.

We have good people throughout all levels of procurement organizations today, but nowhere is it more

apparent that concerted management attention is needed than in the area of organizing and planning for

the procurement workforce of the future.” Comm’n Report, ch. 5 at 46.

6

During the 1990s, the overall federal workforce was reduced by about half a million people. See

Jacques S. Gansler, A Vision of the Government as a World-Class Buyer: Major Procurement Issues for the Coming 

Decade 19 (Univ. of Md. 2002).
344

of these proposals were subsequently enacted as part of the Federal Acquisition Streamlining Act (“FASA”) of 1994, the Federal Acquisition Reform Act (“FARA”) of 1996 and the

Government Management Reform Act of 1994. As a consequence of implementation of

many of these proposals, and the increased use of interagency contracts, there are more

people whose responsibilities touch on the acquisition function. In addition, a consensus

has emerged that a functional definition of the acquisition workforce should not be limited to persons engaged in entering contracts. Rather, the acquisition function and workforce should be understood to include, as well:

Agency personnel responsible for determining and defining agency requirements for goods and services

Agency personnel responsible for intimate familiarity with the markets in

which the agency will seek goods and services to meet agency needs

Agency personnel responsible for monitoring and measuring contract performance, including testing of goods, auditing, contract administration,

and evaluation of contractor performance

Agency personnel responsible for managing the programs in which the

goods and services acquired are employed

This broad conception of the acquisition function has gradually been under discussion

for decades, particularly with respect to the importance of requirements definition, but has

not been implemented to a consistent degree across the face of the federal government.

It was only in April 2005 that this approach was formally extended to the workforce of

civilian agencies by the promulgation of OFPP Policy Letter 05-01.7 But the results of that

instruction have yet to become visible across the face of the acquisition workforce.

Although this broadened conception of the acquisition workforce is in many respects a

desirable development, in some respects the broadened definition could actually confound

the task of accurately and consistently measuring the acquisition workforce. It is important to emphasize that this is not meant as a criticism of this broader conception of the

acquisition function, but only to point out that redefining the acquisition workforce at this

relatively late date could have an important unintended consequence. By changing the way

we define and count the acquisition workforce, we have made it very difficult to generate

meaningful longitudinal studies of the acquisition workforce because it has been defined

and counted in significantly different ways at different times.

There is also a concern that the evolution of workforce definitions is not just random

static that obscures trends affecting the acquisition workforce. Instead, some critics of the

workforce-related policies of recent administrations have suggested that broadening the

definition of the acquisition workforce has served to hide the increased inadequacy of the

workforce.8 But one need not accept that charge as to the intent behind this shift in conceptualizing the acquisition workforce to understand that an accurate understanding of the

key trends about the size and composition of the federal workforce cannot be had without

7

Available at http://www.whitehouse.gov/omb/procurement/policy_letters/05-01_041505.html.

8

Steven L. Schooner, Feature Comment: Empty Promise for the Acquisition Workforce 47 Government

Contractor No. 18, ¶ 203 (2005).
345

using a consistent benchmark. Moreover, because the program managers and others who

are “customers” and users of the goods and services being acquired have important responsibilities outside the realm of acquisition, we would overstate the resources available for

the acquisition function if we regard all of these members of the broadly conceived acquisition workforce as full-time members of the population available for acquisition functions.

In order to understand where we stand in the enterprise of counting the federal acquisition workforce, it is useful to understand the different approaches taken in recent years to

counting the workforce. As we shall see, significantly different approaches have been used

by different agencies. Moreover, there has been significant inconsistency over time.

The FAI Count – Its Limitations and Alternatives

Since the late 1970s, the Federal Acquisition Institute (“FAI”) has collected and reported

data on the federal acquisition workforce. At least since the report covering FY 1982, this

data has been identified as the Federal Acquisition Personnel Information System (“FAPIS”)

report. Although the FAPIS report has been generated reasonably consistently since 1982,

the coverage of the report has not been entirely consistent over that time. The basis for the

FAI/FAPIS count of the acquisition workforce has been various General Schedule “occupational series” in the 1100 series that form the core of the traditional procurement workforce,

including 1102s (“Contract Specialists”) and 1105s (“Purchasing”). However, the exact coverage of the report has varied from year to year. For instance, for 1977–1980, most of the data

collected covered 1102s and 1105s, plus 1101s (“General Business and Industry”) and 1150s

(“Industrial Specialist”).9 No comprehensive definition of the acquisition workforce was

attempted in these years, nor was data reported concerning the numbers of personnel working for the federal government encompassed by any such definition.

In the report for FY 1982, by contrast, statistics are provided for a broad “acquisition

workforce” and for a narrower category labeled the “Procurement Workforce.” The acquisition workforce data presented includes subcategories for Logistics Management, Procurement, Equipment Specialists, Quality, Supply and Transportation, but the specific occupational series included are not identified. The “Procurement Workforce” data includes 1101s,

1102s, 1103s, 1104s, 1105s, and 1150s.10 The overall Procurement Workforce, so defined, was

51,968 for FY 1982, a number that had grown significantly from the number that had been

reported for 1978: 40,775. The broader Acquisition Workforce, as reported in the FY 1982

report, had grown from 133,615 to 136,971 in the same time period.11 The count of 1102s

for FY 1982 was 22,165. The count of 1105s was 5023.

Skipping forward to some of the most recent data available from FAI, the report for FY

2004 discloses:

•	 The aggregate number of 1102s across the government was 26,936

•	 The total number of 1105s across the government was 3,186

9

FAI, Procurement Workforce Demographics 1980 and Four Year Profile (FY 1977–1980). Some data was

also presented on other occupational series, but not in all categories.

10 FAI, Report on the Acquisition Work Force Through Fiscal Year 1982. 11 See below note (14).
346

•	An overall “acquisition workforce” consisting of 1101s, 1102s, 1104s, 1105s, 1106s, and

1150s consisted of 58,16112

•	A broader count of “logistics occupations populations” measured 122,45413

Note that if we want to employ consistent measures over the course of the last quarter

century, we are compelled to employ the narrowest definitions of the acquisition workforce, looking only at data on 1102s and 1105s. But even this approach may offer a distorted benchmark, as the proportion of contracting officers designated as 1102s, may not be

consistent over time and across agencies.

Undoubtedly, the traditional FAI count of the acquisition workforce casts too narrow a net in gauging the resources available to do the government’s acquisition work. For

instance, the Panel is aware that there are today some agencies, such as GSA, in which there

are more non-1102 contracting officers than there are 1102 contracting officers. In such

agencies the FAI data (which counts only 1102s) is extremely misleading. On the other

hand, broader measures of the acquisition workforce such as those used in the Department

of Defense (“DoD”) counting methods (discussed below) may overstate the resources of

the acquisition workforce because they include many people doing non-Acquisition-related

work in Acquisition organizations. This is particularly true of the “Acquisition Organization” definition of the acquisition workforce described below, but it has some relevance

even to the more carefully constructed AT&L workforce definition that is also described

below. Specifically, the AT&L definition includes personnel in acquisition-related organizations who perform technology-related functions. There is no denying that these personnel

play an important role in the acquisition process; yet many of these personnel have other

responsibilities besides acquisition and their inclusion in a count of the acquisition workforce may therefore result in overstating the resources available for the performance of

acquisition functions, and may thus disguise the extent of the sharp decline in personnel

trained for core acquisition functions.

Definitions Make a Difference

Parsing different definitions of the Acquisition Workforce is a highly technical matter that some might doubt will yield information of policy importance. In fact, however,

discrepancies in definition and measurement of the workforce are so large in magnitude

as to drown out the evidence of the changes that we are trying to measure and understand,

unless we properly take account of these differences in definition and measurement. This is

visible if we examine the widely differing approaches that have been used in recent years to

count the DoD acquisition workforce.

Counting the Defense Acquisition Workforce

There are at least three different ways of counting the Defense Department portion

of the acquisition workforce that have been used over the last 15 years. The measures

12 FAI, Report on the Federal Acquisition Workforce, Fiscal Years 2003 and 2004, 39, tbl 4-2. Note that this

is not strictly comparable to the data for FY 1982 mentioned above, which includes 1103s, but does not

include 1106s.

13 Id. at 38, tbl. 4-1. Because the 1982 count for what was then labeled the “Acquisition Workforce”

did not list the occupational series comprised therein, a rigorous comparison between this 2004 “logistics

occupations populations” count and the 1982 count for the “Acquisition Workforce” is not possible.
347

employed by DoD itself, moreover, historically have not been commensurable with those

used to measure the acquisition workforce of civilian agencies. The three approaches to

counting the DoD acquisition workforce are as follows:

FAI Count for DoD

The FAI has counted the DoD component of the federal acquisition workforce using

the same categories as it uses to count that workforce across the face of the federal government. Thus data has been collected and reported on the number of 1102s and 1105s, and

the numbers in some of the other 1100 occupational series within the Defense Department.

By summing up the data FAI has reported for the Army, Air Force, Navy, and other DoD we

can generate an FAI count for the DoD acquisition workforce. This is the narrowest measure of the acquisition workforce for DoD.

Acquisition Organization Count for DoD

By contrast, Section 912(a) of the National Defense Authorization Act for Fiscal Year

1998, defines the term “defense acquisition personnel” to include all personnel employed

in any of 22 listed “acquisition organizations,” regardless of the employee’s own occupation, but excluding civilian DoD employees employed at maintenance depots. This version

of the acquisition workforce count is usually known as the “Acquisition Organization”

Count. The House Armed Services Committee historically has requested that DoD use this

count in reporting acquisition workforce levels to the Committee.14 Moreover, the series of

reductions in the acquisition workforce mandated by Congress in the 1990s was gauged

with reference to this Acquisition Organization count.

The overbreadth of this Acquisition Organization approach is apparent if one examines

the list of Acquisition Organizations. Any organization whose mission includes significant

acquisition programs is included in this list, even though many, and in some cases most,

of its employees are primarily engaged in other functions. For instance, the Missile Defense

Agency is included in this list even though many of its personnel undoubtedly are primarily engaged in other functions. The DoD Inspector General (“DoDIG”) has noted that the

Acquisition Organization workforce count includes “non-acquisition personnel performing support functions” including “firefighting, police, human resources, administration,

accounting, legal, engineering technicians, supply, transportation and trades (such as

equipment and facilities operations and maintenance).”15 On the other hand, in a different respect, the Acquisition Organization count is too narrow as well, because it excludes

any personnel engaged in acquisition functions outside of the listed “acquisition organizations.” Clearly, there are some such personnel.

The ATL Count (for DoD) 

In contrast to the approach taken in Section 912(a), Section 912(b) of the National

Defense Authorization Act for Fiscal Year 1998 required DoD to develop for itself a definition of the Defense Acquisition Workforce, and to use that definition uniformly within

DoD. After study, the Secretary of Defense informed Congress that DoD would henceforth

employ a method, known as the “Refined Packard Model” to produce a workforce count

14 U.S. DoD IG, Human Capital: Report on the DoD Acquisition Workforce Count, D-2006-073, 7 (Apr. 2006).

15 Id.
348

sometimes also known as the “Acquisition, Technology and Logistics” (ATL) count. The

Senate Armed Services Committee relies on data for the ATL produced through this Refined

Packard Model, whereas their House counterpart now receives data on this ATL count and

on the Acquisition Organizations workforce count described above.16

The ATL count is produced by combining three categories of employees:

•	 First, the count includes all civilians in what is called Category I—the contracting-related

occupational series, such as GS 1102s and 1105s, no matter where in DoD they serve.

•	 Second, in Category II the ATL count includes civilian DoD employees in acquisition or

technology-related occupations (such as electronics engineering, budget analysis, or computer engineering), but only if they are serving in organizations that perform primarily

acquisition-related missions; it also includes military officers in these same organizations.

•	 Finally, in Category III, the ATL definition of the acquisition workforce allows for additions to this count, as well as for deletions from the count, by particular military services

and other DoD organizations in order to more accurately reflect the predominant nature

of particular employees’ functions and responsibilities.

Several observations about the Refined Packard Model/ATL count seem appropriate:

•	 First, this approach seeks to cast a broader net than the traditional FAI count, which

includes only the contracting occupational series.

•	It is, in a different respect, broader than the Acquisition Organization count, because,

unlike that count, it includes acquisition personnel in traditional contracting specialties

outside acquisition organizations.

•	 Like the Acquisition Organization count, the formulation of the ATL count recognizes that

the acquisition function is broader than the task of contracting. It does so by inclusion of

Category II and Category III personnel. On the other hand, it recognizes that the Acquisition

Organization count is overstated in important respects because it includes almost all personnel

in such organizations, no matter how remote their function is from the acquisition process.

•	In this respect, the ATL count seeks to strike a compromise between the narrow occupational categories-based definition of the Acquisition Workforce employed by FAI and the

overbroad approach of the Acquisition Organization count.

•	But this compromise is necessarily imperfect if the ATL count is to be employed as a

gauge of the resources available for acquisition functions. Although every member of the

Category II grouping included in the ATL count may have some degree of involvement in

acquisition functions, many of these Category II personnel spend most of their time on

non-acquisition functions.

Note: It is theoretically conceivable that the concerns raised by the last bullet point might

be addressed by having Category II positions rated according to the percentage of their normal workload that is devoted to acquisition-related activities. We could thus translate the

gross number of Category II personnel into a smaller number of full-time equivalent positions devoted purely to acquisition. But the drawbacks of any such alternative approach are

also evident. First, it might well prove unmanageable in practice. Second, this suggestion may

founder on the fact that a significant portion of the time of many Category II employees will

16 Id. at 8.
349

be devoted to activities that inextricably intertwine acquisition and program functions. At

most this kind of approach might warrant a pilot study to see if it is readily operationalizable

and whether it yields useful information for human capital managers.

A different response to the concern noted in the last bullet point above can be found

in the provision for inclusion or exclusion of individual employees from the Acquisition Workforce count under the rubric of Category III. Indeed, Category III provides the

ATL workforce definition with flexibility that both the FAI and Acquisition Organization

approaches lack. This feature provides some ability to adjust the workforce definition and

count to respond to the concern stated above—that Category II may have the effect of overstating the resources that are available for acquisition functions. On the other hand, this

same flexibility is also the source of a potential weakness in the Refined Packard Model.

That is, by allowing organizations to make individualized determinations as to inclusions

and exclusions from the acquisition workforce, this provision could potentially open the

door to nonuniformity and inconsistency in the definition and counting of the federal

acquisition workforce. This could particularly be a problem if this approach were extended

to agencies beyond the DoD. A consistent, detailed and uniform methodology for making

these Category III determinations would have to be applied uniformly by all agencies for

this to yield comparable results across the face of different federal agencies.

The DoD definitions and counting methods do not match up with the FAI counts for

the civilian agencies. So uniformity and consistency on a federal government-wide basis

certainly have yet to be achieved.

Just to give a sense of the dramatic impact of these varying methods for counting 

the DoD component of the acquisition workforce, note the following:

•	 For FY 2004, the, DoD Acquisition Organization Workforce count was 206,65317

•	 For the same fiscal year, the DoD Refined Packard methodology count was 134,60218

•	And the total of personnel in the FY 2004 FAI count for DoD organizations—covering

the five major 1100 occupational series tracked by FAI—was 25,91819

17 Id. at 7.

18 Id. at 9.

19 FAI, Report on the Federal Acquisition Work Force: Fiscal Years 2003 and 2004. This number actually

appears nowhere in the cited report. For reasons that are not apparent, the report nowhere sums the

acquisition workforce for DoD or any of its components. But it does break out each of the following

occupational series (1101, 1102, 1105, 1106, 1150) by agency in a table ostensibly designed to show

breakout by grade level. By summing the total across grade levels, and summing totals across for the Army,

Air Force, Navy, and other DoD, and then summing these occupational series, we have derived this total.

Note that although this report includes data on 1104s elsewhere in the report, the specific table does not

include this data on 1104s, so they have been omitted from this count. These details are noted here mostly

to provide an example of the frustrating inconsistency in the way the workforce related data has been

collected and reported.
350

Equally significantly, although the trends reflected in the differing counts go in the 

same direction, they are sharply different in magnitude: 

•	Between 1999 and 2004 the Acquisition Organization count for DoD declined from

230,556 to 206,653,20 a drop of more than 10 percent

•	In the same time period, the ATL count declined much less, from 138,851 to 134,602,21 a

decline of just slightly more than 3 percent

•	As for the FAI count for DoD, in the same time period the total of the five major occupational series tracked by FAI, dropped from 31,13122 to 25,918, a decline of almost 27

percent, reflecting the sharpest decline

Thus, although all of these statistics show a declining workforce, there are major differences as to the extent of that decline. A comparison of the trends suggests that reductions

were sharpest in the core contracting competencies and functions. Focusing on the ATL definition alone tends to obscure the extent of this reduction. We ultimately conclude that no

single definition of the acquisition workforce would secure the information necessary for

successful human capital planning to meet our acquisition needs for the future, and recommend that a dual approach be taken to defining and counting the workforce.23

When an effort is made to track the acquisition workforce over longer periods of 

time, the data uncertainties loom even larger.

•	 This is partly because there is no data equivalent to the ATL/Refined Packard Model count for

years prior to 1999. Yet these are the years in which the most dramatic reductions occurred in

the acquisition workforce as measured by the Acquisition Organization count.24

•	 This is partly because there is simply no data for the past that was computed on a basis

equivalent to the ATL count for non-DoD organizations.

•	 Thus, in order to track changes over the longest period of time using reasonably consistent measures, we are obliged to employ the narrowest definition of the acquisition

workforce, focusing on the 1100 series of occupational categories, tracked by FAI (with

some omissions) since 1982. For DoD, but not for civilian agencies, we have the additional option of focusing on the Acquisition Organization count, which has been available since 1990.

C. The Beacon Report

Much of the work of the Panel with respect to the acquisition workforce was focused on the

documentary record as to the size and capability of the federal acquisition workforce, as well

as the demands that the changing acquisition function places upon the acquisition workforce.

In some of these areas there is a voluminous literature collecting data and other information

20 DoD IG D-2006-073, at 7.

21 Id. at 9.

22 This number was derived from the Federal Acquisition Institute, Report on the Federal Acquisition 

Workforce-1100 Series Fiscal Year 1999, using the technique described in footnote 19 with respect to the FY

2004 data.

23 See Recommendations 1-1 and 1-2 and accompanying discussion at 5-36-5-39.

24 See footnote 53 (Finding 5).
351

relevant to our inquiries. In other areas—such as systematic human capital planning—we were

unaware of much of a literature. In order to master and assemble this literature, and to put

some of the available data into usable form, the Panel was fortunate to be able to avail itself of

the services of a contractor, Beacon Associates, Inc.

Beacon undertook several tasks for the Panel with respect to our inquiry into the state

of the federal acquisition workforce:

•	 First, Beacon prepared a transcript matrix that indexed the hearing testimony and the

documents submitted to the Panel for references to the state of the acquisition workforce.

•	 Second, Beacon assembled a comprehensive catalogue of government reports on the size,

composition, effectiveness and competencies of the federal acquisition workforce that

had been issued over the last three decades, and prepared executive summaries. Most

importantly, these materials were scanned and assembled on a CD-ROM making them

accessible for use by Panel members, and preserving them for future use.

•	 Third, Beacon assembled a “Data Workbook” assembling the numerical data available

about the federal acquisition workforce. This, too, was placed on a CD-ROM to make it

accessible to Panel members, and preserving this information for future use.

•	 Finally, Beacon prepared for the Panel’s use a report analyzing the available information

about the size, composition, competencies and effectiveness of the federal acquisition

workforce, and equally importantly, identifying shortcomings, gaps, and inconsistencies

in the available data. This Beacon Report presents an extensive array of the available statistical information about the federal acquisition workforce, usually in graphical form.

The Report also contains pointers, in the form of footnotes, to the original documents

where the information cited can be found, which are now contained with the catalogue

mentioned above. The Executive Summary section of that Report is included in our Panel

Report as an Appendix. The entire Beacon Report is available on CD-ROM.

Because of the voluminous literature involved, as well as because of the frustrating inconsistencies and gaps in the data collected and reported previously, the services and products provided by Beacon were invaluable in the work of the Panel on the federal acquisition workforce.

II. Issues To Consider

1.	Which government personnel should be understood to constitute the federal acquisition

workforce (taking into account both the actual operation of the procurement process

today and the ideal operation of the process in the future)?

2.	Is the existing federal government acquisition workforce sufficient in numerical

strength to perform the missions that it has been assigned in a manner that assures—

to the extent reasonably practicable—the effective, efficient and lawful operation of

the federal acquisition system?

3.	Is the existing workforce sufficiently qualified by background, aptitude, credentials, skills

and training to perform the missions that it has been assigned in a manner that assures

the effective, efficient and lawful operation of the federal procurement system?

4.	Are additional data collection, workforce assessment and human capital planning measures necessary so that the federal government can assure that it can match the workforce

“supply” to the functional demand for acquisition management today and in the future?
352

III. Acquisition Workforce-Related Findings

Finding 1:

The federal acquisition workforce is an essential key to success in achieving the government’s missions. Procurement is an increasingly central part 

of the government’s activities. Without a workforce that is qualitatively and 

quantitatively adequate and adapted to its mission, the procurement reforms 

of the last decade cannot achieve their potential, and successful federal 

procurement cannot be achieved.

Discussion 

The experience of Acquisition Advisory Panel members, the testimony received by

the Panel, and the data collected and surveyed by the Panel all make clear the centrality

of the acquisition workforce to the accomplishment of the government’s missions. Both

the increased dollar volume of procurement and the qualitative evidence confirm that

we have entered what GAO has labeled a “new environment in which there is heavy reliance on contractors to perform functions previously performed by the government.”25 The

importance of this trend, already evident, was magnified in the response to the events of

September 11, 2001, and the conflicts in Afghanistan and Iraq. As the Comptroller General

has noted, expenditures on federal acquisition have increased over 65 percent since 2001,

reaching the level of $388 billion in fiscal year 2005.26

We have also witnessed a constant stream of reports that document qualitative shortfalls in the performance of the acquisition system—shortfalls that have been attributed in

significant part to inadequate human resources in the acquisition workforce.27 Significantly,

among these are reports addressing procurement difficulties and shortcomings both in the

response to Hurricane Katrina,28 and in Iraq reconstruction efforts.29

Workforce issues have surfaced repeatedly, as well, in the work of the Panel directed

at substantive features of the procurement systems. Indeed, it is safe to say that all of the

working groups of the Acquisition Advisory Panel encountered these issues.30 Some of the

reasons for this phenomenon are worth noting. The working groups initially established

25 U.S. GAO, Highlights of a GAO Forum: Federal Acquisition Challenges and Opportunities in the 21st 

Century, GAO-07-45SP, 11-12 (Oct. 2006).

26 Id. at 4.

27 A selective listing of a much larger body of reports includes: U.S. GAO, High-Risk Series: An Update,

GAO-05-207 (Jan. 2005); U.S. GAO, DoD Acquisitions: Contracting for Better Outcomes, GAO-06-800T (Sept.

2006); U.S. GAO, Contract Management: DoD Vulnerabilities to Contracting Fraud, Waste and Abuse, GAO-06-

838R (Jul. 2006); U.S. GAO, Defense Acquisitions: Assessments of Selected Major Weapon Programs, GAO-06-391

(Mar. 2006); U.S. GAO, Defense Acquisitions: DoD Has Paid Billions in Award and Incentive Fees Regardless of 

Acquisition Outcomes, GAO-06-66 (Dec. 2005); U.S. GAO, Defense Management: DoD Needs to Demonstrate 

that Performance-Based Logistics Contracts are Achieving Expected Benefits, GAO-05-966 (Sept. 2005).

28 U.S. GAO, Hurricane Katrina: Planning for and Management of Federal Disaster Recovery Contracts, GAO06-622T (Apr. 2006).

29 Special Inspector General for Iraq Reconstruction, DoD, Iraq Reconstruction: Lessons Learned in

Contracting and Procurement 107-09, App. B (2006), available at http://www.sigir.mil/reports/pdf/

Lesson_Learned_July21.pdf (last visited Feb. 19, 2007).

30 See for instance, the recommendations regarding Performance-Based Service Contracting, for the

establishment of Contracting Officer Performance Representatives, Recommendation 8 at Chapter 2 of this

Report.
353

by the Panel correspond to the specific mandates established for the Panel by Congress,

including focus on the use of commercial practices, interagency and government-wide

contracts, and PBA. These topics correspond to areas Congress believed could benefit from

closer examination, and, if possible, substantive improvement. It is not mere coincidence

that, in the course of examining these trouble spots in the operation of the federal procurement system, there was frequently evidence that the federal acquisition workforce had

difficulty implementing the procurement system as designed. These are all areas in which

increased demands have been placed on the acquisition workforce to handle an increased

number of transactions and to acquire increasingly sophisticated goods and services.

As explained in more detail below, the skills and knowledge base that are required to

successfully perform these procurement functions go well beyond the capabilities that were

required of the federal acquisition workforce in an earlier era. Thus, each of the Panel’s

Working Groups took into account what role shortcomings in the federal acquisition workforce were playing in what appeared to be suboptimal performance of the acquisition system. At the same time, in devising recommendations for substantive improvements in these

facets of the procurement system, it was necessary for each Working Group to keep in view

a realistic estimate of the capabilities of the existing workforce and the future acquisition

workforce, so as to make sure that reforms suggested by the Panel were realistically capable

of implementation. Thus, any carefully framed program of recommendations in the areas

that Congress asked the Panel to address would have to pay close attention to the federal

acquisition workforce issues that we have addressed.

Finding 2:

Demands on the federal acquisition workforce have grown substantially:

Finding 2-1:

The dollar volume of federal government procurement has increased dramatically since

9/11/2001. Procurement obligations have increased 60 percent in the last five years.

Finding 2-2:

In the last twelve years the qualitative nature of the procurement activity has also

changed, placing markedly greater demands on the Acquisition Workforce for capability,

training, time, and sophistication.

Finding 2-2-1:

There has been a pronounced shift from acquisition of goods to acquisition of services.

Service contracting places additional demands on the acquisition workforce, both in the

requirements definition and contract formation process, particularly in the realm of PBA,

but also on the contract management side.

Finding 2-2-2: 

There has been a dramatic shift of federal procurement dollars to the Federal Supply

Schedules and other forms of interagency contracting. Although this is often perceived,

correctly, as part of the solution to the government’s procurement problems and its acquisition workforce shortcomings, it also opens the door to certain problems:
354

-	 Heavy reliance on the schedules and other forms of interagency contracting can alleviate the burdens on understaffed agencies insofar as “getting to the initial award,” but too

often contributes to subsequent problems that arise when ordering agencies fail to define

their requirements adequately, fail to use these vehicles appropriately, fail to secure competition in using these vehicles, or fail to manage contract performance under these vehicles. Some of these problems are more acute with respect to assisting entities as opposed

to direct ordering vehicles.

Finding 2-3:

Many transactions have been simplified by the federal acquisition reforms of the

last decade. This is particularly true of the purchase card and the simplified acquisition

threshold. These simplified transactions represent the overwhelming bulk of procurement

transactions if we simply count transactions. However, even the simplified purchase card

transactions have a more complex impact on the acquisition workforce than was initially

appreciated, because of the need to institute and maintain appropriate purchase card management and controls.

Finding 2-4:

But the remaining share of procurement—outside the ambit of simplified procedures—

is the portion that actually requires most of our attention going forward. For this critical

share of the government’s procurement activity, the demands of procurement on the acquisition workforce have grown dramatically. The changes in our procurement system that

produce these demands may be desirable, but they are not cost-free.

Finding 2-4-1:

Procurement outside the simplified regimes is characterized by use of best value procurement procedures, which substantially increase the complexity of procurement and

the demands on the acquisition workforce as compared with procurement on the basis

of lowest price.

Finding 2-4-2:

Procurement outside the simplified regimes is subject to requirements of past performance evaluation, which, substantially increase the burdens of procurement on the

acquisition workforce.

Finding 2-4-3

A substantial share of procurement outside the simplified regimes is PBA, which dramatically increases the complexity and burden of demands imposed on the federal acquisition workforce.

Finding 2-4-4

Heightened requirements for use of commercial goods and services have increased the

demand for a sophisticated acquisition workforce that has business skills appropriate to

the rapidly changing commercial markets in which goods and services are to be secured.

Discussion

An important element of our findings is to emphasize that the demands on the federal

acquisition workforce have grown both quantitatively and qualitatively in the period associated
355

with the last round of procurement reform in the United States—from the mid 1990s until the

present. Although the trends respecting the dollar volume of procurement are well known, the

subtler impacts of the development of new procurement techniques and other changes in the

procurement system are not widely enough understood or appreciated. They thus bear particular emphasis in our findings here. Moreover, while it is widely understood that some elements

of the procurement reform program of the 1990s—such as the institution of the government

purchase card—can reduce demands on the federal acquisition workforce (for lower dollar

transactions), too little attention has been given to other aspects of the last decade of procurement reform that have had the opposite effect. Again, we seek here to portray the fuller picture.

Moreover, some of the new procurement techniques and vehicles are susceptible to

implementation in ways that temporarily disguise acquisition workforce shortcomings, but

which ultimately result in seriously disappointing performance of the acquisition system.

Examples noted below include the shifting of procurement to the Federal Supply Schedules

and other forms of interagency contracts. As noted in our Panel’s findings and recommendations on interagency contracts and on commercial practices, these procurement techniques divide responsibility for securing competition and best value for the federal government between the agency (GSA or other interagency contract sponsor) that establishes the

vehicle, and the ordering agency. Unfortunately, it has too often been the case that agencies

accept the acquisition workforce savings that come from use of interagency contracts, but

fail to live up to the responsibility of using these vehicles in a competitive manner. They

too often fail to invest the acquisition workforce resources that would be necessary to

secure real competition when using these interagency contract vehicles.

Another phenomenon is that a series of reform initiatives, each of which had its own

policy justification, had a cumulative impact that was not fully appreciated when these

were adopted in increments. The cumulative impact was to dramatically increase the aggregate complexity of the acquisition system. The ultimate result we have witnessed is that the

knowledge and skill base necessary to successfully operate the acquisition system and to

secure good value for the government and taxpayers through the operation of the system,

has outstripped the resources available to operate the system.

Key aspects of the foregoing findings are discussed below:

The sharp growth in procurement expenditures by the federal government, particularly

since the attacks of September 11, 2001 is well known and has been noted elsewhere.31 But

the changing qualitative nature of acquisition has been less well noted. More importantly,

the ways in which these qualitative changes have increased the burdens on the acquisition

workforce have been too little noticed, and too little understood.

Acquisition workforce burdens frequently resulted from changes in the acquisition

system adopted in the last fifteen years. The proponents of these reform initiatives may

not have recognized the acquisition workforce demands that they would create, especially when the impact of all of these changes is aggregated. Our point is that the potential for successful mission achievement through acquisition of goods and services, and

the pursuit of best value for the government in that process, are both undermined when

31 GAO asserts that the growth in acquisition expenditures between FY 2001 and FY 2005 is actually

65%. GAO-07-45SP, at 4.
356

the acquisition workforce lacks the resources to implement these newer procurement

techniques and methods properly.

It is well known that service contracting continues to represent an increasing share of the

federal acquisition pie.32 Less well known are the additional demands that service contracting

places on the acquisition workforce. Service contracts require additional attention to a variety

of steps in the contract formation process, especially in the stage of requirements definition.

They also demand additional attention to contract management in order to enable the government to ensure that it is receiving the services for which it has contracted.

All of these phenomena are highlighted within the realm of PBA. As the Panel’s findings and recommendations indicate, the proper use of PBA has yet to be mastered by most

agencies.33 In particular, agencies need help in learning to develop and deploy measurable

performance standards for such contracts. To some extent, of course, this entails a learning

curve, as agencies gain experience with, and adapt to, the proper use of a novel technique

for procurement. But the fact remains that the proper use of PBA is—and will remain—

labor intensive for the acquisition workforce, even though it may ultimately save resources

for the government as a whole. For instance, as the Panel has recommended, proper use

of PBA should include the development of a “Baseline Performance Case” as part of the

associated Performance Work Statement or Statement of Work.34 The findings and recommendations of the Panel on PBA also emphasize the need for improved contract performance monitoring through the development of contract-specific “Performance Improvement Plans.”35 The acquisition workforce impact of our Panel’s PBA recommendations are

specifically addressed in PBA Recommendation 8 which proposes that the expanded role

of contracting officer technical representatives (COTRs) in monitoring and managing performance under PBA contracts be recognized with enhanced training in PBA and redesignation of such COTRs as Contracting Officer Performance Representatives.36

The Panel’s findings regarding Interagency Contracting reflect the mushrooming

growth of the Federal Supply Schedules and other forms of interagency contracts.37 As we

have noted, usage of interagency contracts is often perceived, correctly, as a solution to

problems of inadequate acquisition workforce and skill sets in the agencies that rely on

such interagency contracts.38 But heavy reliance on interagency contracts can also contribute to problems as well.39 Specifically, reliance on the schedules and other forms of interagency contracting can alleviate the burdens on understaffed agencies insofar as “getting

to the initial award.” But where the ordering agencies’ acquisition functions are understaffed or the acquisition workforce lacks appropriate skills and training, inappropriate

use of such vehicles leads to characteristic kinds of problems. Such problems include

32 Id.

33 See Report at Chapter 2, Findings.

34 See Report at Chapter 2, Recommendation 4.

35 See Report at Chapter 2, Recommendation 5.

36 See Report at Chapter 2, Recommendation 8. This recognition also underlies the recommendation of

the Panel that for more far-reaching performance-based acquisitions (“transformational” PBSA) the COPR

be required to be project management certified. Test. of Carl DeMaio, AAP Pub. Meeting (Mar. 17, 2006)

Tr. at 24-25.

37 See Report at Chapter 3, Background.

38 Test. of Geraldine Watson, GSA, AAP Pub. Meeting (Aug. 18, 2005) Tr. at 37.

39 Id. at 38.
357

failure to use these vehicles appropriately, including out of scope task orders, failure to

secure competition in using these vehicles, and failure to manage contract performance

under these vehicles. Again we emphasize that this is not to say that the shift to interagency contracting vehicles is undesirable or inappropriate. This trend has enabled many

agencies to meet basic needs in a timely fashion. But too often this has been done while

sweeping under the rug problems of securing competition, out-of-scope use of contract

vehicles, and contract management.

A key objective of procurement reform in the last decade has been to simplify the process of acquisition. Certainly, a number of the new techniques introduced and expanded in

this time period have had the effect of simplifying the transactions to which they apply. As

we have noted, this is particularly true of the purchase card, the micro-purchase threshold

and the simplified acquisition threshold. As we explain below, both here and in connection with Finding #3, however, the aggregate effect of the procurement reforms and other

procurement system changes over the last fifteen years has been to complicate other kinds

of transactions, and to make the overall system of procurement more complex.

The simplified transactions, such as the purchase card, micropurchases, and transactions below the simplified acquisition threshold represent the overwhelming bulk of procurement transactions if we simply count transactions. But even the simplified purchase

card transactions have a more complex impact on the acquisition workforce than was initially appreciated, because of the need to institute appropriate purchase card management

and controls.40

But it is the remaining share of procurement—outside the ambit of simplified procedures—that actually requires most of our attention going forward. This remaining share

has been estimated to represent only 1 percent of the transactions, but involves 85 percent

of the procurement dollars.41 For this critical share of the government’s procurement activity, the demands of procurement on the acquisition workforce have grown dramatically.

Among the relevant trends and influences affecting the demands placed on the acquisition

workforce are the following:

•	 Procurement outside the simplified regimes is characterized by use of negotiated procurements using best value selection procedures, which substantially increase the complexity

of procurement and the demands on the acquisition workforce as compared with procurement on the basis of lowest price.

Here, as so often, our point is that quality acquisition is not cost-free. The best value

or competitive negotiation procurement technique was adopted in order to try to achieve

open, competitive, transparent procurement for sophisticated or complex goods and services. For these goods and services it would be inappropriate to force the government

to use the sealed bidding acquisition technique where the source selection criterion must

be the lowest price associated with a responsive offer. But to achieve transparency and

40 See OMB, Improving the Management of Government Charge Card Programs (August 9, 2005) App. B to

OMB Circular A-123. The current version of this document is found at http://www.whitehouse.gov/omb/

circulars/a123/a123_appendix_b.pdf.

41 The Procurement Roundtable concludes that transactions outside the area of simplified transactions

and orders account for 15% of the transaction, but 98% of the procurement dollars, and 99% of

the complexity. Procurement Roundtable, Attracting and Retaining the Right Talent for the Federal 1102 

Contracting Workforce 1-2 (April 2006).
358

competition, while affording the government flexibility to define the best value source

selection criterion that is appropriate for the particular acquisition, is a labor intensive process for the acquisition workforce. For instance, a source selection plan must

be devised, defining in advance of the receipt offers the factors to be weighed in source

selection and the relative weight to be assigned to these factors. If awards are not made

on initial proposals there will be two or more rounds of offers, and winnowing to be

done between the rounds. After source selection and award, unsuccessful offerors are

entitled to debriefing. Each of these procedures contributes to a competitive and transparent process, but each makes demands on the acquisition workforce.

•	Procurement outside the simplified regimes is subject to requirements of past performance evaluation which substantially increase the burdens of procurement on the

acquisition workforce.

A major criticism of federal acquisition practice prior to the 1990s was that in source

selection contractors were neither rewarded for excellence of past performance, nor downrated for substandard performance on earlier contracts.42 Accordingly, a major thrust of

procurement reform in the 1990s was to institute uniform practices and policies to guide

the evaluation of past performance as a source selection factor in best value procurements.43 Agencies are required to routinely prepare an evaluation of contractor performance at the completion of each contract that exceeds the simplified acquisition threshold.

The process requires that input be secured from the appropriate COTR as well as the interested end user, and also requires that the contractor being evaluated be afforded an opportunity to comment on its tentative evaluation, with review of any disagreement above the

contracting officer level.44 Obviously, a lot is at stake for contractors being evaluated. The

OFPP has created, and has periodically updated an elaborate guide to Best Practices for

Collecting and Using Current and Past Performance Information.45

This guide quite appropriately seeks to make performance evaluation a routine part

of federal contract management so that the data necessary to use past performance as an

evaluation factor in future best value acquisitions will be routinely available. But examination of the Best Practices guide will confirm that this transformation of federal acquisition

practice requires a substantial investment of acquisition workforce time and effort.

•	Heightened requirements for use of commercial goods and services have increased the

demand for a sophisticated acquisition workforce that has mastery over the relevant business skills and commercial markets in which goods and services are to be secured.

Another major initiative that formed part of the procurement reform agenda adopted

in the 1990s was to create a preference for government acquisition of items that exist in the

commercial marketplace. Ultimately, this should save the government the need for research

and development costs, reduce the need to develop government-unique specifications and

42 Steven Kelman, Procurement and Public Management: The Fear of Discretion and the Quality of 

Government Performance (AEI Press, 1990).

43 See FAR 15.304(c)(3); FAR 15.305(a)(2); FAR Subpart 42.15.

44 FAR 42.1502; 42.1503.

45 The current version is available at http://www.whitehouse.gov/omb/procurement/contract_perf/

best_practice_re_past_perf.html.
359

for product testing and reduce the time required to complete acquisitions, and engender

savings. But like other reforms that were instituted in the last generation, this initiative

places significant demands on the acquisition workforce. The process of commercial item

acquisition and the predicate process of determining when commercial item acquisition

techniques are appropriate require contracting officers to develop and deploy substantial

expertise about the markets in which they make purchases.46

To sum up, recognizing the workforce impacts of these developments in the procurement system is not to criticize the procurement reforms that engendered these impacts.

While the reforms can advance the government’s ability to secure necessary goods and

services in a cost-effective manner, achieving that potential requires that the government

invest substantially in the acquisition workforce.

Finding 3:

Even though there are now available a variety of simplified acquisition techniques, the complexity of the federal acquisition system as a whole has 

markedly increased since the 1980s. 

-	 Procurement reforms designed to accelerate mission accomplishment nonetheless burden the acquisition workforce, which needs to choose among available techniques. There

are difficult decisions to make about when to use which approach.

-	 The acquisition workforce also needs to be equipped to exercise discretion in choosing

the appropriate procedure for procurement.

-	 While some procurement functions can be performed satisfactorily by personnel with

mastery only over the simplified techniques, more complex federal acquisitions demand

procurement personnel with mastery of the range of procurement techniques. Thus the

complexity of the acquisition system, taken as a whole, has become a major challenge to

the acquisition workforce.

Discussion 

This finding builds on the trends and developments noted in Findings #2 through #2-

4-4. But we have stated it separately because it makes a distinctive point that we consider

one of the most important findings that we have to make.

The critical distinction on which this finding rests is that between the overall complexity of the acquisition system and the speed of acquisition that can be achieved under particular streamlined acquisition techniques. These two phenomenon are not inconsistent.

Indeed the proliferation of a variety of simplified acquisition methods is one of the trends

that has made the procurement system as a whole more complex, along with the host

of other demands now borne by the acquisition workforce. Whatever improvements the

streamlined acquisition methodologies may need—the subject of much of the rest of our

Report—we are not questioning here the general efficacy of regimes such as the purchase

card, the micro-purchase threshold, the simplified acquisition threshold or the commercial

item acquisition rules. Instead we want to call attention to the aggregate impact of developments in acquisition over the last few decades on skills and training and mastery required

46 See FAR 12.101(a). This is true, more generally, of federal acquisition practice. Test. of Robert C.

Marshall, Penn. State Univ., AAP Pub. Meeting (Oct. 27, 2005) Tr. at 45, 49; Test. of Glenn Perry, DoE,

AAP Pub. Meeting (Feb. 23, 2006) Tr. at 131.
360

to operate the acquisition system successfully. In addition to the techniques generally

intended to streamline the particular acquisitions to which they apply, we must recognize

the impact of the development and proliferation of a host of interagency contract mechanisms, the shift to PBA, the demands of best value contracting, the burdens of routine

performance evaluation, and the special requirements of successful use of commercial

items and services. Both the testimony received by the Acquisition Advisory Panel and the

experience of our members confirm that the complexity of the acquisition system, taken as

a whole, has become a major challenge to the acquisition workforce.47

Finding 4:

There are substantial problems with the data that are available on the federal 

acquisition workforce.

Finding 4-1:

Data has not been collected in a consistent fashion from year to year or across agencies.

Finding 4-2:

The acquisition workforce has been defined differently for DoD and for civilian agencies over the period of the acquisition reforms and the acquisition workforce cutbacks that

have occurred in the last 15 years.

Finding 4-3:

A significant policy issue is presented as to how broadly to define the composition

of the acquisition workforce—whether to include all of the functions that complement

or support the acquisition function? A broad definition is more consistent with modern

understanding and commercial practices regarding the acquisition function, but risks overstating acquisition workforce resources.

Discussion 

The basis for these findings is contained in the discussion in the background section of

this chapter, entitled “The Problem of Counting the Workforce.” To recap only briefly, the

FAI has counted the federal procurement workforce using a narrow definition of that workforce limited to traditional procurement specialties. By contrast, the DoD has used two different approaches that recognize the close interrelationships between requirements setting

and technical procurement activities and between program and technology management

and the work of monitoring contractor performance and managing the legal and economic

relationship between the government and the contractor. There is good reason for recognizing these close relationships, and for rejecting the idea that there should be an adversary

or arm’s-length relationship between procurement personnel and their “customers.” Nonetheless, as explained above, these approaches risk overstating the personnel resources available for acquisition by including personnel whose primary responsibilities lie elsewhere.

Moreover, we have documented that the trends affecting the acquisition workforce are significantly different depending on which approach to defining and counting that workforce

47 Test. of Eugene Waszily, GSA Office of Inspector General, AAP Pub. Meeting (May 17, 2005) Tr. at

247-48; Test. of Stan Soloway, Professional Services Council, AAP Pub. Meeting (Nov. 18, 2005), Tr. at 14.
361

one employs.48 Thus, there is indeed a significant policy issue at stake in deciding how

broadly to define the acquisition workforce

To see why this issue is complex, rather than one-sided, consider the case of agency personnel responsible for defining agency requirements for goods and services to be secured

through the procurement process. Certainly the evidence we have received from commercial organizations supports the conclusion that the procurement function is a critical part

of management and should not be isolated from organization components that “consume”

or complement the goods and services being acquired.49 Accordingly, there are good reasons why personnel with operational responsibility who are in a position to determine

and define the government’s requirements in contracting should be considered part of the

broad acquisition workforce.

On the other hand, however, if we are trying to gauge the personnel available for carrying out the acquisition function, it is equally important to bear in mind that many of the

personnel who should play a key role in requirements-definition are not, and should not

be, engaged full-time in the work of acquisition. This same point is at least equally true of

project managers, who play a vital role in the acquisition cycle, but are not, and should not

be, available full time for the work of acquisition. Nor are they interchangeable with those

personnel who possess the necessary expertise to negotiate the legal requirements of the

process of procurement.

The preference for broader definitions of the acquisition workforce that has developed

over the last ten years appears to us to reflect a desirable effort to break down barriers

between contracting personnel and those who will work with the goods and services to be

acquired. At the same time, it would be a mistake to count the latter groups of personnel as

though they are engaged full-time in the acquisition process.

In short, both the broad and a narrow approach to defining the acquisition workforce

add to an accurate understanding of the resources that are available to meet the different

demands faced by the acquisition workforce. Therefore, in recommending that OFPP promulgate a uniform approach to data collection on the federal acquisition workforce, we have

specified that this definition should employ a dual approach that tracks both narrow contracting specialties and a broader conception of the interconnected acquisition workforce.50

Finding 5:

The federal government does not have the capacity in its current acquisition workforce necessary to meet the demands that have been placed 

on it. Because of the absence of human capital planning to date, the 

Panel cannot definitively conclude whether this is the result of a numbers 

problem, but has received testimony raising serious concerns about the 

48 See Report at 5-5 to 5-7, above.

49 Test. of Robert Miller, Procter & Gamble, AAP Pub. Meeting (Mar. 30, 2005) Tr. at 99-100.

50 See Recommendations 1-1 and 1-2, and accompanying discussion in this chapter.
362

number, skill sets, deployment, and role in the acquisition process of the 

acquisition workforce.

-	 There were substantial reductions in the acquisition workforce during the decade of the 1990s.51

-	 One result of this is that hiring of new acquisition professionals virtually ceased during

this time period.

Finding 5-1:

•	There were cuts in some agency training budgets in the 1990s that meant the existing

workforce was not trained to adapt to the increasingly complex and demanding environment in which they were called upon to function.

•	Despite recent efforts to devote more attention and funding to workforce training, in

many agencies these efforts do not appear to meet the existing and future needs for a

trained acquisition workforce

•	Since 1999 the size of the acquisition workforce has remained relatively stable, while the

volume and complexity of federal contracting has mushroomed.52

Finding 5-2:

The drought in hiring, the inadequacy of training in some agencies, and the increased

demand for contracting have together created a situation in which there is not, in the

pipeline, a sufficient cadre of mature acquisition professionals who have the skills and the

training to assume responsibility for procurement in today’s demanding environment.

-	 Frequently described as a “bathtub” situation, there appears to be an acute shortage of

procurement personnel with between five and fifteen years of experience.

51 In addition to the statistics presented in the Background section of this Chapter, we note the

following:

•	 As of September 30, 1990, the Federal Acquisition Institute reported a total census

in 27 “logistics occupations” of 165,739. By September 2000 the comparable

statistic had declined to 122,787. Fed. Acquisition Personnel Info. Sys., Report 

on the Federal Acquisition Workforce Fiscal Year 1991 at 2 (September 1992); Fed.

Acquisition Personnel Info. Sys., Report on the Federal Acquisition Workforce—1100 

Series Fiscal Year 2000 at 2 (Oct. 2001). This represents a decline of 25.9 percent. •	 As of September 30, 1991, the Federal Acquisition Institute reported a total

“procurement workforce” consisting of 1101s, 1102s, 1104s, 1105s, 1106s, and 1150s

numbering 67,546. By September 2000, the comparable figure had declined to

57,150, a decline of 15.4 percent. In the same time period 1102s declined from

31,436 to 26,751, a decline of 14.9 percent. 1105s declined from 6,754 to 3,414, a

drop of 50 percent. Report on the Federal Acquisition Workforce Fiscal Year 1991 at 3;

Report on the Federal Acquisition Workforce—1100 Series Fiscal Year 2000 at 3. •	 Using the much more inclusive DoD Acquisition Organization counting

methodology (described in the Background section of this chapter , the DoD

Acquisition Workforce declined from 460,516 in FY 1990 to 230,556 in FY 1999,

a decline of 50 percent. DoD IG, DoD Acquisition Workforce Reduction Trends and 

Impacts, D-2000-088, 5-6 (Feb. 2000).

52 As noted above, in the text accompanying footnotes 20-23, the DoD acquisition workforce

continued to decline in this time period, substantially so by some of the available measures. The overall

FAI count for the “procurement workforce” government-wide (consisting of 1101s, 1102s, 1105s, 1106s,

and 1150s) grew very modestly from 57,784 to 58,161—growth of .6 percent. FAI, Report on the Federal 

Acquisition Workforce—1100 Series Fiscal Year 1999 at 3 (Apr. 2001); Report on the Federal Acquisition 

Workforce, Fiscal Years 2003 and 2004 at 39, tbl. 4-2 (Apr. 2005).
363

-	 Moreover, the relative sufficiency of the senior end of the acquisition workforce is seriously threatened by retirements.

-	 A key challenge, accordingly, is to retain a high proportion of the senior workforce while

development of the mid-level workforce goes forward.

-	 There is strong competition for a limited and shrinking pool of trained and skilled procurement professionals within the federal government.

-	 This imbalance between supply and demand is exacerbated by the strong competition

that the private sector offers the government in trying to recruit the shrinking pool of talented procurement professionals. The government is losing this competition.

-	 On the other hand, at least in major metropolitan areas, the government has not been

able to compete very successfully for the services of talented procurement professionals

who have been working within the private sector. The government does not have a salary

structure and career ladders that are likely to attract experienced procurement professionals from the private sectors.

-	 The slowness of the government’s hiring process has also been an obstacle to hiring talented people for the acquisition workforce.

Finding 5-3:

A widely noted result of the inadequacy of Acquisition Workforce personnel resources

to meet the demands of procurement government-wide is that scarce resources have been

skewed toward contract formation and away from contract management.

Finding 5-4:

The Panel concludes that one important way to improve retention of qualified personnel within the federal acquisition workforce is to expand opportunities for such personnel to

secure advancement by moving to different organizations within the federal government.

Finding 5-5:

Inadequacy in the acquisition workforce is, ultimately, “penny wise and pound foolish,”

as it seriously undermines the pursuit of good value for the expenditure of public resources.

Discussion

Witnesses before the Panel have confirmed the inadequacy of the existing acquisition

workforce. For instance, Shay Assad, Director of Defense Procurement and Acquisition Policy

acknowledged that “We’ve got a crisis within DoD in terms of our people.”53 More specifically, he recognized that the problem relates to the age and experience level structure of the

existing workforce, with a “huge shortage” of personnel with between five and fifteen years of

experience in acquisition.54 Although a much more adequate workforce exists at more senior

levels of experience, in the view of Mr. Assad, retirements among this cohort are a major

53 Test. of Shay Assad, DPAP, AAP Pub. Meeting (June 14, 2006) Tr. at 57.

54 Id. at 58; see also Test. of Ashley Lewis, DHS, AAP Public Meeting (Jun. 14, 2005) Tr. at 311 (“Really,

it’s the youngsters and the middle people that there seems to be a void, you know. That part is, in my

view, that’s where we seem to have the deficit.”); Test. of David Sutfin, DoI GovWorks Division, AAP Pub.

Meeting (Jun. 14, 2005) Tr. at 319-20.
364

threat to the continuing adequacy of the workforce. He noted, it is essential that retention of

this senior cadre be improved because, “we don’t have anybody to replace them.”55

Other witnesses before the Panel also portrayed a crisis as to the adequacy of the existing and future acquisition workforce.56 A representative of the DoD IG confirmed: “I think

they are understaffed. You know, we had that big cutback a few years ago, and I don’t think

we’ve ever gotten back to the point where we can handle all the workload.”57 The workforce

shortcomings are both quantitative and qualitative. A representative of the GSA IG’s office

explained: “You have a huge transition in the acquisition work force. . . . [T]here are certainly

not as many contracting folks out there today as there were five or ten years ago, and a lot of

the folks who are in the procurement arena now really don’t have as much experience as the

ones who have left. And the turnover in acquisition is exceedingly high right now.”58

Greg Rothwell, who recently retired as Chief Procurement Officer for the Department of

Homeland Security, described the situation confronted by DHS by saying that the acquisition workforce resources had been “gutted.”59 He also gave specific examples of acquisition

programs that lacked appropriate staffing, including a $3 billion program that did not have

a single full-time equivalent employee.60 The result, described by Mr. Rothwell’s testimony,

was that the agency was forced to pass every acquisition to another agency, whether or not

that agency had special expertise in the area of the procurement.61 Needless to say, he did not

believe that this was a sound acquisition practice.62 Mr. Rothwell also reported that, prior to

Hurricane Katrina, FEMA was staffed for acquisition at a level less than one-sixth of what had

been determined to be an appropriate level.63 Mr. Rothwell, who had worked in procurement

in ten different federal agencies across the span of a 34-year career in the federal government,

summarized his conclusions about the state of the workforce as follows:

It is a huge challenge for our particular time. There are not enough people;

they are not well enough trained, and they need to be valued and inspired

when you get into the workforce, and again, if you’re in one of those agencies that already does that, that’s great. You know, because I do run into

agencies where you do have, you know, sufficient staffing, well trained and

things. I’m just suggesting that there are many agencies that are critical to

this country where that is not the case.64

Thus, although Mr. Rothwell did not paint a monolithic portrait of the state of the federal workforce, he recognized serious shortcomings in many important agencies.

55 Assad Test. at 58.

56 Test. of Terry McKinney, DoD IG, AAP Pub. Meeting (May 17, 2005) Tr. at 177-78; Test. of Glenn

Baer, CSA, AAP Pub. Meeting (May 5, 2005) Tr. at 68-69; Test. of Jan Menker, CSA, AAP Pub. Meeting (May

17, 2005) Tr. at 66.

57 McKinney Test., at 168-69.

58 Waszily Test. at 211-12.

59 Test. of Greg Rothwell, DHS, AAP Pub. Meeting (Mar. 17, 2006) Tr. at 215.

60 Id. at 218.

61 Id.

62 Id.

63 Id. at 224.

64 Id. at 221.
365

Other basic factual conclusions stated in our findings on workforce adequacy issues are

supported by documents that we have reviewed and the testimony that we received. Some

key points are as follows:

•	 There were substantial reductions in the acquisition workforce during the decade of the 1990s.

For instance, the DoD acquisition workforce, as measured by the Acquisition Organization Count dropped from 460,516 at the end of FY 1990 to 230,566 at the end of FY

1999.65

•	 The drought in hiring and the inadequacy of training has created a situation in which

there is not, in the pipeline, a sufficient cadre of mature acquisition professionals who

have the skills and the training to assume responsibility for procurement in today’s

demanding environment.

•	 There is strong competition for a limited and shrinking pool of trained and skilled procurement professionals within the federal government.66

•	 This imbalance between supply and demand is exacerbated by the strong competition

that the private sector offers the government in trying to recruit the shrinking pool of talented procurement professionals. The government is losing this competition.67

•	 On the other hand, at least in major metropolitan areas, the government has not been

able to compete very successfully for the services of talented procurement professionals

who have been working within the private sector.68 The government does not have a salary structure and career ladders that are likely to attract experienced procurement professionals from the private sectors.69

•	A widely noted result of the inadequacy of Acquisition Workforce personnel resources to

meet the demands of procurement government-wide is that scarce resources have been

skewed toward contract formation and away from contract management.70

This finding is supported by a host of GAO reports that confirm, with depressing regularity, the insufficiency of resources devoted to contract management.71 And a number

of respected observers of the federal government acquisition function agree that contract

administration has been the most neglected aspect of the acquisition function.72

•	 The impact of inadequacy in the acquisition workforce is, ultimately, “penny wise and

pound foolish” as it seriously undermines the pursuit of good value for the expenditure

of public resources.

65 U.S. DoD IG, DoD Acquisition Workforce Reduction Trends and Impacts, D-2000-088, 4 (2000).

66 Test. of Neal Couture, NCMA, AAP Pub. Meeting (Jul. 27, 2005) Tr. at 19, 23, 25.

67 Marshall Test. at 48.

68 Test. of Ashley Lewis, Department of Homeland Security, AAP Pub. Meeting (Jun. 14, 2005) Tr. at 326.

69 Test. of William Kovacic, George Washington Univ. Law School, AAP Pub. Meeting (Oct. 27, 2005)

Tr. at 146.

70 Test. of Linda Dearing, U.S. Coast Guard, AAP Pub. Meeting (Jul. 12, 2005) Tr. at 197.

71 See note 79, below.

72 Steven Kelman, Strategic Contracting Management, in Market-Based Governance: Supply Side, Demand Side, 

Upside and Downside 89-90 (John D. Donahue & Joseph Nye, Jr., eds. 2002); Stephen L. Schooner, Contractor 

Atrocities at Abu Ghraib: Compromised Accountability in a Streamlined, Outsourced Government, 16 Stan. L. &

Policy Rev. 549, 560 (2005); Shelley Roberts Econom, Confronting the Looming Crisis in the Federal Acquisition 

Workforce, 35 Pub. Con. L.J. 171, 196 (2006). [This is not a new problem. See Comm’n Report].
366

We cannot emphasize this point too much. As we note in findings #9-1 and #9-2, successful commercial organizations invest in highly credentialed and highly trained business

managers to carry out their sourcing, procurement and contract management functions.

As explained there, these businesses regard this as a critical investment that contributes

significantly to their bottom line. For the federal government, which lacks the profit-making opportunities open to commercial organizations, cost-saving through the efficient

management of acquisition should be an even more important priority. Moreover, there

is abundant evidence that inadequacy in the acquisition workforce is a consistent cause of

suboptimal acquisition outcomes, and waste of government resources.73

Finding 6:

Most federal agencies have not engaged systematically in human capital 

planning for the federal acquisition workforce. Few agencies have systematically assessed their acquisition workforce in the present or for the future.

Discussion

Available information indicates that most agencies have a long way to go to establish a

reliable and comprehensive process for human capital planning for the acquisition workforce. Although the level of human capital planning activities has improved significantly in

some agencies in recent years, much more remains to be done, and comprehensive human

capital planning needs to become regularized at every agency.

Specifically, to date, both government-wide and agency-specific efforts to respond to

the new challenges of today’s acquisition system have focused on the nature of the skills

required for success in today’s contracting environment. They have not ascertained the

number of personnel possessing those skills that are required given the level of present or

future agency acquisition activity. Among these, for example, are two reports prepared by

the FAI, a December 2003 report addressing competencies for the federal acquisition workforce generally, and a February 2004 report addressing competencies required in the acquisition workforce specifically for the competitive sourcing process.74 These reports endeavor

to identify the specific fundamental competencies required for procurement personnel.

They do not, however, attempt to assess workload demands for these competencies for the

future, nor do they attempt to assess the degree to which members of the existing federal

procurement workforce possess these capabilities.

Similarly, a pathbreaking study of the acquisition workforce done for DoD in 2000, the

Acquisition 2005 study,75 deliberately excluded issues of appropriate workforce size from its

purview,76 focusing instead on the qualitative competencies needed for the future workforce.

73 See, e.g. GAO-06-622T at 8; U.S. GAO, Defense Acquisitions: DoD Has Paid Billions in Award and 

Incentive Fees Regardless of Acquisition Outcomes, GAO-06-66 (Dec. 2005); U.S. DoD IG DoD Acquisition 

Workforce Reduction Trends and Impacts, D-2000-088 (Feb. 2000) at 16-19.

74 FAI, Report on Competencies for the Federal Acquisition Workforce (December 2003); FAI, Report on 

Competitive Sourcing Competencies (Feb. 12, 2004).

75 DoD Acquisition 2005 Task Force, Shaping the Civilian Acquisition Workforce of the Future (Oct. 2000).

76 Test. of Joe Johnson, DAU, AAP Pub. Meeting (Jul. 12, 2005) Tr. at 69. Mr. Johnson explained there:

“We deliberately ruled out, in view of the short time period . . . [available to produce this study] – we

ruled out issues of the size of the workforce. That’s a very important thing that you need to know upfront.

We felt that if we had to go there, there was no way we could deliver a product [on time] because we

would be into some very contentious issues. We limited ourselves to saying, what should the workforce be

able to do in 2005?”
367

Subsequently, in an April 2002 report,77 GAO examined DoD’s plans to reshape its acquisition workforce to respond to the October 2000 recommendations of DoD’s Acquisition 2005

Task Force. GAO reported that DoD was taking significant steps to address the human capital

challenges that it had recognized in making its October 2000 recommendations. But a substantive evaluation of the effectiveness of those measures was not undertaken by GAO, and

was viewed as premature.78 A comprehensive independent review of the adequacy of human

capital planning efforts for the acquisition workforce at DoD as yet has not been performed,

it appears.

On the civilian agency side, GAO examined agency human capital planning efforts to

meet future needs for the acquisition workforce in a December 2002 Report.79 Although

GAO concluded that the six particular civilian agencies examined in that December 2002

study were all progressing in human capital planning to address acquisition workforce

needs, a wide variety of progress levels was observed. This ranged from the Department of

Energy, which reported completion of an analysis of the existing workforce, projection of

future needs, and the completion of the requisite gap analysis, to agencies that had only

begun analysis of the current workforce, to those that had not developed any formal acquisition workforce plan.80 Significantly, GAO also found that agencies lacked reliable, consistent and complete data on the composition of the current workforce, including data on the

knowledge, skills and abilities of the existing workforce.81

Finding 7:

Despite the variations in the way the acquisition workforce has been defined 

and counted over time and among agencies, no one is counting contractor personnel that are used to assist, support and augment the acquisition 

workforce. Thus we lack accurate information about the extent to which 

acquisition functions have been and are being carried out with the assistance of contractor personnel.

-	 Evidence before the Panel and the experience of Panel members nonetheless makes clear

that many agencies make substantial use of contractor resources to carry out their acquisition functions.

-	 We also lack information with which to determine whether reliance on contractor personnel is saving money.

Discussion

None of the acquisition workforce counts have included contractor personnel supporting

the acquisition function.82 This is true despite the fact that studies by the DoD IG reveal that

in the organizations sampled, contractor personnel form a very large share of the combined

employee/contractor acquisition workforce—ranging from 16 to 64 percent of the acquisition

77 U.S. GAO, Acquisition Workforce: Department of Defense’s Plans to Address Workforce Size and Structure 

Challenges, GAO-02-630 (Apr. 2002).

78 Id. at 2.

79 U.S. GAO, Acquisition Workforce: Status of Agency Efforts to Address Future Needs, GAO-03-55 (Dec. 2002).

80 Id. at 5-7.

81 Id. at 5, 8.

82 Roberts Econom 35 Pub. Con. L.J. at 194.
368

workforce.83 Indeed the DoD IG concluded “DoD should revise Instruction 5000.55 to estimate and track contractor equivalents that support the DoD acquisition workforce, and include

the estimates as supplementary DoD reporting data to Congress.”84 Moreover, while our own

impressions of the practice in various agencies are consistent with the findings of the DoD IG,

we lack accurate information about the extent to which acquisition functions have been and are

being carried out with the assistance of contractor personnel.

Because we lack information about the extent of the use of contractor support for the

acquisition function, a fortiori, we lack information on whether this usage is cost-effective

for the federal government. As we discuss further in the Appropriate Role portion of this

Report, outside the context of the A-76 competitive sourcing process, there is no information on the extent to which agencies are contracting for services, what services are being

outsourced, or whether acquiring services by contract is cost effective.

Discussion within our Panel made it clear that there are real technical challenges in

accurately counting contractor support for the acquisition workforce. In some instances

contractor support for acquisition may take the form of personal service contracts under

which counting contractor personnel should be relatively straightforward. In other cases,

including any PBAs, the linkage between a particular contract and FTE personnel may be

less readily ascertainable. For this reason, although our Recommendation #2-4 requires

that agency human capital strategic plans for the acquisition workforce include assessment

of the role planned by contractor personnel in the acquisition workforce, we have not

specified in Recommendations 1-1 and 1-2 a particular approach to taking account of the

contribution of contractor personnel to the federal acquisition workforce. Nonetheless, we

would expect OFPP to confront this question, and, if necessary, establish a working group

to arrive at a workable means of gauging the contractor contribution to the acquisition

workforce.

Finding 8:

Use of contractor support for acquisition activities may be appropriate, but 

careful attention must be paid to the potential for organizational conflicts of 

interest that may be engendered by this practice.

Discussion

Our purpose here is simply to highlight the special potential for organizational conflicts of interest that can arise out of the use of contractor support for acquisition functions.

This issue and accompanying recommendation are set forth in Chapter 6 regarding the

“Appropriate Role of Contractors Supporting the Government.”

Finding 9-1

•	Testimony before the Acquisition Advisory Panel by leaders of private sector organizations indicates that sophisticated private sector organizations employ a corps of highly

sophisticated, highly credentialed and highly trained business managers to carry out the

sourcing, procurement and contract management functions that they undertake.

83 U.S. DoD IG, Human Capital: Report on the DoD Acquisition Workforce Count, D-2006-073, at 14 (Apr. 2006).

84 Id.
369

Finding 9-2:

•	The government lacks comparable resources for these functions. If we expect the government to take advantage of the practices of successful commercial organizations, we need

to close this gap by recruiting, training and retaining sufficient procurement professionals with appropriate capability.

	 - For successful modern businesses, the acquisition function is regarded as a key contributor to the bottom line. Investment in a state-of-the-art acquisition workforce is

essential to profitability.

	 - Similarly, investment in a quality federal acquisition workforce is critical to mission

success and obtaining best value for the expenditure of public resources.

Discussion

The testimony before the Acquisition Advisory Panel by leaders of private sector organizations indicates that sophisticated private sector organizations employ a corps of highly

sophisticated, highly credentialed and highly trained business managers to carry out the

sourcing, procurement and contract management functions that they undertake.85 The testimony of Professor Robert Marshall explains why the most successful private sector organizations have invested so substantially in human resources for acquisition: they have built

their procurement workforce on the understanding that “buying best is a very important

part of their profitability.”86

The practices of the private sector certainly corroborate our conclusion (Finding 1) that

investment in human capital for the acquisition workforce is likewise critical to the accomplishment of the government’s missions. However, the government lacks staffing for these

functions comparable to that of the private sector. Professor (now Federal Trade Commissioner) William Kovacic explained that “the private sector pays its people better, has superior approaches to recruiting and retaining, and that’s the important part, retaining, the

requisite human capital and treats procurement as an integral element of the profitability

of the enterprise.”87

If we expect the government to take advantage of the practices of successful commercial

organizations, we need to close this gap by recruiting, training and retaining procurement

professionals with appropriate capability.

Finding 10:

The pace of acquisition reform initiatives has outstripped the ability of the 

federal acquisition workforce to assimilate and master their requirements so 

as to implement these initiatives in an optimal fashion. An important objective of Acquisition Workforce initiatives should be to allow the Workforce to 

catch up with the last twelve years of acquisition reform, as well as to meet 

85 Test. of Ronald Casbon, Bayer Corporate Business Services, & Larry Trowel, General Electric

Transportation, AAP Pub. Meeting (Aug. 18, 2005) Tr. at 253-54; Test. of Todd Furniss, The Everest Group,

AAP Pub. Meeting (Mar. 30, 2005) Tr. at 114-15.

86 Marshall Test. at 46.

87 Kovacic Test. at 146.
370

additional demands that will be imposed by the recommendations of this 

Panel on non-workforce topics. 

-	 Insisting that the acquisition workforce be enabled to catch up with the demands of the

procurement workload and the transformed demands of procurement reform is not hostile to the cause of procurement reform. Rather, it is an essential step in attempting consistently to achieve good value for the expenditure of public resources.

-	 Investment in the acquisition workforce should therefore yield an extremely rewarding

return on that investment.

Discussion

The last decade or so has been an unusually active era for changes in our procurement

system. As noted in Finding 2 and its subfindings, and in Finding 3, a host of changes in the

procurement system designed to improve that system, and particularly to make some kinds

of procurement faster, have imposed an array of increased demands on the acquisition workforce and produced a significantly more complex system. At the same time, the resources of

the acquisition workforce have been cut, while new kinds of skills have been demanded of

the government’s acquisition workforce in order to achieve success in operating that system.

The point of this last finding is to emphasize the lag that has resulted. The workforce

simply needs time to assimilate and master the demands imposed by the last twelve years

of changes in the acquisition laws and policies so as to implement these initiatives in a

successful fashion.88 Accordingly, an important objective of acquisition workforce initiatives recommended by the Panel is to allow the workforce to catch up with the last twelve

years of acquisition reform, as well as to meet additional requirements that are imposed by

the recommendations of this Panel on non-workforce topics. Insisting that the acquisition

workforce be allowed to catch up with the expanded demands of the procurement workload and the transformed demands produced by procurement reform is an essential step

in attempting to optimize the procurement process in order to consistently achieve good

value for the expenditure of public resources.

IV. Acquisition Workforce Recommendations

Recommendation 1-1: 

Data Collection and Workforce Definition

•	OFPP needs to ensure, going forward, that consistent and sensible definitions of the

acquisition workforce are in place, and that accurate data is consistently collected about

all of the relevant categories, from year to year and across all agencies.

•	Data should be collected both about the narrow contracting specialties (along the lines

of the current FAI count) and about the broader acquisition-related workforce (along the

lines of the current DoD AT&L workforce count methodology).

88 Test. of Kathleen Tighe, Counsel to GSA IG, AAP Pub. Meeting (May 17, 2005) Tr. at 221.
371

Discussion

This recommendation follows directly from Finding 1 and Findings 4 through 4-3.

Together these establish:

•	 That the role played by the acquisition workforce is critical to the success of federal

acquisition programs and to the ultimate missions of the federal government,

•	 That accurate data that can be used as a baseline for human capital planning has not

been collected and maintained.

Because of the importance of the federal acquisition workforce, it is essential that we

promptly rectify the situation with regard to data collection.

The need for achieving consistency over time in the definition of the acquisition workforce and in associated data collection is readily apparent. Such consistency is essential to

accurately depicting and understanding the trends that have affected the acquisition workforce. And it is equally essential to human capital planning for the acquisition workforce

that will ensure that we have the capacity to meet the demands placed on the federal acquisition workforce in the future.

The importance of achieving consistency in counting methodology across agencies

should also need little explanation. Meaningful comparisons between agencies are not

possible without a consistent methodology. Even as we urge that additional human capital

resources be made available for the federal acquisition workforce, we have to accept the

reality that there will be, for the future, a problem of optimizing the allocation of scarce

resources in managing our Nation’s acquisition activities. Indeed, we owe it to the Nation’s

taxpayers to proceed with a strong assumption that acquisition workforce resources must

be stretched to achieve optimal efficacy in their deployment. That makes it all the more

essential that data about the acquisition workforce be collected using consistent and sensible definitions for all agencies.

Having said that much, we recognize that there are pros and cons to several of the different approaches to workforce definition and counting that have been employed by FAI and by

DoD as described in the background section of this chapter. As noted in Finding 4-3 and the

accompanying discussion, a broad definition of the acquisition workforce accords with the

modern understanding that the acquisition function should be divorced from the programs

whose operation it is intended to support. To take just one example that arose regularly in

the Panel’s public meetings, the task of requirements definition—formulating what it is that

the government needs so as to provide an operationalizable target for procurement—is a

chronic weakness in the federal acquisition system. Procurement experts cannot hope to

accomplish this accurately or efficiently without active and completely engaged partnership

with the program personnel the acquisition requirements are intended to support. Insights

like this drive us toward a broad understanding of the acquisition workforce.

At the same time, a broad definition of the acquisition workforce should not be permitted to obscure two important countervailing considerations. First, the increased complexity

of the procurement function and system (see Findings 2 and 3) makes it imperative that a

portion of the acquisition workforce be highly skilled and trained in the technical, legal,

and procedural aspects of procurement. This is necessary to enable procuring agencies to

choose the optimal procurement vehicle for fulfilling their acquisition needs in every case,
372

and to carry out each procurement as expeditiously as is reasonably possibly, in accordance

with the procedures required by law for the particular situation.

Second, the broadened conception of the acquisition workforce must not be allowed

to obscure the facts that many members of the broadly conceived acquisition workforce—

including program managers, etc.—have substantial non-acquisition responsibilities that

will require the overwhelming bulk of their time and energy. Thus if we only collect data

using the broadened conception of the acquisition workforce, we will not get a realistic picture of the human resources that are available for the work of acquisition.

We ultimately concluded that OFPP, as the appropriate arm of OMB, should be

assigned the central role in prescribing the detailed terms for defining the acquisition workforce and collecting data thereon. In order to assure comparability of workforce data across

the federal government, these requirements should be applicable to all federal agencies,

both civilian and military. In order to force the pace of action on this recommendation we

proposed that OFPP be required to complete this work within a one-year deadline from

the date of issuance of this Report. Finally, in order to ensure consistency and manageability, while ensuring that we collect data that reflects the complexity of the acquisition

function and workforce, we recommend that data should be collected pursuant to at least

two different definitions of the acquisition workforce. One of these should retain the focus

on contracting specialties that characterizes the current FAI methodology and one should

employ the broader approach that underlies DoD’s ATL workforce count today. Use of

these two benchmarks is not intended to tie OFPP to the exact approach employed either

by FAI or by DoD; these are simply illustrative of the kinds of definitions that OFPP must

establish under our recommendation. Accordingly, our Recommendation 1-2 provides:

Recommendation 1-2: 

Data Collection and Workforce Definition

•	OFPP should prescribe a consistent definition and a method for measuring the acquisition workforce of both civilian and military agencies.

•	Definitions and measures should be completed by OFPP within one year from the date

of this Report.

Recommendation 1-3: 

Acquisition Workforce Database 

•	Consistent with Recommendations 1-1 and 1-2, OFPP should be responsible for the creation, implementation, and maintenance of a mandatory single government-wide database for members of the acquisition workforce.

	 – The database should reflect the following purpose and elements:

	 	 • Purpose: to provide information to support effective human capital management

of the acquisition workforce.

	 	 • Elements should include: employment experience, education, training, certifications, grade, pay, career series, and retirement eligibility.

Discussion

As we have found in Findings 5 through 5-5 the existing federal acquisition workforce

falls seriously short of the capacity needed to meet the demands that have been placed on
373

it. For the foreseeable future, these demands will only increase. Indeed, meeting the substantive recommendations of this Report will add to those demands.

In addition, as is discussed in connection with Recommendations 2-1 through 2-5 in

this Report, there is an urgent need for comprehensive human capital management of the

acquisition workforce across the full range of federal agencies. In order to enable agencies

to take maximum advantage of personnel found throughout the acquisition workforce, and

their skills, it is essential that each agency’s human capital planning be able to take advantage of a comprehensive inventory of the personnel in the federal acquisition workforce.

But there is a more focused justification for this particular recommendation. Our findings make particularly clear that we are faced with a looming crisis of inadequate numbers of

experienced acquisition professionals capable of successfully performing our most demanding acquisition tasks (see especially Finding 5-2). And our recommendations below (3-3)

spotlight how essential it is that we improve retention of senior acquisition workforce by

creation and effective use of incentives for experienced personnel to remain in the federal

acquisition workforce. Finally, our Finding 5-4 emphasizes the logical conclusion: that a

critical tool for improving retention of such invaluable personnel is to expand opportunities for such personnel to secure advancement by moving to different organizations within

the federal government. The truth is that there is already a growing, competitive market for

such personnel. It is just that federal agencies which desperately need to retain precisely these

skilled personnel have not been competing successfully with private enterprise in luring these

personnel. The government-wide database specified by this recommendation would offer

a valuable tool to try to attract our most talented and capable acquisition personnel to the

most demanding positions within the federal acquisition mission.

Recommendation 2-1: 

Human Capital Planning for the Acquisition Workforce

In each agency, as part of the overall agency Human Capital Management Plan, the

Chief Acquisition Officer should be responsible for creating and implementing a distinct

Acquisition Workforce Human Capital Strategic Plan designed to assess and meet the agency’s needs for acquisition workforce.

Discussion

It is our considered view that any effective strategy for bringing the federal acquisition

workforce in balance with the demands that are made upon it requires both a serious and

sustained effort to ascertain the personnel needs of each agency for carrying out its acquisition

mission. Although agencies are already required by OMB to prepare an agency Human Capital

Management Plan, for most agencies there is no evidence that this has included a systematic

effort to assess, much less to meet, the agency’s needs for acquisition workforce capabilities.

One vital step toward making effective human capital planning for the federal acquisition workforce a reality is to insist that in each agency the Chief Acquisition Officer

(“CAO”) be made clearly responsible for the production of an Acquisition Workforce

Human Capital Strategic Plan. Because it is our strongly held view that severe lack of capacity in the acquisition workforce is one of the most pressing problems facing our acquisition

system, it is imperative that the CAO be made directly responsible for this human capital

planning process. This is not an activity that can be delegated or diverted to the agency’s

human resources function, because it is essential that the focus be on acquisition skills.
374

Recommendation 2-2: 

Human Capital Planning for the Acquisition Workforce

Agency CAOs should be responsible for measuring and predicting, to the extent possible, the agency’s needs for procurement personnel.

Recommendation 2-3: 

Human Capital Planning for the Acquisition Workforce

It is not sufficient simply to try to retain and manage existing personnel resources.

Resources needed must be identified and gaps between needed resources and available

resources must be forthrightly acknowledged.

Discussion

Unfortunately, in managing our government, agency officials may be confronted with

data that reveal unpleasant truths. One such unpleasant truth is a serious gap between the

resources available in many agencies for the acquisition mission, and the resources that it

would take to secure best value for the taxpayer and our government. Development and

enhancement of the acquisition workforce is an investment that will pay handsome returns,

if managed effectively. Conversely, as noted in Finding 5-5, muddling through with an inadequate acquisition workforce is “penny wise and pound foolish” is the most dramatic sense.

Accordingly, we state here points that may seem obvious, but which need to be stated

so plainly that they cannot be overlooked or ignored. First, effective human capital planning for the acquisition workforce demands that we ascertain the skills, capacities, and

personnel levels that will enable agencies to perform vital acquisition missions in a fashion that is both timely and cost-effective. This cannot be achieved by simply allocating the

resources that happen to be available. Nor should it take a crisis of the magnitude of Hurricane Katrina,89 or problems in the reconstruction in Iraq revealed by after-the-fact investigations90 to wake us up to the need to match the demands of our acquisition process with

appropriate human resources. Rather, agencies can reasonably be expected to assess their

needs for acquisition personnel on a regular basis and identify areas where there are gaps

between needed and available capabilities.

None of this is to suggest that resources are infinitely elastic, or that the need for acquisition personnel does not have to compete with other demands for the resources of the federal government. Rather, we conclude that there is a compelling case that federal acquisition spending would be more cost-effective if we invested the resources necessary to secure

good value for the taxpayer and the government whenever the government uses contractors

to supply goods and services for important public purposes. Accordingly, the question is

not whether we can afford additional personnel for the acquisition workforce, but whether

we are spending our procurement dollars (including both those paid to contractors and

those paid to the federal acquisition workforce) as effectively as possible. Moreover, even

where budgetary stringency compels less than optimal funding of the acquisition workforce, we should be making these decisions knowingly, and not by indirection, default, or

based on ignorance.

89 As noted above, prior to Hurricane Katrina, FEMA was staffed for acquisition at less than one-sixth of

what had been determined to be the appropriate level of personnel. Rothwell Test. at 224.

90 Special Inspector General for Iraq Reconstruction, App. B at 107-09.
375

Recommendation 2-4: 

Human Capital Strategic Planning for the Acquisition Workforce

•	Assessment of the role played by contractor personnel in the acquisition workforce

should be part of the strategic plan.

•	The strategic plan should consider whether the current use of contractor personnel to

supplement the acquisition workforce is efficient or not.

Discussion

The starting point for this recommendation is Finding 7. On the one hand, evidence

before the Panel, as well as the personal experience of many Panel members makes it clear

that many agencies are now making substantial use of contractor resources and personnel

to assist them in carrying out their acquisition functions. Unfortunately, although we know

that this is an important phenomenon, its extent is largely unknown, and our evidence is

entirely anecdotal because so far as we can tell, no agency has been counting contractor

personnel that are used to assist, support and augment the federal acquisition workforce. 

Some observers have suggested that we do not collect or report this information

because “no one wants the data to exist.”91 But protracted discussion among the members

of the Panel revealed that this is, at most, one aspect of the problem. There is considerable

difficulty in prescribing a simple and uniform approach to counting the contractor personnel that are assisting the acquisition function. In part this is true because contractors generally are not tasked to provide a discrete number of personnel to assist in acquisition, but

are engaged in a variety of service contract functions that are not measured in terms of personnel count. Still, as reflected in our discussion of personal service contracts, prohibitions

on contracting for “butts in seats” too often have been honored in the breach rather than

the observance.92 Accordingly, there surely are cases in which there is a blended workforce

of contractors and federal employees working on aspects of the acquisition mission, and

the contractor personnel are functionally indistinguishable from the federal employees. At

the same time, contractor support for federal acquisition may also frequently take forms

that cannot readily be translated into FTE acquisition personnel.

Accordingly, we ultimately declined to adopt a recommendation that would have OFPP

mandate a uniform method of measuring the contribution of contractor personnel to the

federal acquisition function in each agency. We conclude that we presently know too little

about the varying forms that such contractor support takes, and also that the forms of support are likely too variable to permit a one-size-fits-all approach to this problem. But we

are equally convinced that this is a critically important aspect of the evolving problem of

the acquisition workforce.

Accordingly we have recommended allowing agencies some latitude in devising an

approach to the problem of accounting for the role of contractor personnel in carrying

out federal acquisition functions. At the same time, we recommend that each agency be

required to measure the role of contractor personnel in its acquisition workforce as part of

its Human Capital Strategic Plan for the Acquisition Workforce. This means that the agency

91 Roberts Econom, 35 Pub. Con. L.J. at 194.

92 Insert cross reference to appropriate section of appropriate role chapter.
376

Human Capital Plan must indicate which functions are performed by contractors, and

what skills contractor personnel are relied on to possess, and gauge whether the contractor

personnel in fact supply the necessary skills, in the requisite quantities.

We have also recommended that each agency’s Human Capital Strategic Plan for the

Acquisition Workforce address the question of whether the use of contractor personnel

reflected in the Plan (as described above) represents an efficient solution to the agency’s

resources needs for carrying out its acquisition responsibilities. Our concern is that agencies should not be using contractor personnel to make up inadequacies in the federal

acquisition workforce simply because of the inadequacy of the numbers or skill sets of the

acquisition personnel. Rather, subject to some of the considerations noted directly below

that call for an even more restrictive approach in special circumstances, contractor personnel should be used to augment the acquisition workforce only when that is the efficient

solution as determined through appropriate competitive sourcing procedures.

In undertaking this assessment, it will also be important to bear in mind several of our recommendations originating with other Panel working groups whose concerns interface with the

issues raised by the use of contractors to supplement the federal acquisition workforce.

•	 One such recommendation from the “Appropriate Role” Working Group concerns the

need to ensure that inherently governmental functions are not being performed by contractors.93 Functions such as source selection and establishing the government’s requirements would ordinarily appear to be the kind of function that should be performed by

government employees.

•	 A second relevant recommendation, also from our Appropriate Role Working Group, concerns the safeguards that are necessary to protect against organizational conflicts of interest.94

•	A third relevant recommendation, this one from our Commercial Practices Working

Group, disfavors use of time-and-materials (“T&M”) contracts.95

When T&M contracts are used to augment the federal acquisition workforce, it seems

particularly likely that this is not an efficient means of supplementing an inadequate corps

of acquisition workforce employees. On the other hand, the Panel’s proposed approach

toward personal services contracts recommended in Chapter 6, may facilitate the appropriate use of contractor personnel to supplement the acquisition workforce in a cost-effective

manner, where such usage does not run afoul of strictures about inherently governmental

functions and/or organizational conflicts of interest, and is consistent with competitive

sourcing policies and procedures, where applicable.

Recommendation 2-5: 

Qualitative Assessment

Agencies’ human capital planning for the acquisition workforce needs to address the

adequacy of existing resources in meeting each agency’s procurement needs throughout the

acquisition life cycle. The standard should be whether the government is able to optimize

the contribution of private sector capabilities, secured through the market, to the accomplishment of federal agency missions. 

93 See Recommendation 2, discussed at Chapter 6.

94 See Recommendation 5, discussed at Chapter 6.

95 See Recommendation 6, discussed at Chapter 1.
377

Discussion

This recommendation is designed to underscore two aspects of the human capital

planning process that we mean to institute for the federal acquisition workforce. Taking the

second point first, we must emphasize that in ascertaining the desirable level of personnel

and resources for the federal acquisition workforce it makes little sense to focus only on

the minimum numbers. Rather, a different approach is warranted precisely because of the

increasingly important role that acquisition of goods and services by contract plays today—

and will play in the future—in achieving critical missions of the federal government. That

is, we should be seeking to optimize the contribution that private sector capabilities can

make to the successful accomplishment of federal agency missions, not to minimize the

federal acquisition workforce.

The first point made in this recommendation is designed to underscore that assessing

the needs for federal acquisition personnel must take into account the full life cycle of federal contracting. As noted in Finding 5-3 of this chapter, one result of inadequate resources

in the acquisition workforce is a skewed allocation of those resources. This is sometimes

described as a “race to award,” and it produces a corresponding shortage of resources

devoted to contract management. While we certainly understand the pressure to enter into

contracts for the goods and services that the government needs, it is ultimately self-defeating to do so in a manner that leaves inadequate resources for managing these contracts

once the formation process is complete. Among the many reasons for insisting that we not

stint on the resources devoted to contract management are these basic ones: to ensure that

the government actually receives the goods and services for which it has contracted, that we

are in a position to assess what fees have been earned under award fee contracts, that the

rights and prerogatives of the government are carefully safeguarded where there has been

inadequate contractor performance, and that quality performance by contractors is noted

and recorded so that contractors will be credited appropriately for that performance when

future contract awards are made. 

The importance of considering the needs of the full contract life cycle is not limited to

the contract management phase. For instance, as emphasized in our commercial practices

recommendations, effective usage of the acquisition system entails thoughtful and careful establishment of federal agency requirements. It also entails mastery of the range of

contracting vehicles and techniques available in our ever more complex system of federal

contracting.96 Accordingly, we emphasize that an acquisition system cannot be considered

to be functioning properly simply because contracts for necessary goods and services are

entered in a timely fashion.

Recommendation 3: 

Workforce Improvements Need Prompt Attention

Due to the severe lack of capacity in the acquisition workforce, aggressive action to

improve the acquisition workforce must begin immediately. All agencies should begin acquisition workforce human capital planning immediately, if such plans are not already underway. Agencies should complete initial assessment and planning as quickly as possible. If

96 See Findings 2-3, 2-4-1 through 2-4-3, and 3 in this chapter.
378

initial human capital planning reveals gaps, agencies should take immediate steps to address

such gaps, whether they arise in hiring, allocation of resources, training, or otherwise.

Discussion

The purpose of this recommendation is to communicate clearly the urgent attention

that should be given to strong measures to improve the acquisition workforce. The factual

basis that supports this recommendation for prompt action is found primarily in Findings

5 through 5-5. Some of the specific facets of the workforce problem that make it urgent

that efforts to change the situation begin forthwith are as follows:

•	 First, of course, is our fundamental finding that there is a serious shortage of capacity

in the existing federal acquisition workforce to meet the demands that are being placed

upon it.

•	 Second is the fact that there were substantial cuts in the acquisition workforce in the 1990s

and the workforce has remained relatively stable since 1999, while the quantitative and

qualitative demands made on the workforce have mushroomed, especially since 2001.

•	 This has produced a “bathtub” profile in the acquisition workforce, with a particularly

serious shortage of personnel with between five and fifteen years of experience, leaving

us with an unacceptably thin base on which to create the acquisition leadership for the

future.

•	Moreover, at the senior end of the acquisition workforce, retirements threaten to sap the

existing capacity, making the too thin ranks of our mid-level corps of acquisition personnel—from which their replacements must be drawn—particularly worrisome.

•	 The problem is further exacerbated by the government’s inability to compete successfully with the private sector for the services of talented and experienced procurement

professionals. This means that the government far too often loses the services of the best

personnel in the shrinking pool of experienced acquisition professionals within the government. At the same time, the government is unable to compete successfully for experienced and able acquisition personnel already serving within the private sector.

It is clear that this situation, many years in the making, cannot be rectified immediately. But precisely because there can be no overnight “fix” for these workforce shortcomings, efforts to improve the strength of the acquisition workforce must begin as promptly

as possible.

Another reason that we must insist here that prompt corrective action is needed is that,

in order to proceed confidently on a strong empirical foundation, the process of correction

itself requires a process of planning and assessment. It is important to note that our recommendations do not say that most agencies should immediately go out and hire substantial

numbers of acquisition professionals. Although many members of the Panel are personally

confident that substantial additional hiring is needed in many agencies, some of us were

less certain that a shortfall in sheer numbers of acquisition personnel is demonstrable for

most agencies. We nonetheless reached a broad consensus that the existing acquisition

workforce lacks the functional capacity to perform the tasks and meet the demands that

face it. Moreover, we were in agreement that the workforce in most agencies does not have

the right skill sets, experience levels, and capabilities that are demanded of it.

There are at least three additional reasons why we cannot simply urge an immediate

hiring push for the federal acquisition workforce. First is the fact that we have for many
379

years failed to collect data on the federal acquisition workforce in a consistent manner,

over time, and across agencies. Second, federal agencies have failed to undertake the kind

of need-based human capital planning for the acquisition workforce that is strongly recommended here. Third, we know that contractors are playing a key role in supporting the federal acquisition workforce, but we do not have data regarding how many of them there are

or what they are doing. Accordingly, though we are confident that the federal acquisition

workforce needs enhancement, the human capital planning process must get underway to

guide this process.

We have taken special care to balance this recommendation so as to make clear the

urgency of the needs addressed here, while at the same time acknowledging the need for

evidence-based measures to improve the acquisition workforce, in the form of a deliberate

human capital planning process. We would be troubled if the need for a careful process

of human capital planning were used as an excuse not to begin rapid enhancement of the

acquisition workforce. Conversely, we would be equally troubled if the workforce improvement project were to go forward without institutionalizing the reforms in workforce

accounting and human capital planning that we have recommended here. Adherence to

this evidence-based approach should insulate the workforce reforms from being buffeted

by changing political fortunes or partisan agendas from either side of the political aisle.

In order to strike the right note—we would call it one of “methodical urgency” for

improvements—we have recommended a flexible and balanced process of planning

and that a flexible relationship be created between the planning process and the actual

enhancement of the workforce. Thus, our recommendation provides that:

•	All agencies should begin human capital planning for the acquisition workforce immediately, if they have not already done so.

•	Moreover, an initial phase of the human capital planning effort should be completed as

quickly as possible, without awaiting completion of a more comprehensive process.

•	In addition, where this initial phase of human capital planning reveals gaps in personnel

levels, training levels or proper allocation of resources, corrective action should commence immediately, again without waiting for the completion of a more comprehensive

planning process.

We have thus tried to balance our recommendations to ensure that neither of our priorities, the need for methodical human capital planning nor the need for prompt action to

begin to rectify the most pressing shortcomings in the acquisition workforce, is subordinated to the other priority.

---------------------------

The Need for a Multi-Faceted Approach to Workforce Enhancement: Overview of 

Specific Recommendations

In the succeeding section of this Report we address the detailed recommendations

that we have offered concerning some of the components of a successful human capital

planning improvement strategy for the acquisition workforce. Before launching into these

components it is important to emphasize that any successful strategy to improve the skill

set and composition of the acquisition workforce must proceed along multiple pathways.

This is true, in part, because the problem has been a long time in the making, and there is

no single step that could immediately eliminate the problem. But it is also true because we
380

seek an enduring solution that will not only address the current shortfall, but which will

tend to prevent recurrence of the problem.

One critical aspect of such a strategy must be aimed at attracting highly talented and

well qualified entry-level personnel to the field of procurement, and making sure that we

are able to offer them jobs promptly enough so that we do not lose them to the private

sector, which historically has been able to act more quickly to land such “targets of opportunity” (see Recommendations 3-1 and 3-2). Another critical component to the workforce

improvement initiative is to improve retention of qualified personnel already in the system

(see Recommendation 3-3). A third element of a viable workforce improvement program

will focus on redoubled efforts to train existing personnel to achieve the level of competence, and the range of skill that is necessary for success in the demanding acquisition

environments of the present (see Recommendations 3-4, 3-5, and 3-6). The call for creation and maintenance of a comprehensive database of acquisition workforce professionals in Recommendation 1-3 is also an essential complement to the multipart strategy for

enhancement of the federal acquisition workforce.

From a broader perspective, of course, the recommendations made here regarding

data collection, human capital planning for the acquisition workforce, and the need for an

acquisition workforce focus in OFPP, are also essential parts of a comprehensive strategy to

address workforce shortcomings, for the present, and for the long haul.

Recommendation 3-1: 

Need to Recruit Talented Entry-Level Personnel

OFPP should establish a government-wide acquisition internship program to attract

first rate entry-level personnel into acquisition careers.

Discussion

As noted above, a multipart strategy for the upgrading of the acquisition workforce is

essential to overall success. It will do limited good to attract good entry-level personnel

if we cannot retain an increased percentage of those personnel once they have been sufficiently trained and have sufficient experience under their belts to offer real value. That said,

it is at least equally important that federal agencies attract talented entry-level personnel to

the procurement field in sufficient numbers. This recommendation and Recommendation

3-2 are directed at the challenge of entry-level hiring.

Internship programs have demonstrated success in DoD components including the

Navy and the Air Force, and in civilian agencies such as the Department of the Interior.

Outside observers with experience in the federal acquisition sector have independently

recognized the value of such internship programs where they have been instituted on an

agency by agency basis, and have called for the extension of this approach to a governmentwide initiative.97 As the Procurement Roundtable has observed in its paper on this subject,

“[t]he immediate goal of a government-wide program should be to bring highly qualified

college graduates into the government and to ensure that they are treated in a manner

that induces them to remain in the government for a significant number of years.”98 Such

97 The Procurement Roundtable, Attracting and Retaining the Right Talent for the Federal 1102 Contracting 

Workforce (April 2006).

98 Id. at 6.
381

internship programs are particularly valuable because they create opportunities to expose

motivated entry-level personnel to the challenges and the opportunities of career opportunities in federal acquisition. Internship programs may also capitalize on the increased visibility that the acquisition function enjoys in a post-Katrina world, and in the light of our

experience in Iraq, where the role played by contractors has likewise become more visible.

But it would be foolhardy to assume that the increased visibility of acquisition programs is

sufficient by itself to draw attention to the entry-level opportunities that exist in the field of

acquisition. Hence, internship programs may find a more receptive audience because of the

recent public attention to the importance of the acquisition function, but it is still important that we aggressively market the field of acquisition through initiatives like this government-wide internship program.

It is pertinent to ask why this is envisioned as a government-wide internship program.

One obvious reason is that many government agencies have not instituted such programs

on their own. Perhaps that would ultimately change with the development of a robust

human capital planning requirement as recommended here. But a second reason for advocating a government-wide internship program is to more effectively market the full range

of acquisition career opportunities across the face of the federal government. Interested

entry-level candidates should thus be made aware of the range of choices and the diversity

of career opportunities. In addition, like the database for existing acquisition personnel

recommended here (Recommendation 1-3), a government-wide program would help to

foster a government-wide market for acquisition professionals. Ultimately, the payoff for

this would be in encouraging successful acquisition professionals to make a career in federal acquisition, with improved opportunities for promotion and retention within the federal government resulting from increased opportunities for inter-agency mobility.

Recommendation 3-2: 

Hiring Streamlining Necessary

In order to compete effectively for desirable personnel, OFPP and agencies need to

identify and eliminate obstacles to speedy hiring of acquisition workforce personnel.

Discussion

As indicated in our findings, federal agencies increasingly face difficulty in competing

with the private sector for recruiting promising young acquisition professionals and those

who wish to become acquisition professionals. Although there are a variety of impediments that need to be addressed in order to change this situation, one important area

where improvement is needed concerns the hiring process. Federal agencies are seriously

handicapped if they cannot act expeditiously to make offers of employment to promising

candidates. By the time such offers come through, too often the candidates are no longer

available. This situation needs to be changed.

Recommendation 3-3: 

Need to Retain Senior Workforce

OFPP and agencies need to create and use incentives for qualified senior, experienced

acquisition workforce personnel to remain in the acquisition workforce.
382

Discussion

As indicated in Finding 5-2, the cumulative effect of inadequate hiring and inadequate

training, juxtaposed with the increased demands on the federal acquisition workforce (see

Finding 2 and its subordinate component findings) has been to create the situation in

which we lack a sufficient cadre of mature acquisition professionals who have the skills

and training necessary to assume responsibility for the federal government’s procurement

in today’s demanding environment. As noted in Finding 5-2, moreover, the shortfall is

presently particularly acute at the level of procurement personnel with between five and

fifteen years of experience. With the bathtub profile that was described in our record, there

is, for the immediate present, a less acute shortfall at the senior level. But this relative sufficiency is threatened by retirements and by the strong competition that the private sector

offers for the services of talented and experienced acquisition professionals.

Accordingly, it is particularly important that OFPP and agencies be prepared to work

vigorously to retain mid-level and senior acquisition professionals. As noted above, efforts

to build up the acquisition workforce must also have strong components focused on

entry-level hiring. But these efforts cannot, no matter how successful, yield the top-level

leadership that we need for our acquisition workforce over the next few years. Accordingly,

it is imperative that we use strong incentives to lengthen the federal acquisition careers of

senior and mid-level personnel in the acquisition workforce, while we are recruiting, training, and developing their successors. We need to hold on to the scarce human resources at

the middle level so that they can develop into senior acquisition leaders. But at the same

time, because of the thin ranks of this mid-level cohort we need also to hold onto senior

leadership within the acquisition workforce. At each level we need to “buy time” so that we

can develop future leadership from more junior levels.

Recommendation 3-4: 

Training

•	In order to ensure the availability of sufficient funds to provide training to the acquisition workforce OMB should issue guidance directing agencies to:

	 - Assure that funds in agency budgets identified for acquisition workforce training are

actually expended for workforce training purposes, by appropriate means including

“fencing” of those funds.

	 - Require Head of Agency approval for use of workforce training funds for any other purpose.

	 - Provide OFPP an annual report on the expenditure of Acquisition Workforce Training

Funds identifying any excesses or shortfalls.

•	OFPP should conduct an annual review to determine whether the funds identified by

each agency for training of its acquisition workforce are sufficient to meet the agency’s

needs for acquisition workforce training. Once an agency’s Human Capital Strategic Plan

for the Acquisition Workforce is in place, that plan should guide this determination.

OFPP’s review should also ascertain whether funds identified for such training were actually expended for acquisition workforce training needs.

•	Congress should reauthorize the SARA Training Fund and provide direct funding/appropriations for the fund.
383

Discussion 

Our findings make clear the compelling need for vigorous workforce training initiatives.

In the 1990s some agencies faced cuts in their training budgets (Finding 5-1). Yet we have

made the federal government’s acquisition mission more demanding and more mission-critical than ever (see Findings 2 through 2-4-4). The need for strong training programs is further

reinforced by the dearth of mid-level personnel in the acquisition workforce and the threat of

substantial retirements at the senior level of the workforce (Finding 5-2). Training along with

effective hiring and promotions is essential to build up the skill set and capacity of the acquisition workforce to meet the demands of the present and the future.

Toward this end, we must make sure that agencies are budgeting appropriate training

funds to meet the needs of their own acquisition workforces. The starting point for this systematic effort should be the agency human capital strategic plan for the acquisition workforce. In reviewing agencies’ Human Capital Strategic Plans for the Acquisition Workforce,

OFPP should verify that agencies’ training budgets match the needs for enhanced personnel identified in their human capital plans.

An additional area of concern that emerged in our discussions was that even when funds

are initially budgeted for training purposes for the acquisition workforce in sufficient amounts,

training budgets are too often made the target for diversion to other purposes. In an era of

scarce budgetary resources, it is not hard to understand how such training funds might appear

to be tempting targets for diversion, but we emphasize that this is an extremely shortsighted

practice that should be aggressively controlled by effective institutional measures.

Among these measures are both OMB guidance to the agencies to strongly restrict

diversion of training funds, and OFPP monitoring of actual agency performance. Thus:

•	Agencies are to be directed to make sure that their training budgets are actually spent

on training.

•	 The head of the agency must personally approve, and thus be responsible for, any diversion

of training funds.

•	Agencies must report annually to OFPP on any gaps between training needs and available training budgets, and also on any excess training funds.

•	OFPP must monitor agencies annually to make sure that training funds have not

been diverted.

•	 OFPP must monitor agencies—Human Capital Strategic Plans for the Acquisition Workforce—to make sure that they are budgeting funds for training that match the needs for

personnel enhancement identified in those agency human capital plans.

The final component of this recommendation is to support reauthorization of the

SARA training fund, and direct appropriations for the fund. Such dedicated funding for

acquisition workforce training is both a means of establishing secure and predictable funding for acquisition workforce training and a means of discouraging agencies from diverting

training funds to other uses.

Recommendation 3-5: 

Acquisition Workforce Education and Training Requirements

•	Currently both DAWIA and Clinger-Cohen provide for waivers to Congressionally established education and training requirements. In order to ensure that the government’s
384

Acquisition Workforce has both the competencies and skills to manage the life cycle of

the acquisition process:

	 - Agencies should only grant permanent waivers to education and training requirements

upon an objective demonstration that the grantee of the waiver possesses the competencies and skills necessary to perform his/her duties.

	 - Agencies should only grant temporary waivers to allow the grantee of the waiver sufficient time to acquire the lacking education or training.

	 - Agency CAOs (or equivalent) should report annually to OFPP on the agency’s usage of

waivers to meet statutory training and education requirements, justifying their usage

consistent with the foregoing requirements, and reporting on plans to overcome the

need to rely excessively on waivers.

	 - OFPP should review these annual reports and provide an annual summary report on

the use of waivers of DAWIA and Clinger-Cohen requirements.

Discussion

The purpose of this recommendation is to attempt to restore an appropriate balance

between mandatory education and training benchmarks established by Congress for the

federal acquisition workforce and the desire to maintain some level of administrative flexibility that is reflected in the waiver provisions that accompany these statutory mandates.

Congress undertook to prescribe education and training requirements for the defense

acquisition workforce in the DAWIA and for the civilian agencies in the Clinger-Cohen Act

of 1996. The purpose of the statutorily mandated education and training requirements was

to recognize that the task of federal acquisition has grown in complexity, demanding skills

of the federal acquisition workforce that go far beyond what was needed for success in

acquisition in earlier time periods (see Findings 2 through 2-4-3, and Finding 3).

So as to provide needed flexibility in implementing these education and training

requirements, however, each of these statutes provided authority for the agency to waive

the statutory education and training requirements. This compromise, which arose from an

understandable desire to ease implementation of the education and training requirements,

now threatens the basic purpose of the education and training standards in some agencies. Today, it is widely perceived that many agencies have become excessively dependent

on routine and widespread use of their authority to waive these education and training

requirements.99 Plainly this threatens to deprive the education and training requirements

of their intended effect in those particular agencies.

We accordingly seek to return the use of waivers to situations and levels that do not

threaten the basic purpose of statutory education and training requirements. We propose

the following policies to achieve that fundamental end:

•	Recognizing that waivers were intended to be at least primarily a transitional device, we

recommend that any permanent waiver be supported by a specific finding that a particular grantee in fact has mastered the competencies and possesses the skills that are necessary for successful performance of his or her duties.

•	Any other waiver may only be temporary in nature. Again consistent with the transitional

role that was envisaged for the waiver device, these temporary waivers of education and

99 GAO-07-45SP at 11.
385

training requirements should only afford those granted them an opportunity to meet the

relevant education and training requirements.

•	 Thus the waiver program must become a means to achieve compliance with education

and training requirements, not a means to avoid having to comply.

In order to make sure that agencies comply with these policies, agency CAOs are mandated to report annually to OFPP on their use of waivers and must demonstrate in these

reports that they are in compliance with the policies recommended above to limit and

phase out the use of waivers. To the extent that agencies cannot immediately report full

compliance with these policies, they are required to set forth in their reports to OFPP their

plans to eliminate continuing inappropriate reliance on waivers. OFPP must then review

each agency’s annual report and generate a report card for each agency documenting progress achieved and identifying shortcomings that remain. This is one of the functions that

should become the responsibility of the acquisition workforce executive within OFPP, the

position that is to be established under Recommendation 4, discussed below.

Recommendation 3-6: 

Acquisition Workforce University 

•	In order to promote consistent quality, efficiency, and effectiveness in the use of government training funds, OFPP should convene a twelve-month study panel to consider

whether to establish a government-wide Federal Acquisition University and/or alternative

recommendations to improve training.

Discussion

This recommendation represents a compromise. At present, our federal government maintains two formally discrete organizations devoted to the training of personnel already in the

federal acquisition workforce, the DAU and the FAI. The question is whether this represents an

inefficient duplication of functions, as opposed to a necessary and appropriate recognition of

the distinctive needs of defense acquisition practice. At present, we have a compromise in the

form of co-location of these two organizations with a mandate for cooperation. 

Some of our Panel members believe that, given the evolution of modern federal acquisition practice, the differences between military procurement and civilian procurement

have become relatively trivial, and thus conclude that a genuinely unified organization

should take charge of all federal acquisition workforce training. This first group further

believes that a rational and efficient program of functional specialization in training would

not follow the lines of the divisions between agencies. Other members of the Panel were

not persuaded that there is a sufficient degree of convergence in the training curriculums

appropriate for acquisition personnel in different agencies to make full unification of

training responsibility the best solution. This latter group expressed concern that a unified

training structure might be insufficiently attentive to the specialized needs of some agencies, including military organizations. In particular, the needs of weapons system buyers for

specialized program management training was noted.

Accordingly, we ultimately reached consensus that it is appropriate to study the desirability of unifying responsibility for training of the federal acquisition workforce. We recommend

that OFPP convene a twelve-month study panel to review and report on this issue.
386

Recommendation 4: 

An Acquisition Workforce Focus Is Needed in OFPP 

•	 There should be established in OFPP a senior executive with responsibility for acquisition workforce policy throughout the federal government.

•	As part of OMB’s role in reviewing and approving agency Human Capital Plans in 

conjunction with OPM, OFPP should be delegated responsibility for receiving and 

reviewing the agency Acquisition Workforce Human Capital Strategic Plans, and for 

identifying trends, good practices, and shortcomings.

Discussion

This recommendation reflects our basic conclusion that an essential prerequisite for

improvement of the federal acquisition system is strengthening our federal acquisition

workforce. Based on this conclusion, the federal acquisition workforce must be given the

highest level of attention in our nation’s procurement policy initiatives.

We have made an effort throughout our recommendations to identify where in the federal government responsibility should be assigned for implementing the specific measures

that we have recommended. There was a wide consensus that identifying who should take

responsibility for particular recommendations was essential to making an effective recommendation; absent a clear assignment of responsibility, these recommendations may amount

to little more than wishful thinking. We have followed this approach both in recommendations to be effected at the agency level, and in those that transcend any single agency.

For instance, at the agency level, our recommendations would make agency CAOs

responsible for the entire process of human capital planning for the federal acquisition

workforce.100 Establishing a focal point for responsibility for agency action on acquisition

workforce issues is an important step forward. But a number of our recommendations

clearly require government-wide implementation, in part because of the critical need for

uniformity of approach and implementation across the face of diverse agencies that we

have described. Among these responsibilities are:

•	Creating uniform and appropriate definitions for the acquisition workforce (Recommendations 1-1 and 1-2).

•	Creating a government-wide database of members of the acquisition workforce

(Recommendation 1-3).

•	 Establishing a government-wide internship program to attract first-rate entry-level personnel to federal career opportunities in acquisition (Recommendation 3-1).

•	 Streamlining the federal hiring process for new acquisition personnel (Recommendation 3-2).

•	Improving retention of mid-level and senior acquisition personnel (Recommendation 3-3).

•	Monitoring whether agencies are actually spending funds identified in their budgets

for acquisition workforce training purposes and determining whether agencies have

requested funds for training that would enable them to meet their needs for acquisition

workforce training as identified in their agency Human Capital Strategic Plans for the

Acquisition Workforce (Recommendation 3-4).

100 See Recommendations 2-1 and 2-2, and accompanying discussion in this chapter.
387

•	Monitoring the agencies’ reporting on their use of waivers to meet legislatively established education and training requirements for the acquisition workforce under DAWIA

and the Clinger-Cohen Act, and agency adherence to the recommendations limiting reliance on such waivers that are made here (Recommendation 3-5).

•	Coordinating a review of government training efforts for the acquisition workforce to

consider whether establishment of a unified federal acquisition university or other kinds

of reforms of training programs would most effectively advance efforts to improve the

training of the federal acquisition workforce (Recommendation 3-6).

Plainly it is essential that an appropriate government official outside of the structure of

any particular procuring agency take charge of the implementation of these recommendations. OFPP was the appropriate location for such an official because OFPP is the only agency

responsible for federal procurement policy matters government-wide. Moreover, we considered it important not to create superfluous or duplicative organizations or bureaucracy. In

that connection we were particularly keen to draw upon OMB’s existing authority over agency

management, and to foster the integration of federal acquisition workforce human capital

planning with pre-existing programs for human capital management. Hence OFPP was the

right place to locate the leadership responsibility for these government-wide responsibilities.

When we were considering these recommendations, at various junctures, some of our

members raised concerns that OFPP was not staffed to be able to respond to these tasks.

Accordingly, we decided to confront that problem directly with our Recommendation 4

which requires the establishment within OFPP of a senior executive expressly tasked with

responsibility for acquisition workforce policy. This official would be responsible, specifically, for all OFPP responsibilities listed in our recommendations. In addition, this official

would have an additional role to serve as the point person for acquisition workforce initiatives that cut across the face of federal government agencies. The head acquisition workforce executive within OFPP would also be responsible for receiving the acquisition workforce Human Capital Strategic Plans each agency will be required to produce, and reviewing those plans. We note that OMB already has a role in reviewing agency human capital

plans. The role of this official would be to make sure that agency Human Capital Strategic

Plans for the Acquisition Workforce meet the requirements outlined for those plans in

these recommendations. Absent such conformity, the agency’s Human Capital Plan should

not be approved by OMB.

Recommendation 5: 

Waiving Unnecessary Paperwork 

•	To the extent that agencies can demonstrate that they have implemented any recommendations (or parts thereof) that require a report to OFPP, the process established by OFPP

should include criteria for a waiver from the reporting requirements; any waiver should

include a requirement for a sunset.

Discussion

Recommendation 5 was suggested to make sure that the requirements that we propose

do not engender unnecessary paperwork for the agencies that must implement them. In general, reporting requirements imposed on agencies here are designed to be action-forcing and

attention-directing. Specific reporting requirements are designed to focus the attention of the
388

agency CAO on the specific components of a successful human capital planning effort for the

agency’s portion of the federal acquisition workforce. These reports are designed in turn to

place OFPP in a position to keep tabs on whether each agency is complying with these procedural mandates, and achieving the substantive benchmarks that are applicable.

Nevertheless, we would not wish to elevate paperwork generation over substantive

compliance. Thus, if a particular agency can demonstrate that it has already complied

with a functional reporting mandate recommended here, it need not generate a duplicative report. OFPP is directed to respect this rule of non-duplication in generating criteria

for waiver of the reporting requirements here. In addition, waivers must contain a sunset

provision to make sure that the justification for waiving a particular requirement remains

applicable so long as the waiver remains in force.
389

Table of Contents

I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391

II. Inherently Governmental Functions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398

III. Personal Services Contracts (“PSC”). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400

A. History of the Prohibition of PSCs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400

B. The Pellerzi-Mondello Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401

C. The Existing FAR Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402

D. Exception for Temporary Expert and Consultant Services Contracts. . . . . . . . 403

E. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404

IV. Organizational Conflicts of Interest (“OCI”). . . . . . . . . . . . . . . . . . . . . . . . . . 405

A. Existing Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405

B. Types of OCIs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406

C. Case Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406

D. Consequences and Possible Improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407

V. Personal Conflicts of Interest (“PCI”). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407

A. Criminal Statutes in Title 18 of the U.S. Code. . . . . . . . . . . . . . . . . . . . . . . . . . 408

B. Non-Criminal Ethics Statutes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409

C. The Procurement Integrity Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409

D. Office of Government Ethics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410

E. Applicability to Contractor Personnel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410

F. Contractor Ethics Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411

G. Next Steps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413

VI. Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414

VII. Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419

CHAPTER 6

Appropriate Role 

of Contractors 

Supporting Government

391

I. Introduction 

Fifteen years ago, the Government Accountability Office (“GAO”) found, “Service contracts are essential for carrying out functions of the government because the government

does not have employees in sufficient numbers with all the skills to meet every requirement.”1 This observation is even more accurate today, as the disparity between the number

and complexity of federal government programs and the number and skill-sets of federal

employees available to implement those programs continues to grow. In the years since

the GAO report, the Office of Personnel Management (“OPM”) estimates that the federal

civilian workforce dropped 13 percent, from 3.1 million in 1990 to 2.7 million in 2004,

though the actual decline occurred during the 1990s.

 In fact, OPM employment statistics

show that the year 2000 marked the lowest federal civilian employment for the Executive

Branch since 1960.

3 Meanwhile, there was a significant increase in the dollar amount and

number of contracts with private sector firms. Between 1990 and 1995 the government

began spending more on services than goods.

4 Currently, procurement spending on services accounts for more than 60 percent of total procurement dollars.

5 Contributing to this

trend, Congress has adopted legislation, and several Administrations have implemented

policies, that encourage the use of contractors to perform certain functions and activities

that have in the past been performed by government employees.

6

As a result of these developments and others, federal agencies are increasingly relying

on private sector contractors. As the Comptroller General recently stated: “The Government

has and is going to increasingly rely on the private sector in general and contractors in particular to be able to deliver a whole range of products and services.”7 Some of the reasons

for this trend are “to acquire hard to find skills, to save money, to have the private sector do

work that is not inherently governmental, to augment capacity on an emergency basis, and

to reduce the size of government.”8

Currently, acquisition of goods and services from contractors consumes over onefourth of the federal government’s discretionary spending, and many federal agencies rely

1

U.S. GAO, Government Contractors: Are Service Contractors Performing Inherently Governmental Functions? 

Report to the Chairman, Federal Service, Post Office and Civil Service Subcommittee, Committee on Governmental 

Affairs, U.S. Senate, GAO/GGD-92-11, 6 (Nov. 1991).

2

Comparison of Office of Personal Management, The Fact Book, 2005 edition, Trend of Federal

Civilian Employment 1994-2004 at 7 and the 2004 edition, Trend of Federal Civilian Employment 1990-

2003 at 8 (available at http://www.opm.gov/feddata/factbook/index.asp). 

3

OPM, Trend of Federal Civilian On-Board Employment For Executive Branch (U.S. Postal Service

excluded) Agencies (available at http://www.opm.gov/feddata/html/ExecBranch.asp). The year 1960, the

first year the data is available shows employment at 1,807,958. Between 1966 and 1995, employment

remained over 2,000,000. Then in 1996, employment dropped to 1,933,979 and continued to decline

until it reaches 1,704,832 in 2000, the lowest employment since 1960. Between 2000 and 2005, federal

civilian employment in the Executive Branch has risen to 1,871,920.

4

Calculations based on the Federal Procurement Report published by the Federal Procurement Data

Center for fiscal years 1990-1995.

5

Total Actions by PSC standard report from FPDS-NG run Dec. 2006.

6

See, e.g., Federal Workforce Restructuring Act, Pub. L. No. 103-226 (Mar. 30, 1994); Federal Activities

Inventory Reform Act of 1998 (FAIR Act), Pub. L. No. 105-270 (Oct. 18, 1998). 

7

Test. of David Walker, GAO, AAP Pub. Meeting (Mar. 29, 2006) Tr. at 245.

8

Nat’l Academy of Pub. Admin., Managing Federal Missions with a Multisector Workforce: Leadership for 

the 21st Century 2 (Nov. 16, 2005) [hereinafter “NAPA Report”].
392

extensively on contractors in the performance of their basic missions.

9 In some cases, contractors are solely or predominantly responsible for the performance of mission-critical

functions that were traditionally performed by civil servants, such as acquisition program

management and procurement, policy analysis, and quality assurance. In many cases contractor personnel work alongside federal employees in the federal workspace; often performing identical functions. This type of workplace arrangement has become known as a

“blended” or “multisector” workforce.

10

These developments have created issues with respect to the proper roles of, and relationships between, federal employees and contractor employees in the multisector workforce.

11 In particular, although federal law prohibits contracting for activities and functions

that are inherently governmental, uncertainty about the proper scope and application of

this term has led to confusion, particularly with respect to service contracting outside the

ambit of OMB Circular A-76. Moreover, as the federal workforce shrinks, there is a need to

assure that agencies have sufficient in-house expertise and experience to perform critical

functions, make critical decisions, and manage the performance of their contractors.

12 In

addition, concerns have been raised regarding the appropriateness of the current prohibition of “personal services contracts.”13

Concurrently, the increase in service contracting has raised two separate conflict-ofinterest (“COI”) issues. First, questions have been raised as to whether contractor employees working to support federal agencies should be required to comply with some or all of

the ethics rules that apply to federal employees, particularly in the multisector workforce

where contractor employees are working alongside federal employees and are performing

identical functions. Second, the increased participation of contractors in developing projects that are subsequently open to market competition and the increased use of contractors

to evaluate contract proposals and to evaluate the performance of other contractors raise

important questions about how to address potential organizational conflicts of interest

(“OCI”) and how to preserve the confidentiality of proprietary information. 

9

Examples include the Department of Energy, the Centers for Medicare and Medicaid, and the

National Aeronautics and Space Administration. See U.S. GAO, Comptroller General’s Forum: Federal 

Acquisition Challenges and Opportunities in the 21st Century, 4 GAO-07-45SP, 1 (Oct. 2006).

10 “Multisector workforce” is a term adopted by the National Academy of Public Administration to

describe the current mix of personnel working in the government:

The “multisector workforce” is a term we have chosen to describe the

federal reality of a mixture of several distinct types of personnel working

to carry out the agency’s programs. It is not meant to suggest that such a

workforce is unitary. To the contrary, it recognizes that federal, state and

local civil servants (whether full- or part-time, temporary or permanent);

uniformed personnel; and contractor personnel often work on different

elements of program implementation, sometimes in the same workplace,

but under substantially different governing laws; different systems for

compensation, appointment, discipline, and termination; and different

ethical standards.

NAPAReport at 2.

11 GAO-07-45SP at 8.

12 Id.; U.S. GAO, Suggested Areas for Oversight for the 110th Congress, GAO-07-235R, 8 (Nov. 2006).

13 FAR 37.101 - 37.104.
393

Findings Recommendations

Finding 1: Several developments have led federal agencies to increase the use of contractors as service providers:

• Limitations on the number of authorized FTE 

positions

• Unavailability of certain capabilities and 

expertise among federal employees

• Desire for operational flexibility

• Need for “surge capacity”

Finding 2: The existence of a multisector 

workforce, where contractor employees are 

co-located and work side-by-side with federal 

employees has blurred the lines between: (1) 

functions that are considered governmental 

and functions that are considered commercial; 

and (2) personal and non-personal services.

Finding 5: The degree to which contractors are used and the functions that they 

perform vary widely both within agencies 

and across agencies.

Recommendation 1: OFPP should update 

the principles for agencies to apply in determining which functions must be performed by 

government employees. 

Finding 3: Agencies must retain core functional 

capabilities that allow them to properly perform 

their missions and provide adequate oversight 

of agency functions performed by contractors.

Finding 4a: Some agencies have had difficulty 

in determining strategically which functions 

need to stay within government and those that 

may be performed by contractors.

Finding 4b: The term “Inherently Governmental” is inconsistently applied across government agencies.

Recommendation 2: Agencies must ensure 

that the functions identified as those which 

must be performed by government employees 

are adequately staffed with federal employees.

Chapter 6 – Appropriate Role of Contractors Supporting 

Government Findings and Recommendations
394

Findings Recommendations

Finding 2: The existence of a multisector 

workforce, where contractor employees are 

co-located and work side-by-side with federal 

employees has blurred the lines between: (1) 

functions that are considered governmental 

and functions that are considered commercial; 

and (2) personal and non-personal services.

Finding 5: The degree to which contractors 

are used and the functions that they perform 

vary widely both within agencies and across 

agencies.

Finding 11: The current prohibition on personal services contracts has forced agencies 

to create unwieldy procedural safeguards and 

guidelines to avoid entering into personal service contracts, some of which may cause the 

administration of the resulting “non-personal” 

contracts to be inefficient. 

Recommendation 3: In order to reduce 

artificial restrictions and maximize effective and 

efficient service contracts, the current prohibition on personal service contracts should 

be removed. Government employees should 

be permitted to direct a service contractor’s 

workforce on the substance of the work performed, so long as the direction provided does 

not exceed the scope of the underlying contract. Limitations on the extent of government 

employee supervision of contractor employees 

(e.g., hiring, approval of leave, promotion, performance ratings, etc.) should be retained.

Recommendation 4: Consistent with action 

to remove the prohibition on PSCs, OFPP 

should provide specific policy guidance which 

defines where, to what extent, under which 

circumstances, and how agencies may procure personal services by contract. Within five 

years of adoption of this policy, GAO should 

study the results of this change.
395

Findings Recommendations

Finding 6: The use of contractor employees 

to perform functions previously performed 

by government employees combined with 

consolidation in many sectors of the contractor community has increased the potential for 

organizational conflicts of interest.

Finding 7: There is a need to assure that the 

increase in contractor involvement in agency 

activities does not undermine the integrity of 

the government’s decision-making processes. 

Finding 8: There are numerous statutory and 

regulatory provisions that control the activities of government employees. These measures are designed to protect the integrity of 

the government’s decision-making process. 

Recent, highly publicized violations of these 

laws and regulations by government employees were adequately dealt with through 

existing legal remedies and administrative 

processes. Additional laws or regulations 

controlling government employee conduct are 

not needed at this time.

Finding 9: Most of the statutory and regulatory provisions that apply to federal employees 

do not apply to contractor employees, even 

where contractor employees are co-located 

and work side-by-side with federal employees 

and are performing similar functions.

Finding 10: A blanket application of the 

government’s ethics provisions to contractor 

personnel would create issues related to cost, 

enforcement, and management.

Recommendation 5: The FAR Council should 

review existing rules and regulations, and to 

the extent necessary, create new, uniform, 

government-wide policy and clauses dealing 

with Organizational Conflicts of Interest, Personal Conflicts of Interest, and Protection of 

Contractor Confidential and Proprietary Data, 

as described in more detail in the following 

sub-recommendations.
396

Findings Recommendations

Finding 6: The use of contractor employees 

to perform functions previously performed 

by government employees combined with 

consolidation in many sectors of the contractor community has increased the potential for 

organizational conflicts of interest.

Recommendation 5-1: Organizational Conflicts of Interest (“OCI”). 

The FAR Council should consider development of a standard OCI clause, or a set of 

standard OCI clauses if appropriate, for 

inclusion in solicitations and contracts (that set 

forth the contractor’s responsibility to assure 

its employees, and those of its subcontractors, 

partners, and any other affiliated organization 

or individual), as well as policies prescribing 

their use. The clauses and policies should 

address conflicts that can arise in the context 

of developing requirements and statements 

of work, the selection process, and contract 

administration. Potential conflicts of interest to 

be addressed may arise from such factors as 

financial interests, unfair competitive advantage, and impaired objectivity (on the instant or 

any other action), among others.

Finding 7: There is a need to assure that the 

increase in contractor involvement in agency 

activities does not undermine the integrity of 

the government’s decision-making processes. 

Finding 10: A blanket application of the 

government’s ethics provisions to contractor 

personnel would create issues related to cost, 

enforcement, and management.

Finding 9: Most of the statutory and regulatory provisions that apply to federal employees 

do not apply to contractor employees, even 

where contractor employees are co-located 

and work side-by-side with federal employees 

and are performing similar functions.

Recommendation 5-2: Contractor 

Employees’ Personal Conflicts of Interest 

(“PCI”). 

The FAR Council should determine when contractor employee PCIs need to be addressed, 

and whether greater disclosure, specific 

prohibitions, or reliance on specified principles 

will accomplish the end objective of ethical 

behavior. The FAR Council should consider 

whether development of a standard ethics 

clause or a set of standard clauses that set 

forth the contractor’s responsibility to perform the contract with a high level of integrity 

would be appropriate for inclusion in solicitations and contracts. The FAR Council should 

examine the Defense Industry Initiative (“DII”) 

and determine whether an approach along 

those lines is sufficient. As the goal is ethical 

conduct, not technical compliance with a multitude of specific and complex rules and regulations, the rules and regulations applicable to 

federal employees should not be imposed on 

contractor employees in their entirety.
397

Findings Recommendations

Finding 7: There is a need to assure that the 

increase in contractor involvement in agency 

activities does not undermine the integrity of 

the government’s decision-making processes. 

Recommendation 5-3: Protection of Contractor Confidential and Proprietary Data. 

The FAR Council should provide additional 

regulatory guidance for contractor access and 

for protection of contractor and third party 

proprietary information, including clauses for 

use in solicitations and contracts regarding the 

use of non-disclosure agreements, sharing of 

information among contractors, and remedies 

for improper disclosure.

Finding 7: There is a need to assure that the 

increase in contractor involvement in agency 

activities does not undermine the integrity of 

the government’s decision-making processes. 

Recommendation 5-4: Training of Acquisition 

Personnel. 

The FAR Council, in collaboration with DAU 

and FAI, should develop and provide (1) training on methods for acquisition personnel to 

identify potential conflicts of interest (both OCI 

and PCI), (2) techniques for addressing the 

conflicts, (3) remedies to apply when conflicts 

occur, and (4) training for acquisition personnel in methods to appropriately apply tools for 

the protection of confidential data.

Finding 7: There is a need to assure that the 

increase in contractor involvement in agency 

activities does not undermine the integrity of 

the government’s decision-making processes. 

Finding 10: A blanket application of the 

government’s ethics provisions to contractor 

personnel would create issues related to cost, 

enforcement, and management.

Recommendation 5-5: Ethics Training for 

Contractor Employees. 

Since contractor employees are working sideby-side with government employees on a daily 

basis, and because government employee 

ethics rules are not all self-evident, consideration should be given to a requirement that 

would make receipt of the agency’s annual 

ethics training (same as given to government 

employees) mandatory for all service contractors operating in the multisector workforce 

environment.

Recommendation 6: Enforcement. 

In order to reinforce the standards of ethical 

conduct applicable to contractors, including 

those addressed to contractor employees in 

the multisector workforce, and to ensure ethical contractors are not forced to compete with 

unethical organizations, agencies shall ensure 

that existing remedies, procedures, and sanctions are fully utilized against violators of these 

ethical standards.
398

II. Inherently Governmental Functions 

The recognition of a clear-cut dividing line between public and private activity has

been problematic since the earliest days of our republic.

14 One commentator noted “[t]he

boundary of the public sector in American life has never been distinct. Our history has

not produced any clear tradition allocating some functions to the government and others

to the private sphere.”15 With the growth of the multisector workforce, it has become even

more important to specify which functions can and cannot legally be performed by the private sector, as well as what functions ought to be performed by federal employees.

In 1966, the Office of Management and Budget (“OMB”) issued Circular A-76, “Performance of Commercial Activities,” recognizing that “[c]ertain functions are inherently

governmental in nature, being so intimately related to the public interest as to mandate

performance only by federal employees.” However, as the GAO found in its 1991 Report,

that formulation was too general to provide adequate guidance to federal agencies. In

response to that report, on September 23, 1992, the Office of Federal Procurement Policy

(“OFPP”), issued Policy Letter 92-1, entitled “Inherently Governmental Functions” (“IGF”). 

While retaining the original A-76 definition, the OFPP Policy Letter provided explanations

and examples to help agencies decide whether particular functions could be contracted

out. It listed examples of specific functions that are inherently governmental and those that

generally are not, but require “closer scrutiny.” OFPP Policy Letter 92-1 was superseded by

OMB’s May 29, 2003 revision of Circular A-76. However, the revised A-76 Circular incorporates the provisions of the Policy Letter, without any significant changes.

The Federal Acquisition Regulation (“FAR”) also addresses IGFs. The term is defined

at FAR Section 2.101. FAR Subpart 7.5 implements the policies of OFPP Policy Letter 92-1

and the current version of OMB Circular A-76. FAR Section 7.503(a) prohibits contracting

for IGF;16 Section 7.503(c) lists examples of IGF (derived from Appendix A of Policy Letter

92-1); and Section 7.503(d) lists examples of functions that “approach” being IGF (derived

from Appendix B of Policy Letter 92-1). 

The Federal Activities Inventory Reform Act of 1998 (“FAIR Act”) was enacted “to provide a process for identifying the functions of the Federal government that are not inherently governmental functions.” The FAIR Act requires federal executive agencies to prepare

annual inventories to identify IGFs and those activities that are not inherently governmental, and to conduct managed competitions to determine who can best perform certain

14 See GAO/GGD-92-11, supra, at 2 n.1 (“Concern about which federal agency activities are inherently

governmental is not new. It goes back as far as the early days of the nation, as evidenced, for example,

by the discussions in the Federalist Papers among the framers of the Constitution over what functions are

appropriate for the federal government to exercise.”).

15 Harold H. Bruff, Public Programs, Private Deciders: The Constitutionality of Arbitration in Federal 

Programs, 67 Tex. L. Rev. 441, 458 (1989).

16 Such contracts are also prohibited by FAR 37.102(c). 
399

commercial functions.

17 The FAIR Act retains essentially the same definition of IGF as OFPP

Policy Letter 92-1. 

Although there has been some degree of inconsistency among agencies in the categorization of various functions under Circular A-76 and the FAIR Act, in part due to the lack of

specificity in the appendices, for the most part agencies have been able to identify discrete

commercial functions that can and should be competed under the framework specified

in A-76. However, there has been little, if any, attention paid to the obverse issue: whether

agencies are inappropriately contracting out functions that, while not necessarily inherently governmental in a strict sense, have traditionally been performed by federal workers

and are critical to the performance of the agency’s mission.

18

In addition to contracting out significant portions of the acquisition function—as

discussed elsewhere in this Report19—most, if not all, agencies have contracted out major

portions of their information technology and communications functions. Moreover, some

agencies have contracted out substantive, mission-critical functions, often without considering the potential adverse implications of such a step for the future. One example of this

trend is the growing use of Lead System Integrators (“LSI”). The GAO has described LSIs

as “prime contractors with increased program management responsibilities [and] greater

involvement in requirements development, design, and source selection of major system

and subsystem subcontractors.”20 Historically, the designs of complex, multiyear programs

and projects have been created by federal employees, but with LSIs that is often not the

case. Even more troubling, in some cases the government no longer has federal employees

with the requisite skills to oversee and manage LSIs. 

While in the short run such contracts may appear to be the best—or at least the simplest—way for an agency to implement a particular project or program, they can have

serious adverse consequences in the long run. Such consequences include the loss of institutional memory, the inability to be certain whether the contractor is properly performing

the specified work at a proper price,21 and the inability to be sure that decisions are being

made in the public interest rather than in the interest of the contractors performing the

work. If, for example, National Aeronautics and Space Administration (“NASA”) were to

17 The OMB guidelines for preparing FAIR Act inventories recognize a non-statutory category of

functions, referred to as “commercial A,” which are “commercial activities deemed unsuitable for

competition” by an agency. Agencies designating function in this category must provide written

justifications. See, in general, OFPP Memorandum M-05-12, from David H Safavian to Heads of Executive

Departments and Agencies, regarding 2005 FAIR Act inventories (May 23, 2005), http://www.whitehouse.

gov/omb/memoranda/fy2005/m05-12.pdf. 

18 This may be due, in part, to the fact that since the early 1980s, OMB has pushed agencies to privatize

commercial functions, at times utilizing goals and targets, which were sometimes perceived as informal

quotas. Agencies that are reluctant to privatize functions performed by their existing workforce—which

could require downsizing and/or reductions in force—are generally more willing to contract out new or

expanded functions (since such contracts could give them credit toward meeting OMB’s targets), without

necessarily considering the long-term implications of such a step. 

19 See Panel Report, Chapter 5, The Federal Acquisition Workforce, Finding 7 and Discussion.

20 Paul L. Francis, Director, Acquisition and Sourcing Management, testimony before the Subcommittee

on Airland, Committee on Armed Services, U.S. Senate, 10 (March 2005).

21 For example, the Army’s investigation of the Abu Ghraib interrogator scandal in Iraq found

that “it is very difficult, if not impossible, to effectively administer a contract when the [Contracting

Officer’s Representative] is not on site,” particularly where contractor employees greatly outnumbered

the government employees responsible for oversight of the contract. See MG George R. Fay, AR 15-6 

Investigation of the Abu Ghraib Detention Facility and the 205th Military Intelligence Brigade 50, 52 (2004).
400

contract out the function of designing and constructing the next generation of satellites,

without retaining a core group of federal workers with knowledge of—and responsibility

for—the details of the project, it could permanently lose the capacity to perform one of its

critical, core functions. 

III. Personal Services Contracts 

[W]e have now a definition and a rule based on a ban . . . on personal

service contracts that’s been with us for years and years and doesn’t take

proper recognition of where we are as a work force today.

22

Under the FAR, the federal government is prohibited from awarding “personal services

contracts” (“PSC”) unless specifically authorized by statute to do so.

23 A PSC is defined in the

FAR as a contract that, by its express terms or as administered, makes the contractor personnel appear to be government employees.

24 The United States Office of Personnel Management (“OPM”) defines PSCs as contracts “that establish an employer-employee relationship

between the Government and contractor employees involving close and continual supervision of contractor employees by Government employees rather than general oversight of contractor operations.”25 The key indicator of a PSC, according to the FAR and OPM, is whether

the Government exercises relatively continuous supervision and control over the contractor

personnel performing the contract.

26 The FAR also provides a list of other elements that may

indicate whether a PSC exists.

27

A. History of the Prohibition of PSCs

As set forth in a cogent review by Robert Erwin Korroch in his LLM thesis,28 the rationale for prohibiting PSCs has shifted several times since it first arose in the late nineteenth

century. Prior to that time, executive branch personal services contracts were commonplace,29 and they were exempt from competition under an 1861 statute.

30

The initial rationale for the ban was based on the theory that an 1882 appropriations statute31 precluded the use of federal funds to pay contractors unless the funds were

explicitly appropriated for that purpose. See, e.g., Plummer v. United States, 24 Ct. Cl. 517,

520 (1889). Under a 1926 Comptroller General decision interpreting that statute, if a civil

22 Test. of William Woods, GAO, AAP Pub. Meeting (Mar. 29, 2006) Tr. at 274.

23 FAR 37.104(b).

24 Id.

25 Contracting Branch, OPM, Competitive Sourcing, Procurement Policy and Procedure (Jun. 30, 2003),

http://www.opm.gov/procure/pdf/USOPMCompetitiveSourcingPolicy.pdf.

26 FAR 37.104(c)(2).

27 FAR 37.104(d).

28 Robert E. Korroch, Rethinking Government Contracts for Personal Services (Sep. 30, 1997) (unpublished

LLM thesis, The George Washington University Law School) (available at The George Washington

University Law Library). 

29 Id. at 41-43.

30 Act of Mar. 2, 1861, ch.84, sec. 10, 12 Stat. 220.

31 Currently codified at 5 U.S.C. § 3103.
401

service government employee could be utilized or hired to do the work required, then the

work could not be obtained by contract.

32

In 1943, the Comptroller General identified a different rationale for prohibiting contracts for personal services, concluding that allowing a contractor to select persons to render

services for the government would be inconsistent with the federal civil service laws, which

require that all appointments of officers and employees be made by federal officials.

33

PSCs have also been criticized in the theory that they allow federal agencies to circumvent limits on the number of authorized employees, particularly in circumstances

where the duties of the prospective contractor personnel were the sorts of duties usually

performed by federal employees, and would have been performed by such employees but

for the personnel ceiling.

34 The Comptroller General relied on two factors in defining what

constituted personal services: (1) the government furnished everything necessary for the

performance of the services except the employees, who could have been hired by the government; and (2) the services were of a type usually performed by classified employees and

were of a continuing or indefinite duration.

35

B. The Pellerzi-Mondello Opinions

The prohibition of PSCs in the current FAR, and the criteria for identifying such contracts, were derived from opinion letters issued in the late-1960s by two General Counsels

of the United States Civil Service Commission (“CSC”), Leo Pellerzi and Anthony L. Mondello. Those opinion letters were prepared in response to a referral from the U.S. District

Court in a case brought by a labor union representing federal employees, who alleged that

several technical support service contracts being utilized by NASA at the Goddard Space

Center were in violation of applicable personnel statutes.

36 The principles identified in the

opinions were subsequently incorporated into FAR Part 37. 

According to Mr. Pellerzi:

. . . contracts which, when realistically viewed, contain all the following

elements, each to any substantial degree either in the terms of the contract,

or in its performance, constitute the procurement of personal services proscribed by the personnel laws.

- Performance on-site.

- Principal tools and equipment furnished by the Government.

32 A-16312, 6 Comp. Gen. 364, 365 (Nov. 27, 1926), recon. denied, 6 Comp. Gen. 463 (Jan. 11, 1927).

33 B-31670, 22 Comp. Gen. 700, 701-702 (Jan. 25, 1943).

34 See, e.g., B-113739, 32 Comp. Gen. 427, 430-431 (Apr. 3, 1953). In that decision, the Comptroller

General also stated that the contract violated the “long-standing rule that persons performing purely

personal services for the Government be placed on Government pay rolls and made subject to its

supervision.” Id.

35 Id.

36 Lodge 1858 Am. Fed. of Gov’t Emp. v. Adm’r NASA, 424 F. Supp. 186 (D.D.C. 1976), aff’d in part, 

vacated in part, 580 F.2d 496 (D.C. Cir.), cert. denied, 439 U.S. 927 (1978).
402

- Services are applied directly to integral effort of agencies or an organizational subpart in furtherance of assigned function or mission.

- Comparable services, meeting comparable needs, are performed in the

same or similar agencies using civil service personnel.

- The need for the type of service provided can reasonably be expected to

last beyond one year.

- The inherent nature of the service or the manner in which it is provided

reasonably requires directly or indirectly, Government direction or supervision of contractor employees in order:

– To adequately protect the Government’s interest or

– To retain control of the function involved, or

– To retain full personal responsibility for the function supported in a

duly authorized Federal officer or employee.

Mr. Pellerzi concluded that contracts with these features are proscribed unless an agency

possesses a specific exception from the personnel laws to procure personal services by contract. 

In August 1968, Mr. Mondello issued a supplemental opinion in which he emphasized

that the “touchstone of legality under the personnel laws is whether the contract creates

what is tantamount to an employer-employee relationship between the government and

the employee of the contractor.”37 The opinion focused upon the third element in the definition of federal “employee” in 5 U.S.C. § 2105(a): i.e., whether an individual is subject to

the supervision of another federal employee. Thus, under the Pellerzi-Mondello opinions, a

contract that involves or permits supervision of contract employees by government employees would be contrary to the civil service laws. 

C. The Existing FAR Prohibition

Following the rationale of the Pellerzi-Mondello opinions, the current FAR prohibition of PSCs focuses on the concern that government supervision of contractor personnel

would act to create an employer-employee relationship between the government and the

contractor’s personnel. However, this concern is based upon a misguided premise, since

a contract cannot confer employee status upon contractor personnel in the absence of an

appointment to the federal service.

38

For example, in Costner v. United States,39 the plaintiff had submitted a claim for annuity

credit for his years of work under a federal contract, claiming that he was a federal employee

37 See Lodge 1858, supra, 580 F.2d at 507.

38 Pursuant to Article II, Section 2, Clause 2 of the U.S. Constitution, “The President shall appoint all

officers of the United States unless Congress vests such authority in the department heads or courts.” Over

100 years ago, the Supreme Court confirmed that an individual had to be appointed to a government

position before he or she could become an officer of the government. United States v. Smith, 124 U.S. 

525, 531-32 (1888); United States v. Mouat, 124 U.S. 303, 307 (1888). And although the Constitutional

provision refers only to “officers,” and not “employees,” the courts have treated the two terms as synonyms

for this purpose. See, e.g., Baker v. United States, 614 F.2d 263, 267 (Ct. Cl. 1980). 

39 665 F.2d 1016 (Ct. Cl. 1981).
403

during that period. However, the Court of Claims concluded that the plaintiff could not satisfy the statutory definition of a federal employee, 5 U.S.C. § 2105(a), noting, “It is obvious

from the statutory language that there are three elements to the definition—appointment by

an authorized federal employee or officer, performance of a federal function, and supervision

by a federal employee of officer—and that they are cumulative. . . . An abundance of federal

function and supervision will not make up for the lack of an appointment.”40

See also United States v. Testan, in which the Supreme Court stated, “The established

rule is that one is not entitled to the benefit of a [Government] position until he has been

duly appointed to it.”41 And in Goutos v. United States, the Court held “[i]t is settled law that

a Government employee is entitled only to the rights and salary of the position to which

he was appointed by one having the proper authority to do so.”42

Moreover, as the D.C. Circuit held in Horner v. Acosta, appointment as a federal

employee requires “a significant degree of formality” and “evidence that definite, unconditional action by an authorized federal official designating an individual to a specific

civil service position is necessary to fulfill the appointment requirement of 5 U.S.C. §

2105(a).”43 Indicia of appointment include whether the person’s compensation and benefits are paid and funded by the civil service system, whether a SF-50 or other appointive

document was executed, and whether the oath of office was administered.

44

These cases confirm that the FAR prohibition on PSCs, which was derived from CSC

opinions seeking to assure that the supervision of contract personnel by federal employees

does not confer federal employment status upon such personnel, is unnecessary to achieve

its intended purpose. 

D. Exception for Temporary Expert and Consultant 

Services Contracts

The FAR prohibition explicitly does not apply where a statute authorizes PSCs. One such

statute is 5 U.S.C. § 3109, which authorizes agencies to acquire temporary consultants or

experts. This authority originated in section 15 of the Administrative Expenses Act of 1946,

which authorized executive departments to procure temporary services of experts or consultants by contract.

45 The statute was designed as an exception to the prohibition against PSCs

for contracts that do not exceed one year in duration, and its use is conditioned upon the

existence of explicit language in an appropriation act or other statute. However, the list of

statutes authorizing such use has become so voluminous that this restriction has little effect.

46

Under the statute, agencies may “contract” for both individual consultants and for

organizations of consultants.

47 However, different rules apply to the different types of

40 Id. at 1020.

41 424 U.S. 392, 402 (1976) (internal citations omitted).

42 552 F.2d 922, 924 (1976) (internal citations omitted) (emphasis in original).

43 803 F.2d 687, 692-93 (D.C. Cir. 1986).

44 Id. at 694.

45 60 Stat. 810 (codified as 41 U.S.C. § 5).

46 See Korroch Thesis at 45. The list of cross references at 5 U.S.C. § 3109 contains 161 statutory

provisions authorizing temporary hires under this section. 

47 Letter from Comptroller General Warren to the Comm’r, United States Section, Int’l Boundary and

Water Comm., United States & Mexico, 27 Comp. Gen. 695, 695-98 (May 17, 1948).
404

contractors. When “procuring by contract” the services of an individual under the authority of this statute, the agency actually temporarily appoints the person into the civil

service, notwithstanding the provisions of civil service appointment procedures.

48 This

temporary appointment makes the individual a government employee who thereby has

many, but not all, of the same protections and rights, and is subject to the same duties, as

any other federal government employee who is hired into the excepted service.

49 In contrast, when an agency hires a contractor (organization) under the authority of this section,

the contractor’s employees do not become government employees. The organization’s

employees remain employees of the contractor.

50

On January 25, 1989, the OPM promulgated regulations allowing agencies to utilize

private sector temporaries.

51 OPM acknowledged the new regulation was not consistent

with prior pronouncements:

There is no statutory prohibition. The guidance and opinions of the past

(best known as the Pellerzi-Mondello opinions after the two General

Counsels of the former Civil Service Commission who prepared them),

which placed the use of temporary help services under the general ban

against contracting for personal services, must give way to a new interpretation based on court decisions, the statutory definition of a Federal Supervisor, evolving experience, and the now established role which temporary

help services perform. This rule reflects that new interpretation and it

amends the Pellerzi-Mondello opinions with respect to the use of temporary help service firms.

52

E. Conclusion

For the reasons stated above, the existing FAR prohibition on PSCs, which focuses upon

the type of supervision provided to contractor personnel in an effort to preclude the creation

of an employer-employee relationship, is not compelled by applicable statutes and case law. 

Given the statutory definitions of a federal employee, as that definition has been interpreted

by the courts, the activities that are currently barred as PSCs by the FAR would not create such

an employer-employee relationship. And the PSC prohibition, to the extent it is observed in

practice, often creates inefficiencies and adds to costs for both agencies and contractors.

48 “Procuring by contract” is an inapt term here, because the contractor actually becomes a temporary

federal government employee. See 27 Comp. Gen. 66, 48 (July 31, 1947).

49 Letter from Comptroller General Warren at 697.

50 For a more in-depth discussion of this topic, see Jeffrey Lovitky, The Problems of Government 

Contracting for Consulting Services, 14 Pub. Cont. L.J. 332 (1984).

51 5 CFR 300.501-300.507, adopted at 54 Fed. Reg. 3762 (Jan. 25, 1989); see also FAR 37.112. 

52 54 Fed. Reg. at 3762. OMB recognized that such temporaries, would, in at least some respects,

arguably be supervised by federal employees. However, it concluded they would not formally be

“supervised” by federal employees, relying upon the broad span of control over government employees

included in the statutory definition of “supervisor;” i.e., “an individual employed by an agency having

authority in the interest of the agency to hire, direct, assign, promote, reward, transfer, furlough, layoff,

recall, suspend, discipline, or remove employees, to adjust their grievances, or to effectively recommend

such action, if the exercise of the authority is not merely routine or clerical in nature but requires the

consistent exercise of independent judgment.” 5 U.S.C. § 7103(a)(10).
405

IV. Organizational Conflicts of Interest (“OCI”)

Over the last two decades, a number of factors have led to an increasing probability

of—and a increasing need to protect against—OCIs.

53 Three industry trends appear to be

responsible for the increase in OCIs.

54 First, the government is buying more services that

involve the exercise of judgment, such as evaluating technical platforms or assessing the

goods or services provided by contractors. Second, industry consolidation has resulted in

fewer and larger firms, which results in more opportunities for conflicts. Third, use of contract vehicles such as indefinite-delivery, indefinite-quantity (“IDIQ”) umbrella contracts

result in awards of tasks to a limited pool of contractors. 

A. Existing Regulations

Under the FAR, an OCI occurs when

because of other activities or relationships with other persons, a person

is unable or potentially unable to render impartial assistance or advice

to the government, or the person’s objectivity in performing the contract work is or might otherwise be impaired, or a person has an unfair

competitive advantage.

55

The term “person” in this definition includes companies and other contracting entities.

56

FAR 9.5 addresses OCIs. The regulation states that the government is concerned with

both actual conflicts as well as potential conflicts, both in current and future acquisitions.

57

The principles guiding the government’s efforts to avoid such conflicts are: (1) preventing

the existence of conflicting roles that might bias a contractor’s judgment; and (2) preventing

unfair competitive advantage.

58 As such, the FAR directs contracting agencies to take measures

to detect and mitigate actual and potential OCIs.

59 Contracting officers must “identify and

evaluate potential OCIs as early in the acquisition process as possible” and “avoid, neutralize,

or mitigate significant potential conflicts before contract award.”60 However, the FAR provides

no detailed guidance to contracting officers regarding how they should accomplish these

tasks.

61 In practice, it appears that contracting officers and agencies have occasionally encountered difficulties implementing appropriate OCI avoidance and mitigation measures.

53 See generally, Daniel I. Gordon, Organizational Conflicts of Interest: A Growing Integrity Challenge,

35 Pub. Con. L.J. 25 (Fall 2005); Michael R. Golden, Organizational Conflicts of Interest, PowerPoint

presentation to 4th Annual U.S. Missile Defense Conference, at 5. 

54 For a description of the industry trends driving the increase in OCIs, see Gordon at 27-29. See also 

Golden at 5.

55 FAR 2.101. For a detailed description of the elements of an OCI, see Gordon, supra note 53, at 30-32. 

56 Id. at 31.

57 FAR 9.502(c).

58 FAR 9.505(a), (b).

59 FAR 9.504.

60 FAR 9.504(a)(1), (a)(2).

61 Id. (guidance is limited to the “general rules, procedures, and examples” in FAR 9.5).
406

B. Types of OCIs

In order to ascertain whether the existing FAR guidance provided sufficient direction

for the contracting community, the Panel reviewed the various types of OCIs and how contracting agencies, GAO, and the Court of Federal Claims view contracting officers’ efforts to

detect and mitigate OCIs. There are three general types of OCIs:

• Unequal Access to Information – A firm has access to nonpublic information as part of

its performance of government contract responsibilities, and that information might provide the firm a competitive advantage in a future competition (these are also known as

“unfair competitive advantage” OCIs).

62

• Biased Ground Rules – A firm, as part of its performance of government contract responsibilities, has set the ground rules for another government contract by, for example, writing

the statement of work or defining the specifications. The firm that drafted the ground rules

might have a competitive advantage in a future competition governed by those rules.

63

• Impaired Objectivity – A firm’s work under one government contract could entail evaluating its own work or that of a competitor, either through an assessment of performance

under another government contract or through an evaluation of proposals.

64

Although the case law has discussed a number of conflicts that arise with increasing frequency in each of these categories, the examples provided in the FAR do not appear to address

adequately the range of possible conflicts that can arise in modern government contracting. 

C. Case Law

The GAO discussed the various categories of OCIs in Aetna Gov’t Health Plans, Inc.; 

Foundation Health Fed. Servs., Inc., B-254397, et al., Jul. 27, 1995, 95-2 CPD ¶ 129 at 8-10. 

The Court of Federal Claims began citing the Aetna decision and description of OCIs in

Vantage Assocs., Inc. v. United States, 59 Fed. Cl. 1, 10 (2003). These decisions, along with

others, address methods of identification and mitigation of OCIs. The GAO and the Court

of Federal Claims have denied protests where an agency both recognized actual or potential OCIs and either avoided, neutralized, or mitigated the OCI in a reasonable manner.

65

62 FAR 9.505-4.

63 FAR 9.505-1 and 9.505-2.

64 FAR 9.505-3.

65 See, e.g., Deutsche Bank, B-289111, Dec. 12, 2001, 2001 CPD ¶ 210 (proposed use of subcontractor to

perform tasks where prime contractor had potential conflict due to prior work for the agency was deemed

acceptable mitigation); LEADS Corp., B-292465, Sep. 26, 2003, 2003 CPD ¶ 197 (protest denied because

mitigation plan—agency consideration of potential OCI and decision to assign work carefully to avoid the

appearance of impropriety—was sufficient). Compare Sci. Applications Int’l Corp., B-293601, et al., May 3,

2004, 2004 CPD ¶ 96 (protest sustained for lack of consideration to potential OCI) with Sci. Applications 

Int’l Corp., B-293601.5, Sept. 21, 2004, 2004 CPD ¶ 201 (corrective actions remedied prior OCI, making

award possible).
407

However, protests were upheld where it was concluded that the contracting officers and/or

agencies did not go far enough in recognizing or mitigating OCIs.

66

D. Consequences and Possible Improvements

The public expects there to be no preferential treatment for particular contractors, no

self-interest in the decision-making process, and no hidden agenda impacting contractor

selections. Moreover, the cost and delay associated with resolving potential OCIs after-thefact adversely affects agency programs and the public interest. Yet, “the more we integrate

non-Federal employees, contractors or call them blended workforce, into the actual governing and administration of our agencies, the larger the gap we have and the more difficult it

is for us to insure the integrity of Government decision making.”67 Much of the difficulty

arises when contractor personnel have substantial responsibilities in selecting systems or

contractors for award, sometimes effectively making evaluation and/or award decisions for

agencies, even if they do not themselves actually make the formal award. 

Although FAR 9.5 provides considerable leeway to contracting officers and agencies for

considering avenues to address actual or potential OCIs, lack of guidance regarding identification and mitigation of conflicts—particularly for the increasingly common unfair competitive advantage or impaired objectivity conflicts—leads to variable results and inconsistent application of the regulations. Uniform regulations providing guidance to contracting

officers and contracting agencies could help to reduce the frequency of failures to identify

and mitigate OCIs. 

V. Personal Conflicts of Interest

With the growth of the multisector workforce, in which contractor employees are working alongside federal employees and are performing identical functions, questions have

been raised as to whether contractor employees working to support federal agencies should

be required to comply with some or all of the ethics rules that apply to federal employees.

68

There are numerous statutory and regulatory provisions applicable to federal employees that seek to protect against conflicts of interest (“COI”) and promote the integrity of the

government’s decision-making process. These provisions are intended to avoid preferential

treatment, self-dealing, and hidden agendas, and to ensure that persons entrusted to act for

66 See, e.g., Alion Sci. & Tech. Corp., B-297022.3, Jan. 9, 2006, 2006 CPD ¶ 2 (protest sustained where

agency assessment that a “maximum potential” for OCI of 15 percent of tasks was sufficiently low to

permit award was fundamentally flawed; further, the agency’s assessment of possible impacts of OCI

was inadequate and understated the potential for conflicts); Greenleaf Constr. Co., Inc., B-293105.18, .19,

Jan. 17, 2006, 2006 CPD ¶ 19 (protest sustained where agency failed to reasonably consider or evaluate

potential OCI due to financial arrangement between contractor and evaluator); Celadon Labs., Inc., B298533, Nov. 1, 2006, CPD ¶ __ (protest sustained where agency failed to evaluate impact of contractors

performing technical evaluation being employed by firms that promote competing technologies); PURVIS 

Sys., Inc., B-293807.3, .4, Aug. 16, 2004, 2004 CPD ¶ 177 (protest sustained where agency failed to

reasonably consider or evaluate potential OCI created by awardee’s participation in evaluation of its own

work—and the work of its direct competitors—on undersea warfare systems). 

67 Test. of Steve Epstein, Director of Standards of Conduct, Department of Defense, AAP Pub. Meeting

(May 18, 2006) Tr. at 90.

68 Id. See also Test. of Marilyn Glynn, U.S. Office of Gov’t Ethics, AAP Pub. Meeting (May 17, 2005) Tr. 

at 78, 107.
408

the government are acting in the best interest of the government. In short, the rules address

the basic obligation of public service. This obligation is described as:

[The] responsibility to the United States Government and its citizens to

place loyalty to the Constitution, laws and ethical principles above private gain. To ensure that every citizen can have complete confidence in

the integrity of the Federal Government, each employee shall respect and

adhere to the principles of ethical conduct set forth in [5 CFR Part 2635].

69

A. Criminal Statutes in Title 18 of the U.S. Code

Several criminal conflict of interest statutes in Title 18 of the U.S. Code address federal

employees’ (1) representational activities before the federal government; (2) post-employment activities; (3) participation in matters in which they have financial interests; and (4)

receipt of supplementation of salary as compensation for their official services.

18 U.S.C. § 205 is intended to prohibit current federal employees from misusing their

offices and influence by prohibiting them from participating in claims against the government on behalf of private interests, whether or not for pay. Section 205 applies to all employees, regardless of their level of responsibility or the scope of their duties, and to all particular

matters regardless of whether those matters are related to the employee’s position or duties. 

18 U.S.C. § 203 addresses similar considerations, but it only applies to compensated representational activities. It prohibits an individual from sharing in compensation for representational services performed by someone else, such as a business partner, if those services were

provided at a time when the individual was still a government employee. 

18 U.S.C. § 207 prohibits former employees from engaging in certain activities on

behalf of persons or entities other than the United States. Some restrictions apply to all

employees, regardless of level of position or subject matter.

70 Other restrictions apply only

to employees holding positions at certain levels of authority or pay.

71 Some restrictions

are subject matter-specific or client-specific,72 while others apply only to persons that held

positions in certain agencies or employees in certain programs.

73 The applicable durations

of the various restrictions also vary.

74 Most of the restrictions, including those that affect

the most employees, are limited to representational communications and appearances, but

three narrowly applicable provisions also cover behind-the-scenes activities, thus adding an

additional layer of complexity.

75

69 5 CFR 2635.101(a).

70 18 U.S.C. § 207(a)(1).

71 Subsections 207(a)(2) (supervisory employees), 207(c) (senior employees), 207(d) (very senior

employees), and 207(f) (senior and very senior employees). 

72 Subsections 207(b) (trade agreement and treaty matters), and 207(f) (foreign entity clients).

73 Subsections 207(f)(2) (special lifetime restrictions for the U.S. Trade Representative and Deputy),

and 207(l) (special restriction applicable to Information Technology Exchange Program assignees).

74 Subsections 207(a)(1) (life of the matter), 207(a)(2) (two years), 207(b) (one year), 207(c) (one

year), 207(d) (one year), 207(f) (one year, except lifetime for the United States Trade Representative and

Deputy), and 207(l) (one year).

75 Subsections 207(b), 207(f), and 207(i).
409

18 U.S.C. § 208 has been called the cornerstone of the executive branch ethics program.

76 The section prohibits an employee from participating personally and substantially

in any particular matter in which he has a financial interest, or in which certain others

with whom he is associated, such as family members, have a financial interest. The policy

behind the law is promotion of public confidence in governmental processes by barring

employees from participating in government matters that would have beneficial or adverse

financial effects on them. 

18 U.S.C. § 209 prohibits federal employees from receiving any salary or supplementation of their salary from private sources as compensation for their services to the government. 

This ban on outside compensation for government work is designed to prohibit an executive

branch employee from serving two masters in the performance of his or her official duties.

77

18 U.S.C. § 201(b) prohibits a public official from seeking, accepting, or agreeing to

receive or accept anything of value in return for being influenced in the performance of an

official act or for being induced to take or omit to take any action in violation of his or her

official duty. This section is commonly referred to as the prohibition on bribery, and it is

one of the few statutes in this area that apply to contractor personnel as well as to government employees.

78

B. Non-Criminal Ethics Statutes

Congress has also enacted non-criminal statutes that impose limitations on outside

earned income and employment;79 impose limitations on the acceptance of travel and

related expenses from non-federal sources;80 impose limitations on the acceptance of gifts

and travel generally;81 and impose restrictions on partisan political activities.

82

Other statutes authorize and direct agencies to collect financial information from certain officials and employees in order to monitor for and prevent financial conflicts of interest.

83 The extent of the information required from a particular employee and whether that

information will be made public or not depends upon the seniority of the employee.

C. The Procurement Integrity Act

Under the Procurement Integrity Act, additional ethics provisions apply to employees

who participate in the award or administration of federal contracts, 41 U.S.C. § 423. Such

employees are prohibited from accepting compensation from the awardee of a contract on

76 U.S. Office of Gov’t Ethics, Report to the President and to Congressional Committees on the Conflict of 

Interest Laws Relating to Executive Branch Employment (Jan. 2006) at 28, http://www.usoge.gov/pages/forms_

pubs_otherdocs/fpo_files/reports_plans/rpt_title18.pdf . 

77 Id. at 34.

78 Epstein Test. at 92-93. A separate statute, 31 U.S.C. § 1352, prohibits recipients of federal funds,

including contractors, from using any of those funds to attempt to influence federal officials.

79 5 U.S.C. App. 4 §§ 501-505.

80 31 U.S.C. § 1353.

81 5 U.S.C. § 7301.

82 5 U.S.C. §§ 7321-7326, known as the Hatch Act.

83 5 U.S.C. App. 4 §§ 101-111, 401-408, 501-505; see also 5 CFR Part 2634.
410

which they had participated for a period of one year after the employee’s involvement.

84 The

statute also prohibits the disclosure of non-public, privileged or sensitive information,85 and

it requires procurement officers to take certain actions when contacted regarding potential

non-federal employment.

86 Violations are punishable by both civil and criminal penalties.87

D. Office of Government Ethics

Under the authority of the Ethics in Government Act, 5 U.S.C. App. §§ 401-407, the

United States Office of Government Ethics (“OGE”) has promulgated “Standards of Ethical

Conduct for Employees of the Executive Branch,” 5 CFR Part 2635. These detailed standards implement, and in some cases expand upon, the ethics statutes contained in various

titles of the United States Code. For example, 5 CFR 2635.502, sometimes known as the

“impartiality regulation,” expands upon 18 U.S.C. § 208 by requiring federal employees to

disqualify themselves from particular matters in which a reasonable person with knowledge of the relevant facts would question the employee’s impartiality. In addition, many

federal agencies have supplemented the OGE regulations with regulations of their own.

88

OGE exercises leadership in the Executive Branch to prevent conflicts of interest on the

part of government employees, and to resolve those conflicts of interest that do occur. It has

provided extensive written guidance to federal employees in its Standards of Conduct, in

memoranda addressing particular questions (sometimes referred to as “DAEOGrams”), and

in pamphlets handed out at orientation sessions for new federal employees. These resources

provide detailed guidance, with examples, on subjects including gifts from outside sources,

gifts between employees, conflicting financial interests, impartiality in performing official

duties, seeking other employment, misuse of position, and outside activities. The OGE also

trains agency ethics officers regarding the standards of conduct requirements.

89

E. Applicability to Contractor Personnel

With the growth of federal contracting for services, contractors are, and will increasingly continue to be, performing some of the government’s most sensitive and important

work, including, but not limited to, acquisition functions. However, contractor personnel

are not subject to the foregoing comprehensive set of statutory and regulatory ethics rules,

even though in some cases they are working alongside government employees in the federal workplace and may appear to the public to be government employees.

90 Some observ84 41 U.S.C. § 423(d).

85 Subsections 423(a) and (b).

86 Subsection 423(c).

87 Subsection 423(e). Concerns about conflicts of interest in the area of government contracting have

been a particular focus in the enforcement of federal ethics laws. In the 2005 OGE survey of prosecutions

involving the conflict of interest criminal statutes, nine of the twelve reported prosecutions involved

contract-related misconduct. See Memorandum from Robert I. Cusick, OGE Director (Aug. 9, 2006),

http://www.usoge.gov/pages/daeograms/dgr_files/2006/do06023.pdf. 

88 For example, the Department of Transportation has adopted 49 CFR Part 98, “Enforcement of

Restrictions on Post-Employment Activities,” and 49 CFR Part 99, “Employee Responsibilities and Conduct.”

89 A full description of OGE’s responsibilities and activities can be found on its website: http://www.

usoge.gov.

90 Walker Test. at 276.
411

ers, including the Acting Director of OGE, have suggested that current laws, regulations,

and policies may be inadequate to prevent certain kinds of ethical violations on the part of

contractors and their personnel.

91

In testimony to the Panel, Ms. Marilyn Glynn, who at the time was the Acting Director of OGE, expressed her concern regarding personal conflicts of interest in the following

contractual circumstances: (1) advisory and assistance services contracts, especially those

where contractor personnel regularly perform in the government workplace and participate

in deliberative and decision-making processes along with government employees; (2) management and operations (“M&O”) contracts involving large research facilities and laboratories, military bases, and other major programs; (3) contracts resulting from the competitive sourcing process (under OMB Circular A-76), particularly where the services had been

performed previously by government employees and are now being performed by former

government employees who have exercised rights of first refusal; and (4) large indefinite

delivery or umbrella contracts that involve the decentralized ordering and delivery of services at multiple agencies or offices.

92 Ms. Glynn stated that several situations involving the

conduct of individual contractor employees in these contexts have been identified by public sector ethics officials. Such problems primarily relate to financial conflicts of interest,

impaired impartiality, misuse of information, misuse of authority, and misuse of government property.

93 If the conduct that Ms. Glynn described had been performed by a federal

employee, it would be a violation of statute and/or regulation punishable by criminal or

civil penalties or both.

Ms. Glynn testified that although OGE has received expressions of concern in this area

from agency ethics officials, it has not recommended that any of the criminal COI statutes

be amended to apply to contractor personnel. Instead, it has deferred answering such a

question to “others with more knowledge of procurement policies and practices.”94 An

alternative approach was identified by Steve Epstein of DoD, who suggested that the FAR

Council should consider “some model language, or instruction [to] Government agencies

to include these provisions within contracts.”95

F. Contractor Ethics Programs

The Defense Federal Acquisition Regulation Supplement (DFARS) imposes certain ethics

requirements upon contractors doing business with DoD.

96 In general, such contractors must

“conduct themselves with the highest degree of integrity and honesty.” More specifically, the

regulations require contractors to maintain specific standards of conduct and internal control

systems, including: (1) a written code of ethics and a training program; (2) periodic reviews

of company practices and internal controls; (3) a reporting hotline; (4) audits; (5) disciplinary actions for improper conduct; (6) timely reporting to the government of any suspected or

91 See Letter from Marilyn L. Glynn, Acting Director, U.S. Office of Gov’t Ethics, to the AAP (Feb. 8,

2005) (on file with the Panel)

92 Glynn Test. at 80-81.

93 Id. at 82.

94 Id. at 88-89.

95 Epstein Test. at 129.

96 DFARS 203.7000.
412

possible violation of law in connection with a government contract; and (7) full cooperation

with any government investigation or corrective action.

97

In the mid-1980s, a group of major defense contractors voluntarily committed themselves to a program of self-governance in the ethics arena. The program, named the Defense

Industry Initiative (“DII”), requires participants to: (1) adopt a written code of ethical

conduct; (2) train employees on the performance expected under the code; (3) encourage

employees to report violations of the code without fear of retribution; (4) implement systems to monitor compliance procedures and to disclose violations to the government; and

(5) share best practices with other firms in the program.

98 To a great extent, the DII was a

response to the findings and recommendations of the President’s Blue Ribbon Commission

on Defense Management (“the Packard Commission”).

99 The Packard Commission found

that “[p]ublic confidence had been eroded by reported instances of waste, fraud and abuse

within both the industry and the Defense Department. The Commission concluded that the

defense acquisition process, the defense business environment, and confidence in the defense

industry could be improved by placing greater emphasis on corporate self-governance.”100

The DII conducts an annual Best Practices Forum that provides an opportunity for

industry and government to discuss best practices and emerging issues relating to ethics programs and how contractors can meet those challenges.

101 Another significant

element of the DII program is that member companies have committed to make themselves accountable to the public through disclosures and reports on business ethics and

conduct.

102 The DII also issues an Annual Report, which covers a wide variety of subjects,

including, inter alia, conflicts of interest, procurement integrity, kickbacks, inside information, and voluntary disclosure to the government.

103

The Sarbanes-Oxley Act of 2002104 (“SOX”) also impacts the ethics programs of publicly traded government contractors.

105 SOX requires the establishment of an “audit committee” to establish procedures for receiving, examining, and resolving complaints relating

to financial controls and ethics concerns.

106 SOX also places significant responsibility on

attorneys representing public companies.

107 Among other things, attorneys must report

directly to the chief legal counsel or chief executive officer evidence of breach of fiduciary

97 DFARS 203.7001(a).

98 Test. of Patricia Ellis, Raytheon Corp., AAP Pub. Meeting (May 17, 2005) Tr. at 247; see also The 

Defense Industry Initiative on Business Ethics and Conduct, 2005 Annual Report to the Public (Feb. 22, 2006)

[hereinafter DII 2005 Report] at 9, http://www.dii.org/annual/2005/DII-2005_AnnualReport.pdf.

99 Test. of Richard Bednar, National Coordinator for DII, AAP Pub. Meeting (May 17, 2005) Tr. at 260-61.

100 DII 2005 Report at 7 citing to the President’s Blue Ribbon Comm’n on Defense, Interim Report to

the President, at 19-21 (Feb. 28, 1986) http://www.ndu.edu/library/pbrc/pbrc.html..

101 Ellis Test. at 247; Bednar Test. at 284.

102 Id. at 262. 

103 Id. at 294. The report also includes the compiled responses to a detailed annual survey of member

company CEOs.

104 Pub. L. No. 107-204, 116 Stat. 745 (2002).

105 Non-public companies may choose to comply with the SOX standards, though compliance is not

required by law.

106 See SOX § 204. Audit committee members are “independent” members of the board, meaning they

have no other financial relationship with the company other than their service on the board. The audit

committee members’ independence encourages unbiased analysis of auditor reports and information, and

prompt recognition of conflicts of interest or other improper activity.

107 SOX § 307.
413

duty by any employee, officer, or agent of the company.

108 SOX also enhances protections

for whistleblowers who report items of concern such as, but not limited to, perceived fraud

and conflicts of interest.

109

The Federal Sentencing Guidelines110 also provide incentives for companies to create, maintain, and staff appropriate ethics programs. Convicted companies that have met

these criteria are eligible for a variety of downward departures from the general Sentencing

Guidelines.

111 The Guidelines include criteria for determining whether companies have

instituted “effective compliance and ethics program[s]” that not only prevent and detect

criminal conduct, but also promote ethical corporate cultures.

112 Corporate directors must

be knowledgeable about and receive training on their companies’ programs,113 while highlevel personnel are tasked with ensuring the effectiveness of the program.

114 Companies

are asked to institute a system for reporting potential ethical violations, communicate this

system and the underlying ethical rules to employees, employ compliance personnel with

adequate resources and direct reporting access to the Board, institute incentive and disciplinary procedures to ensure compliance, and periodically evaluate the program’s effectiveness.

115 In addition, establishing effective compliance programs can also help companies

escape indictment in the first instance, since federal prosecutors consider similar criteria

when determining whether to indict companies for the crimes of their employees.

116

G. Next Steps

The Panel heard testimony that emphasized the importance of culture in a successful

ethics program. For example, DII considers a values-based code of ethics a best practice,

stating that culture is at least as important as, and perhaps even more important than,

rules.

117 The OGE is concerned with leadership commitment to ethics programs and referenced academic research that shows the tone at the top is the most important thing in an

ethics program.

118 DII’s National Coordinator asserted that values-based self-governance

should be the preferred model for all companies that deal with the federal government,

and suggested that the DFARS regulatory scheme be elevated to the FAR.

119

In view of the wide variety of circumstances that can implicate PCIs on the part of contractor personnel, the wide variety of federal contracts for services, and the differences in size

and sophistication among federal contractors, the Panel has concluded there is no single set

108 Id.

109 SOX § 806.

110 United States Sentencing Commission, Guidelines Manual (Nov. 2006). 

111 Id. §§ 8C2.5(b), (f) & 8C4.11.

112 Id. § 8B2.1(a).

113 Id. § 8B2.1(b)(2)(A), (b)(4).

114 Id. § 8B2.1(b)(2)(B).

115 Id. § 8B2.1(b)(4)-(6).

116 See Principles of Federal Prosecution of Business Organizations, Memorandum from Larry D. Thompson,

Deputy Atty. Gen., to Heads of Dep’t Components 6-7 (Jan. 20, 2003), http://www.usdoj.gov/dag/cftf/

corporate_guidelines.htm.

117 Ellis Test. at 252-54, 257.

118 Glynn Test. at 104.

119 Bednar Test. at 263-64. 
414

of ethics requirements that would be appropriate in all contexts. The regime of ethics regulation applicable to federal employees is quite complex, and the Panel is not aware of anyone

with experience in this field who has contended that the full range of federal statutory and

regulatory provisions ought to be applied to all contractors and their personnel. 

VI. Findings

Finding 1:

Several developments have led federal agencies to increase the use of 

contractors as service providers, including: (1) limitations on the number of 

authorized civil service positions, (2) unavailability of certain capabilities and 

expertise among federal employees, (3) desire for operational flexibility, and 

(4) the need for “surge” capacity.

There are many reasons for the increase in the use of contractors by the federal government, including those listed in this finding. However, aside from the importance of recognizing what forces brought about the current circumstances involving the pervasive use of

contractors to support the work of government, the reality is that in many cases the federal

government could not accomplish its mission today but for the contractor workforce. Private

sector actors have become an essential partner in delivering government services. In its 2003

study recommending reorganization of the federal government, the National Commission

on the Public Service found that additional contracting for services “may be needed, for

example, to acquire additional skills, to augment capacity on an emergency or temporary

basis, and to save money on goods and services that are not inherently governmental.”120

The past fifty years has seen a global transformation in public administration from

government to governance, whereby our federal government has increasingly come to rely

on non-governmental actors to perform core “governmental” activities, and the achievement of public goals has been accomplished by a mix of “state, market and civil society

actors.”121 This development has presented a challenge to the ability of federal government officials to retain the capacity to supervise and evaluate the work of the government,

whether such work is performed by contractors or federal employees. During the same

period, civil service personnel ceilings have been imposed, which has ensured that as the

government has grown, reliance on contractors has also increased.

122 To compound the

challenge, many agencies have been unable to recruit and retain an adequate number of

skilled professionals to be able to do the complex types of work that are now part of their

missions.

123 This problem has also affected the acquisition workforce, which has faced new

challenges as the quantity and complexity of federal contracting has grown.

124

120 Report of the Nat’l Comm’n on the Pub. Serv. Urgent Business for America: Revitalizing the Federal 

Government for the 21st Century, 31 (Jun. 2003).

121 Dan Guttman, Governance by Contract: Constitutional Visions; Time for Reflection and Choice, 33 Pub. 

Con. L.J. 321, 322-23 (2004). 

122 Id. at 323.

123 See, e.g., Testimony of Barney Klehman, Missile Defense Agency, AAP Pub. Meeting (Mar. 29, 2006)

Tr. at 144-47, 153-54. 

124 Id. See also, David M. Walker, The Future of Competitive Sourcing, 33 Pub. Con. L.J. 299, 301 (2004).
415

Finding 2:

The existence of a multisector workforce, where contractor employees are 

co-located and work side-by-side with federal employees, has blurred the lines 

between: (1) functions that are considered governmental and functions that are 

considered commercial; and (2) personal and non-personal services.

As early as 1962, a Cabinet-level report to President Kennedy on government contracting practices (known as the “Bell Report”) concluded that reliance on third parties to perform the work of government “blurred the traditional dividing line between the public and

private sectors.”125 As one commentator has pointed out, such blurring was not an accident in that the architects of this change acknowledged that it would challenge traditional

notions of official accountability for work performed by non-government actors.

126

Finding 3:

Agencies must retain core functional capabilities that allow them to properly 

perform their missions and provide adequate oversight of agency functions 

performed by contractors.

It is axiomatic that federal government officials need to maintain the skills and competencies required to manage and implement all of the government’s work—including

that performed by the growing contractor workforce.

127 However, as discussed above, there

is reason to question whether the government has retained adequate personnel with such

skills and competencies.

128

Finding 4a:

Some agencies have had difficulty in determining strategically which 

functions need to stay within government and those that may be performed by contractors.

Finding 4b:

The term “Inherently Governmental” is inconsistently applied across 

government agencies.

The impossibility of drawing a bright line between governmental and non-governmental

functions has inevitably led to inconsistent application of the competitive sourcing policy

across the government. As David Walker, Comptroller General of the United States, stated in

2003, “[t]he Commercial Activities Panel heard complaints from all sides with regard to the

lack of clarity, transparency, and consistent application in the current A-76 process.”129

There are acknowledged difficulties in determining exactly what functions are inherently governmental.

130 Such difficulties are not new. GAO stated in 1991 that it was unable to

definitively conclude whether service contractors were performing inherently governmental

125 Report to the President on Government Contracting for Research and Development in Systems Development 

and Management: Hearings before a Subcommittee of the Committee on Government Operations, House of 

Representatives, 87th Cong. 191-263 app. I [hereinafter Bell Report (1966)]. 

126 Guttman at 330.

127 Bell Report at 144. 

128 See, e.g., U.S. GAO, High Risk Series: An Update, GAO-05-207 (Jan. 2005).

129 Walker, The Future of Competitive Sourcing at 305. 

130 Steven L. Schooner, Competitive Sourcing Policy: More Sail Than Rudder?, 33 Pub. Con. L.J. 263, 272 (2004).
416

activities “[b]ecause of the difficulty in defining governmental functions.”131 Faced with the

FAIR Act mandate to classify all of its positions, agencies may turn to other factors—such as

whether there are federal employee authorizations or sufficient skill sets in the government

workforce—to determine whether a function is classified as commercial or inherently governmental.

132 Functions that are considered appropriate for commercial competition by one

agency may not be considered so by another.

Finding 5:

The degree to which contractors are used and the functions that they perform vary widely both within agencies and across agencies.

As discussed above, there has been a marked shift in the willingness of agencies to

allow contractors to perform mission critical functions. One example of this has been the

growth of LSI contracts.

133 Moreover, in recent years, the military has become dependent

upon contractor support for transportation, shelter, food, and “unprecedented levels of

battlefield and weaponry operation, support, and maintenance.”134 Additionally, the DoD

has “encouraged the procurement of complex defense systems under contracts requiring

ongoing contractor support throughout the systems’ life cycles.”135

The degree to which contractors are performing functions that were previously performed

by government employees, and the specific functions that are being performed by those

contractors varies both agency to agency and within agencies. Some agencies use contractors

sparingly, while some rely on contractors for the vast majority of the work the agency accomplishes. Furthermore, the functions that are considered core or inherently governmental at

some agencies have been performed by contractors for decades at other agencies. 

There is currently no way to accurately quantify this trend. OMB Circular A-76 and the

FAIR Act focus on traditional commercial activities and therefore do not account for the

tremendous increase in the “shadow” workforce of contractors who are stepping into positions that were traditionally held by government employees.

While the FAIR Act requires agencies to produce inventories of the functions they

consider commercial and those that are considered inherently governmental, along with

the numbers of positions in the agency that fall under those designated functions, these

inventories do not reveal the number of contractor personnel performing various functions, particularly those functions that were generally performed by government employees

in the past. Moreover, because the categories of functions are broadly stated in the FAIR

Act inventories, those inventories do not provide the level of detail required to do the type

of agency-by-agency analysis that will render meaningful results in determining how the

government is applying the inherently governmental standard. Neither would the available

information provide sufficient data to determine how many contractors are performing

work that probably would have been performed by government employees in the past.

131 GAO/GGD-92-11 at 2.

132 Id. at 4.

133 See note 19 and accompanying text. 

134 Steven L. Schooner, Contractor Atrocities at Abu Ghraib: Compromised Accountability in a Streamlined, 

Outsourced Government, 16 Stanford L. & Policy Rev. 549, 554 (2005).

135 Rebecca Rafferty Vernon, Battlefield Contractors: Facing the Tough Issues, 33 Pub. Con. L.J. 369, 374 (2004).
417

Finding 6:

The use of contractor employees to perform functions previously performed 

by government employees combined with consolidation in many sectors 

of the contractor community has increased the potential for organizational 

conflicts of interest.

As explained above, the potential for OCIs has increased significantly in recent years. 

The contracting community needs more expansive and detailed guidance for identifying,

evaluating, and mitigating OCIs. The current FAR language provides significant leeway to

contracting officers to address OCIs, but recent decisions by the GAO and the courts indicate that, in many instances, appropriate investigation and/or analysis is not performed. 

This has created a substantial, negative impact on agency performance and on the public’s

impression of the procurement process. 

Finding 7:

There is a need to assure that the increase in contractor involvement in 

agency activities does not undermine the integrity of the government’s decision-making processes. 

Just as the trend toward more reliance on contractors poses a threat to the government’s long-term ability to perform its mission, the trend raises the possibility that the

government’s decision-making processes can be undermined.

For example, it is now commonplace for agencies to utilize contractors to perform

activities historically performed by federal contract specialists. Although these contractors are not authorized to obligate the United States,136 they provide, among other things,

analysis, market research, and other acquisition support to the federal decision makers. 

Unless the contractor employees performing these tasks are focused upon the interests of

the United States, as opposed to their personal interests or those of the contractor who

employs them, there is a risk that inappropriate decisions will be made. Commenting on

this topic, David Walker, Comptroller General of the United States, recently offered the

following advice:

We have to keep in mind that there are certain things that you can privatize, but there is one thing you can never privatize. You can never privatize

the duty of loyalty to the greater good. The duty of loyalty to the collective

best interest of all, rather than the narrow interest of a few: that is what

public service is all about; that is what public servants are all about.

137

Finding 8:

There are numerous statutory and regulatory provisions that control the 

activities of government employees. These measures are designed to protect the integrity of the government’s decision-making process. Recent, 

highly publicized violations of these laws and regulations by government 

employees were adequately dealt with through existing legal remedies and 

136 Such authority has always been considered an inherently governmental function reserved to

federal employees.

137 Walker, The Future of Competitive Sourcing at 303-04.
418

administrative processes. Additional laws or regulations controlling government employee conduct are not needed at this time.

The Panel finds that the existing system of statutes and regulations governing the conduct of federal government employees is adequate to effectively deal with ethical violations. Adding new prohibitions or increasing the already severe penalties available to punish violators would be unlikely to provide additional deterrence.

Finding 9:

Most of the statutory and regulatory provisions that apply to federal employees do not apply to contractor employees, even where contractor employees 

are co-located and work side-by-side with federal employees and are performing similar functions.

As described above, contractor personnel are not subject to the comprehensive set of

statutory and regulatory ethics rules applicable to federal employees, even though in some

cases they are working alongside federal employees in federal offices, are performing work

that in the past was performed by federal employees, and may appear to the public to be

federal employees.

Finding 10:

A blanket application of the government’s ethics provisions to contractor personnel would create issues related to cost, enforcement, and management.

Federal agencies cannot directly impose ethics requirements upon contractor employees or discipline those employees for the violation of federal ethical standards and requirements. However, they do have the authority to impose ethics requirements upon the entities with which they contract through contract provisions that hold contractors accountable for their employees’ behavior. And Congress has the authority to enact new statutes,

or amend the existing statutes that apply to federal employees, to criminalize violations of

ethical requirements by contractor personnel. However, the Panel is not aware of any evidence suggesting that the imposition of criminal liability upon contractor personnel would

yield significant benefits, and it could have serious adverse consequences. 

Government contractors, particularly large contractors, generally have internal ethics

programs. Application of the specific federal employee ethics requirements to contractor

personnel would require additional training, monitoring, and enforcement, and the cost

of these efforts would be passed on to the government. If the imposition of such requirements would significantly improve the ethical behavior of contractors and their employees,

such costs would be justified. However, if it merely replaced one set of effective rules with

another set of rules, without a significant effect upon contractor behavior, the costs would

not be justified. Further analysis of the costs and benefits of applying the various specific

ethics provisions to contractor personnel is needed before taking such steps. 
419

Finding 11:

The current prohibition on personal services contracts has forced agencies 

to create unwieldy procedural safeguards and guidelines to avoid entering 

into personal service contracts, some of which may cause the administration 

of the resulting “non-personal” contracts to be inefficient. 

The Panel did not identify specific instances of agency violations of the prohibition

on PSCs. However, anecdotal evidence suggests the lines have been blurred to such a

degree that the prohibition may have become a mere formality observed during contract

formation. In other words, contracts for professional services that are formed as “non-personal,” are often performed with close contact between federal government and contractor

employees that approaches, and perhaps crosses, the line between personal and non-personal services under the broad FAR definition.

Some agencies have expended significant resources prescribing policies and guidance

designed to help avoid the sorts of “employer-employee relationships” identified in the

FAR. For example, the U.S. Air Force has issued a Guide for the Government-Contractor Relationship to address “the distinctions between government employees and contractor personnel.”138 This guide addresses a wide range of topics that arise in the multisector workforce,

including among others, personal services vs. non-personal services contracts, proper identification of contractor personnel, use of government resources, and time management. 

The Missile Defense Agency, which is staffed in large part by contractor employees, has also

identified procedures to avoid the creation of an employer-employee relationship with

contractor personnel.

139

Such policies generally prohibit federal employees working side-by-side with contractor employees from reviewing and directing the work of those contractor employees and

require the involvement of the contractor supervisor in day-to-day operations. Agencies

would obviously prefer to avoid such inefficiencies, which cost them time and money. 

Removing the FAR prohibition would simplify the process and ease pressure on an overburdened federal workforce. It is likely that it would also enable contractors to realize cost

savings because they would be able to remove a layer of on-site management. Such cost

savings should then flow to the government and the taxpayer. 

VII. Recommendations

Recommendation 1:

The Office of Federal Procurement Policy should update the principles for 

agencies to apply in determining which functions must be performed by 

government employees. 

In view of the fact that fifteen years have passed since OFPP’s last comprehensive

analysis of what constitutes an inherently government function (“IGF”), and the fact that

there have been numerous changes in the way the government operates and the way that

contractors are utilized since that time, the Panel concluded that it would be appropriate

138 Air Force Materiel Command, Guide for the Government-Contractor Relationship (May 2005).

139 Test. of Barney Klehman at 180.
420

for OFPP to consider the current governmental and contractor landscape and adopt a set

of general principles and best practices for identifying those functions that should be performed by civil servants. 

Those principles would then be applied on an individualized, agency-by-agency basis,

consistent with each agency’s mission and the need to retain the capability to perform that

mission. In those instances where an agency is relying on contractors for assistance, the

Panel believes that it is critical for the agency to have adequate and knowledgeable staff to

establish appropriate requirements for its contracts and to manage contractor performance. 

The Panel did not believe that there was any need for OFPP to adopt a new formal definition of what constitutes an IGF. In the Panel’s view, it does not matter whether a particular function is considered to be “Inherently Governmental” or whether—to use the terminology utilized in FAIR Act inventories—it is considered “Commercial Category A.” What

is important in this context is whether a given function ought to be performed by federal

employees. Unfortunately, agencies do not always analyze their personnel needs or their

acquisition of services with the objective of maintaining agency capability to perform core

functions. There is no reason to be less attentive to these issues in a reduction in force situation, or in deciding whether to perform new projects or programs with federal employees

or through a contract. 

The Panel expressly stated it is not recommending that OMB revise A-76, but it recognized that OMB might conclude it would be appropriate to do so to better assure the agencies’ ability to perform their core functions. 

Recommendation 2: 

Agencies must ensure that the functions identified as those which must be 

performed by government employees are adequately staffed with federal 

employees. 

Once an agency determines that certain of its functions should be performed by government employees, it must ensure that it has sufficient qualified employees to actually perform

those functions. Agencies must focus on these issues when they are reducing their personnel

levels, whether through a formal reduction in force or otherwise. The same is true when contracting for services. Agencies must not simply take the easy way out by contracting for critical

functions because they have had difficulty recruiting and retaining qualified employees in certain areas. The Panel emphasized that this recommendation would not require any revision in

agency practices in complying with A-76 or in preparing their FAIR Act inventories. 

The Panel decided not to make any recommendation with respect to the issue of

whether OMB should make agency compliance with these principles mandatory, or

whether OMB should impose reporting requirements upon the agencies. OMB should analyze the services for which agencies are contracting (other than through A-76) in determining how to structure these principles and whether to make them mandatory.

Recommendation 3:

In order to reduce artificial restrictions and maximize effective and efficient 

service contracts, the current prohibition on personal service contracts 

should be removed. Government employees should be permitted to direct 

a service contractor’s workforce on the substance of the work performed, 

so long as the direction provided does not exceed the scope of the underly-
421

ing contract. Limitations on the extent of government employee supervision 

of contractor employees (e.g., hiring, approval of leave, promotion, performance ratings, etc.) should be retained.

The Panel recognized that, despite the existing prohibition of PSCs in the FAR, many

(if not all) agencies have contractors performing activities that fit within the prohibition as

it is currently defined, in part because it would be very inefficient to structure the workplace

to preclude direct instructions to contractor personnel. When service contractor personnel and federal employees are working together on a program or project, there is no good

reason to prohibit the federal employee in charge from giving directions or assignments

directly to contractor personnel so they can work as a true team. For example, contractors

and agency personnel routinely work in integrated project teams in technical areas. It is

unrealistic to expect that in such situations, government employees will not provide technical direction, and it would be inefficient to impose such a prohibition. 

Even apart from efficiency concerns, it is antithetical to good government practices to

have regulations in place that cannot realistically be complied with and thus are routinely

violated and not enforced. 

Under the Panel’s recommendation, federal employees would still be precluded from

involvement in personnel decisions regarding contractor employees, such as hiring, promotions, bonuses, and performance ratings. 

Although there is no express statutory prohibition, the prohibition has been in place

for so long, and there have been so many rationales for it, the Panel concluded that Congress should clearly and unambiguously resolve the issue through statute, rather than await

a regulatory revision. 

Recommendation 4:

Consistent with action to remove the prohibition on personal services contracts, the Office of Federal Procurement Policy should provide specific 

policy guidance which defines where, to what extent, under which circumstances, and how agencies may procure personal services by contract. 

Within five years of adoption of this policy, the Government Accountability 

Office should study the results of this change.

The Panel recognized that it was possible that some types of service contracts should

still be prohibited; therefore, it recommended that OFPP provide specific guidance to agencies, consistent of course with whatever limitations Congress might impose. 

For example, an agency Inspector General (“IG”) or Chief Financial Officer (“CFO”)

should not be able to direct the performance of a contractor hired to audit the agency’s

records and practices. In a performance-based contract, the contractor should have full

authority to determine how best to achieve the required performance. And there are circumstances in which it would not be appropriate for government managers to micro-manage contractor activities. 

The Panel also recognized that not every federal employee should be authorized to provide direction to contractor personnel. 

Since the recommended changes in this area would reverse prohibitions that had been

in place for decades, the Panel concluded that GAO should conduct a study within five years
422

after the adoption of the recommended OFPP guidance in which it would identify the benefits of the changes and any unintended adverse consequences or abuses by agencies. 

Recommendation 5:

The FAR Council should review existing rules and regulations, and to the 

extent necessary, create new, uniform, government-wide policy and clauses 

dealing with Organizational Conflicts of Interest, Personal Conflicts of Interest, and Protection of Contractor Confidential and Proprietary Data, as 

described in more detail in the following sub-recommendations. 

With respect to all the sub-recommendations in this category, the Panel recognized

that numerous agencies have considered these issues, and in many cases agencies have

identified and implemented effective measures to address them. However, there has been

no standardization, and there is no central repository or list of best practices available. The

Panel concluded that the identification and adoption of government-wide policies and

standardized contract clauses in these areas would be beneficial and that the FAR Council

was the appropriate organization to perform this task. The Panel anticipated that the FAR

Council would not have to start from scratch on most, if not all, of these issues, but would

be able to select from among existing strategies.  

Recommendation 5-1: 

Organizational Conflicts of Interest (“OCI”). 

The FAR Council should consider development of a standard OCI clause, or a set of standard OCI clauses if appropriate, for inclusion in solicitations and contracts (that set forth the

contractor’s responsibility to assure its employees, and those of its subcontractors, partners,

and any other affiliated organization or individual), as well as policies prescribing their use. 

The clauses and policies should address conflicts that can arise in the context of developing

requirements and statements of work, the selection process, and contract administration. 

Potential conflicts of interest to be addressed may arise from such factors as financial interests, unfair competitive advantage, and impaired objectivity (on the instant or any other

action), among others. 

The Panel recognized that a single OCI clause would probably not fit all circumstances,

so it suggested that the FAR Council consider whether it would be better to set forth a set of

such clauses from which procurement officials could select.

The Panel noted that OCIs could arise in various time frames (before, during, and after

the award of a contract), and that they could arise in a variety of contexts. Among other

possibilities, the Panel identified potential financial conflicts (e.g., attempting to steer

business to an affiliate); unfair competitive advantage (e.g., using information learned as

a contractor to enhance the contractor’s ability to receive a future contract); and impaired

objectivity (e.g., reviewing the performance of an affiliate or of a potential competitor for a

future contract). 

The Panel emphasized that whatever clauses were adopted should “flow down” to the

employees, affiliates, and subcontractors of the contractor. 
423

Recommendation 5-2:

Contractor Employees’ Personal Conflicts of Interest (“PCI”). 

The FAR Council should determine when contractor employee PCIs need to be

addressed, and whether greater disclosure, specific prohibitions, or reliance on specified

principles will accomplish the end objective of ethical behavior. The FAR Council should

consider whether development of a standard ethics clause or a set of standard clauses that

set forth the contractor’s responsibility to perform the contract with a high level of integrity

would be appropriate for inclusion in solicitations and contracts. The FAR Council should

examine the Defense Industry Initiative (“DII”) and determine whether an approach along

those lines is sufficient. As the goal is ethical conduct, not technical compliance with a

multitude of specific and complex rules and regulations, the rules and regulations applicable to federal employees should not be imposed on contractor employees in their entirety.

The Panel concluded that, in view of the tremendous amount of federal contracting for

services, and particularly in the context of the multisector workforce, additional measures

to protect against PCIs by contractor personnel were needed. However, the Panel believes

that PCI issues are more critical for certain types of contracts than for others, primarily for

service contracts. It concluded that the FAR Council should initially identify those types of

contracts where the potential for PCIs raises a concern. 

The Panel believes that achieving greater government-wide consistency in protecting

against PCIs would be beneficial, in that it would allow agencies to implement best practices, and it would also help to assure that all bidders on federal contracts—whether successful or not—are aware of their responsibilities and that they structure their operations

knowing what was expected of them. On the other hand, given the wide variation in the

types of federal contracts and in the types of entities that perform those contracts, the Panel

believes that it would not be appropriate to impose a single set of requirements on all contracts and all contractors. 

The Panel concluded that it was not necessary to adopt any new federal statutes to

impose additional requirements upon contractors or their personnel. Rather, the obligations should be imposed—where appropriate—through contract clauses. Such clauses

would not necessarily impose specific prohibitions upon contactors and/or their personnel; rather, it might be possible to achieve an appropriate level of integrity and ethical conduct on the part of contractors and their employees by developing general ethical guidelines and principles and/or by requiring disclosure of potential PCIs. 

The Panel does not believe the requirements imposed on contractors and their personnel—through the contract and solicitation clauses or otherwise—should incorporate the

extensive and complex requirements imposed on federal employees by existing statutes

and by the regulatory standards and advisory opinions promulgated by the Office of Government Ethics (“OGE”). 

The Panel was concerned about the possibility of over-regulation and its attendant

costs, particularly as it applies to small businesses, noting that the imposition of burdensome requirements could discourage such businesses from contracting with the government. In part for that reason, it struck from the recommendation draft language that would

have required all PCI-related obligations on prime contractors to necessarily “flow down”

to all subcontractors. 
424

The Panel recognized the benefits that have been achieved through voluntary agreements, as epitomized by the DII, noting it as a model that should be considered by the FAR

Council. In addition, the FAR Council should consider the DII suggestions that (1) valuesbased self-governance should be the preferred model for all federal contractors, and (2) the

DFARS regulatory scheme should be incorporated into the FAR. To the extent that the FAR

Council adopts these suggestions, it should also decide the appropriate scope and applicability of such provisions.

The Panel recognized that many companies already have extensive and effective ethics

policies and programs, and in many cases such companies also do business with non-government entities. It would be inefficient and confusing to their workforce to make them

create a separate program applicable to their work with the federal government. Therefore,

where existing standards of conduct, codes of ethics, etc. satisfy the principles of the federal

government’s ethics system, those internal rules would not need to be revised. However,

the contractors would have to be held accountable, through appropriate clauses in the contract, for enforcing them. 

The Panel had initially proposed a sub-recommendation under which the FAR Council

would have been directed to analyze existing statutes and regulations to determine if they

provide sufficient tools to deter—and to appropriately hold contractors accountable for—

violations of PCI and OCI requirements, or whether additional tools are needed. However,

the Panel determined that this sub-recommendation was unnecessary, since it concluded

that if the FAR Council identified a regulatory or statutory gap, it would make appropriate

recommendations through the appropriate channels. 

Recommendation 5-3:

Protection of Contractor Confidential and Proprietary Data. 

The FAR Council should provide additional regulatory guidance for contractor access

and for protection of contractor and third party proprietary information, including clauses

for use in solicitations and contracts regarding the use of non-disclosure agreements, sharing of information among contractors, and remedies for improper disclosure.

The Panel is aware that many agencies have addressed the issue of how best to protect

confidential and/or proprietary information from release or from improper use by competitors. However, others have not. The Panel concluded that substantial benefits could be

achieved through the development of standardized, government-wide guidance and contract clauses that could be implemented by agencies, rather than having to develop such

clauses individually. Uniformity would also be helpful in those ever more common situations where a given contractor doing work for one agency obtains access to information

that had been provided to another agency. 

The Panel urges the FAR Council to identify and, if possible, standardize the ways in which

contractors and/or agencies would be able to enforce violations of non-disclosure agreements. 

The Panel contemplated that the clauses and principles identified by the FAR Council

would be included in the FAR. 

The Panel emphasized that it was not seeking to address long-standing issues related

to appropriate use of the intellectual property of the government or of another contractor. Rather, the issue is what can be done to prevent the improper disclosure of proprietary
425

information, particularly since in many cases contractors are required under the contract to

share such information with the government and with other contractors. 

Recommendation 5-4: 

Training of Acquisition Personnel. 

The FAR Council, in collaboration with the Defense Acquisition University (“DAU”)

and the Federal Acquisition Institute (“FAI”), should develop and provide (1) training on

methods for acquisition personnel to identify potential conflicts of interest (both OCI

and PCI), (2) techniques for addressing the conflicts, (3) remedies to apply when conflicts

occur, and (4) training for acquisition personnel in methods to appropriately apply tools

for the protection of confidential data.

The Panel noted that in many instances a salutary policy is promulgated, but it is

not effectively implemented because the individuals who have the responsibility are not

trained on how to implement it. 

There would be two aspects to the recommended training: first, to educate procurement personnel so that they are sensitized to the issues and are aware that something

ought to be done to address potential OCIs, PCIs, and disclosure issues; and second, to

provide uniform guidance on how to respond to such issues so these officials do not have

to reinvent the wheel. 

Recommendation 5-5:

Ethics Training for Contractor Employees. 

Since contractor employees are working side-by-side with government employees on a

daily basis, and because government employee ethics rules are not all self-evident, consideration should be given to a requirement that would make receipt of the agency’s annual

ethics training (same as given to government employees) mandatory for all service contractors operating in the multisector workforce environment. 

Although the Panel recognized that contractor personnel who work alongside civil servants would generally not be subject to all of the same ethics rules, it thought that it would

be helpful if they understood the rules applicable to the federal workers with whom they

work. For example, it would be a good idea if contractor personnel understood why a coworker could not accept an expensive lunch or gift. 

However, the Panel only recommended that agencies consider implementing such a

training program for their contractor personnel, as opposed to recommending that all

agencies be required to do so. In addition, the scope and content of whatever training was

offered would be decided on an agency-by-agency basis.

The Panel found that the costs associated with such training would be minimal, since

the contractor personnel could simply attend training already being provided to government employees, or—in some agencies—would receive the training at their convenience

over the Internet.

An agency could enforce a requirement that contractor personnel attend the federal

training the same way it enforces other training requirements, such as safety training. 

The Panel considered recommending the converse to this recommendation (i.e., to

require federal employees in a blended workforce environment to attend ethics training sessions given to contractor personnel), but it decided not to adopt such a recommendation, in
426

part because it would be unwieldy in circumstances where a federal employee worked alongside personnel from several different contractors. 

Recommendation 6:

Enforcement. 

In order to reinforce the standards of ethical conduct applicable to contractors, including those addressed to contractor employees in the multisector workforce, and to ensure

that ethical contractors are not forced to compete with unethical organizations, agencies

shall ensure that existing remedies, procedures, and sanctions are fully utilized against violators of these ethical standards.

The Panel emphasized that contractors need to be held accountable for complying with

ethical standards and principles identified in Recommendation 5, so there need to be consequences attached to any such violations. 

The Panel concluded that the enforcement tools that currently exist (e.g., suspension

and debarment) are sufficient—if they are properly utilized—and that there is no need for

Congress to adopt additional statutory remedies. However, the Panel also concluded that

additional training in when and how to use these remedies is important. 

The Panel emphasized that in addition to protecting the government’s interests directly,

it was also important to assure that unethical entities do not have an unfair competitive

advantage over ethical companies.

The Panel considered whether to recommend an amendment to existing law that

would expressly authorize the imposition of a lifetime ban upon repeated violators, but it

decided not to do so. 
427

CHAPTER 7

Report on Federal 

Procurement Data

Table of Contents

I. Background: Government Efforts to Track Contract Spending. . . . . . . . . . . . . 429

	 A. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429

	 B. History of the Federal Procurement Data System. . . . . . . . . . . . . . . . . . . . . . . . 432

	 C. Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433

	 D. A History of Criticism—Accuracy of Agency Reporting Questioned . . . . . . . . 435

II. Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438

	 A. What the Panel Learned from FPDS-NG. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438

	 B. Findings Listed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441

III. Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444

Appendix A: Draft Statutory Revision for Recommendation #4. . . . . . . . . . . . . . . . . . 449

429

I. Background: Government Efforts to Track 

Contract Spending

A. Introduction 

The Panel’s decision to develop findings and recommendations related to the government’s procurement data was the result of its efforts to obtain such data in support of the

various working groups of the Panel. The Federal Procurement Data System – Next Generation (“FPDS-NG”) is the only government-wide system that tracks federal procurement

spending. The system does not track any other kind of federal expenditures such as grants

or loans. The Panel’s results with obtaining usable data were mixed. Based on these experiences, we believed we might be able to identify some opportunities to improve the reliability and transparency of data on procurement spending. While the Panel has attempted to

address the accuracy of data in general and the transparency of it in particular, this chapter

is not a full scale review of FPDS-NG, but rather the result of the Panel’s targeted requests

for data.

Additionally, despite some frustration, the Panel recognizes that the FPDS-NG system

was newly implemented in 2004, achieving a remarkable migration of 10 million transactions from the legacy system,1 and, as such, should not be subject to blanket criticism. The

Panel has, after all, obtained important insights through this data, bringing to light the

prescience of Congress in directing this Panel to review interagency contracts and supporting inclusion of these contracts on the Government Accountability Office (“GAO”) 2005

High Risk series. However, the Panel did meet with some significant frustrations that it has

attempted to address.

1

Test. of Teresa Sorrenti, Integrated Acquisition Environment, Federal Procurement Data System – Next

Generation, AAP Pub. Meeting (Feb. 23, 2006) Tr. at 248.
430

Chapter 7 – Federal Procurement Data Findings 

and Recommendations

Findings Recommendations

Finding 1: Competition data on orders under 

Interagency Contracts is unreliable.

Finding 2: Current value and estimated value 

of orders under Interagency Contracts is not 

available from migrated data.

Recommendation 1: OFPP shall ensure 

that FPDS-NG corrects the reporting rules 

for competition immediately.

Recommendation 2: OFPP shall ensure 

validations apply equally to all agencies, unless 

there is a statutory reason to differ.

Recommendation 3: An independent verification and validation (IV&V) should be undertaken to ensure all other validation rules are 

working properly in FPDS-NG.

Finding 3: Current value and estimated value 

of orders under Interagency Contracts is not 

entered correctly by Agencies.

Finding 4: Inaccurate user data entry compromises the usefulness of data.

Finding 5: The OFPP Act does not currently 

assign responsibility for accurate and timely 

data reporting within the agency except for 

a general description of the files to be maintained by “Executive Agencies” and transmitted to FPDS

Recommendation 4: Congress should revise the 

OFPP Act to assign responsibility for timely and 

accurate data reporting to FPDS-NG or successor system to the head of the executive agency.

Recommendation 5: Agencies shall ensure 

their workforce is trained to accurately report 

required contract data. The training should 

address the purpose and objectives of data 

reporting to include: 

 a. Improving the public trust through 

increased transparency.

 b. Providing a tool for sound policy-making 

and strategic acquisition decisions.

Finding 1: Competition data on orders under 

Interagency Contracts is unreliable.

Recommendation 6: OMB should establish, 

within 90 days of this Report, a standard operating procedure that ensures sufficient and 

appropriate department and agency personnel are made available for testing changes in 

FPDS-NG and participating on the Change 

Control Board.

Finding 4: Inaccurate user data entry compromises the usefulness of data.Recommendation 7: Agency internal reviews 

(e.g., Procurement Management Reviews, IG 

audits) should include sampling files to compare FPDS-NG data to the official contract/

order file.
431

Findings Recommendations

Finding 1: Competition data on orders under 

Interagency Contracts is unreliable.

Recommendation 8: The OFPP Interagency 

Contracting Working Group should address 

data entry responsibility as part of the creation 

and continuation process for interagency and 

enterprise-wide contracts.

Finding 4: Inaccurate user data entry compromises the usefulness of data.Recommendation 9: GAO should perform 

an audit that covers not only the quality of 

FPDS-NG data, but also agency compliance 

in providing accurate and timely data.

Finding 1: Competition data on orders under 

Interagency Contracts is unreliable.

Finding 6: Data on Interagency Contract ordering trends is not readily available for analysis.

Recommendation 10: OFPP should ensure 

that FPDS-NG reports data on orders under 

interagency and enterprise-wide contracts, 

making this data publicly available (i.e., 

standard report(s)). The OFPP Interagency 

Contracting Working group shall provide the 

specific guidelines consistent with the reports 

requested by the Panel to include competition information at the order level sufficient to 

answer, at a minimum: Who is buying how 

much of what using what type of indefinite delivery vehicle and if not buying it competitively, 

what exception to fair opportunity applies? 

Other considerations, such as pricing arrangements, socio-economic status, number of offers 

received, fee information, and PBA should be 

considered when designing the report.

Finding 6: Data on Interagency Contract ordering trends is not readily available for analysis.Recommendation 11: The FPDS-NG report 

provided to the Panel that shows the dollar transactions by agency and by type of 

interagency vehicle (e.g., FSS, GWAC, BPA, 

BOA, other IDCs) and product or service 

code should be made available to the public in 

the short term.

Finding 7: FPDS was not designed to provide sufficient granularity for spend analysis 

and strategic decisions.

Recommendation 12: OFPP should devise a 

method and study the cost-benefit of implementing additional data reporting requirements 

sufficient to perform strategic sourcing and 

market research within and across agencies.

Recommendation 13: OFPP should seek 

agency and industry perspective to determine if 

the UNSPSC classification or some other classification system is feasible as a new data element 

if the scope of data collection is expanded.
432

Findings Recommendations

Finding 8: FPDS relies on voluntary contributions from Agencies for operational and 

enhancement funding.

Recommendation 14: OMB shall ensure that 

agencies provide sufficient funds to ensure 

these systems are financed as a shared service 

based on levels agreed to by the CAO Council 

and OFPP, sufficient to support the objectives 

of the systems.

Finding 9(a): FPDS data only pertains to use 

of taxpayer funds in acquisition of products 

and services. A substantial amount of taxpayer 

funds are provided by federal agencies to entities for products and services through grants, 

cooperative agreements, Other Transactions 

and inter-agency service support agreements 

(“ISSAs”).

Finding 9(b): Taxpayers should be provided 

the maximum level of transparency on the use 

of their tax dollars through contracts, grants, 

cooperative agreements, other transactions 

and inter-agency service support agreements 

(“ISSAs”). Transparency can be greatly 

enhanced by providing a single, integrated, 

web-accessible database for search by 

the public on the use of grants, contracts, 

cooperative agreements, Other Transactions 

and ISSAs. Such a data system should, at the 

least, allow the public to search for net awards 

of taxpayer funds to specific companies, organizations, or governmental entities. 

Recommendation 15: Within one year, OMB 

shall conduct a feasibility and funding study 

of integrating data on awards of contracts, 

grants, cooperative agreements, ISSAs, 

and “other transactions” through a single, 

integrated, and web-accessible database, 

searchable by the public. *

* This recommendation has been overtaken by events. In August 2006, the Congressional Budget 

Office (CBO) released an estimate of $15 million for implementing S. 2590, the Federal Funding and 

Accountability Transparency Act of 2006. The President signed the bill into law on September 26, 2006 and 

OMB is currently working towards implementation.

B. History of the Federal Procurement Data System

In 1972, the Commission on Government Procurement reported that no single government organization was responsible for collecting and reporting on what executive agencies

were buying or the total value of those purchases.2 The Commission found that

•	 The Congress needs this basic information to make informed decisions on matters of

broad public policy relating to procurement programs.

•	 The executive branch needs this information to determine the policy necessary for managing

the procurement process.

•	Interagency support activities need this information to develop and improve the

services offered.

2

Comm’n on Gov’t Procurement Report, Pt D, Acquisition of Commercial Products, Ch. 2 at 5 (1972).
433

•	 Suppliers need this information to develop programs to service the federal market. Full

information creates a more competitive marketplace and provides a better opportunity

for individual suppliers to compete.

To meet these needs, the Commission recommended establishing a system for collecting

and disseminating procurement statistics. Congress passed the Office of Federal Procurement

Policy Act (Public Law 93-400) in August 1974, which, in part, required the Administrator of

the Office of Federal Procurement Policy (“OFPP”) to establish such a system.

A committee, representing twelve agencies, studied the existing procurement management systems of the Department of Defense (“DoD”), National Aeronautics and Space

Administration (“NASA”), and the Department of Health, Education and Welfare. The

committee’s July 1975 report stated that the new system should be designated as the Federal Procurement Data System (“FPDS”) and reports issued by the system should answer

the following questions:

•	Who are the agencies doing the procuring?

•	What products or services are procured?

•	What contractor is providing the products or services?

•	When were the procurements awarded?

•	Where is the place of performance?

•	How was the product or service procured (e.g., negotiation authority, pricing provisions,

extent of competition, and set-asides)?

In February 1978, the Administrator of OFPP issued a memorandum that established

the system and advised the Departments and agencies that DoD would act as executive

agent for OFPP and manage both the system and the Federal Procurement Data Center

(“FPDC”). The memorandum also established a Policy Advisory Board chaired by OFPP

and issued a manual on reporting procedures. The first data was to be reported to FPDC

in February 1979 beginning with data collected for the first quarter of fiscal year 1979. In

1982, executive agent responsibility was transferred to the General Services Administration

(“GSA”), where it remains today.

The initial reporting requirements covered 27 data elements reported on each individual procurement (or modification) in excess of $10,000. These reports were to be uniform,

showing the same 27 data elements for each procurement then forwarded to the FPDC

responsible for consolidating the information for each agency and reporting to Congress,

the Executive branch and industry. The Federal Procurement Report has been published

every year since.

C. Technology

The original FPDS was maintained on an IBM mainframe computer. The system used

numerous COBOL programs and stored the data on magnetic tape. Processing the data

required more than one hundred steps. Maintaining COBOL programming and still residing on a mainframe computer, the second generation was released in 1987. The third

generation saw the system move in-house and was based on an Oracle relational database

management system. It allowed for online data entry and provided hourly batch processing. But it relied on agency feeder systems that were responsible for some variances
434

between the actual agency award data and FPDS data. These systems also had hidden costs,

often requiring contractor support for each change to the data collection system. The time

and resources involved with modifying these feeder systems meant that changes to the data

collection requirements could only be made once a year. And the system also did not permit user retrieval of data. Requests for data that fell outside the information in the yearly

Federal Procurement Report had to be specially processed by FPDC staff.

In 2000, leadership from OFPP, DoD, and GSA decided to employ the ongoing initiatives of the Change Management Center (“CMC”) under the leadership of the Deputy

Under Secretary of Defense (Acquisition Reform) to innovate the FPDS. The CMC used

a “Rapid Improvement Methodology” that brought together stakeholders to identify and

implement process improvement. A Rapid Implementation Team (“RIT”) was tasked to

develop a business case and outcomes for a reengineered FPDS. This RIT conducted meetings in the summer of 2000 and included participation from OFPP as well as

•	Secretary of Defense

•	Military Services

•	Veterans Affairs

•	GSA (including the FPDC)

•	Department of Education

•	Department of Transportation

•	Environmental Protection Agency

•	Small Business Administration

•	Internal Revenue Service

•	Department of Commerce

•	Department of Treasury

•	Small Agency Council

The efforts of this team eventually resulted in a solicitation to acquire a new government-wide electronic data collection and management information system, to be known as

the FPDS-NG. The overall goal of the acquisition was to

...reduce the overall cost of data collection and to provide timely and accurate management information by implementing a system that interoperates with agency electronic procurement systems that report data into the

Government’s central database and other electronic commerce systems.3

The contract was competed and awarded to Global Computer Enterprises, Inc. in April

2003. The system became operational in October 2003, entering into a transition period

lasting two years, during which time the contractor was to work with federal agencies to

ensure data transfer and integrate contract writing systems with the new FPDS-NG.4

3

FPDS-NG solicitation, GS00M02PDR0008, C-4 (Oct. 29, 2002) (on file with OFPP).

4

U.S. GAO, Improvements Needed to the Federal Procurement Data System – Next Generation, 

GAO-05-960R, 1 (Sept. 27, 2005)
435

D. A History of Criticism–Accuracy of Agency 

Reporting Questioned

From its inception, the FPDS has been plagued with claims that the data itself is inaccurate. These claims have often been misinterpreted as a system failure when, in fact, the GAO

has been abundantly clear that the failure is largely one of inaccurate or untimely data input

by the agencies responsible for reporting. The GAO performed its first review of the system

in 1980, the first year a report was issued on government-wide data from the system. At that

time, only 27 data elements were required on each procurement action in excess of $10,000.

The GAO found that it was “...unlikely that accurate and complete Government-wide data

for fiscal year 1979 will be available in the near future.”5 The GAO cited the number of agencies late in reporting their data to the FPDC and with respect to accuracy said:

Furthermore, we noted that, once fully operational and debugged, the system will still have limitations. For example, the system relies on the integrity of many individuals to prepare the individual Contract Action Reports

and to prepare them correctly. If for some reason a report is not prepared,

the data on the contract award will not enter the system. The Center has no

means of knowing whether data is reported for all contracts.

The Center has developed a comprehensive edit program to enhance the

accuracy of the data received. This edit program will detect inconsistencies

and omission, such as identifying failure to complete or fill in any of the

items shown on the reporting form. Nevertheless, errors can go undetected

in certain instances. For example, if the wrong dollar amount or type of contract is reported, the Center would have no way of discovering the errors.6

Section 10 of the OFPP Act Amendments of 1988 (P.L. 100-679) required OFPP, in

consultation with the Comptroller General, to conduct a study and report to Congress on

the extent to which the data collected by the FPDS was adequate for the management, oversight, and evaluation of federal procurement. The study was based on public comment,

interviews with stakeholders, and responses to questionnaires from agencies, industry, and

congressional staffs. For instance, the House Information Systems Office told OFPP that

they believed that greater attention was needed to improve accuracy and timeliness of the

existing data rather than expansion of the number and types of data elements collected.7

Industry also expressed concerns. The Professional Services Council was critical of the system design, the classification system for professional and technical services, and accuracy in

general stating that its informal review:

. . . revealed errors in a number of the data fields, most obviously in the

dollar obligations for contract activities. [The Council] strongly urges the

application of professional quality-control standards to all aspects of FPDS

5

Comptroller General’s Report To The Chairman, Subcommittee on Human Resources, Comm. on

Post Office & Civil Serv., House of Representatives, PSAD-80-33, The Federal Procurement Data SystemMaking It Work Better, ii (Apr. 18, 1980).

6

Id. at 9.

7

OFPP Report to the Congress, Study of the Federal Procurement Data System (FPDS), App. 4 at 39 (June 1989).
436

data collection, coding, editing, and processing. No user of the FPDS is

served well by erroneous data.8

In a 1994 GAO letter to the Administrator of OFPP, GAO stated

. . . the Center does not have standards detailing the appropriate levels of

accuracy and completeness of FPDS data. We also found that some users

perceive that FPDS data could be more accurate and complete. These users

have identified instances where contractor names and dollar amounts were

erroneous. We believe developing standards for FPDS data accuracy and

completeness, then initiating a process to ensure that these standards are

met, would improve data accuracy and completeness.9

In an October 2001 review of the Historically Underutilized Business Zone (HUBZone)

program, GAO found that

Reported HUBZone program achievements for fiscal year 2000 were significantly inaccurate. We found that the value of contracts awarded to

HUBZone firms could be hundreds of millions of dollars different than the

reported achievements. . . . The inaccuracies resulted from data entry errors

and insufficient guidance on how to report agency data. FPDC includes the

inaccurate data in its annual report on federal procurement activities. As a

result of data problems, the Congress and federal agencies cannot use this

data to gauge the program’s success or to ensure that the program is working as intended.10

The GAO August 2003 review of task and delivery orders resulted in yet more criticism,

identifying errors and noting:

. . . we identified numerous other FPDS data errors during the course of our

review. We, therefore, limited our use of FPDS data to identifying general

multiple-award contract trends . . . and to selecting our sample. We will be

providing additional information on FPDS errors in a separate letter.11

And more of the same followed in September 2003, with a GAO review of yet

another program:

Because the [FPDS] contains unreliable data about the simplified acquisition test program, GAO was unable to determine the extent to which

federal executive agencies—including DoD—have used the test program

and have realized any benefits. Specifically, the database indicated that the

Departments of Treasury, Defense, and Justice were the three largest dollar-value users of the test program in fiscal year 2001 (the latest year with

8

Id. at 35.

9

GAO Letter, AIMD-94-178R, OMB and GSA: FPDS Improvements.

10 U.S. GAO, Small Business: HUBZone Program Suffers from Reporting and Implementation Difficulties,

GAO-02-57, 1 (Oct. 2001).

11 U.S. GAO, Contract Management: Civilian Agency Compliance with Revised Task and Deliver Order 

Regulations, GAO-03-983, 20 (Aug. 2003).
437

complete data available). But GAO found that FPDS either overstated or

understated use of the test program by millions of dollars.12

But significantly, GAO found these problems were perpetuated in FPDS through inaccurate agency reporting to agency unique databases that fed FPDS. For instance, after

reviewing its own internal database used to feed information to FPDS, two DoD buying

agencies that reported a combined $146 million in test program transactions, said that

none of the reviewed actions, a large dollar sampling of all actions reported, were done

under the test program despite being reported that way in DoD’s database.13

In a December 2003 letter to OMB, GAO related these long-standing concerns stating

that their letter “. . . c onveys our serious and continuing concerns with the reliability of the

data contained in FPDS. . . . ”14 The letter goes on to express GAO’s optimism about the

new FPDS-NG system but cautioned:

Information in FPDS-NG can only be as reliable as the information

agencies enter through their own systems. In the long term, data reliability should improve as agencies fund and implement electronic contract writing systems.15

The following summer, OMB issued a letter to agencies and the President’s Management Council addressing these GAO concerns and laying out a series of steps for agencies

to take to prepare for effective interface with the new FPDS-NG. These steps included a

documented quality assurance program and assigning the resources and funds to ensure

that major buying activities had contract writing systems capable of transferring data to the

new system.

GAO again sent a letter to OMB in September of 2005 addressing its concerns that the

largest contracting agency, DoD, representing 60 percent of the contracting actions, had yet

to accomplish a machine-to-machine interface with FPDS-NG and had twice delayed its

plans to do so. The delay, said GAO, would impact the ability of FPDS-NG to report accurate and timely data. This letter also raised questions about the system’s ability to capture

information on interagency contracting transactions stating that their attempts to obtain

such data had been unsuccessful. While recognizing that full implementation had not been

accomplished, GAO provided some recommendations for improvement including working with DoD and other agencies to ensure full electronic interface, easing the use of the

Standard and Ad-Hoc reporting tools added to the system, and, finally, to assess whether

FPDS-NG was the appropriate tool to collect interagency contracting data.16 In response

to GAO’s letter, OMB and GSA officials concurred with the recommendations and said it

was a top priority to ensure DoD connected its contract writing system to FPDS-NG. OMB

advised that FPDS-NG had a limited role in reporting on interagency contracting and GSA

12 U.S. GAO, Contract Management: No Reliable Data to Measure Benefits of the Simplified Acquisition Test 

Program, GAO-03-1068, 5 (Sept. 2003).

13 Id. at 6. 14 U.S. GAO, Reliability of Federal Procurement Data, GAO-04-295R, 1 (Dec. 2003). 15 Id. at 3. 16 GAO-05-960R at 5.
438

cautioned that FPDS-NG was never intended to collect and report information regarding

financial transactions between government agencies.

Since the time of this letter, OFPP and GSA have worked closely with DoD and a

fully operational interface is expected by early 2007. The Panel notes that, unlike GAO,

the Panel staff did not have difficulty accessing and obtaining data from the Standard

Reports template. However, much like GAO, Panel staff was not prepared to effectively

use the Ad-Hoc reporting function of FPDS-NG even after training. This may well have

been because the Panel’s data requests have been quite complex. GSA has since upgraded

that tool to provide a more user-friendly experience. And while the Findings section of

this chapter will address the problems encountered in obtaining certain interagency contract information, the Panel was able to obtain basic, high-level information about interagency contracting from FPDS-NG.

On September 26, 2006, nearly a month after the Panel’s last public meeting, the President signed the Federal Funding Accountability and Transparency Act of 2006, a bipartisan

sponsored Senate bill that would require OMB to oversee the development and maintenance of a single online and easily searchable web site, free to the public, that would provide disclosure of information related to the entities and organizations that received federal

funds. Clearly, while this is out of the scope of FPDS-NG, it would seem that the nearly 25

years of findings on the inaccuracy of data have taken their toll. In the Senate Committee

Report, a discussion of the systems available to provide part of the data, states:

“There are a number of weaknesses with FPDS that make it ineffective for

providing timely, accurate information on procurement actions: first, not

every agency is required to report to FPDS, meaning that the only way to

gain an accurate count of procurement spending is to ask each agency individually. Second, the database is undependable, often providing data that

is unusable or unreliable.”17

II. Findings

A. What the Panel Learned from FPDS-NG

FPDS has collected a significant amount of data over the years. The Federal Procurement Reports, which have been published each year for a quarter of a century provide

tremendous insight into the changing nature of federal procurement. And the government

and public thirst for more data has resulted in an increase from collecting information on

27 data elements for each award in excess of $10,000 in 1979 to collecting information on

150 data elements for each award over $3,000 today.

Given the Panel’s charter, its attention was quickly drawn to the newly available

information on interagency contracts, data recently added to the collection requirements.

But because there were many ongoing orders and contracts, it is not possible at this

time to conduct trend analysis. This is an inherent problem when adding new reporting

17 S. Homeland Security and Governmental Affairs, Comm., Federal Funding and Accountability

Transparency Act of 2006, S. Comm. Print, 109-329 (2006)
439

requirements to procurements that have already been reported using old requirements.

But what the Panel learned was quite astonishing. In fiscal year 2004, the government

spent 40 percent of its procurement dollars under interagency contracts.

In general, it seems that FPDS-NG data at the highest level provides significant insight.

However, the reliability of that data, especially on these new reporting elements, begins

to degrade at the more granular level due to data specificity on elements for which those

reporting may have less familiarity and training.

The following charts provide high-level data based on the standard report currently

available at https://www.fpds.gov.18 Standard reports allow the public to obtain data on certain elements of federal procurement spending based on time periods defined by the user.

The following information was based on the standard Competition Report for fiscal years

2004 and 2005. The total obligations for these standard reports are calculated on a base

that is different from total obligations reflected elsewhere in the Panel’s Report.

18 Users must register and log on to access FPDS-NG standard reports. Anyone may register at https://

www.fpds.gov.

FPDS-NG FY 2005 Competition Report–Supplies and Services

(Total Obligations in competition base=$365B)

Not Competed

($98B)

27%

Follow-On to 

Competed Action

4%

Not Available 

for Competition

5%

Competed

($235B)

64%

FPDS-NG FY 2004 Competition Report–Supplies and Services

(Total Obligations in competition base=$338B)

Not Competed

($108B)

32%

Follow-On to 

Competed Action

2.5%

Not Available 

for Competition

4.5%

Competed

($206B)

61%
440

The following charts are based on data that is not available through a standard report

and provided by FPDC in response to a Panel request:

Based on comparison with the competition base in the FPDS-NG Standard Report, “Competition 

Report” for FY 2004 on previous page.

Services were 64% of total obligations for FY 2004

Based on comparison with the competition base in the FPDS-NG Standard Report, “Competition 

Report” for FY 2005 on previous page.

Services were 60% of total obligations for FY 2005

(Total Services Obligations=$216B)

Not Competed

($52B) 24%

Follow-On to

Competed Action

2%

Not Available

for Competition 

5%

Competed

($150B) 69%

FPDS-NG FY 2004 Total Services by Extent Competed

(Total Services Obligations=$220B)

Not Competed

($45B) 20%

Follow-On to

Competed Action

1.4%

Not Available

for Competition 

5.4%

Competed

($161B) 73%

FPDS-NG FY 2005 Total Services by Extent Competed
441

Many other requests for data were provided by the FPDC and reported elsewhere in

this Report, including the amount of procurement dollars spent in fiscal year 2004 under

interagency contracts (40 percent or $142 billion) and the breakout of that spend between

services (62 percent) and products (38 percent). This information was very helpful to the

Panel. However, below this level of specificity, the Panel faced a frustrating reality.

B. Findings

Finding 1: 

Competition data on orders under Interagency Contracts is unreliable

Initial reports provided to the Panel indicated that orders under these interagency contracts were achieving high levels of competition. But closer inspection revealed a troubling

fact. The “extent competed” element for the overwhelming majority of orders was reported

as “Full and Open Competition.” This terminology should not apply at the order level where

fair opportunity is the yardstick of competition. A review of the data system and the user’s

manual indicated that the appropriate distinctions were being made during the collection of

the data, namely, the selection of either competitive or noncompetitive delivery order and, if

the latter, the system was designed to force the selection of a fair opportunity exception. So

why were the reports showing less than 1 percent of awarded value as competitive or noncompetitive orders with the majority of orders being reported as “Full and Open Competition”? FPDC staff began to investigate and discovered a few underlying causes.

First, validation rules for competition changed in the new FPDS-NG and again in the

second year of the system. Civilian agencies developed data conversion rules in this transition. Prior to December 2004, the legacy FPDS User Manual instructed agencies to use the

same “extent competed” options as were available on definitive contracts (e.g., full and

open competition). In December 2004 this was changed to allow for a clear choice at the

order level, competitive or noncompetitive delivery order, with an accompanying validation rule that would require the selection of an exception to fair opportunity for noncompetitive delivery orders. But it appears that actual implementation continued to allow for

the definitive contract choices as well as the new competitive/noncompetitive choices. In

addition, the validation rules are not functioning as intended. Second, all DoD Federal

FY 00 FY 01 FY 02 FY 03 FY 04 FY 05

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

Percent of Competitive Awards by Dollars where Only One Offer is Received
442

Supply Schedule orders are automatically coded by DoD as “full and open competition,”

regardless of whether the orders are awarded by DoD competitively or not. Finally, most of

the other orders derived their extent competed from the master contract as well.

Finding 2: 

Current value and estimated value of orders under Interagency Contracts is 

not available from migrated data

The legacy FPDS system collected a single “Dollars Obligated” field. Although the benefit of the estimated, current and ultimate value was identified, at the time of migration,

existing legacy systems did not capture or collect this data as part of the business process.

As with all the additional elements, they were only collected on new transactions.

Finding 3: 

Current value and estimated value of orders under Interagency Contracts is 

not entered correctly by agencies

The instructions for reporting were unclear until the posting of a new user’s manual

with guidance and specific examples. The system is designed to do the math. Agency personnel were supposed to enter only the value of a modification, such as an option. The

system would then add that value to any previously entered value to arrive at the value-todate. But agency personnel were inputting the cumulative value with the modification. The

system would then add that to the previous value to arrive at a highly overstated current

value. It was this problem that forced the Panel to use only transactional dollar values.

Finding 4: 

Inaccurate user data entry compromises the usefulness of data

Finding 3 above illustrates this point. Without the current and projected value of

orders, the dollars associated with these contracts cannot be understood. But this was

certainly not the only example of inaccurate user data. DoD confirmed that they were surprised the Department had spent $185 million in soybean farming between fiscal years

2000 and 2005. Department officials thought a more likely explanation could be found

in looking at the lengthy North American Industrial Classification System (“NAICS”) code

list. The NAICS code for soybean farming is listed first, suggesting that it is simply selected

to avoid going through the entire list. This impacts the government’s understanding of its

spending behavior while preventing contractors from using the system for market research.

DoD’s automatic coding of GSA Federal Supply Schedule orders obfuscates the actual

competitive nature of potentially billions of dollars in public expenditure. Impossible pairings of Supply and NAICS codes were uncovered, billions of dollars of GSA Federal Supply Schedule orders were identified as noncommercial, another $10 billion was either not

reported by agencies or mischaracterized as something other than a GSA schedule order.

Frequently, agencies failed to accurately identify the type of interagency contract their order

fell under with schedule orders identified as GWACs or other multiple award contracts.

When the Panel attempted to identify the amount of commercial vs. noncommercial

spending, it found that billions of dollars in GSA Federal Supply Schedule orders had been,

curiously enough, coded as noncommercial, despite the fact that all schedule offerings are,

by definition, commercial. And finally, the Panel’s own survey of PBA contracts and orders
443

revealed that of the randomly selected files, a full 42 percent were clearly not PBA. Several

agencies admitted to mistakes or erroneous coding of the transaction in FPDS-NG.

Finding 5: 

The OFPP Act does not currently assign responsibility for accurate and timely 

data reporting within the agency except for a general description of the files to 

be maintained by “Executive Agencies” and transmitted to FPDS.

Finding 6: 

Data on interagency contract ordering trends is not readily available for analysis

FPDS-NG has dozens of standard reports and an ad-hoc query capability but the data

needed for this type of interagency contract analysis had to be specially created. The data

element is new and there was little familiarity with it initially. Previously the interagency

contracts were not entered into the FPDS legacy system because that system only tracked

dollars obligated, so now the base contract data for orders reported in FPDS-NG are not

available for older contracts and must be derived from orders. Logic for new transactions

and reports was not focused on this data.

Finding 7: 

FPDS was not designed to provide sufficient granularity for spend analysis 

and strategic decisions

Product and Service Codes and NAICS codes are generally too broad for this type of analysis in support of strategic decisions. And while there is a “Description of Requirement” element, it is a free form text field, which doesn’t lend itself to the analysis of large amounts of

data nor is it a mandatory field. There are additional classifications used in two online ordering

systems (GSA Advantage! and the DoD Emall) but these are not passed on to agency contracting or finance systems. Both these online systems use the UN Standard Product Service Codes

(“UNSPSC”).

Finding 8: 

FPDS-NG relies on voluntary contributions from the Agencies for operational 

and enhancement funding

FPDS-NG is part of the Integrated Acquisition Environment (“IAE”) funded by agencies. IAE is part of the E-Gov initiatives aimed at integrating and leveraging the investments

in automation across agencies and move toward a shared services environment. All crossagency common systems such as FedBizOpps, Central Contractor Registration and FPDSNG are funded and governed by agencies to ensure buy-in and consistency.

Finding 9(a): 

FPDS data only pertains to use of taxpayer funds in acquisition of products 

and services. A substantial amount of taxpayer funds are provided by federal 

agencies to entities for products and services through grants, cooperative 

agreements, Other Transactions and inter-agency service support agreements (“ISSAs”).
444

Finding 9(b): 

Taxpayers should be provided the maximum level of transparency on the use 

of their tax dollars through contracts, grants, cooperative agreements, other 

transactions and inter-agency service support agreements (“ISSAs”). Transparency can be greatly enhanced by providing a single, integrated, webaccessible database for search by the public on the use of grants, contracts, 

cooperative agreements, Other Transactions and ISSAs. Such a data system 

should, at the least, allow the public to search for net awards of taxpayer 

funds to specific companies, organizations, or governmental entities. 

III. Recommendations

A. Recommendations

Recommendation 1:

OFPP shall ensure that FPDS-NG corrects the reporting rules for competition 

at the order level immediately 

The unavailability of competition data at the order level combined with the current

status of interagency contracts on the GAO High Risk series, erodes the public trust in a

critical acquisition tool for streamlining. Therefore, it is imperative the data reflect the

actual level of competition on the order, not on the master contract level. With 40 percent

of procurement dollars awarded under these orders, ensuring taxpayer reap the benefits of

competition should be a high priority.

Recommendation 2: 

OFPP shall ensure validations apply equally to all agencies unless there is a 

statutory reason to differ

During the Panel’s review of the reports on competition of orders under interagency

contracts, the Panel was perplexed as to why there were so many differences in the way

civilian and DoD agencies capture this information. While the rules are the same, for

instance, on the use of fair opportunity, the structure of the collection of this information

differs for civilian and DoD agencies, with DoD maintaining separate reporting instructions and requiring separate maintenance and then harmonization of the data for government-wide reporting purposes. This is inefficient given that the data itself is the same for

both DoD and the civilian agencies. Both methods are acceptable for determining the level

of competition at the order level and either would work for both DoD and the civilian

agencies. The Panel recommends that for efficiency, a single uniform approach should be

employed unless there is a statutory reason to differ.

Recommendation 3: 

An Independent Verification and Validation (“IV&V”) should be undertaken 

to ensure all other validation rules are working properly in FPDS-NG 

The Panel recognizes there is a cost associated with IV&V that was not anticipated in

the fiscal year 2007 budget. This may mean already scheduled priorities might be delayed.
445

However, ensuring that the system is functioning as intended is essential given the volume

of transactions entered into the system in a single year.

Recommendation 4:

Congress should revise the OFPP Act to assign responsibility for timely and 

accurate data reporting to FPDS-NG or successor system to the Head of 

Executive Agency

The Panel recognizes the value offered by increasing integration between the various agency contract writing systems and FPDS-NG. But given the Panel’s findings and the

depressingly long history of criticism launched by the GAO regarding agency data accuracy, the Panel believes accountability must be instituted at all levels of the organizational

structure. This is an ingredient in ensuring accuracy and timeliness is elevated through the

mechanism of leadership to the field. Only assigning specific accountability at a leadership

level will encourage the elevation of accuracy to those entering data. The Panel provides

specific amendatory language at Appendix A.

Recommendation 5:

Agencies shall ensure their workforce is trained to accurately report 

required contract data. The training should address the purpose and objectives of data reporting to include: 

(a) Improving the public trust through increased transparency

(b) Providing a tool for sound policy-making and strategic acquisition decisions

While system validation rules, addressed in Recommendation 3, are an efficient means

of ensuring accuracy, these rules can only identify omissions and eliminate internal reporting contradictions. The GAO’s first review of FPDS accurately identified the limits of such

system rules, noting that the system relies on the integrity of many individuals for correct

reporting.19 We note that the current FPDS-NG User’s Manual is nearly 100 pages covering

approximately 150 data elements. The Panel’s recommendation on training includes an

emphasis on the purpose and objectives of data reporting. Reinforcing these may help to

ensure that those who enter data understand the value of what they are doing.

Recommendation 6: 

OMB should establish, within 90 days of this Report, a standard operating procedure that ensures sufficient and appropriate Department and Agency personnel are made available for testing changes in FPDS-NG and participating on the 

Change Control Board

The Panel believes it is essential for the continued maintenance of the system that the

Departments and Agencies provide both operational and policy expertise as warranted. Full

testing suffers if agencies are not sufficiently bound to participate. The problem identified

with the validation rule might have been caught earlier if there were more robust testing.

The Panel heard from one FPDC staff member that there are times when only one individual is available to test large numbers of changes.

19 PSAD-80-33 at 9.
446

Recommendation 7: 

Agency internal reviews (e.g., Procurement Management Reviews, Inspector 

General audits) should include sampling files to compare FPDS-NG data to 

the official contract/order file

To reinforce the need for greater accuracy, the Panel recommends that internal

agency Procurement Management Reviews (“PMRs”) and Inspector General (“IG”)

audits include a comparison of FPDS-NG data to the official contract/order file. This

should not be a standalone audit of the accuracy of this data, but rather a standard element

considered, on an on-going basis, during any review the agency undertakes to provide consistent oversight in this area. 

Recommendation 8: 

The OFPP Interagency Contracting Working Group should address data entry 

responsibility as part of the creation and continuation process for interagency and enterprise-wide contracts 

This recommendation addresses the concerns expressed by the GAO when reviewing

interagency contracts and determining that there is not always a clear delineation of the

roles and responsibilities between ordering agencies, contract holders, and the user.

Recommendation 9:

The GAO should perform an audit that covers not only the quality of FPDS-NG 

data but agency compliance in providing accurate and timely data

During its review of data concerns, the Panel spoke with GAO officials who told us

that they intended to perform another audit of FPDS-NG. The Panel recommends that this

audit cover agency compliance in providing accurate and timely data as an integral element

to assessing the quality of FPDS-NG data.

Recommendation 10: 

OFPP should ensure that FPDS-NG reports data on orders under interagency 

and enterprise-wide contracts, making this data publicly available (i.e., standard report(s)) 

The OFPP Interagency Contracting Working group shall provide the specific guidelines

consistent with the reports requested by the Panel to include competition information at

the order level sufficient to answer, at a minimum: Who is buying how much of what using

what type of indefinite delivery vehicle and if not buying it competitively, what exception

to fair opportunity applies? Other considerations, such as pricing arrangements, socio-economic status, number of offers received, fee information, and PBA should be considered

when designing the report.
447

Recommendation 11: 

The FPDS-NG report provided to the Panel that shows the dollar transactions 

by agency and by type of interagency vehicle (e.g., FSS, GWAC, BPA, BOA, 

other IDCs) and Product or Service Code should be made available to the 

public in the short term

While the information contained in these reports does not provide the level of insight

the Panel eventually seeks and recommends under recommendation 10 above, these

reports do provide some transparency and they should be made available to the public.

The Panel believes that transparency imparts positive pressure that may elevate the need to

improve and expand the data to meet the standard of transparency warranted by the $142

billion spent on these contracts. The FPDC is working to post these reports now. They will

be available at their website at https://www.fpds.gov.

Recommendation 12:

OFPP should devise a method and study the cost-benefit of implementing 

additional data reporting requirements sufficient to perform strategic sourcing and market research within and across agencies

Recommendation 13:

OFPP should seek agency and industry perspective to determine if the 

UNSPSC classification or some other classification system is feasible as a 

new data element if the scope of data collection is expanded

During its public deliberations, there was significant debate on the recommendation regarding granularity. One point of view was that the Panel’s recommendation must

direct OFPP to develop requirements that would result in the government being able to

determine exactly what goods and services it buys. This perspective notes that without

this direction, the government will continue to collect data but it will not be sufficient to

leverage the government’s buying power to make strategic sourcing decisions. Others were

concerned with the volume of work this would create for buying organizations to identify and report this level of specificity and their concerns with how this could be accomplished especially with regard to services. While all agreed that the current system was

not intended nor designed to provide the level of granularity necessary for spend analysis

and strategic sourcing, the Panel could not agree to direct this level of granularity. Instead,

it recommends two interim steps, beginning with a cost-benefit analysis and including

industry input on the feasibility of identifying such data if the scope of data collection were

expanded to collect it.

Recommendation 14: 

OMB shall ensure agencies provide sufficient funds to ensure that these systems are financed as a shared service based on levels agreed to by the CAO 

Council and OFPP sufficient to support the objectives of the systems

Again, there was significant debate regarding the funding of FPDS-NG. Some members

were concerned that there should be a sustained source of funding through an appropriation arguing that there is a cost to doing business and if collecting and reporting on what

the government buys is of value, then the government should recognize this and fund it.
448

This point of view held that collecting the money from agencies via a “pass the hat” process put FPDS-NG in an unstable funding position with too many other competing interests at the agency level. But those favoring the “pass the hat” method said it is currently

working to support the needs of the IAE, including FPDS-NG. However they recommended

that those agencies that budget for the IAE need to also ensure they actually provide those

funds when the time comes. Therefore, the Panel generally settled on a recommendation

that would have OMB ensure the funds agencies provide are sufficient to ensure that the

systems are financed as a shared service and sufficient to meet the objectives of the system.

Recommendation 15: 

Within one year, OMB shall conduct a feasibility and funding study of integrating data on awards of contracts, grants, cooperative agreements, inter-agency 

service support agreements (“ISSAs”) and Other Transactions through a 

single, integrated and web-accessible database searchable by the public

Acknowledging that FPDS-NG is only intended to provide data on expenditures

through contracts, the Panel recognized the ongoing discussion in Congress of a bipartisan

sponsored bill that would provide visibility into the volume of monies expended through

grants, cooperative agreements, ISSAs and Other Transactions as well as contracts. The

Panel recommended a feasibility and funding study as an interim step.20 

20 This recommendation has been overtaken by events. In August 2006, the Congressional Budget

Office (“CBO”) released an estimate of $15 million for implementing S. 2590, the Federal Funding and

Accountability Transparency Act of 2006. The President signed the bill into law on September 26, 2006

and OMB is currently working towards implementation.
449

Appendix A

Draft Statutory Revision for Recommendation #4:

41 U.S.C. § 417

United States Code Annotated Currentness

Title 41. Public Contracts

Chapter 7. Office of Federal Procurement Policy (Refs & Annos)

§ 417. Record requirements

(a) Establishment and maintenance of computer file by executive agency; time period

coverage

Each executive agency shall establish and maintain for a period of five years a computer

file, by fiscal year, containing unclassified records of all procurements greater than the simplified acquisition threshold in such fiscal year.

(b) Contents

The record established under subsection (a) of this section shall include--

(1) with respect to each procurement carried out using competitive procedures--

(A) the date of contract award;

(B) information identifying the source to whom the contract was awarded;

(C) the property or services obtained by the Government under the procurement; and

(D) the total cost of the procurement;

(2) with respect to each procurement carried out using procedures other than competitive procedures--

(A) the information described in clauses (1)(A), (1)(B), (1)(C), and (1)(D);

(B) the reason under section 253(c) of this title or section 2304(c) of Title 10, as the

case may be, for the use of such procedures; and

(C) the identity of the organization or activity which conducted the procurement.

(c) Record categories

The information that is included in such record pursuant to subsection (b)(1) of this

section and relates to procurements resulting in the submission of a bid or proposal by

only one responsible source shall be separately categorized from the information relating

to other procurements included in such record. The record of such information shall be

designated “noncompetitive procurements using competitive procedures”.

(d) Transmission and data system entry of information

Heads of Executive Agencies shall ensure the timely and accurate transmission of 

Tthe information included in the record established and maintained under subsection (a)

of this section shall be transmitted to the General Services Administration for entry and

shall be entered into the Federal Procurement Data System or successor system referred to

in section 405(d)(4) of this title.

CHAPTER 7–APPENDIX

451

Appendix 1–Working Groups

The members of the Panel were divided into six working 

groups as follows:

 Working Group Members

Commercial Practices	 David A. Drabkin (Co-Chair)

James A. “Ty” Hughes (Co-Chair)

Marshall J. Doke, Jr

Roger D. Waldron

Performance-Based Acquisition	 Dr. Allan V. Burman (Co-Chair)

Carl DeMaio (Co-Chair)

Louis M. Addeo

Joshua I. Schwartz

Interagency Contracting	 Frank J. Anderson (Co-Chair)

Jonathan L. Etherton (Co-Chair)

David Javdan

Deidre A. Lee

Thomas Luedtke

Small Business (cross cutting) David Javdan (Chair)

Louis M. Addeo

Deidre A. Lee

Roger D. Waldron

Acquisition Workforce (cross cutting)	 David A. Drabkin (Co-Chair)

Joshua I. Schwartz (Co-Chair)

Frank J. Anderson

Dr. Allan V. Burman

Carl DeMaio

Appropriate Role of Contractors

Supporting the Government	 Thomas Luedtke (Chair)

Louis M. Addeo

* Panel Chair participated in all working groups

Final Report–APPENDICES

453

Appendix 2–Administrative Matters

Public Meetings

The Panel held the following 31 public meetings (no closed meetings were held): 

February 9, 2005–Washington, DC	 February 23, 2006–Washington, DC

February 28, 2005–Washington, DC	 March 17, 2006–Washington, DC

March 30, 2005–Washington, DC	 March 29, 2006–Washington, DC

April 19, 2005–Washington, DC	 April 21, 2006–Washington, DC

May 17, 2005–Washington, DC	 May 18, 2006–Washington, DC

May 23, 2005–Ft. Worth, TX	 June 14, 2006–Washington, DC

June 14, 2005–Washington, DC	 June 29, 2006–Washington, DC

July 12, 2005–Washington, DC 	 July 7, 2006–Arlington, VA

July 27, 2005–Long Beach, CA	 July 12, 2006–Arlington, VA

August 18, 2005–Washington, DC	 July 14, 2006–Washington, DC

September 27, 2005–Washington, DC	 July 21, 2006–Washington, DC

October 27, 2005–Washington, DC	 July 24, 2006–Arlington, VA

November 18, 2005–Washington, DC	 July 25, 2006–Arlington, VA

November 29, 2005–Washington, DC	 August 10, 2006–Arlington, VA

December 16, 2005–Washington, DC	 August 29, 2006–Arlington, VA

January 31, 2006–Washington, DC

Witnesses appearing before the Panel during the public meetings:

Robert Miller, General Counsel, The Procter & Gamble Company

Todd Furniss, Chief Operating Officer, Everest Group, Inc.

Robert Zahler, Pillsbury Winthrop Shaw Pittman

Neil Hassett, United Technologies Corp.

Peter Allen, Technology Partners International

David Sides, Basell USA, Inc.

Sam Slovak, Basell USA, Inc.

William T. Woods, Director, Acquisition and Sourcing Management Team, Government 

	 Accountability Office

Jan Menker on behalf of the Contract Services Association

Glenn Baer on behalf of the Contract Services Association

Marilyn Glynn, Office of Government Ethics

Richard Jolliffe, Office of Inspector General, Department of Defense

Terry McKinney, Office of Inspector General, Department of Defense

Henry Kleinknecht, Office of Inspector General, Department of Defense

Eugene Waszily, Office of Inspector General, General Services Administration

Kathleen Tighe, Office of Inspector General, General Services Administration

Beth Daley, Project on Government Oversight

Scott Amey, Project on Government Oversight

Richard Bednar, Defense Industry Initiative

Patricia Ellis, Defense Industry Initiative
454

Vickie Wessel, Spirit Electronics

William Correa, Paragon Project Resources

Richard Eugene Bloomfield, CECO Industrial Sales

Col. Athena Jones, AAFES

Julienne Moore, Contract Consultants, Inc.

Della Williams, Williams-Pyro

Paul P. Stone, Small Business Administration

Lois Melbourne, Aquire

Sarah Corley, Ft. Hood Contracting Command

Tim Tweed, Ft. Hood Contracting Command

Lisa Akers, General Services Administration, FEDSIM

Floyd Groce, United States Navy

Rex Bolton, Department of Defense

Ashley Lewis, Department of Homeland Security

David Sutfin, Department of Interior, GovWorks

Joe Johnson, Defense Acquisition University

Michael Mutek, Raytheon Intelligence and Information Systems

Paul Lovelady, Raytheon Intelligence and Information Systems

Barbara Osborn, Raytheon Intelligence and Information Systems

Joe Diaz, Miratek Corporation

Neal Couture, National Contract Management Association

Ellen Polen, United States Navy, SPAWAR

Michael Clancy, Oracle Corporation

Matt T. Verhulst, General Services Administration

Robert S. “Steve” Ayers, SAIC

John Young, Northrop Grumman Corporation

Blaine Manson, United States Navy, Naval Air Warfare Center, Weapons Division

Ronne Rogin speaking in her personal capacity as an expert on Performance-Based

	 Acquisition (PBA)

Barbara Kinosky, Centre Consulting and Centre Law Group

Brian Jones, U. S. Coast Guard

Linda Dearing, U. S. Coast Guard

Timothy P. Malishenko, The Boeing Company

Martin Davis, Treasury Department Franchise Fund

Karen Blum, FedSource Acquisition Center, Treasury Department Franchise Fund

Michael L. Cundiff, Division of Procurement, Treasury Department Franchise Fund

Geraldine Watson, General Services Administration

Dave Ricci, Defense Contract Management Agency

Michael J. Bridges, General Motors

Michael Del-Colle on behalf of the Coalition for Government Procurement

Bhavneet Bajaj, Technology Partners International

Bruce Leinster, Information Technology Association of America (and on behalf of the

	 	 Multi-Association Group*)

Larry Trowel, General Electric Transportation (and on behalf of the

	 	 Multi-Association Group*)
455

Ronald D. Casbon, Bayer Corporate Business Services

Jerome Punderson, NAVSEA, Seaport-E

Claire Grady, NAVSEA, Seaport-E

Thomas E. Reynolds, government contracting officer, speaking in his personal capacity

Mark Stelzner, EquaTerra Public Sector

W. Frederick Thompson, The Council for Excellence in Government

Daniel A. Masur, speaking in his personal capacity, a Partner specializing in IT and

	 	 outsourcing practices with Mayer, Brown, Rowe & Maw

Ronald Poussard, United States Air Force

Robert C. Marshall, Pennsylvania State University

Timothy A. Beyland, United States Air Force

William E. Kovacic, George Washington University Law School

Stan Z. Soloway, Professional Services Council

Daniel Gordon, Government Accountability Office

Dorothy “Dore” Fessler, Veterans Affairs National Acquisition Center

Hannah Sistare, National Academy of Public Administration

Kathryn Klaus, EDS (on behalf of the Multi-Association Group*)

Alan Chvotkin, Professional Services Council (on behalf of the Multi-Association Group*)

Domenico C. Cipicchio, Defense Procurement and Acquisition Policy

Patricia V. Hoover, Department of Treasury/Internal Revenue Service

Naomi Marechal, Department of Treasury/Internal Revenue Service

Glenn Perry, Department of Education

Teresa Sorrenti, General Services Administration (Integrated Acquisition Environment)

Greg Rothwell, formerly of the Department of Homeland Security

Barney Klehman, Missile Defense Agency

Terry Rainey, CACI

Brad Orton, CACI

David Capitano, Defense Procurement and Acquisition Policy

David M. Walker, Comptroller General of the United States

Frank Camm, Rand Corporation

Tony Scott, Walt Disney Company

Stephen Epstein, Department of Defense

John P. MacMonagle, General Electric Company

The Honorable Stephen D. Potts, Ethics Resource Center

Shay Assad, Defense Procurement and Acquisition Policy

Katherine Morse, Beacon Associates

Robert L. Schaefer, Section of Public Contract Law, American Bar Association

John S. Pachter, Section of Public Contract Law, American Bar Association

Ruth C. Burg, Section of Public Contract Law, American Bar Association

Stuart Nibley, Section of Public Contract Law, American Bar Association

* Several witnesses before the Panel affiliated with individual associations formed a

Multi-Association Working Group comprised of Aerospace Industries Association, Contract Services Association, Government Electronics & Information Technology Association,

Information Technology Association of America, and the Professional Services Council.
456

Oral public comments were provided to the Panel by the following individuals during the public meetings: 

Robert Cooper, speaking in his personal capacity

Clifton E. Miller, Cemetrics

Willie Heath, General Services Administration

Richard Hollis, Hollis-Eden

Thomas D. Patrick

Alan V. Washburn

Alan E. Peterson

John Palatiello, COFPAES

Mark Toteff, Traverse Bay Manufacturing

William P. Quigley, Gulf Coast Commission on Reconstruction Equity

Bunnatine Greenhouse, Gulf Coast Commission on Reconstruction Equity

Percentage of public meetings attended by Panel Members:

Louis M. Addeo: 59%

Frank J. Anderson: 57% 

Dr. Allan V. Burman: 87%

Carl DeMaio: 77%

Marshall J. Doke, Jr.: 89% 

David A. Drabkin: 66%

Jonathan L. Etherton: 89% 

James A. “Ty” Hughes: 87%

Deidre A. Lee: 76%

Tom Luedtke: 77%

Marcia G. Madsen: 97%

Joshua I. Schwartz: 85%

Roger D. Waldron: 84%

*Voting records are available from the Panel
457

Appendix 3–Acronym List 

AAP:	 Acquisition Advisory Panel

ACE:	 Acquisition Center for Excellence

ADA:	 Antideficiency Act

ADCOP:	 Acquisition and Distribution of Commercial Products

AIMS:	 Advertising and Integrated Marketing Schedule

ANPRM:	 Advance Notice of Proposed Rulemaking

ANSWER:	 Applications ‘N Support for Widely Diverse End-User Requirements

A-PART:	 Acquisition Performance Assessment Rating Tool

ASPR:	 Armed Services Procurement Regulations

AT&L/ATL:	 Acquisition, Technology and Logistics

BD:	 business development

BOA:	 Basic Ordering Agreement

BPA:	 Blanket Purchase Agreement

CAO:	 Chief Acquisition Officer

CAOC:	 Chief Acquisition Officers Council

CAS:	 Cost Accounting Standards

CBO:	 Congressional Budget Office

CCR:	 Central Contractor Registration

CEO:	 Chief Executive Officer

CFO:	 Chief Financial Officer

CFOC:	 Chief Financial Officers Council

CICA:	 Competition in Contracting Act

CMC:	 Change Management Center

CO:	 contracting officer

COC:	 Certificate of Competency

COI:	 conflict of interest

COPR:	 Contracting Officer Performance Representative

COTR:	 Contracting Officer Technical Representative

COTS:	 commercial off-the-shelf

CPAF:	 cost plus award fee

CPFF:	 cost plus fixed fee

CPIF:	 cost plus incentive fee

CSA:	 Contract Services Association of America

CSC:	 Civil Service Commission

CTA:	 contractor team arrangements

D&F:	 determination and finding

DAU: 	 Defense Acquisition University

DAWIA:	 Defense Acquisition Workforce Improvement Act

DCAA:	 Defense Contract Audit Agency

DFARS:	 Defense Federal Acquisition Regulation Supplement

DHS:	 Department of Homeland Security

DII:	 Defense Industry Initiative

DISA:	 Defense Information Systems Agency
458

DLA:	 Defense Logistics Agency

DOC:	 Department of Commerce

DoD / DOD:	 Department of Defense

DOD IG:	 Department of Defense Inspector General

DoEd:	 Department of Education 

DOE:	 Department of Energy

DOI:	 Department of Interior

DOT:	 Department of Transportation

DPAP:	 Defense Procurement and Acquisition Policy

eSRS:	 electronic Subcontracting Reporting System

FABS:	 Financial and Business Solutions

FAC:	 Federal Acquisition Circular

FAI:	 Federal Acquisition Institute

FAIR Act:	 Federal Activities Inventory Reform Act of 1998

FAPIS:	 Federal Acquisition Personnel Information System

FAR:	 Federal Acquisition Regulation

FARA:	 Federal Acquisition Reform Act

FAS:	 Federal Acquisition Service

FASA:	 Federal Acquisition Streamlining Act of 1994

FEDSIM:	 Federal Systems Integration and Management Center

FEMA:	 Federal Emergency Management Agency

FPDC:	 Federal Procurement Data Center

FPDS:	 Federal Procurement Data System

FPDS-NG:	 Federal Procurement Data System – Next Generation

FSS:	 Federal Supply Schedule

FTE:	 Full Time Equivalent

FTS:	 Federal Technology Service

FY:	 fiscal year

GAO:	 Government Accountability Office (formerly the General Accounting Office)

GMRA:	 Government Management Reform Act

GPE:	 governmentwide point of entry

GPRA:	 Government Performance and Results Act

GSA:	 General Services Administration

GSAM:	 General Services Administration Acquisition Manual

GSAR:	 General Services Administration Acquisition Regulation

GWAC:	 governmentwide acquisition contract

GWOT:	 Global War on Terrorism

HHS:	 Department of Health and Human Services

HUB:	 historically underutilized business

HUD:	 Department of Housing and Urban Development

IAE:	 Integrated Acquisition Environment

ICD:	 Interagency Contract Directory

IDC:	 indefinite delivery contract

IDIQ:	 Indefinite-Delivery, Indefinite-Quantity

IFB:	 invitation for bids
459

IFF:	 Industrial Funding Fee

IG:	 Inspector General

IGF:	 inherently governmental function

IP:	 intellectual property

IQC:	 Indefinite Quantity Contract

IR fund:	 intragovernmental revolving fund

ISO:	 International Organization for Standardization

ISSA:	 interagency service support agreement

IT:	 information technology

ITOP:	 information technology omnibus procurement

IV&V:	 independent verification and validation

J&A:	 justification and approval

JWOD:	 Javits-Wagner-O’Day [Act]

LLM:	 Master of Laws [degree]

LSI:	 lead system integrator

M&O:	 management and operations

MAC:	 multi-agency contract

MAS:	 Multiple Award Schedule

MFC:	 most favored customer

MOBIS:	 Mission Oriented Business Integrated Services

NAICS:	 North American Industry Classification System

NAPA:	 National Academy of Public Administrators

NASA:	 National Aeronautics and Space Administration

NAVAIR:	 Naval Air Systems Command

NAVFAC:	 Naval Facilities Engineering Command

NAVSEA:	 Naval Sea Systems Command

NAVSUP:	 Naval Supply Systems Command

NCMA:	 National Contract Management Association

NDAA:	 National Defense Authorization Act

NIH:	 National Institutes of Health

NPR:	 National Performance Review

NSIAD:	 National Security and International Affairs Division

OCI:	 organizational conflict of interest

OFPP:	 Office of Federal Procurement Policy

OGE:	 Office of Government Ethics

OHA:	 Office of Hearings and Appeals

OMB:	 Office of Management and Budget

OPM: 	 Office of Personnel Management

OSDBU:	 Office of Small and Disadvantaged Business Utilization

OTSB:	 other than small business

PART:	 Program Assessment Rating Tool

PBA:	 performance-based acquisition

PBC:	 performance-based contracting

PBSA:	 performance-based service acquisition

PCI:	 personal conflict of interest
460

PCR:	 Procurement Center Representative

PES:	 Professional Engineering Services

PGI:	 Procedures, Guidance and Information

PMR:	 procurement management review

PRT:	 Procurement Round Table

PSC:	 personal services contract

PWS:	 Performance Work Statement

QAP:	 quality assurance plan

QASP:	 Quality Assurance Surveillance Plan

QCP:	 quality control plan

RFI:	 request for information

RFP:	 request for proposal

RFQ:	 request for quote

RIT:	 Rapid Implementation Team

RSA:	 Randolph-Sheppard Act

SARA:	 Services Acquisition Reform Act of 2003

SBA:	 Small Business Administration

SBC:	 small business concern

SDB:	 small disadvantaged business

SDVO:	 service-disabled veteran-owned

SDVOSB:	 service-disabled veteran-owned small business

SES:	 Senior Executive Service

SIN:	 special item number

SLA:	 service level agreement

SOO:	 Statement of Objectives

SOW:	 Statement of Work

SOX:	 Sarbanes-Oxley Act of 2002

SPAWAR:	 Space & Naval Warfare Systems Command

SYSCOM:	 Systems Command

T&M:	 time-and-materials

TINA:	 Truth in Negotiations Act

UNSPSC:	 Universal Standard Products and Services Classification

VA:	 Veterans Administration

VOSB:	 veteran-owned small business

WOSB:	 woman-owned small business

WTO:	 World Trade Organization


January 2007