Just how will the Federal Acquisition Streamlining Act’s preference for acquisition of commercial items affect the full and open competition requirement? How will this change the present process for acquisition of federal information processing resources? An answer requires review of the Competition in Contracting Act’s requirements, as they have been modified by the Federal Acquisition Streamlining Act.
“Full and open competition” is defined in the Competition in Contracting Act of 1984 as that which is obtained when “all responsible sources are permitted to submit sealed bids or competitive proposals.” 41 U.S.C. § 403(6). Full and open competition is obtained through open specifications. 41 U.S.C. § 253a(a)(1)(A).
Open specifications are those developed from advanced procurement planning and market research, 41 U.S.C. § 253a(a)(1)(B); Coulter Corp., B-258713, Feb. 13, 1995, and they must allow the broadest base of competition consistent with agency needs, 41 U.S.C. § 253a(a)(1)(C); McDermott Shipyards, Division of McDermott, Inc., B-237049, Jan. 29, 1990, 90-1 CPD ¶ 121, at 7-8. Procurement planning and market research must go on from a determination of agency requirements, followed by identification of particular products that can satisfy those requirements, and not from selection of a firm or firms toward which the specifications are directed. Isratex, Inc., B-253691, Oct. 13, 1993, 93-2 CPD ¶ 221, at 3.
Specifications may contain only those restrictive provisions or conditions necessary to satisfy agency needs. 41 U.S.C. § 253a(a)(2)(B). Only minimum needs justify restrictive provisions or conditions, Border Maintenance Service, Inc., B-260954, June 21, 1995, 95-1 CPD ¶ 287, at 2; Integrated Systems Group, Inc. v. Department of the Army, GSBCA No. 12417-P, July 9, 1993, 94-1 BCA ¶ 26,273, at 130,715, and the restrictive provisions or conditions must bear a reasonable relationship to the fulfillment of these minimum needs. Amdahl Corp. v. Department of Health and Human Services, GSBCA No. 11998-P, Oct. 30, 1992, 93-2 BCA ¶ 25,612, at 127,486.
The statutory mandate limiting restrictive provisions or conditions to minimum needs is carried out in the procurement regulations. As recently revised to implement the Federal Acquisition Streamlining Act, Federal Acquisition Regulation (FAR) 11.1002(a)(1)(ii) provides that restrictive provisions or conditions may be included in requirements documents only “to the extent necessary to satisfy the minimum needs of an agency or as authorized by law.” For acquisitions of federal information processing resources, Federal Information Resources Management Regulation (FIRMR), 41 C.F.R. § 201-20.103-3(d) (1994), provides that agencies must document “the quantitative or qualitative requirements that must be met and why those requirements are necessary to meet the mission needs.”
Specifications may be stated in terms of function, performance (including a range of acceptable characteristics or minimum acceptable standards), or design. The type of specification selected is to be based on the agency’s needs and the market available to satisfy those needs. 41 U.S.C. § 253a(a)(3). Legislative history and case law under the Competition in Contracting Act make it clear that functional specifications are preferred to performance or design specifications, and that performance specifications are preferred to design specifications.
The House Conference Report on the Competition in Contracting Act expressed a clear preference for functional specifications:
[W]herever practical . . . contractors should be told what the Government needs in functional terms. This approach allows the Government to take advantage of the innovative ideas of the private sector.
H.R. Rep. No. 861, 98th Cong. 2d Sess. 1429 (1984).
GAO has held that design specifications, while not per se improper, are “inappropriate” if agency needs can be expressed in terms of performance specifications that alternate designs could meet. ACRAN, Inc., B-225654, May 14, 1987, 87-1 CPD ¶ 509, at 7-8. Where a particular design specification is challenged, and the offeror can establish that a performance specification will satisfy the agency’s minimum needs, the design specification will be found unnecessarily restrictive. Integrated Systems Group, Inc. v. National Aeronautics and Space Administration, GSBCA No. 12603-P, Nov. 9, 1993, 94-1 BCA ¶ 26,550, at 132,124-25 (design requirement for replacement microcomputer motherboards held unnecessarily restrictive when requirement could be satisfied by reuse of network cards placed in replacement microcomputers acquired under performance specifications).
The preference for acquisition of commercial items added to the procurement statutes by the Federal Acquisition Streamlining Act of 1994 imposes significant, detailed requirements. As it turns out, many of these requirements are not new.
Section 8203 of the Federal Acquisition Streamlining Act establishes a preference for acquisition of commercial and nondevelopmental items. Thus agency heads are required to ensure, “to the maximum extent practicable,” that agency requirements “are defined so that commercial items, or, to the extent that commercial items suitable to meet the executive agency’s needs are not available, nondevelopmental items other than commercial items, may be procured.” 41 U.S.C. § 264b(a)(2).
The point of the commercial items preference is to eliminate unwarranted design specifications:
[T]he bill establishes a clear preference for the acquisition of commercial items in Federal procurement. It requires agencies to reduce impediments to and train appropriate personnel in the acquisition of commercial products. One such impediment is the use of design specifications, which greatly restrict competition and make the acquisition of commercial products difficult, if not impossible. Design specifications typically tell a vendor how a product is to be made or how a service is to be performed. A commercial vendor, whose product has already been developed for public use, seldom can conform it to meet the Government’s design requirements. The bill’s provisions requiring agencies to implement the preference using specifications which enable bidders to offer commercial products are intended to encourage maximum use of functional specifications. Functional specifications enhance the Government’s ability to obtain full and open competition and industry’s ability to offer innovative solutions to the Government’s needs.
H.R. Rep. No. 545(I), 103rd Cong. 2d Sess. (1994).
For Defense agencies, the commercial items preference is not a new requirement. The former 10 U.S.C. § 2301(b)(6) provided that Defense agency procurement policies and procedures were to “promote the use of commercial products whenever practicable.” The former 10 U.S.C. § 2325 established a preference for the competitive acquisition of commercial and nondevelopmental items.
Congress concluded that “progress toward the increased use of commercial products in agency procurements has been frustratingly slow,” and that the commercial item preference for Defense acquisitions had not been implemented “in a manner that has actually facilitated the purchase of commercial products with any additional ease or in greater quantities.” Congress found the following barriers deterring the acquisition of commercial products:
(1) the lack of a uniform definition for commercial items;
(2) unique Government accounting requirements and audits;
(3) extensive use of detailed design specifications and standards;
(4) Government-unique contract requirements; and
(5) continuing reluctance of agency officials to provide exemptions, when appropriate, from cost or pricing data requirements.
H.R. Rep. No. 545(I), 103rd Cong. 2d Sess. (1994).
The Federal Acquisition Streamlining Act defines commercial items as those items “customarily used by the general public” that are “sold, leased, or licensed to the general public,” or “offered for sale, lease, or license to the general public.” 41 U.S.C. § 403(12)(A). In addition, the definition of commercial items includes commercial items evolved “through advances in technology or performance,” “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.” 41 U.S.C. § 403(12)(B). The term includes modified items, if the modifications are “of a type customarily available in the commercial marketplace,” or that to meet agency requirements, “minor modifications” are required. 41 U.S.C. § 403(12)(C).
The requirement tying future availability to expectations of the commercial marketplace was added in Conference Committee. The Conference Committee reported:
The conference agreement would provide that items that are not yet available in the commercial marketplace would be included in the definition of commercial items if they evolve out of commercial items based on advances in technology or increases in capability and will be available for delivery in the commercial marketplace in time to meet government requirements. At the same time, this provision should ensure that there is some yardstick in the commercial marketplace against which to measure price and product quality, and to serve as a surrogate for the imposition of government-specific requirements.
H.R. Conf. Rep. No. 712, 103rd Cong. 2d Sess. (1994).
A case decided under the former commercial items preference provisions for Defense agencies illustrates the breadth of the future availability provision. In Motorola, Inc., B-247913, Oct. 13, 1992, 92-2 CPD ¶ 240, GAO held that an acquisition of nondevelopmental handheld global positioning system receivers was proper although the goods were not immediately available in the marketplace:
[I]f DOD can satisfy its needs with commercially available items or with such items with only minor modifications to them, DOD is to acquire such products instead of products manufactured to unique requirements. Obviously, that purpose is satisfied not only when items defined as NDIs [nondevelopmental items] are available when a procurement is initiated, but also when they will be available by the time of award. Therefore, so long as the private sector is developing items for commercial use, there is no reason why, if those items are either available in the commercial marketplace or being produced by the time of award, they should not be considered as NDIs.
Id., at 8.
And if this case law is any indication, then it is likely that the “minor modifications” allowed to meet agency requirements without disqualifying a product as a commercial item are far broader than might be imagined. Consider TRW, Inc., B-260968.2, Aug. 14, 1995. At issue was a requirement for nondevelopmental application software needed to support a command and control system for global transportation management. The proposed contract allowed incremental deliveries of revisions with increased functionality over a system life of five years. The essentially unmodified, commercially available version of the proposed application software could meet the functional requirements for the first increment. Although it was estimated that support of future enhancements would require the development of several hundred thousand lines of code, GAO concluded that the proposed application was a nondevelopmental item, this because the agency had found that “future planned modifications to the software would reflect commercial releases, rather than developments unique to [agency] requirements.”
Section 8002 of the Federal Acquisition Streamlining Act requires implementing regulations to prevent misuse of the commercial item preference and the broad definition of “commercial item.” Thus the Act allows agencies to require demonstrations of market acceptance, i.e., to require offerors:
to demonstrate that the items offered:
(A) have either
(i) achieved commercial market acceptance; or
(ii) been satisfactorily supplied to an executive agency under current or recent contracts for the same or similar requirements; and
(B) otherwise meet the item description, specifications, or other criteria prescribed in the public notice and solicitation relating to the contract.
P. L. No. 103-355, § 8002(c), 108 Stat. 3398 (1994).
The FAR implementation of these requirements suggests that demonstrations of market acceptance are appropriate “where the agency’s minimum need is for an item that has a demonstrated reliability, performance or product support record in a specified environment.” FAR 11.103(b). The criteria used to prove market acceptance: (a) must be “reasonably related to the demonstration of an item’s acceptability,” and (b) must relate “to an item’s performance and intended use, not an offeror’s capability.” FAR 11.103(c).
These FAR implementing requirements parallel FIRMR requirements for capability and performance validation. Particularly, FIRMR § 201-20.304(a) limits capability and performance validation techniques to those necessary “to ensure that requirements are satisfied.” FIRMR § 201-20.304(b)(1) requires that benchmarking requirements must be “representative of actual requirements.”
FAR 11.101(a) now provides the following order of precedence for requirements documents: (1) documents mandated for use by law; (2) performance-oriented documents; (3) detailed design-oriented documents; and (4) standards, specifications and related publications “issued by the Government outside the Defense or Federal series for the non-repetitive acquisition of items.” Federal Acquisition Circular 90-32 describes the purpose of this revised language as “allowing a broader range of products . . . to satisfy the Government need.” Again, this is nothing new for acquisitions of federal information processing resources. FIRMR § 201-20.103-3(b) provides that requirements are to be described “in terms of functions to be performed and performance to be achieved, unless a more restrictive statement of requirements is necessary to satisfy the needs of the agency.”
The 41 U.S.C. § 253a(a)(1)(B) obligation to use market research is significantly expanded by the Federal Acquisition Streamlining Act. Agencies are required to conduct preliminary market research before developing new specifications or soliciting bids or proposals. 41 U.S.C. § 264b(c)(1). Agencies are required to use the results of market research to decide whether commercial items, or nondevelopmental items other than commercial items, are available to meet requirements, whether commercial or nondevelopmental items can be modified to meet requirements, or whether reasonable modifications to agency requirements would enable commercial or nondevelopmental items to be procured. 41 U.S.C. § 264b(c)(2).
The FAR implementation of the new obligation to conduct preliminary market research imposes requirements that are quite familiar to those involved in acquisitions of federal information processing resources. All acquisitions must now be preceded by an analysis identifying “legitimate needs” and “trade-offs” needed to “acquire items which meet those needs.” FAR 10.001(a)(1). Needs must be “stated in terms sufficient to allow conduct of market research.” FAR 10.002(a). In turn, market research is required to identify customary practices regarding customizing, modifying, or tailoring commercial items to meet customer needs, and customary terms and conditions in the relevant marketplace. FAR 10.002(b)(1).
The FIRMR demands a requirements analysis to identify and document agency requirements, FIRMR § 201-20.101, followed by an analysis of alternatives to meet these requirements, and to identify the most advantageous of these alternatives, FIRMR § 201-20.201(a). The FIRMR imposes a unique requirement of projection of the period for which a system will be required, the “system life.” FIRMR § 201-20.103-2. The Federal Acquisition Streamlining Act and its implementing regulations impose additional requirements, i.e., identification of particular commercial practices in the relevant marketplace.
While the FAR implementation of the Federal Acquisition Streamlining Act provides explicit language for “greatest value” selections of offers for commercial items, FAR 12.602(a), it leaves to agencies the task of tailoring the solicitation to disclose whether stated evaluation factors other than cost or price are “significantly more important than cost or price; or approximately equal in importance to cost or price, or significantly less important than cost or price.” 41 U.S.C. § 253a(c)(1)(C).
The FAR implementation suggests that subfactors need not be used for evaluation of competitive proposals, and that for many acquisitions of commercial items, the stated evaluation criteria should be no more explicit than technical capability, price, and past performance. FAR 12.602(b). Whether these truncated evaluation factors will suffice to satisfy the statutory requirement, in 41 U.S.C. § 253a(c)(1)(A), for an explicit evaluation of quality, i.e., management capability and prior experience, besides technical capability and past performance, remains to be seen.
The Federal Acquisition Streamlining Act precludes agencies from demanding the submission of cost or pricing data under acquisitions where the price agreed is based on “adequate price competition,” or on “established catalog or market prices of commercial items that are sold in substantial quantities to the general public.” 41 U.S.C. § 254b(b)(1). Similarly, cost or pricing data may not be required when contracts for commercial items are modified, if the modification would not change the contract to a contract for acquisition of an item other than a commercial item. 41 U.S.C. § 254b(b)(2). No longer may agencies consider the percentage of total sales that are sales to agencies in deciding whether a commercial item is sold in substantial quantities to the general public. 41 U.S.C. § 254b(b)(3).
The significance of removing agencies’ ability to consider the percentage of total sales that are sales to agencies in deciding whether a product is a commercial item sold in substantial quantities to the general public is apparent in a GAO decision considering the former commercial items preference provisions for Defense agencies. At issue in Hershey Foods Corp., B-245250, Feb. 3, 1992, 92-1 CPD ¶ 133, was a solicitation for some seven million chocolate bars. The solicitation required delivery of a commercial item. M & M/Mars submitted the low proposal and received the award. Hershey complained that the M & M product was not a commercial item, and it based its protest on the undisputed fact that M & M had sold to the general public only 32,000 chocolate bars worth but $6,020. Hershey contended that this was insufficient to constitute commercial sales. GAO thought otherwise: “We know of no requirement, and Hershey has not cited any, which conditions a determination of commercial market acceptability on a particular volume of sales.” Id., at 4.
Procurements of commercial items are required, “to the maximum extent practicable,” to be conducted “on a competitive basis.” Where additional information is required to decide the reasonableness of the price agreed under a commercial item acquisition, the additional information is to be obtained, “to the maximum extent practicable,” “from sources other than the offeror.” 41 U.S.C. § 254b(d)(1). If procurements of commercial items are not conducted on a competitive basis, agencies may seek information to decide price reasonableness directly from an offeror. The information that may be sought is “information on prices at which the same item or similar items have been sold in the commercial market.” 41 U.S.C. § 254b(d)(2).
The Federal Acquisition Streamlining Act removes acquisitions of commercial items from the statutory limitation on contingent fees, 41 U.S.C. § 254(a), and also removes acquisitions of commercial items from the statutory prohibition of contractors limiting subcontractor sales directly to agencies, if as for such a restriction, agencies are not treated differently from any other prospective purchaser, 41 U.S.C. § 253g(d). Section 8002(b) of the Act requires implementing regulations that limit clauses in contracts for the acquisition of commercial end items to those required by statute or executive order, and requires that these clauses “be consistent with standard commercial practice.” P. L. No. 103-355, § 8002(c), 108 Stat. 3398 (1994).
The preference for acquisition of commercial items goes beyond elimination of design specifications. Now agencies “shall rely on contractors’ existing quality assurance systems as a substitute for Government inspection and testing before tender for acceptance,” unless the customary commercial market includes in-process inspections, and, here, any in-process inspections required “shall be conducted in a manner consistent with commercial practice.” FAR 12.208.
For the first time, the FAR provides that agencies will obtain the standard implied warranties of merchantability and fitness for a particular purpose. FAR 12.404(a). Additionally, agencies are required to obtain at least the same express warranties as are offered to commercial customers. Agencies may accept express warranties instead of the implied warranties of merchantability and fitness. FAR 12.404(b).
Section 8002(d) of the Act requires that acquisitions of commercial items be limited, “to the maximum extent practicable,” to firm-fixed-price contracts, or to fixed-price contracts with provision for economic price adjustment. P. L. No. 103-355, § 8002(d), 108 Stat. 3398 (1994). The FAR implementation of this requirement allows use of indefinite-delivery contracts (definite quantity contracts with deliveries scheduled on order, requirements contracts, and indefinite-quantity contracts), but otherwise explicitly prohibits any other type of contract. FAR 12.207.
Gone from commercial item contracts are the familiar “Changes” and convenience and default termination provisions. The FAR now provides that changes in commercial item contracts “may be made only by written agreement of the parties.” FAR 52.212-4(c). Gone are the familiar convenience termination provisions that transform a terminated fixed-price contract into a claim for incurred costs, and in their place is a provision that allows convenience terminations, but limits recoveries to a “percentage of the contract price reflecting the percentage of the work performed.” FAR 52.212-4(l). Gone also are the familiar concepts of default termination upon failure to make timely deliveries or upon failure to make progress. In their place are terminations “for cause” “in the event of any default by the Contractor,” else on the contractor’s failure, upon request, to provide the agency “with adequate assurances of future performance.” FAR 52.212-4(m).
Clearly, the Federal Acquisition Streamlining Act preference for the acquisition of commercial items does not override the more general Competition in Contracting Act requirement to obtain full and open competition through open specifications. This is apparent in the requirement that commercial item acquisitions be conducted on a competitive basis, and in the provision allowing agencies to demand from offerors information to decide price reasonableness when commercial item acquisitions are not conducted on a competitive basis. 41 U.S.C. § 254b(d).
That agencies may not acquire commercial items in disregard of the full and open competition requirements is confirmed in the House Conference Report:
Under the conference agreement, agencies would be required to conduct procurements of commercial items on a competitive basis to the maximum extent practicable. It is the intent of the conferees that requirements for commercial items should be structured, wherever possible, so that multiple commercial items can compete for the same requirement.
H.R. Conf. Rep. No. 712, 103rd Cong. 2d Sess. (1994).
This result is the same as that reached by GAO under the former statutory requirements imposing a commercial items preference on Defense agencies. Thus in Motorola, 92-2 CPD at 7, GAO held that an acquisition of nondevelopmental items “must be consistent with the broader statutory and regulatory scheme concerning the selection of specifications for a particular procurement,” must “permit full and open competition, reflect market research, and be consistent with agency needs and the market availability to satisfy those needs.”
Although the Federal Acquisition Streamlining Act preference for acquisition of commercial items does not override more general full and open competition requirements, it will nonetheless have a significant impact on procurement practices. More to the point, it may eliminate verbiage necessary to enable adequately defined requirements.
A very good example is Adventure Tech, Inc., B-253520, Sept. 29, 1993, 93-2 CPD ¶ 202, yet another case arising under the former statutory requirements imposing a commercial items preference on Defense agencies. At issue was an advertised solicitation for lightweight rain jackets and trousers. The requirements were described in no more detail than that the items were to be delivered in three sizes, small, medium, and large, and were to be machine washable, waterproof, and moisture vapor permeable. The proposed contract was to include the standard commercial items warranty, i.e., the goods were warranted for one year as “of quality to pass without objection in the trade under the contract description,” and “fit for the ordinary purposes for which the supplies are used.”
Adventure Tech, a potential bidder, protested the solicitation’s terms as so unclear as to preclude competition on an equal basis. Adventure Tech pointed to the lack of any guidance in the solicitation as to the minimum standards for waterproofness or moisture vapor permeability, and the lack of any definition of just what constituted large, medium, or small sizes. GAO held that the commercial items preference mandated broad product descriptions, and that such functional expressions of agency requirements were not inconsistent with the general requirement to achieve full and open competition under open specifications:
As the Army continues its efforts to promote the use of commercial products, it may conclude that this IFB does not represent the best approach to the procurement of raingear because of the apparent range of raingear that is available to be proposed. However, that is not the issue before us. The question we must address is whether the protester has established that vendors cannot compete intelligently or on a common basis for this contract because of the lack of specificity of the item description. We conclude the protester has not. For example, the protester contends that the term “waterproof” is applied to a range of water permeability. We agree, but we do not agree that the protester would not know what products to offer as waterproof. Any product that is “of quality to pass without objection in the trade” as waterproof, meets the other requirements of the product description, and otherwise can satisfy the . . . warranty obligations, is acceptable under the IFB. The record reflects no reason why Adventure Tech and other potential bidders cannot submit bids for commercial raingear which meet these requirements.
Id., at 5.
Adventure Tech is, in some respects, like Integrated Systems, 94-1 BCA, and yet in important respects, unlike the latter case. In Integrated Systems, the GSBCA upheld a compatibility-limited requirement for an MS-DOS version 5.0 or later operating system. MS-DOS is a de-facto industry standard disk-based operating system, and for this reason, a commercial item. Because MS-DOS is a de-facto industry standard, a variety of hardware, peripherals, and applications software is commercially available, and marketed as compatible with this product. A requirement for MS-DOS , like any other requirement for a de-facto industry standard product, results in an open systems environment.
The protester in Integrated Systems argued that the MS-DOS version 5.0 or later operating system requirement was unclear because the agency had not specified the particular MS-DOS version 5.0 or later operating system functions and capabilities that it required. The Board gave this complaint short shrift. Because of its status as a de facto industry standard, a requirement for MS-DOS version 5.0 or later denotes a specific set of capabilities, level of functionality, and performance criteria well known to knowledgeable offerors, i.e., those selling hardware, peripherals, and applications that are commercially marketed as compatible products. Integrated Systems, 94-1 BCA at 130,720.
All right, but what about Adventure Tech? There is a difference here that goes beyond status as a commercial item. Clothing sizes are not the same from one manufacturer’s product to another, and this although any manufacturer could easily show one or more commercial sales of product marketed as small, medium, or large.
The Federal Acquisition Streamlining Act addresses and likely solves the problem of design specifications and unique clauses and requirements that isolate the federal market. But it has created others, and these flow from overambitious reliance on any level of commercial sales as sufficient to define competitive requirements. The commercial marketplace is unlike the federal marketplace in that it is not built on detailed process requirements that enable full and open competition. The preference for commercial items will not of itself enable open and competitive specifications. The Federal Acquisition Streamlining Act preference for commercial items will have little immediate impact on acquisitions of federal information processing resources, because this segment of the federal market has a long history of experience of enabling competitive acquisitions of commercial items.
— Cy Phillips
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