A Modest Proposal

Congress Takes a First Cut at The Gordian Knot of Procurement

ven if Congress passes its sweeping procurement reform law by summer's end, government officials will have to labor for years to cut away the thickets of regulations and administrative practices that are choking the government's procurement process, industry officials say.

Although the pending reform bills -- one in the House and another in the Senate -- are supposed to overhaul the procurement process once they are passed, they only address 20 percent of the problem, according to Alan Chvotkin, senior counsel of Sunstrand Corp. Congressional acquisition reform "is not a silver bullet," he said.

At least 80 percent of the procurement-related problems are caused by regulatory measures and administrative policies that generate suspicious, adversarial, risk-averse procurement practices, he said.

One example of the procurement horror stories reforms are intended to prevent is the tale of Motorola Inc.'s radio contract, which the Clinton administration has told more than once. Just prior to the 1991 Gulf War, red tape strangled a U.S. Air Force plan to quickly buy 6,000 hand-held radios from the Schaumburg, Ill.-based manufacturer. The Japanese government stepped in as a commercial customer, bypassed the Pentagon's procurement regulations, and donated the radios to the Air Force.

The prospects for fundamental change have never been better, industry officials say -- partly because of the emerging congressional reforms, but also because of the top level priority that government officials have given to acquisition reform. For example, Vice President Al Gore has championed proposals to overhaul government, including the procurement process, with the intention of saving $22.5 billion by 1999. Every year, government spends about $200 billion on goods and services. As much as 66 percent of government spending, or $135 billion, is conducted by the Pentagon. Estimates of cost savings from reform vary widely, with some industry officials claiming possible savings of 20 percent to 50 percent on some contracts, while Pentagon officials predict savings of $5 billion to $10 billion per year. Much depends on determined use of the flexibility that Congress' new reform package will likely grant, said industry officials. The high-level priority given to procurement reform by Defense Secretary William Perry, Deputy Secretary John Deutch, and other Pentagon officials, as well as Gore, will greatly increase the chance for long-term success, they said.

Unlike previous efforts which have failed to improve the process, "this time is different. We have a president and vice president committed to reform.... For a rare moment in our history, we have a convergence of forces" promoting change, said Sen. John Glenn, D-Ohio, who is managing the Senate's procurement reform bill.

The main engine of change now is Congress, where committees in the Senate and House have formulated competing reform bills. Both must be completed before they can be hammered together into a compromise bill during a joint Senate-House conference meeting.

In an April 26 meeting of the Senate Committee on Governmental Affairs, chairman Glenn pushed his substantially modified S-1587 bill past a more ambitious measure proposed by Sen. William Roth, R-Del. Committee members rejected a central element of Roth's measure that directed the Pentagon to create a centralized acquisition agency, but approved other elements, including the establishment of incentives that would reward procurement officials who use the new rules to speed the procurement process.

The Glenn bill, which may win approval from the Senate by the end of May, raises the threshold for streamlined procurement contracts from $25,000 to $100,000, encourages contracts for commercial items by exempting them from 17 of 28 procurement-related laws such as the Drug-Free Workplace Act of 1988, and also restricts the Truth in Negotiations Act so that firms do not usually have to provide detailed cost data in contracts valued under $500,000. The bill also establishes six pilot programs that would test highly streamlined procurement procedures, change bid protest procedures, and generally relax laws constricting the procurement process.

On April 26, the House Armed Services Committee and the House Government Affairs Committee approved two very different versions of their reform bill, numbered HR-2238, but delayed debate in the House pending resolution of a turf battle between the two committees. Also, a dispute between the two committees and the House Small Business Committee, chaired by Rep. John LaFalce, D-N.Y., over measures of interest to small businesses may delay action on the bill, a House staffer said.

The House Armed Services Committee's version of HR-2238 is managed by committee chairman Rep. Ronald Dellums, D.-Calif., and Rep. Floyd Spence, R-S.C. The House Government Affairs version is managed by committee chairman Rep. John Conyers, D-Mich. Under the Dellums version, the House reform bill would lift most regulatory restrictions on purchases costing less than $100,000, ease contracts for commercial equipment and create an electronic bulletin-board system for most contracts.

The proposal in both the armed services committee's bills to lift the streamlined procurement threshold to $100,000 will have a major impact because of the large number of such small contracts, said industry officials.

For example, 99 percent of government contracts are valued at less than $100,000, said Chvotkin. These contracts absorb as much as 16 percent of Pentagon procurement dollars and 75 percent of civilian procurement dollars, he said. Moreover, the bills apply these simplified procedures to the subcontracts awarded by prime contractors. Roughly 50 percent of dollars spent on a prime contract, such as awards to build a new submarine or air traffic control network, flow down to subcontractors, including those selling commercial items, Chvotkin said.

Though the intent is the same, the House and Senate reform proposals differ in several significant areas, Chvotkin said. While the Senate proposal prunes laws to help agencies streamline their procurement processes, the House Armed Services Committee lays out detailed laws and regulations designed to create an alternative, more streamlined process than exists now, he said. On specific issues of concern to industry, the House bills gives agencies only one year to conduct a post-award audit of a contractor's prices, while the Senate bill gives agencies three years.

Also, the House bill eases laws that force overseas buyers of government-sponsored technology to pay a share of the technology's development costs. It also allows easier procurement of commercial services and grants, giving prime contractors more freedom in meeting government-imposed measures intended to promote the flow of dollars to small or minority-owned businesses.

Although both bills dictate major changes and create the conditions for a major cultural change in government procurement, their authors have rejected many proposals pushed by industry. For example, the House and the Senate bills leave intact a variety of laws such as the Brooks Act, the Buy American Act, and laws promoting the U.S. shipping industry, small and disadvantaged businesses, and a number of clean air and water policies. "Every one of these statutes... is a barrier," said Chvotkin. Some of the problems that these measures pose for the procurement process, such as the laws enshrined in the Brooks Act that shape the government procurement of computer technology, may be relaxed by various congressional committees responsible for them, Chvotkin said.

Over the next few months, industry officials, including those participating in the Washington-based Acquisition Reform Working Group, will continue lobbying Congress for their proposals, Chvotkin said. The working group includes representatives from nine Washington-based industry associations, including the Electronic Industries Association and the Contract Services Association.

Despite the drawbacks in the reform package, industry and government officials can use the emerging laws to create far-reaching changes in acquisition practices. "It is really a cultural shift we're talking about," said Peter Scrivener, vice president of legislative affairs for the Arlington, Va.-based American Defense Preparedness Association.

Stan Soloway, a consultant for the Washington-based Contract Services Association, said: "The door has swung open.... A lot of progress has been made."

SIDEBAR: Amid great preparations for war, U.S. officials discover that congressional laws prevent them from supplying troops in the field. Desperate, they turn to a distant foreign government, which quickly and quietly buys the weaponry and ships it to the front lines.

This may sound like a reprise of Col. Ollie North's controversial effort to aid the Nicaraguan rebels, but it is the story of how the U.S. government tripped over its bureaucratic feet in the months leading up to the 1991 Gulf War.

As U.S. and allied forces massed in Saudi Arabia, U.S. procurement regulations downed a U.S. Air Force plan to quickly buy 6,000 handheld radios from Motorola. The day was saved by the Japanese government, which was able to cut through the knot of red-tape, quickly buy the radios off-the-shelf and donate them to the Air Force.

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