Federal Government to Rewrite Purchasing Rules

The government recently embarked on an ambitious project to rewrite Part 15 of the Federal Acquisition Regulation, which sets forth the principal requirements for competition under negotiated procurements. Unlike sealed bidding, negotiated procurements envision a flexible process that includes bargaining between the government and offerors. This initiative is significant because approximately 60 percent of the government's acquisitions are conducted through negotiated procedures. Many of the resultant contracts, particularly those for technology products and services, are awarded to small and mid-sized businesses.

The goal of the rewrite, which was prepared by an interagency committee in conjunction with the Office of Federal Procurement Policy, is to make the government more like a commercial company when buying goods and services. The government believes that by eliminating unnecessary bureaucratic regulations it will reduce barriers into the federal marketplace. By increasing competition, the government will obtain more products and services at better prices.

The FAR 15 rewrite seeks to make the regulations easier to understand by eliminating policies, procedures or requirements that place "unnecessary" burdens on contractors and government procurement officials.

To promote more efficient purchasing, the proposed rules recognize a need to enhance the discretion of contracting officials to exercise business judgment like their commercial counterparts. For example, the proposed regulations give the government latitude to communicate with offerors openly about their proposals and the government's needs before competitive range determinations. Under the proposed regulations, procurement officials have the discretion to obtain information from selected offerors about their proposals and make awards without discussions based on the information received. The communications can be informal and need not be held with all offerors.

While these types of communications between buyer and seller are common in the commercial world, they are generally not permitted under current regulations, which require that formal discussions be conducted with all offerors in the competitive range.

By enabling contracting officers to communicate freely with offerors about perceived strengths and shortcomings, as well as government needs, the proposed rules are expected to save the government and contractors considerable time, money and effort. Because of the heightened discretion afforded to procurement officials, however, many small and mid-sized businesses remain concerned about the potential for disparate treatment toward favored contractors.

One of the most controversial proposed rules authorizes government procurement officials to limit the size of the competitive range to the greatest number that will permit "an efficient competition." The competitive range would consist only of proposals having the "greatest likelihood of award." There is no provision, however, for a minimum number of offers that must be included in the competitive range. Thus, a contracting officer could establish a competitive range of as few as two offers.

Procurement officials can also specify in the request for proposal the maximum number of offers that will be included in the competitive range without regard to the merits of the offers received. Currently, the FAR requires that when there is doubt if a proposal should be included in the competitive range, it must be included.

By enabling contracting officers to narrow the list of prospective contractors, the proposed rule is expected to enhance the government's ability to procure goods and services quickly and efficiently.

Contractors, however, should be mindful of this draft provision because it could allow the government to subjectively determine the number of proposals having a realistic chance of receiving an award based on a pre-established numeric quota. Because the proposed rule all but equates "efficient competition" with administrative convenience, there is concern that contracting officers may sacrifice the requirement for full and open competition solely for the sake of efficiency.

This proposed provision, in conjunction with other controversial propositions that give contracting officers broad discretion to consider past performance, may stifle competition. While past performance is only one indicator of an offeror's ability to perform a contract successfully, it has been a cornerstone of reform initiatives that allow the government to consider a variety of factors in determining which offer represents the "best value" to the government.

With the government's interest in empowering contracting officials by giving them more latitude, contractors should be ever vigilant to ensure that procurement officials do not abuse their discretion.

The government's increased latitude under the proposed rules, including the ability to communicate with selected offerors, limit the competitive range and evaluate past performance, must be exercised evenhandedly and with sound judgment. Just as too little discretion can inhibit the government's ability to purchase efficiently, too much discretion can lead to an environment of favoritism that chills competition. As the government moves to emulate the commercial marketplace, these concerns become more evident, especially to small and mid-sized businesses.

While it is unclear how the final regulations will look, it is safe to say that FAR 15 will look very different than it does today.

David M. Nadler is a partner in the Washington law firm of Dickstein Shapiro Morin & Oshinsky LLP, where he specializes in government contracting matters. Kendrick C. Fong is an associate with the firm.

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