Infotech and the Law: Proposed rules could spur new entrants into IT services market

Jonathan Cain

Recently proposed procurement rules could dramatically increase competition for information system services under the General Services Administration's federal supply schedules and blanket purchase agreements. The new rules, proposed April 18 by the Defense and Civilian Acquisition Councils, would make it more difficult for procurement officials to limit competition for services contracts to incumbents, and may increase the opportunities for new entrants.

The federal government spends more each year on services to maintain, manage and operate its information systems than it spends to purchase hardware and software. In 2000, the General Accounting Office sampled several large information systems services contracts at the Defense Department. More than 75 percent of purchases were made without soliciting competitive quotes. Usually, the contracting officer simply compared rates for the work on GSA's FSS schedule and ordered the services from the incumbent.

This was not the result that schedule contracts were supposed to produce. Originally designed to speed the purchase of commercial products, GSA has promoted the schedules as a vehicle for buying services, particularly information systems services.

The rules governing schedule use were not well-adapted to buying services on an hourly rate. Procurement officials have been slow to adopt competitive procedures for buying services. It is generally acknowledged that the share of work going to a handful of large service contractors has grown steadily.

The proposed rules draw clear distinctions between services that are offered at a fixed price for the performance of a specific task, and those that are fixed price only in the sense that the rate per hour of a labor category is fixed.

True fixed-price services, such as installing a piece of equipment or providing help-desk services to a number of seats, will still be available from the schedules, as they are now, under the proposed rules. The procuring official may simply compare catalogs of three vendors of the required service, or compare three vendors on the GSA Advantage!On-line service, and make a decision based on best value.

When ordering services that are priced at hourly rates, such as software development services, new procedures will apply to any order over the micropurchase threshold. The agency first will be required to develop a performance-based statement that defines the work to be performed, the location, delivery schedule, standards of performance and any other special requirements. The statement must describe the work in terms of results to be achieved, include measurable performance standards and provide financial incentives for cost-effective innovations.

The ordering agency must provide the statement and the selection criteria to at least three schedule contractors and request firm-fixed-priced offers to perform the work. Furthermore, the agency must provide the statement to and receive and evaluate an offer from any schedule contractor who wishes to make an offer, even if that contractor is not among those initially targeted by the agency.

All offers must be evaluated against the selection criteria in the statement of work, and the order must be presented to the schedule contractor whose offer provides the government with the best value.

The new rules still provide procuring agencies with leeway to limit consideration to incumbents, if there is only one qualified contractor or the work is a logical follow-on to an award made in accordance with the new rules, for example. But the welcome thrust of these new rules is to pry open a large part of the government information systems business to better competition. *

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at

About the Author

Jonathan Cain is a member of law firm Mintz Levin.

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