CHAPTER

1

INTRODUCTION TO THE FEDERAL MARKETPLACE

The U.S. federal government spends billions of dollars annually to meet its agencies’ missions; it offers opportunities for any business sector and provides a stable business base for companies interested in working with the federal government. But what exactly is the federal government marketplace? How does it differ from the commercial marketplace? What makes it so appealing to pursue? A company interested in doing business with the federal government needs to understand the components of the government marketplace and the legislation that defines the various elements of that market. The techniques for entering the government marketplace are important for both large and small businesses.

    What is the federal government market?

The federal government market consists of the sellers—contractors—who provide products and services to buyers— people working in the federal government. The sellers in this marketplace include individual entrepreneurs, small businesses, and large businesses. The buyers work for civilian agencies, such as the departments of Education, Energy, and Transportation, as well as Department of Defense (DoD) service branches such as the Navy, Army, and Air Force. The goods and services that are exchanged in this marketplace include

•   Normal consumer goods, such as socks, pastries, computers, and cleaning supplies

•   Services, such as information technology, biometric scanning, consulting, and teaching

•   Government-unique items, such as F-22s, missile guidance systems, and M1 tanks.

    How is conducting business with the federal government different from conducting business with commercial companies?

In addition to the sheer size difference between the federal government and a commercial company, there are several distinctions between conducting business with a federal agency versus a commercial company:

•   Use of federal acquisition regulation

•   Types of purchases

•   Socioeconomic objectives

•   Government authority

•   Close monitoring.

Use of Federal Acquisition Regulation

Most federal agencies (other than the Central Intelligence Agency and the United States Postal Service, for example) use the Federal Acquisition Regulation (FAR) to provide direction and govern their federal procurements. The FAR is managed by the FAR Council as part of the Office of Federal Procurement Policy. The FAR provides direction on items such as the underlying principles of federal procurement, appropriate behavior for government and contractor personnel, applicable contract clauses based on contract type, dispute procedures, and recommendations for how government personnel should evaluate contractor proposals. The government regularly reviews the regulations and relies on industry to help define and update outdated regulations to keep them in line with best business practices. The FAR is developed with contractor input, but it is finalized, interpreted, and designed to protect the government’s interests. The Federal Acquisition Streamlining Act (FASA), enacted in 1994, lessened the regulations and paperwork required to conduct business with the government.

By contrast, a commercial company may select its business partners in any manner it chooses. Contracts between two commercial entities use the Uniform Commercial Code (UCC). The UCC is designed to protect the buyer and seller equally.

Types of Purchases

One similarity, of course, is that, like commercial companies, the government buys commercially available items or products and services that are available for sale on the open marketplace. In fact, the Federal Acquisition Reform Act (FARA), also known as the Clinger-Cohen Act, further mandated the government’s use of commercial items to meet contractual requirements. FARA exempted commercial off-the-shelf (COTS) items from certain FAR requirements and simplified the procedure for acquiring them. Although the government procures a large number of COTS items, there is still a tremendous market for research and development, defense, and civilian products and services that commercial companies do not need.

Socioeconomic Objectives

The government focuses on two perspectives as it awards contracts. The first is that it wants to protect the taxpayers’ money, so it works hard at securing the best-possible-value contract. To accomplish this, it enforces strict guidelines to keep competition open. Specifically, through the Procurement Integrity Act, the government punishes companies suspected of trying to get an “inside track” on a procurement. Second, the government tries to meet socioeconomic objectives through its procurement actions. To accomplish this, it establishes set-aside programs designed to give small businesses the opportunity to compete for federal business. These set-asides target, for example, small disadvantaged businesses, labor surplus area businesses, and veteran-owned businesses. Through programs like these, the government encourages and helps small businesses obtain federal business even though procuring goods or services from these smaller companies may be more expensive for the government.

A commercial company can award contracts in any manner it chooses and may choose not to run a competition at all. Furthermore, a company pays attention to the socioeconomic objectives only through its own beneficence, not because it was mandated by Congress or an executive agency.

Government Authority

Another important difference in contracting with the federal government versus a commercial company is that the government has the right to know all. The federal government differs from a commercial company in that the government can audit all contractor pricing, costing, and invoicing documents for noncommercial items. When bidding on a government contract, a contractor must detail the costs for direct, overhead, general and administrative (G&A) expenses, and profit amounts on the proposal cover sheet. The government reserves the right to audit any documentation to determine whether the price is fair and reasonable. This is not the norm in the commercial marketplace. The government has relaxed these requirements significantly in the FARA for commercial items. In a commercial contract between two companies, typically only the line item and total price are given.

Close Monitoring

Finally, government contracts require close monitoring. Skillful contract management is required for success and profit in the regulated government environment. A contractor’s management team must constantly monitor the project to ensure strict adherence to the stringent government requirements. For example, if a company performs work in a manner different from the proposal, it must obtain contracting officer (CO) approval. (The CO is the only person who can bind the government in a contract action.) If a company changes the dials on the widget it is making for the government, the CO must approve that change. Commercial contracts often maintain the same level of monitoring and thus can cause significant problems downstream between the two organizations. Furthermore, any government funding expenditure is subject to scrutiny.

Something as innocuous as paying for lunch at a contractor and government function falls within the realm of procurement law. For these reasons, a contractor management team must understand the government regulations and contractual obligations, and clearly communicate these requirements to the people working for the government.

    Why do business with the federal government?

Doing business with the federal government pays off for many reasons:

•   Government contracts can be profitable.

•   Government contracts allow a company’s skill base to broaden.

•   Government contracts build a solid financial base.

•   Government contracts provide employment opportunities.

•   Government contracts help small businesses.

Government Contracts Can Be Profitable

Profit margins on federal contracts are low compared with the profit margins that can be realized in the private sector. Profit is handled differently depending on the contractual relationship between the contractor and the government. Some contracts do not allow the contractor to receive any more than a ten percent profit. In firm-fixed-price contracts, the contractor determines up front how much the entire contract will cost. Once the amount is agreed upon with the government, the contractor will receive that much money. A contractor could make more than ten percent profit in a firm-fixed-price contract if it manages the contract well. Cost plus award fee contracts allow the government to assess a contractor’s performance throughout the life of the contract and to make decisions periodically on the amount of fee or profit the contractor receives.

Although profit may not seem like a motivator to get into the government marketplace, it is considered a positive reason to pursue government business because of the size of government contracts. Ten percent of ten million dollars is a lot of money. Once a company becomes proficient at bidding and running a government contract, the profit associated with government business can become the financial foundation for a company.

Government Contracts Allow a Company’s Skill Base to Broaden

Many skills are required on government contracts. The technology required on government programs can allow companies and their employees to broaden their skills. Often, skills that are required on government deals can be transferred to the company’s commercial side. The airline industry, for example, has used many of the parts developed for DoD aircraft on its commercial planes.

Government Contracts Build a Solid Financial Base

Government contracts may last up to ten years or longer if permitted by the FAR. The longevity of contracts builds a solid financial base of backlog business for the company.

Government Contracts Provide Employment Opportunities

In today’s scaled-down workforce, new government contracts represent jobs for employees. Federal government contracts are relatively secure. Regulations are in place requiring government personnel to have funds appropriated and obligated before they give a contractor a contract or delivery order. This guarantees a contractor payment for acceptable goods or services and provides a steady revenue stream.

Government Contracts Help Small Businesses

Employing small businesses (SBs), small, disadvantaged businesses (SDBs), and women-owned businesses helps all parties concerned. The federal government meets its socioeconomic objective to decrease unemployment rates by helping small businesses succeed and grow. Small companies get the expertise of a new marketplace and the opportunity to grow their businesses through government contracting. Finally, when small companies team with large companies, the large companies have the opportunity to meet the requirements placed on them by the federal government to subcontract federal work to SBs and SDBs.

    Have any changes occurred in the government marketplace?

The 2013 “fiscal cliff” and the subsequent “sequester” have had an impact on government spending. It remains to be seen how Congress will agree to implement the spending cuts required to balance our federal budget. Government agencies and contractors are currently working together to determine how they can cut budgets without sacrificing agency missions. Some jobs that formerly were done by contractors will now be performed by federal employees. Similarly, jobs that can be done more cost-effectively by the private sector will be contracted out. Program duplication will be eliminated. Work will be done by the most efficient organization that can accomplish the work. For example, many agencies procure goods and services through the General Services Administration (GSA) under the Schedules program. By doing so, individual agencies remove the need to set up their own procurements and can buy needed products and services through contract vehicles already established by GSA. (See Chapter 4 on the GSA Schedule program.)

Other changes involve the president’s emphasis on doing government tasks more efficiently. Barack Obama set up the White House Innovation Fellows program to bring in private sector individuals to work with key government innovators in pushing an agenda of change. Existing projects worked on by these industry-government teams include (1) determining easier ways to get niche technology vendors interested in government contracting and (2) developing more outreach programs so that the government workings are transparent to private citizens. These initiatives offer new ways for contractors to secure government business. For example, government agencies are trying to streamline doing business with high tech organizations so that more of these types of companies would be willing to do business with the government. (To see other initiatives now under way, visit www.whitehouse.gov/innovationfellows.)

    What are the roles of each branch of the government in federal procurement?

Each branch of the federal government—executive, legislative, and judicial—plays a unique role in the procurement of goods and services.

The executive branch consists of agencies (e.g., National Aeronautics and Space Administration, DoD, Department of Health and Human Services) that develop requirements for what they plan to procure, conduct the source selection process (the way in which the agency will select a procurement winner), and use the goods and services procured.

The legislative branch consists of Congress and the Government Accountability Office (GAO), which maintain the funding authority. The legislative branch ensures that government money is spent appropriately through its oversight function. Executive agency representatives present their annual procurement plans at congressional hearings. The agency budgets either are approved and become part of the authorization bill or are disapproved and not funded. A bill is introduced into the House and Senate appropriations committees for a final review. These committees appropriate funds for any authorized project provided that the requested amount either matches or is less than the approved amount. After passing in the House and Senate, the appropriations bill is sent to the president, who has the authority to accept or reject it.

Congress also enacted the FAR in accordance with the requirements of the Office of Federal Procurement Policy Act of 1974 and the Armed Services Procurement Act of 1931. The FAR is prescribed jointly by the secretary of defense, the administrator of general services, and the administrator of NASA. It provides the body of regulation that governs all federal procurements. The latest version of the FAR can be obtained at www.acquisition.gov/far. In addition, this site describes how contractors can provide input to FAR updates.

The judicial branch consists of the courts that handle disputes arising out of federal government contracts. The U.S. Court of Federal Claims may act as a trial court to determine whether a CO’s decision in a contract award or action was correct.

    What methods can be used to secure a government contract?

Several methods can be used to secure a government contract: work independently, work as a subcontractor, or subcontract work to other companies. Furthermore, a company can either develop or become part of another company’s General Services Administration (GSA) Schedule contracts.

Work Independently

A company can decide to pursue a particular contract alone without the help of any prime contractor or subcontractors. The do-it-alone approach is useful if the company has all the resources available internally to respond to and meet the government’s requirements, including employees with the appropriate skills, raw materials, production capabilities, and appropriate products. To determine whether a company has the necessary resources, it must consider the following aspects:

•   Employees with the appropriate skills are required both on a proposal effort and to manage the contract after award. Such employees must be available at the time stipulated by the customer, and those time frames may shift if the customer has a schedule change.

•   The company must assess product availability in terms of the amount of time it will take to produce a product from scratch, or the time it will take to make an existing product conform to the customer’s specifications.

•   Once the company determines that it can develop the product within the designated time frame, it must assess whether it can produce and deliver the product quantities the customer requires in the short time frame typically allowed on a contract.

•   The company must consider the availability of all the resources necessary to fulfill the contract requirements in relation to the company’s other business objectives. The company may have employees with the appropriate skill sets and adequate production capabilities; however, if the same resources are required in other areas of the business and cannot be spared because the other business areas could suffer irreparably, then the company cannot work on the contract alone. On the other hand, smaller contracts may make it financially feasible for the company to work alone.

If the company decides to pursue a customer contract on its own, the company must accomplish all the marketing activities, proposal development, and contract performance. The benefit to this approach is that the company has complete control and decision-making power over all aspects of the procurement. The company can determine how many resources to apply to the effort, how much risk it is willing to take in pricing the contract, and how it will ultimately satisfy the customer’s requirements without consulting other partners. Although this approach allows maximum control, it also places all contract risk on the company. All pre-contract costs must be borne by the company. If the company does not meet the contract’s requirements, the company is liable for all contractual remedies. The good news is that working alone allows the company to reap all the financial and reputation benefits associated with successful contract performance.

Work as a Subcontractor

Working as a subcontractor for another company, particularly a large company, offers an excellent opportunity for the subcontractor to meet its own objective of getting into new business without many of the risks associated with doing it alone. Large contractors typically have a lot of experience in each aspect of the procurement cycle and can be an invaluable resource to a company trying to break into new customers or market areas. Often, the subcontracting company benefits from the significant resources available within the larger company. For example, a large company primarily handles many of the costs associated with marketing, proposal development, and solution demonstrations. The subcontractor’s responsibility may be limited to writing a few proposal sections or helping with marketing initiatives. The bottom line is that with minimal up-front investment, a company subcontracting to another company can win government business.

The disadvantage of working as a subcontractor for another company is that the prime contractor basically makes all decisions. The subcontracting company can negotiate with the other company to determine a mutually agreeable level of risk, but if the subcontractor does not want to comply with the prime contractor’s decisions, the prime contractor may find another subcontractor to do the work. In addition, because the work is not done by just one company, the revenues from the contract do not belong solely to one company. The prime contractor and subcontractor must agree to a revenue-sharing approach. Finally, the prime contractor ultimately controls the program. Therefore, the subcontractor may need to change the way it offers its products or services based on the prime contractor’s decision, or risk losing its place on the contract team.

It is important for a subcontractor to understand which other subcontractors are working for the prime contractor. If multiple subcontractors can provide the same product or service, how will the prime contractor divide the work among them? The prime contractor may delineate up front what specific products or services will come from each subcontractor, thereby minimizing any confusion from the beginning. Or it may determine its supplier based on past performance, price, ability to get the job done in the required time frame, or other criteria. Regardless, a subcontracting company needs to know up front how work will be assigned to it throughout the course of the contract so that it can staff and plan accordingly.

Subcontract Work to Other Companies

Another way to pursue business is to be the prime contractor and subcontract work to other companies. If a company has established credibility, is a recognized industry expert, or brings a unique value-added contribution to a particular deal, it may be possible for the company to prime the deal. In this situation, other companies would subcontract to the company in pursuit of a piece of the business. Although the company would assume much of the risk as the prime contractor, some of that risk would be shared with the subcontractors.

For this approach to work, the prime contractor will need to find subcontractors that are willing to be on the team. The degree to which the prime contractor’s team is perceived as a viable contract contender dictates how quickly other companies are willing to join the team. As prime contractor, the company makes most of the decisions and relies on the strengths of other companies to complement its own strengths.

While an automatic assumption might be that the prime contractor is usually a big company and the subcontractors are typically smaller, this is not always the case. For example, for a small business set-aside contract, a small business may prime the deal and work with a large company as a subcontractor. This approach provides the small business the experience of acting in a prime contractor role and meets the government’s requirement that at least 51 percent of the work be done by a small business. The small business benefits from the strength of a large business standing behind it with the personnel, processes, and resources to make the program run successfully.

Develop GSA Schedule Contracts

A less risky approach than running an entire program on its own is for a company to secure a GSA Schedule contract, through which the company can sell its products and services to anyone within the government. GSA Schedule contracts are increasing in popularity because once they are established, they are easy to use and are a cost-effective alternative to agency-specific procurements. If the company is interested in competing on a GSA multiple award schedule contract, GSA’s website (www.gsa.gov) will provide more information. (See Chapter 4 on the GSA Schedule contracting process.)

GSA is the primary supply source for many of the government’s commercial item acquisitions. Any federal government agency, and several international organizations, can buy off the GSA Schedule contracts, thereby saving the expense of putting out a brand new acquisition. Some state and local requirements can also be procured through the GSA. Furthermore, GSA works with participating companies to secure most valued customer pricing, or the prices that are available in the commercial marketplace to those customers who buy large quantities of the company’s products or services. By securing most valued customer pricing and giving all agencies access to those prices, GSA provides a cost-effective alternative to an agency going out and buying products and services on its own.

FARA has raised the threshold for small acquisitions to $5.5 million for commercial items and has included a commercial services definition. These two changes and the recent changes in the GSA program make it possible for small companies to put their commercial products and services on a GSA Schedule contract. GSA Schedule contracts allow all government agencies the opportunity to buy a small company’s products and services, and GSA provides advertising for small businesses on its web page. The advertising is paid for by the 0.75 percent industrial funding fee that GSA collects on every delivery order issued under the schedule. An agency wishing to procure goods and services using the GSA Schedule contracts can conduct a quick comparison among three or more companies that are on the schedule and award the contract. To stay competitive, a company can always reduce its GSA price if it really wants to acquire certain business.

Note: See below how GSA assists small businesses in acquiring a GSA Schedule contract.

    What assistance does the government provide small businesses seeking to pursue government business?

The government spends approximately $105 billion annually on contracting opportunities, but a small company that does not understand the government process may have difficulty obtaining these contract dollars. The government, unlike commercial entities, must have its acquisition programs meet goals that go beyond mere purchasing. For example, the government has socioeconomic goals to ensure that the U.S. economy prospers and grows. The Small Business Administration (SBA) was designed to help small companies thrive and prosper in the United States. To that end, the SBA uses many initiatives to help small businesses and small, disadvantaged businesses obtain government contracts. For example, the SBA works with many government agencies to develop offices specifically focused on doing business with small companies (as described below in the GSA example).

Small Business Administration

The government established the SBA to help small companies obtain, maintain, and retain government business. The SBA offers seminars, literature, websites, local offices, skilled expertise, one-on-one business advice, and an automated phone system to help small business owners start a business and move into the government marketplace. In addition to the headquarters office in Washington, D.C., and regional offices located throughout the United States, the SBA has personnel who work to identify programs as small business set-asides and who work to enact legislation that helps small businesses obtain and keep federal business. They also help match complementary companies to encourage them to work together on programs that would offer mutual gain.

Industry Classification

The government classifies industries using the North American Industry Association Classification (NAIC) system. This system replaced the Standard Industrial Classification (SIC) codes. The NAIC codes stipulate the qualifications of an SB in terms of either an annual revenue amount or total number of employees. The qualifications for remaining an SB vary by NAIC code. These codes are used throughout the government to define programmatic requirements, but they are of particular interest to SBs because they delineate the parameters by which a company may define itself as small or small and disadvantaged. The government defines small businesses according to a business’ industry, revenue, and number of employees. Each industry has a different threshold for what constitutes a small business. For example, the revenue criterion is a lot higher for construction contracts than for consulting contracts, because the government assumes that construction contracts cost more to operate; therefore, it pays more for them. A $10 million construction contract may represent one program, whereas $10 million in consulting contracts may represent 50 or more separate programs.

A government agency needing a particular product or service can look up a NAIC code and then go to the GSA Schedule to find specific vendors with products and services available under contract for that code. NAIC classification, coupled with GSA Schedule contracts, speeds up the procurement process.

8(a) Program

Another SBA initiative is the small and disadvantaged business program. The program is commonly called the 8(a) program because that is the citation of the part of law that enacted the program. For a company to qualify under the 8(a) program, the company must meet the thresholds for revenue and number of employees for its industry. In addition, at least 51 percent of the business must be owned and operated by a person from a minority ethnicity within the United States. Finally, the company has to enroll and be accepted as part of the 8(a) program.

Set-Aside Programs

It is important for a company to determine if it is an SB or if it qualifies as an SDB because the company can then compete on programs reserved for SBs and SDBs. Such programs are called small business set-asides. There are also SDB set-asides and only SDBs can compete on them. By limiting the competition and excluding large companies, the government hopes to encourage small businesses to pursue business opportunities within the federal marketplace.

New Business Relationships

Another benefit of set-aside programs is that they help small companies establish new business relationships with other SBs, SDBs, and large companies. An SB or an SDB can work with a large company on a set-aside program because the only requirement for the program is that the SB or SDB perform at least 51 percent of the work to be performed on the contract. So an SDB can be the prime contractor on a program and subcontract 49 percent or less of the work to an SB or large company to help meet program requirements. Through this working relationship, the small business may be able to secure future business opportunities with the large company.

SB and SDB Agency Goals

The SBA helps small companies by setting goals for government agencies on how much business they must give to SBs. An agency then sets goals for each prime contractor on how much of the agency’s contract must be completed by a subcontractor that is an SB. As more and more SBs are established, the SBA increases its goals for agencies. This initiative helps SBs and SDBs because the government must continually seek smaller companies to meet the SBA’s requirements.

In addition, agencies establish certain dollar thresholds under which all requirements must be set aside for a small business. So if the government identifies a certain requirement and it is under the dollar threshold established, it must go to a small business. The caveat to this requirement is that if a government agency does not believe there are two or more responsible small businesses that can do the work and participate in a competitive procurement, the agency can get approval to open the procurement up for full competition, allowing any size company to participate.

Prime Contractor Requirement

Large prime contractors need SBs and SDBs to meet the program requirements of certain contracts. As the economy moves toward entrepreneurs and start-up companies, the SBA is requiring that a greater percentage of business be given to SBs and SDBs through prime contracts. When a large company works with a small company, the small company helps the large company meet its government-imposed socioeconomic goals. This partnership, in turn, allows the government to meet its socioeconomic objective of keeping people employed through small companies. Most governmental contracts require prime contractors to state how close they can come to meeting an agency’s SB/SDB goal. The prime contractors must certify that they will subcontract a certain percentage of the work available on the contract to SB/SDB companies.

Small and Disadvantaged Business Officers

The SBA has small-business liaisons called small and disadvantaged business officers (SADBOs), who work within agencies and continually try to find new program requirements that could be completed by SBs and SDBs. In addition, the liaisons question government procurement officials about why each piece of business is not an SB or SDB set-aside. The officials must also justify why a small company could not perform the program requirements. Every requirement of a government agency is reviewed by the agency’s SADB. It should be noted that once a requirement is deemed a small business or small and disadvantaged business set-aside, it takes an act of Congress to return the requirement back to full and open competition.

Program Requirements

Once the government decides that a particular program requirement can be performed by an SB or SDB, that requirement remains a set-aside, even if a new contract for the same work must be obtained. For example, a government needs agency data communication lines installed and the SBA determines that there are SBs or SDBs that could do this work. The program requirement would be released in a request for proposals (RFP) that allows only SBs or SDBs to compete for the program. If, after the contract work is over, the agency decides it needs more data communication lines installed, its RFP would have to be released as an SB or SDB set-aside program because it was once classified as such.

Mentor-Protégé Program

Several agencies have developed mentor-protégé programs. These programs team a large government contractor with an SB trying to become a federal contractor. The large company works with the small company on programs, and the large company teaches the small company the federal procurement process. The small company gains expertise and assistance in getting started; the large company gains credit toward its subcontracting plan for its participation in the program.

Probably the most widely known and used mentor-protégé program is one offered by DoD to help small companies gain the skills required to manage federal contracts. To qualify as a mentor under the program, a company must

•   Currently be eligible to receive government contracts

•   Have been awarded at least $100 million in DoD contracts in the last fiscal year

•   Possess a demonstrated ability to assist protégé development

•   Have secretary of defense approval

•   Be performing under an active subcontracting plan.

The protégé must meet the following requirements:

•   Be an SDB as defined by the SBA

•   Be eligible for government contracts.

If a company is interested in participating in the DoD mentor-protégé program, it should review the Policy and Procedures for the DoD Pilot Mentor-Protégé Program (DAC 91-10) issued as part of the Department of Defense FAR Supplement dated February 1996. To find out about upcoming events, visit www.acq.osd.mil/osbp/sb/programs/mpp/index.shtml.

Easy-to-Use Small Purchase Ordering Procedures

Small purchase ordering procedures allow contractors to compete for work using the Internet. Small purchase ordering procedures allow the government to pay for products or services by using credit cards, thereby simplifying the whole financial transaction. The simplified acquisition procedures may be used for all acquisitions under the small-acquisition threshold, which is currently set at $150,000. The only exception is orders placed under an established contract for products and services obtained from a required-sources supply. If the product or service is required for support of humanitarian or peace-keeping missions, the threshold is raised to $200,000.

FAR Part 13 explains methods available to COs for small purchases. As the government raises its threshold on small purchases, it will become significantly easier for a company to work on a contract alone. With these electronic systems, full-scale proposals, which can be costly for small companies, will not be required.

GSA Office of Small Business Utilization

GSA has an Office of Small Business Utilization (OSBU) that advocates for small, minority, veteran, HUBZone, and women business owners. Its mission is to promote increased access to GSA’s nationwide procurement opportunities. It monitors and implements small business policies and nurtures entrepreneurial opportunities. OSBU offers programs such as the Veterans Technology Services (VETS), which is a set-aside governmentwide acquisition contract (GWAC) exclusively for small technology firms owned by service-disabled veterans. Furthermore, OSBU offers activities such as procurement networking sessions, marketing strategies and techniques workshops, electronic commerce/electronic data interchange training sessions, interagency networking breakfasts, trade missions, roundtables, and procurement conferences. (More information is available at www.gsa.gov/sbu.)

GSA Advantage!

The GSA Advantage! system can be thought of as a governmentwide electronic mall containing all the products and services that the government routinely buys. Anyone can access the system at https://www.gsaadvantage.gov. A company can use this site to determine the specific products and services purchased by the government and the selling prices being offered by its competitors.

    What information can a company get from the government? What information from a company can be protected?

A company has two issues involving information the government has. First, how can the company get the information it wants? Second, how can the company protect from disclosure information on itself that is in the hands of the government? A number of laws and regulations are important.

The Freedom of Information Act (FOIA) applies to all government documents, not just procurement documents. The procurement integrity laws tell agencies what documents in the procurement process may be distributed to the general public. These also provide protection for information submitted to the government during the procurement process. And finally, the FAR provides guidance on the kind of information that can be distributed during the sealed bid process and the negotiated procurement process.

The Freedom of Information Act

FOIA is often referred to as a “disclosure statute.” It encourages an agency to release information unless the document is exempt from disclosure under one of the exemptions in FOIA. For documents involved in the procurement process, the most common problem is identifying what information submitted by the company seeking a government contract may be released to the general public or to a competing company. These cases are referred to as “reverse FOIA” cases because the agency wants to distribute the information of the submitting company but the company wants to prevent its distribution.

Courts have set some clear guidelines.

Whether information submitted to the government is protected as that company’s confidential or financial information depends on two factors. “Voluntarily submitted” information is protected only if the information is the kind of information that would customarily not be released to the public by the person from whom it was obtained. On the other hand, information submitted to the government “under compulsion” can be withheld only if the company that submitted the document can show that its disclosure would either “impair the government’s ability to obtain necessary information in the future” or “cause substantial harm to the competitive position of the person from whom the information was obtained.” Incidentally, if voluntary or under compulsion information comes within this test, its release is prevented by the Trade Secrets Act. The Trade Secrets Act is a criminal law that makes it a misdemeanor to release information that is protected from disclosure.

For example, a defense contractor that won a contract showing line item costs to the government of certain products fought the release of its line item prices, overhead, profit, and other cost information, arguing that this information was confidential or financial information protected from release under FOIA. The government refused to release overhead and profit figures but was prepared to release the line item prices. An appeals court assumed that the information was provided “under compulsion” and concluded that the contractor’s competitors would benefit from release of the information. Disclosing the line item prices would help the company’s commercial customers negotiate or “ratchet down” the contractor’s prices. In addition, disclosure of its unit prices would help its competitors calculate its actual costs “with a high degree of precision” and thereby help its competitors underbid the company. So that information could not be released. The court did, however, say that the total price of the contract could be released.

To find out more about FOIA and the appropriate forms to use with each agency, visit https://www.USA.gov and search on “FOIA.”

Federal Acquisition Regulation

The FAR provides guidance on the kind of information that should be released during the negotiated process and during the sealed bid process.

The Negotiated Process

During the negotiated procurement process, no one can get from the government “an offeror’s technical solution, including unique technology, innovative and unique uses of commercial items, or any information that would compromise an offeror’s intellectual property to another offeror” (FAR 15.306(e)(1), (2), and (3)). Since the company’s intellectual property is a valuable commodity that the government collects during the procurement process, it could be used to get a cheaper price from a competitor. In addition, the FAR states that the government must protect its sources. The government cannot reveal “the names of individuals providing reference information about an offeror’s past performance” (FAR 15.306(e)(4)).

Furthermore, the government can’t reveal “an offeror’s price without that offeror’s permission.” The government can, however, tell one or all companies that its price is too high or too low and give them the government estimate for the purchase (FAR 15.306(e)(3)). This government release provides the private market an opportunity to test the validity of the government estimates.

The Sealed Bid Process

The FAR guidance for sealed bidding is more general and therefore less helpful to a CO struggling with what can or cannot be released. The FAR states that after a solicitation has been issued

Keep in mind that by its very nature, a sealed bid process is used only when the government does not anticipate any reason to engage in any individual discussions with the potential bidders. If the government needs additional information, the FAR allows amendments to the solicitation document that are then distributed to all potential bidders.

The Procurement Integrity Act

Companies cannot get two categories of information that are protected by the Procurement Integrity Act: contractor bid or proposal information and source selection material. Therefore, some information a company submits to the government cannot be disclosed even though the government has the data in its possession.

Contractor proposal or bid information includes cost or pricing data; indirect costs and direct labor rates; and proprietary information about manufacturing processes, operations, or techniques. Also protected is “information marked in accordance with 52.215-1(e).” This FAR clause is the instructions for offerors provision. It tells companies to mark the cover page with a certain legend and then to mark each protected page. For the cover page, companies are to

In addition to this cover legend, companies are to also “Mark each sheet of data it wishes to restrict with the following legend: ‘Use or disclosure of data contained on this sheet is subject to the restriction on the title page of this proposal.’”

That does not end the matter. What typically happens is overkill. Companies routinely mark every possible page with this legend, protecting information such as the table of contents and pages with one word on them. To limit this, the FAR gives the CO the opportunity to limit which information is protected.

In addition to contractor material, government material is also protected. FAR 3.104 defines source selection information to include “bid prices before bid opening, proposed costs anytime, source selection plans, technical evaluation plans and evaluations, cost or price evaluations of proposals, competitive range determinations, rankings of bids, proposals, or competitors, reports and evaluations of source selection panels,” and a catch-all: “other information marked as ‘SOURCE SELECTION INFORMATION—SEE FAR 3.104’ based on a case-by-case determination by the head of the agency or designee, or the contracting officer, that its disclosure would jeopardize the integrity or successful completion of the Federal agency procurement to which the information relates.”

    What steps does an agency take in a negotiated procurement to purchase goods and services?

An agency takes a series of steps in purchasing goods and services through a negotiated procurement:

1.   Determine the resources required to meet the operational strategy. The Constitution and subsequent government actions mandate each agency’s purpose and mission. The agency develops its operational strategy for accomplishing that mission. In doing so, the agency considers available facilities, personnel, budgets, and other resources. Future budget requirements are driven by resources needed for the operational strategy that are above and beyond the resources currently available.

2.   Assign a program manager and contracting officer. A program manager (PM) and a CO are assigned to work together throughout the life of the procurement cycle. The PM understands the users’ requirements and what goods and services are needed to meet them. The CO understands how to obtain the necessary products or services from the contracting community using the federal procurement regulations.

3.   Develop an acquisition strategy. Once the program budget is approved, the PM and CO must decide whether the agency should wait until government resources are available to meet the requirement or procure goods and services from the contractor community. A “make or buy” decision is made for each individual program or project. This decision process is part of the acquisition strategy and includes the contracting process, components of the solicitation, demonstration test and evaluation criteria, bidders’ list, methods for obtaining competitors, guidelines for proposal evaluation, cost goals, lifecycle cost projections, data rights, warranties, contractor incentives, contract type, and contract administration details.

4.   Develop an acquisition plan. The next step in the process is to develop the acquisition plan, which includes a plan of action and milestones, statement of need, applicable conditions, cost parameters, standards of performance, delivery requirements, tradeoffs or alternate methods for completing the work, and government program risks associated with contractor performance.

5.   Obtain approval and funding. The PM and CO are required to justify the program need and its approach throughout the procurement cycle. Each agency has its own unique approval cycle, and the size of the procurement dictates review requirements. These reviews ensure that taxpayers’ dollars are spent prudently, government assets are used effectively, and the resulting contract meets the agency’s objectives.

6.   Establish the source selection authority. The source selection authority (SSA) determines the winning contractor. The SSA and the source selection evaluation board (SSEB) develop and approve a source selection plan. Components of this plan will appear in the RFP. After proposal submission, the SSEB evaluates contractor proposals against the evaluation criteria and makes its recommendation for award to the SSA. The SSA may accept or reject the SSEB’s recommendation.

7.   Develop the final RFP. The RFP’s statement of work (SOW) describes the work the contractor must perform. Coupled with the SOW, the government includes the other sections of the RFP: cover letter, schedule, packaging, acceptance, delivery, performance, contract administration, FAR clauses, special contract clauses, attachments, proposal instructions, representations, certifications, and evaluation criteria. The RFP is written by the CO and PM with help from the contracting officer’s technical representative (COTR), who understands the technical implications of a program and can assist the CO, a government committee, or a government contractor.

8.   Conduct market research. The government is now required under FARA to conduct market research to determine whether products and services required are available commercially. This requirement demonstrates the government’s preference to use COTS items where appropriate.

9.   Send out draft or final documents. The government may choose to solicit industry input to determine if the technology requested is feasible, or whether alternate approaches should be considered. The government may choose to send the entire draft RFP or selected sections out for industry comment. This draft document review gives contractors a chance to shape the procurement. Should the government decide to do this, it may then review and incorporate industry comments as deemed appropriate. Otherwise, the government may just decide to issue the RFP in its final format.

10. Conduct a bidders conference. The government conducts a bidders conference to determine the level of competition and to understand any contractor concerns. In this meeting, the government reviews the agency’s mission, program purpose, and milestones and answers any contractor questions.

11. Answer industry questions. Throughout the procurement process, the government receives questions from companies. The RFP states a date by which all questions should be submitted to the government. If a company has a question after that date, it should be directed to the CO, who will ensure that the appropriate government personnel provide the answer. Companies submit questions in writing, and the government then provides answers to all the bidding contractors.

12. Finalize the source selection approach. The government prepares for receipt of company proposals by coordinating the following:

•   Logistics—Places identified to evaluate and store the proposals

•   Evaluators—People selected to evaluate contractors’ proposals

•   Schedule—Milestones established for the evaluation process.

13. Receive company proposals and begin evaluation. Each evaluator is assigned a section or sections of the companies’ proposals to review. Depending on the government’s RFP, the proposals may be submitted in writing, orally, or both. One evaluator evaluates the same section of each company’s proposal so that the evaluations are consistent. Each evaluator reviews the companies’ proposals against the evaluation criteria and assigns a score. If the evaluator needs additional information from the company about its solution, the evaluator will issue a clarification report (CR) or a deficiency report (DR), depending on the severity of the issue.

14. Receive company responses to clarifications and deficiencies. The evaluator receives the company responses to clarifications and deficiencies and determines if the responses are adequate to resolve the issue. The evaluator then assigns a score to the section. If the evaluator still has questions, follow-up clarifications and deficiencies may be issued to the contractor.

15. Evaluate companies’ price proposals. The evaluation price team begins its evaluation of the companies’ price proposals to determine if the prices are reasonable. The government can make an award at this point in the process if it chooses.

16. Initiate audits. The CO may decide to initiate preaward surveys or other audits of companies if he or she feels it is appropriate. An independent agency usually conducts these audits, and the audit results are presented to the SSA.

17. Make competitive range determination. During the procurement process, the government may make a competitive range determination. This determination used to be based on the government’s belief that, given the current state of the company’s proposal, a company could not become eligible for award within the procurement time frame. Now, with the government moving toward the goal of efficient competition, it may make a competitive range determination by selecting the three or four top proposals and excluding the rest from the competition. Because of this, companies must put forth their best proposal at initial submission. If they don’t, they may be excluded from serious consideration. Companies no longer within the competitive range are dropped from the procurement.

18. Conduct live test demonstrations (LTDs). If the RFP requires a demonstration, the government conducts LTDs with each company. Before the demonstration, the government must determine how to evaluate the companies’ solutions. The results of the LTDs are included in the SSA evaluation. So, for example, if the government determines the response rate in an information technology procurement, it then uses that rate to evaluate one contractor’s performance against another’s in an evaluation.

19. Conduct orals. The government may decide to allow a company to present an oral proposal or presentation of its solution as part of the source selection decision. When this is done, the potential contractors are given very specific directions for how the oral presentation is to be conducted. The oral presentations are recorded in case any future contract disputes occur.

20. Prepare for discussions with companies. The government identifies any outstanding issues in each company’s proposal. Each company is then assigned a time to meet with the government to review the issues. Any issue the company has at this time is also discussed. In the private sector, discussions would be the same as contract negotiations.

21. Call for final proposal revisions. The government then issues a call for final proposal revisions to all companies still within the competitive range. Keep in mind that the government may make awards based on initial offers and a final proposal revision may never be requested.

22. Finalize the contract. The government negotiates the final contract with the apparent winner before or after the award is announced.

23. Award contract. The government then awards the contract to the winning company.

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