FAR SOLICITATIONS: Business at the Same Old Stand?

by Ronald L. Smith

The Problem and the Paradox

The concept for this article evolved from two sources. The first was a "Helpful Hints" presentation at a Houston meeting of the National Association of Purchasing Managers (NAPM). The speaker presented a detailed fact situation involving numerous sealed bids on a commercial procurement. One bid was clearly superior to all others, but it was a late bid. The speaker asked for a show of hands: How many present would advocate taking the late bid? Dozens of hands went up, an overwhelming majority of those present This was precisely the response the speaker had anticipated. "Remember," he said,"always consider your late bid."

Less than a month later an article appeared in the December 1982 Government Executive magazine. A similar fact situation was presented, culminating in the rejection of a bid which was delivered to the General Services Administration at 10:45 a.m. instead of 10:30 a.m. The bid could not be considered, despite the fact that the bid evaluation process would not start for several weeks and that no contract award would be made for several months. The Government Executive article suggested that the regulations governing late bids be abolished, or else "rewrite the dumb thing to permit the exercise of common sense by GSA's Contract Negotiators."

The article further suggested that:

"The problem is easy enough to fix. One of two ways readily occur.

l. Specify a deadline day but not hour; or

2. Rewrite the regulation to say simply that the government reserves the right to accept any late-arriving proposal if such action is deemed in the best interests of the government excepting any proposal arriving later than the opening day for start of individual negotiations with all vendors in a particular item-class.

ABOUT THE AUTHOR

Ron Smith is Purchasing Manager, Grumman Houston Corporation. He is a member of NC-MA's Space City Chapter, the Purchasing Management Association of Houston (NAPM), and a Certified Purchasing Manager (CPM).

These comments represent one current trend in criticism of Federal Procurement— the demand for relaxation of stringent procurement rules. Running precisely counter to this trend are demands for increased regulation. The demand for a more structured procurement system has been accelerated by the adverse publicity surrounding spare parts procurements. This trend is reflected in such proposals as S. 1904 (see Contract Management, December 1983, p. 28), which would mandate a target of 70 percent of all dollars to be spent in Formally Advertised Procurements.

The fundamental philosophical problem was well stated by Jerry Baker, Executive Vice-President of NAPM in the February 1984 issue of NAPM Insight: "Unfortunately, the federal government's procurement process and its managers, policy makers, and Congress are more concerned with procedures than with results. Too many dedicated federal procurement people are criticized . . . The core issue is the emphasis on training a buyer to follow procedures. Purchasing is a DECISION PROCESS, not an administrative process. Reliance on the administrative process will produce purchases of 13 cent items for $2,043 each. The federal procurement work force, like private industry, must be trained as professionals, able to achieve desired results.."

This concept of a more flexible procurement process administered by a highly-skilled workforce has been a constant goal of NCMA. NCMA President Kenneth M. Jackson expressed his concerns in a recent interview:"One of the problems in federal procurement is that the process is often mechanical instead of judgmental, with an emphasis on procedure over substance. We seem to be making the administrative necessities outweigh the substance. And when people do their jobs by rote, the system gets into trouble."

 

The OFPP Proposal

These needs were also expressed in the Proposal for a Uniform Federal Procurement System ("Proposal") which was issued by OFPP in February 1982. The Proposal addressed the needs in very similar terms:

"The proposed Federal Procurement System includes a more responsible role for procurement personnel than they have generally exercised in the past. The System falls for more informed judgments about what is available in the marketplace and about opportunities for competition. It calls for earlier participation by procurement personnel, as the government's business managers, in the development of procurement strategies. It further calls for reducing Federal Procurement Regulations and permitting broader latitude for judgment by contracting officers, while holding them fully accountable for the results of decisions within their control."

The Proposal proposed many changes throughout the Procurement System — in particular, the Proposal addressed Formal Advertising in sweeping terrns:

"The preferred method of competition now required by statute is so rigid that it actually inhibits the government from taking advantage of the competitive marketplace. Formal Advertising requires precise specifications, terms, and conditions — a common baseline that permits award solely on the basis of price. The result is that the base of suppliers tends to shrink to those few (or in some cases only one) who perform to unique government specifications. The government often becomes the sole or major customer for these contractors. Sometimes, formally advertised solicitations attract only one bidder. Each side is sheltered from the competitive forces of the marketplace. Each is a captive of the other."

This assessment recognized the very real difficulties inherent in the Formal Advertising process.

Problems in the Current Process

One of the problems is the potential for bid protests. If any of the unsuccessful offerors are dissatisfied with the results of the bidding process (as they frequently are), they may file a bid protest with the General Accounting Office. Pending resolution of the protest, the Contracting Officer must refrain from making an award unless he can demonstrate that very urgent and exceptional circumstances apply. The bid protest, with its attendant expense and delay, can thus have a very disruptive effect on the procurement process.

Another criticism of Formal Advertising is the administrative cost both to the government and to the contractor. In a 1961 study of small businesses, 61.2 percent of the respondents considered costs of bid preparation for advertised bids excessive in relation to profits. Twenty years later, Edward J. Campbell echoed the same lament in the April 1981 Contract Management (CM): "High risk and low profit considerations are important, but I think they may actually pale by comparison to the sheer frustration of doing business with the government."

After award, the lack of communication inherent in the Formal Advertising process may continue to haunt the parties during the contract administration phase. The following examples of these types of problems are drawn from Robert D. Witte's regular column in CM magazine:

l. Joule Technical Corporation, NASA BCA 978-27, 79-2 BCA 14017 (August 1979). A contract was nullified by the board after almost a year of performance because the government and contractor defined the basic deliverable unit, the "Man Year," differently. (CM October 1981)

•  Appeal of Prestex, Inc. ASBCA 22522, 81-2 BCA 15193 (June 1981). A contractor was penalized $200,000 in liquidated damages when a dispute arose over changes in requirements prior to award of a contract. (CM November 1982)

•  Appeal of Kaufman De Dell Printing, Inc. ASBCA 21781, 80-2 BCA 14.494 (May 1980) 81-1 BCA 14822 (November 1980). A dispute arose as to the appropriate method of billing. The billing method was specified in the contract, but not in the original Invitation For Bids and was interpreted to the detriment of the contractor. (CM April 1981)

•  CRF vs United States, 27 CCF 80494 (June 1980). The Invitation For Bids required the delivery of 362 units including eight First Articles. The Contracting Officer demanded 362 units plus eight First Articles, a total of 370. The court of claims ruled that the contractor must be compensated for the additional units. (CM April 1981)

•  Hamilton Enterprises, Inc. ASBCA 24020 ETC. 82-1 BCA 15.625 (January 1982). The contractor (Hamilton) made a mistake in his bid. The Contracting Officer obtained a verification of Hamilton's bid without disclosing the reasons he suspected the bid. The board held that the disclosure requirements of the Regulation (DAR 2-406.3e) were not met and that the contractor was to be compensated. (CM June 1982) 6. Samuel R. Clarke ASBCA 24306 82-1 BCA 15627 (January 1982). The government obtained a bid verification without disclosing facts which should have been made known to the contractor. As a result the board awarded partial compensation to the contractor. (CM June 1982)

While Witte does not specify that all of these cases relate to Formally Advertised procurements, the fragile nature of the relationship between government and contractor is clearly demonstrated. Of all government procurement practices, Formal Advertising is one of the most inflexible and one of the most widely criticized. These criticisms have changed little over the past 35 years.

• 1947 — "The chief shortcoming of such a policy (Formal Advertising) is that it makes price the sole criterion of value it gives no weight to past performance and service. Continuity of supply and healthy Buyer- Seller relationships are important considerations to both sides. Yet both are disregarded when successive transactions are considered only on the basis of current bids." — Stuart F. Heinritz and Paul J. Farrell, Purchasing Principles and Applications

• 1961 — "The Sealed-Bid approach appears to be negative in that its chief objective is to prevent something from being done. The positive approach, on the other hand, aims at doing the desirable thing in the best possible manner. Experience shows clearly that the several varieties of dishonesty, through political pressure and otherwise, are just as possible perhaps just as prevalent on a volume basis — under both methods of bidding."

'Institutional formal bidding is based on the historical assumption that the management of public institutions is necessarily incompetent, with the result that prevention of dishonesty is emphasized — those opposed to negotiated buying for public institutions also defend competitive purchasing on the contention that 'all taxpayers should have an equal opportunity.' In reply to this argument, one might well ask whether taxpayer sellers have selling rights superior to the buying rights of taxpayer buyers." — Henry G. Hodges, Procurement The Modern Science of Purchasing

• 1970 — "Insofar as Formal Advertised procurements are concerned, however, congressional and DOD recognition of the right of the contracting officer to exercise sound business judgment is simply irrelevant. Why? Because of the intervention of the Comptroller General and, specifically, GAO decisions regarding bid protests. The position of the GAO may be summarized in a statement: That if a bidder is a regular dealer or manufacturer and is the low responsive bidder he must be awarded the contract for a Formal Advertised procurement. Even if a contracting officer has years of experience with one source as an efficient and timely producer, he must accept a new low bidder, even if that low bidder has never produced the specific end item required by the solicitation. It is not statute or regulation that sets the public policy to award only to the low responsible and responsive bidder, but the decisions of the GAO." — Dean Francis Pace, Negotiation and the Management of Defense Contracts

 

"Of all government procurement practices, Formal Advertising is one of the most inflexible and one of the most widely criticized. "

 
• 1980 "I've worked with Formal Advertising and have observed that the procedure has flaws which come from its rigidity. It requires award to be made to the low responsible offeror whose bid conforms to the requirements of the Invitation For Bid (IFB); or the IFB must be cancelled. After opening there is no opportunity for discussion with offerors. Thus, no way to explore possible misunderstandings, work out discrepancies, or seek better prices. This inflexibility can detract from the equity of the bargain between the parties . . . another problem involving Formal Advertising is the handling of bidder's mistakes. Mistakes do happen in bid preparation. Under Formal Advertising the normal treatment that I have observed is to allow the bidder with the mistake to withdraw and award the contract to someone else. This usually results in a contract price that is greater than would have been the case if correction of the mistaken bid has been permitted." — George G. McGuire, CM November 1980

Suggested Reforms

In the context of this criticism, and recognizing the opportunity for improvement in the Federal Procurement System, the Proposal suggested true reforms in the solicitation process. These reforms promised to lift the constraints which had limited federal contracting officers in the choice of procurement strategy — Formal Advertising versus competitive or non-competitive negotiation. In fact, the Proposal introduced a whole new terminology to Federal Procurement:

—"Two equally valid methods of solicitation will be used to obtain competition. They equate generally to the solicitation procedures for Formal Advertising and competitive negotiation "

—"Bidding Without Discussion will be used when the government requirements and the terms and conditions of the solicitation can be sufficiently described to allow the timely preparation and evaluation of bids on a common basis without the need to hold discussions with bidders. A public bid opening will be held and award made to the low responsive and responsible bidder."

—"Bidding With Discussion will be used when it is necessary to discuss the requirement or terms and conditions after receipt of bids but prior to contract award. The bid opening will not be public. Award will be based on the evaluation factors set forth in the solicitation."

 

"The current version of FAR falls short of the sweeping reforms contemplated in the Proposal. "

 
The Proposal then defined three distinct types of competition: price, lowest total cost, and multiple factors.By proper choice of bidding method and bid evaluation (competition) factors, the government buyer would be able to seek the best overall value. These modern procurement concepts would supplant Formal Advertising.The Proposal stated explicitly, "Price competition and Award Without Discussion equate to Formal Advertising under the current system." The Proposal went even further, identifying a nine-point plan to address the issue of competition in general and Formal Advertising in particular.

l. Drop preference for Formal Advertising; allow flexibility within statutory criteria to choose procurement method most suited to agency need and marketplace.

2. Open up competition and permit contractor performance responsibility by shifting away from governmentmandated designs.

3. Shed complex rules and unnecessary paperwork and regulations.

4. Remove useless controls on negotiation — the statutory exceptions and all their attendant paperwork.

5. Expand competition by limiting the use of noncompetitive procurements to seven conditions.

6. Separate competitive from noncompetitive and recognize that competition takes more than one form.

7. Work from a new definition of competition that encourages ideas, use of new technology, and product competitions.

8. Allow patented items to be competitive if there are alternatives.

9. Give statutory recognition to innovative combinations of competitive methods of procurement.

Status Quo

The reforms proposed to Congress thus afforded a real opportunity to resolve the problems which have plagued the bidding process for many years. Unfortunately, these changes faced substantial obstacles. The Proposal itself recognized two of these:

1. "Congress may object to giving up the preference for Formal Advertising. The legal community may resist sacrificing the body of law that has grown up around this concept."

2. "People simply resist change, and some training will be necessary in the new types of competition .

The same was addressed by C. W. Borklund in the February 1983 Government Executive:

"Procurement regulations and contracting options are like a carpenter's box of tools; and the chief challenge to the acquisition executive is to make the right tool selections for the job he has to do. That's valid enough, of course, but where the theory can crumble into confusion is when higher authority starts second-guessing that executive's choice of tools."

These predictions appear to have come true. The current version of FAR falls short of the sweeping reforms contemplated in the Proposal. References to Bidding With Discussion and Bidding Without Discussion have disappeared. The FAR represents a superlative piece of editing, but the opportunity for change has been allowed to pass. The mechanics of Formal Advertising contained in Part 14 of FAR are the same as current regulatory provisions. Only one change has been identified. This is the revision of the contract award — Formal Advertising Clause (FAR 52.214-10) to read "The government may . accept other than the lowest bid." Such a selection would be based on factors identified elsewhere in the solicitation.

Unfortunately, the list of permissible evaluation factors (FAR 14.407.5) is very limited. A change to permit award to other than the lowest bidder on these limited grounds falls far short of the broad horizons contemplated in the Proposal. The sweeping rhetoric of informed judgments, broader latitude," and "a more responsible role for procurement personnel" did not survive the FAR process.

Yet the role of the procurement professional as "the government's business managers" must be expanded, not restricted. This expanding role can only occur if the workforce makes use of every available tool, even a tool as fragile and limited as "The Government may accept other than the lowest bid." Those simple words open an opportunity for awards in the true best interest of the government. The extent of the opportunity will be defined in the actions of government Contracting Officers in the coming months. They may choose to utilize this new tool to the maximum possible extent. Or they may choose to do business at the same old stand.