Agencies must keep pace with latest buying rules

No one who knows the procurement process thinks it is easy to change. Vast and
complicated, it is like the Titanic: It doesn’t turn easily.

That’s why legislative and regulatory changes sometimes have unintended
consequences or bizarre beginnings. For example, the requirement for certified cost data
came about because of a concern that defense contractors were sandbagging targets in
incentive contracts. This small issue sprouted into a major program.

Also, it doesn’t help that training budgets haven’t kept pace with
accelerating change. Some people cling to old ways they know instead of using new ones for
which they are unprepared.

The boldest innovations are in commercial-item procurement. Contracting officers
can—are supposed to—adopt clauses that reflect commercial practice. But too
often solicitations for commercial items contain the familiar old Federal Acquisition
Regulation clauses.

Agencies even fail to use the FAR’s abbreviated clauses for commercial items,
falling back on the more extensive traditional ones. Prime contractors compound the
problem by flowing down unneeded clauses in contracts for commercial items.

One reason contracting officers do that could be that they are uncertain about what
commercial clauses should replace the FAR ones. Too few buyers understand practices in
particular industries.

Market research could supply some answers, as the FAR suggests. But market research is
something of a stepchild in the acquisition process.

A recent General Accounting Office decision illustrates the pitfalls of failing to
perform market research. The ruling was in the protest of Smelkinson Sysco Food Services.
That case, B-281631, involved a proposed contract for food distribution, but its lessons
apply to information technology procurement.

The Defense Supply Center in Philadelphia solicited a five-year contract based on the
vendor’s cost plus a markup. The solicitation also had an unusual requirement.

When the contractor bought items from an affiliate, such as a subsidiary, the
affiliate’s price could not include profit unless the contractor disclosed it to the

One bidder protested the solicitation, objecting to this provision as contrary to
customary practice in the industry. The government had an interesting defense: No one else
had complained, not even at trade conferences where the agency described the provision.

GAO held that mere silence wasn’t enough because the challenged provision differed
from the standard provisions for commercial item contracts in FAR 52.212-5. Instead,
before an agency can tailor a provision in the FAR’s standard terms for commercial
contracts, it should first engage in meaningful market research. Only then can it
demonstrate that the altered clause is consistent with customary commercial practice.

Ironically, GAO’s ruling could constrain the very flexibility that reform was
supposed to add to commercial-item acquisitions. If an agency sees the market research as
too burdensome, it will just go with the standard FAR clauses—commercial or
not—for commercial items.

The current FAR clauses, with their pros and cons, are at least a known quantity.

When agency buyers do learn about commercial clauses, they don’t necessarily like

For instance, commercial inspection, acceptance and warranty clauses tend to be written
by sellers for standard contracts. As such, they usually are slanted in the sellers’
favor. In IT, though, government clauses usually give the buyer greater protection.

The enhanced rights the government receives under its own clauses may result in higher
prices. Yet it’s difficult to quantify the added amount, or to decide whether the
rights added by special clauses are worth the extra cost.

For instance, in the Smelkinson Sysco case, the agency was concerned that
intracorporate sales might lead to price gouging. It chose the wrong method to solve the

Procurement officials may also dislike the fact that the FAR standard clause for
commercial-item contracts does not give the government the right to make unilateral
changes in the contract.

If an agency makes such a change, a contractor might be able to stop work. Otherwise,
the clause requires contractors to continue work pending resolution of disputes.  

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo &
Powell, PLLC. E-mail him at

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