New Purchasing Rules Take Root
he government's civilian agencies spent $58 billion on major procurements last year, and officials in the White House and on Capitol Hill want them to make sure they get their money's worth. That's why procurement reforms have been coming down the pike, one after another, for years.
Last year, one of the most important recent reforms aimed at making contracting easier, cheaper and better overall - the rewrite of Part 15 of the Federal Acquisition Regulation (FAR) - went into effect. The rewrite's goal: Streamline and simplify source selection and negotiation requirements to cut the amount of time and money needed to complete a contract award.
The revision, which was published in the Federal Register on Sept. 30, 1997, took effect Oct. 10. However, agencies were allowed to delay compliance until Jan. 1, 1998. Although Part 15 governs only about 20 percent of federal procurement actions, it applies to about 80 percent of money spent.
Open Discussions
Central to the revision is a redesigned negotiation process, which encourages early and open discussion between agencies and prospective contractors. Some agencies already were engaging in such dialogue, at least to a limited degree, by issuing draft requests for proposals. Contractors with relevant expertise then helped agencies refine the requests before final versions were published. The Part 15 rewrite encourages this type of pre-solicitation communication between agencies and contractors.
Agency contracting officers should feel free to meet one-on-one with potential bidders, so contractors can better understand agency needs and the government can better assess contractor capabilities, notes an administration official. "No agency would have thought that was appropriate before" the rewrite made it explicit, he says. "But as long as you're being impartial and provide equal access to all potential bidders, there's no problem meeting with them one-on-one."
The new Part 15 also recommends the "down-select" process. This approach allows agencies to let contractors know prior to solicitation of bids whether or not they are likely candidates for an award. In effect, through down-select agencies can screen potential contractors. Agency advice that a particular firm probably would not be right for a given job, however, does not preclude that company from participating in the formal solicitation process.
The biggest civilian purchaser, the Energy Department, used this approach in its $3.7 billion sale of Elk Hills Petroleum Reserve to Occidental Petroleum Corp. last February. The nine procurements needed to support the sale were done in record time, in part because the down-select process allowed the agency to weed out unqualified contractors, according to Richard Hopf, DOE's deputy assistant secretary for procurement and assistance management.
Also in line with the Part 15 rewrite, DOE has been awarding some contracts based partially on oral presentations. Talking with contractors in person about how they might handle potential problems can give agencies a better sense of how those people would manage a project, Hopf notes. "You see them in action and can evaluate them."
Narrowing Competition
The FAR Part 15 changes pare down the number of contractors that will be declared to be within the competitive range for a given award. In the past, that range has included any company with a "reasonable chance" of winning the award, which often was just about every company interested. Now the range includes only the "most highly rated" companies. These ratings must be based in part on evaluations of contractors' past performance records. For the time being, past performance requirements apply only to negotiated competitive acquisitions expected to cost more than $1 million. After Jan. 1, 1999, they will apply to those over $100,000.
Administration officials believe the new definition creates a more appropriate competitive range by promoting efficiency while still providing for fair and open competition. The government saves time and money by eliminating the need to review bids with little chance of success. At the same time, companies that are unlikely to win a contract because of such issues as past performance or mismatched expertise no longer will waste resources on bids they probably wouldn't win, notes an administration official.
Once the competitive range for a given contract is established, the Part 15 revision says, agencies should launch hard bargaining discussions. In the past, contract officers often simply pointed out significant weaknesses and deficiencies in a contract proposal, then asked the company to correct them. Now, agencies are encouraged, even if a proposal has no deficiencies, to inform offerers of a desired level of service. In the process, agencies can play contractors off one another until they get the best service possible for a fair price.
With many contract officers still getting used to the new way of negotiating, the full impact of the Part 15 revisions is yet to be seen. As an administration official notes, "The changes represent a major paradigm shift for many people."
Other Reforms
Among other contract reforms getting prominent play at civilian agencies is the push for more competitive contracting. "The goal is to streamline the process, making competitive contracting so easy that agencies will have no incentive not to do it because it will be cheaper and easier," says an administration official.
DOE has completed eight management and operating contract transactions competitively since 1994, accounting for about $30 billion in business, according to Hopf. In the past, DOE primarily renewed existing cost-reimbursement contracts, resulting in many of the same contractors working at a given site for decades. DOE policy now calls for competition on all new management contracts, with exceptions granted only on a case-by-case basis.
Modular contracting also is gaining popularity. Under this approach, large projects are broken down into more manageable chunks. This, proponents say, allows agencies to spot problems earlier in the project and correct them for less money. The modular framework also promotes competition, because many companies may not have the expertise to do an entire project but are well qualified to carry out a part of it, they add.
Agency Purchases
In fiscal 1997, DOE led civilian agency contract spending with more than $15 billion in purchases under prime contracts of $25,000 or more. The largest chunk of the money went to the cleanup of former nuclear weapons production sites. DOE is trying to speed cleanup and ultimately will transfer sites back to communities, as it did in 1997 with the Pinellas Plant in Largo, Fla.
DOE also has been privatizing several of its programs by transferring them either to state or local governments or by selling them. The sale of Elk Hills Naval Petroleum Reserve for $3.65 billion in February, for example, was the largest divestiture of federal property ever. And DOE is in the process of transferring various parts of the Alaska Power Marketing Administration, one of the nation's five hydropower marketing operations, to a municipality and some private utilities. In 1995, the Clinton administration proposed selling three other PMAs but has since dropped the plan because many in Congress oppose the idea.
NASA was, as usual, second in civilian agency spending during fiscal 1997, with more than $11 billion in prime contract awards. The agency's largest new procurement - more than $300 million - was for continuing development of the Stratospheric Observatory for Infrared Astronomy. Like DOE and other agencies, NASA has stepped up its efforts to privatize programs in recent years. For example, United Space Alliance, a Boeing-Lockheed joint venture, has a seven-year, $7 billion contract with possible extensions to privatize space shuttle launch and flight operations. The performance-based contract has enabled NASA to withhold fees when problems cause delays in shuttle activities. Using a similar contract, agency officials hope to transfer space communications functions to the private sector by 2005.
Among major civilian agency contractors, Lockheed Martin Corp. maintained its No. 1 post, in part because of a $1 billion, 10-year contract with the Federal Aviation Administration. Lockheed will provide technical and professional help to the agency as it upgrades the nation's air traffic control system.
The University of California System, which manages Los Alamos and Lawrence Livermore national laboratories for DOE, continued its rise up the charts in 1997. The two labs are heavily involved in the $4 billion per year Stockpile Stewardship and Management Program, under which they will develop supercomputing simulations to replace live tests of nuclear weapons.
Of those who dropped lower on the list, General Motors Corp. slipped from 10th to 35th, primarily as a result of its 1996 sale of Electronic Data Systems Corp. and its 1997 sale of its Hughes subsidiary, both to Raytheon.
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