Fear that Section 803 would kill civilian multiple-award contracts has given way to a belief that it will spur more buying

When lawmakers said they wanted to fix a perception that Defense Department contracting officers were not seeking enough bids on multiple-award contracts, many people predicted the result would be chaos. But since the rule change went into effect last October, the anticipated shock wave does not appear to have materialized.

That may be because, as some observers believe, the rule change simply codifies what had been happening informally anyway. Or it may be that any impact in procurement behavior that the rule will have on vehicles such as the General Services Administration's multiple-award schedules has yet to reveal itself.

"It takes time to get the word out to as large an organization as the DOD," said Larry Allen, executive vice president of the Coalition for Government Procurement, a Washington, D.C., industry group. "But so far we've not seen a lot of DOD procurement officers standing up and screaming about this."

But that's not what Allen and others predicted when Congress first proposed changes in the way DOD awards services contracts.

Wired Task Orders

The changes were prompted in large part by a DOD inspector general's audit published in September 2001 that showed that many defense task orders were wired for specific

vendors.

The audit, which reviewed 423 task orders awarded in fiscal 2000 and 2001, found that 304 — or seven out of 10 — of those orders were awarded on a sole-source or directed-source basis. Of those 304, 86 percent were "improperly supported" awards. Only 119 of the 423 task orders were put out for bid, the audit found, and of those, only 82 received multiple bids.

Critics of DOD's procurement practices also pointed to a November 2000 General Accounting Office study that concluded that most DOD contracting officers did not follow GSA's established procedures for ensuring fair and reasonable prices when using the schedules. Of 22 orders that GAO examined — representing about $112.7 million worth of business — 17 had been placed without seeking competitive quotes from multiple contractors. One of the main reasons was that "many contracting officers were not even aware of GSA's requirement to seek competitive quotes," the GAO report stated.

Congress responded to those findings by inserting language mandating more competition into Section 803 of the 2002 Defense authorization bill. Initially, the rule required DOD contracting officers to compete all task orders greater than $50,000 among all eligible contractors, and all bids received had to be fully and fairly evaluated.

In response, industry and DOD officials complained that the new law would greatly complicate procurements. Hundreds of task orders would have to go out to companies for each contract, Allen said at the time, while DOD's use of GSA schedules would "virtually grind to a halt."

Deidre Lee, director of Defense procurement and acquisition policy, was less extreme but nevertheless warned that the new requirement would make it more difficult to use governmentwide acquisition contracts.

The bill's language was eventually toned down in a House/Senate committee. The final bill essentially requires DOD contracting officers to compete contracts enough to prompt qualified bids from at least three schedule holders, or be able to document why they couldn't.

Still, up until the final DOD rule was published in October 2002, there was widespread apprehension about what the new mandates would mean for DOD's use of the GSA schedules and other multiple-award services contracts.

But so far — and surprisingly for some — those early fears have not been realized. "I actually thought it would cause a dip in the use of the GSA schedules," Lee said. "However, so far we haven't seen people backing away from the schedules because of the new rule changes."

Potential Fallout

GSA officials hope the new rule might actually push more DOD procurement officers to use the schedules. Because GSA does much of the upfront work to qualify vendors who want to sell products through the Federal Supply Service (FSS), DOD officials can eliminate some of the effort required to compete awards by focusing on the vendors included in the schedule categories.

"The military is the GSA's largest customer, and overall, I don't see any significant impact on its use of the schedules," said Neal Fox, assistant commissioner for acquisition at FSS. Fox was responsible for commercial information technology products and services procurement at the Air Force before joining GSA in mid-2002. "In fact, I do see that upside potential."

The rule could also mean a big boost for some of the newer purchasing tools GSA has introduced. The e-Buy Web portal, for example, which GSA launched in June 2002, has been touted by the Office of Federal Procurement Policy (OFPP) as a "bullet-proof" way for DOD to meet its Section 803 compete requirements, according to Fox.

E-Buy is an online system for preparing and sending requests for quotations out to schedule vendors. If DOD procurement officers used e-Buy to award a services contract, they would be able to send that RFQ to just a few suppliers by name, or to every vendor listed as providing the services being sought.

But some procurement experts see the potential for a major change in the way DOD uses the schedules and in the way it competes

multiple-award contracts.

The Section 803 rule will lead DOD to use GSA schedules less and will push military agencies to establish their own multiple-award indefinite-delivery, indefinite-quantity contracts, said Catherine Poole, a principal with Acquisition Solutions Inc., an Oakton, Va., firm that advises federal agencies on procurement reforms.

"I think these kinds of [DOD-specific] multiple-award contracts would meet the compete requirements of Congress," she said. "When agencies have task orders and want to compete requirements, instead of going to the open market each time, they can go to the three, four or five contracts they've established under this program and ask for quotes from those contractors."

The DOD contract will also help officials respond to other pressures they are feeling from Capitol Hill. "Congress is starting to question why the DOD is paying millions of dollars to outside agencies to fulfill these contract awards when it has so many procurement people of its own," she said. "So I see the DOD starting to use these kinds of contracts also to pull more of its procurements in-house."

Others, however, don't see that as likely. Ray Bjorklund, vice president of market intelligence and chief knowledge officer for Federal Sources Inc., an IT market research firm specializing in government, said he has "not heard enough credible evidence" to believe that DOD will launch its own multiple-award services contracts.

"Deidre Lee's office understands that the GSA schedules are a very good procurement tool for the DOD," he said, adding that Defense officials are unlikely to do anything to undermine them.

In general, contractors say Section 803 has done little to affect business. The DOD rule was intended to boost competition, and indeed, the rule may increase competition on recompetes, observers indicate. But as for new jobs, "there's no shortage of bidders," said Ernst Volgenau, president and chief executive officer of SRA International Inc.

It all boils down to whether the new 803 rule is good or bad for government procurement, said Steve Kelman, professor of public management at Harvard University's Kennedy School and former administrator of OFPP.

He sees it as a benefit. "After all, 803 still requires a streamlined competition," he said. "Even with the new rule, you can still award a contract of over $100,00 within a number of weeks, compared to the six or seven months it used to take in the not-so-distant olden days."

Any situation in which there is only one bidder on a contract because of inadequate competition, which he believes is a fairly infrequent occurrence, should "raise a red flag," Kelman said. "So why shouldn't [the new rule] be welcome?

"I continue to believe that this should not be seen as a means of someone trying to put an autocratic rule in place," he added. "People should be telling themselves that this is obviously an important thing, so let's go for it."

Robinson is a freelance journalist based in Portland, Ore. He can be reached at hullite@mindspring.com. John Moore, a freelance writer based in Syracuse, N.Y., also contributed to this story.