Office of Advocacy
Small Business Administration
November 5, 1996
General Services Administration
FAR Secretariat (MVRS)
18th & F Streets, N.W.
Room 4037
Washington, DC 20405
Subject: Federal Acquisition Regulation; Application of Special
Simplified Procedures to Certain Commercial Items [FAR Case 96-307]
Dear FAR Secretariat:
This concerns a proposed rule published in the Federal Register on
September 6, 1996, entitled "Federal Acquisition Regulation; Application
of Special Simplified Procedures to Certain Commercial Items."
The Office of Advocacy believes this rule will restrict competition and
affect many small firms. Advocacy's concerns are based on the following:
1. The proposal applies "simplified procedures" designed for small
purchases up to $100,000 to acquisitions of commercial items up to $5
million. The streamlined procedures allow significant exemptions from
full and open competition requirements, including very limited notice and
response times; informal evaluations and negotiations; and, significant
latitude on the part of contracting officers to limit the number of firms
considered.
Many checks and balances currently built into the FAR, to promote
vigorous and equitable competition in commercial item buys, are removed
under the proposal. Further, the application of simplified procedures to
construction will hamper the process, not improve it.
2. The rule allows alternative negotiation techniques or
"auctioning." As proposed, a contracting officer may indicate to offerors
during negotiations a price that the offeror will have to meet or better
in order to be considered further. The price established by the
contracting officer may be based on offers received or information from
other sources, regarding the total acquisition or any contract line item.
With this auctioning technique in place, the contracting officer can use
low-ball prices from large firms with big margins to squeeze out small
firms. Auctioning will restrict competition by favoring large businesses,
with deep pockets, who will force small firms out of federal markets.
Advocacy supports the efficiencies and cost savings this rule is striving
to achieve. However, it is concerned that the proposal will restrict
competition and disproportionately affect small businesses. Especially
hard-hit would be new government vendors, emerging firms and other small
businesses operating on thin margins and, perhaps, less polished in
marketing to the government.
The federal government has an obligation -- stemming from the tenets of
good public policy -- to direct public monies in such a way that
competition is vigorously encouraged. As such, certain allowances for
small firms should exist to level the playing field so that open
competition is preserved and that all sectors of the economy, including
women and minority business owners, have an equal opportunity to
participate in federal markets. It is easy -- and arguably more efficient
in the short term -- for the government to contract with a cadre of mostly
large firms. In the process, however, the fate of many small firms, the
entrepreneurial base of the economy and the future of competition are
jeopardized.
In addition, Advocacy finds the subject rule to be deficient in satisfying
the analysis requirements of the Regulatory Flexibility Act (RFA). The
proposal is expected to have a significant impact on a substantial number
of small businesses and an Initial Regulatory Flexibility Analysis (IRFA)
was prepared. However, the analysis does not paint an accurate picture
regarding how the rule will impact small firms, nor does it indicate that
regulatory alternatives were considered in the process.
The IRFA indicates that the rule "applies equally to both large and small
entities" and that the proposal will "have a beneficial impact on
industry." However, there is no estimated measure or quantification of
small business impact or number and dollar value of federal contracts
likely affected. The analysis does include some DoD data, but the
provided information is fragmented and inclusive.
For instance, the analysis states, "DoD annually awards approximately
20,528 prime contracts between $100,000 and $5 million to small business
concerns" and that, according to an SBA/Advocacy publication, "99.7
percent of all businesses in the United States are small businesses." The
analysis then suggests, "small businesses will have a greater opportunity
to compete to sell commercial items to the government." This analysis is
"all over the road" and does not provide a meaningful basis upon which
small firms can comment. In FY '95, according to information we obtained
from the Federal Data Center, the federal government awarded about $71
billion in prime contracts between $100,000 and $5 million. Of this
amount, $23 billion, or 32 percent were awarded to small firms. Based on
the newly expanded definitions of commercial items - under the Federal
Acquisition Streamlining Act and the Federal Acquisition Reform Act - a
significant amount of future contracts will be subject to the proposed
simplified procedures and many small firms will be impacted. As such,
Advocacy finds the analysis deficient in content and very misleading. How
can the analysis boldly suggest that small firms will benefit from the
rule, when this issue has been vigorously debated, there is no data
supporting small businesses benefits, and it includes the controversial
auctioning technique opposed by many small firms? Advocacy also believes
this proposal should be considered a major rule, subject to Office of
Management and Budget (OMB) review under Executive Order 12866. A major
rule is defined as one with an annual economic impact of greater than $100
million or having significant adverse effects on competition.
The Office of Advocacy asks the FAR Council to consider the following:
1. Re-issue the proposed rule subject to OMB review under Executive
Order 12866, after completing a proper regulatory analysis.
2. Remove auctioning techniques from the proposal. Such a process
should be tested in a pilot environment before incorporation in the FAR as
a government-wide policy.
3. Re-affirm in this rule the government's commitment to utilizing
small firms in federal procurement. The Office of Advocacy is committed
to regulatory reform and stands ready to work with the FAR Council and the
promulgating agencies in that endeavor.
Sincerely,
Jere W. Glover James M. O'Connor
Chief Counsel Procurement Policy Advocate
Office of Advocacy Office of Advocacy
cc: The Honorable Sally Katzen, OMB, OIRA