General Services Administration
FAR Secretariat (VRS)
18th & F Streets, N.W.
Room 4037
Washington, DC 20405
Dear FAR Secretariat:
This concerns a final rule published in the Federal Register on July 26, 1996 entitled "Federal Acquisition Regulation; Simplified Acquisition Threshold / Federal Acquisition Computer Network (FACNET); and Micro-Purchase Procedures [FAR Cases 94-770 and 94-771]."
The Office of Advocacy, in accordance with its responsibility to ensure that federal agencies consider the impact of their rules and policies on small business, finds the subject rule to be deficient in satisfying the requirements of the Regulatory Flexibility Act (RFA). Specifically, the final rule, which was developed from two FAR Cases published as independent proposed and interim regulations, does not contain a proper final regulatory flexibility analysis, nor does it satisfactorily address concerns raised by the Office of Advocacy or the small business community.
Advocacy's concerns regarding this final regulation are heightened by the recent passage of the Small Business Regulatory Enforcement Fairness Act which is intended to provide additional regulatory relief for small businesses, including judicial review of agency compliance with the law.
Advocacy provided its views on the changes proposed in this rule on multiple occasions and at various stages of development, including at an April 3, 1995 public meeting, in formal regulatory comments dated February 13, 1995, April 6, 1995, and August 15, 1995 as well as in an April 26, 1995 letter to Dr. Steven Kelman, the Administrator of the Office of Federal Procurement Policy (copies are enclosed).
The Office of Advocacy notes the following RFA deficiencies:
1. Incomplete Scope of Analysis
The Final Regulatory Flexibility Analysis (FRFA) as well as the discussion in the preamble under section B., Regulatory Flexibility Act, relate exclusively to FAR Case 94-770, simplified acquisition threshold / FACNET and do not address FAR Case 94-771, micro-purchase procedures.
There is no mention in the FRFA or the rule of the significant impact micro-purchase procedures will have on the small business community. Further, there is no discussion of comments submitted by Advocacy and other groups pertaining to FAR Case 94-771. Said case was published in the Federal Register as an interim rule on December 15, 1994.
Advocacy, in its February 13, 1995 comments urged the FAR Council to "...resolicit comments after preparing a proper initial regulatory flexibility analysis and publishing it with an amended micro-purchase procedures interim rulemaking." Advocacy found the initial regulatory flexibility analysis to be insufficient, stating "...the analysis seems to skirt the intent of the law and does not provide an accurate assessment of the rule's impact."
Micro-purchase procedures remove long-standing small business set-asides for government acquisitions, at or below $2,500. The majority of the government's 18+ million contract actions each year are for federal purchases under $3,000. Of all the rules implementing the Federal Acquisition Streamlining Act, micro-purchase procedures will likely have the most significant and adverse affect on the small business community. Advocacy is troubled that its comments on micro-purchase procedures were ignored and alarmed that such an important rule would be finalized without a complete or proper analysis.
2. Insufficient Analysis
Notwithstanding the incomplete scope of the analysis, the FRFA does not paint an accurate picture of how the new simplified acquisition threshold and FACNET will impact small businesses, nor does it respond to Advocacy's earlier comments.
Advocacy argued in prior comments, although strongly supportive of electronic commerce, that "...the anticipated costs, as estimated in the proposed and interim rules, will serve to deter many small and emerging firms from participating in FACNET. As a result, the goal of the President and the intent of the law will not be fulfilled and small businesses will be ill-served."
Advocacy and the small business community further argued that the costs associated with FACNET were more than "insignificant" and would disproportionately affect small firms. These claims were supported by the Government Accounting Office (GAO) in testimony before the House Committee on Small Business.
More than a year has passed since FACNET was established. Costs are still a key factor as well as a deterrent for participation, especially among small firms. Less than one percent of all government contract actions are currently being processed through FACNET and, with 3,100 businesses registered, about one percent of all government vendors are using the system.
With FACNET's humble success and with strong concerns of disproportionate costs voiced by the Office of Advocacy and the small business community, Advocacy is perplexed by the rule's final analysis which concludes that the regulatory change will improve business opportunities for more than 300,000 businesses. Is this really an accurate assessment based on a sincere effort to analyze meaningfully the rule's impact on small firms?
Electronic commerce is the future and Advocacy strongly supports the intent of the statute. However, Advocacy is concerned by the disproportionate impact of the rule on small firms and is alarmed by an analysis that is far from complete, accurate or representative of small business impact.
In addition and regarding specific elements of the submitted FRFA, part 2 does not summarize the significant issues raised by the public comments. It appears to discuss partially one of Advocacy's comments "...that no or lower cost, or federally subsidized alternatives be considered to help small firms adjust to and fully utilize the government's electronic commerce system."
The analysis, however, mentions and responds to only the suggestion of free access to FACNET, without mentioning "lower cost or subsidized alternatives." Further, the analysis suggests that the "free access" alternative is without merit, even though some federal agencies are exploring such access for sectors of the economy and it was one of the top recommendations of the June 1995, White House Conference on Small Business.
Further, the initial regulatory flexibility analyses prepared for both FAR Cases were not published in the Federal Register or summarized as required in the proposed or interim rules. As a result, the public never had a meaningful opportunity to comment.
Part 3 does not provide an accurate description of and estimate of the number of small businesses to which the final rule will apply. The FRFA indicates only that the rule will apply to all large and small entities who are interested in participating in government acquisitions at or below $100,000. The analysis makes no attempt to estimate the typical number of government purchases under $100,000 and the number or percentage of such sales that are historically awarded to small firms.
Part 5 does not outline any steps taken to minimize the significant economic impact this rule will have on the small business community. Rather, a discussion of suggested alternatives is included with a brief justification of why each was not adopted.
Advocacy provided significant, multiple and extensive comments on this rule. It is disappointing that its comments, especially concerning RFA compliance, were not taken seriously. The recent reforms articulated in SBREFA, mandating regulatory relief for small businesses, should give agencies ample cause to make RFA compliance a top priority.
Sincerely,
Jere W. Glover
Chief Counsel
Office of Advocacy
Jim O'Connor
Assistant Advocate
Office of Advocacy
Enclosures:
1. February 13, 1995 regulatory comment letter from Jere Glover to the FAR Secretariat concerning the Micro-Purchase Procedures interim rulemaking.
2. April 3, 1995 statement of James O'Connor before the FAR Council at a public meeting regarding the Simplified Acquisition Procedures/FACNET proposed rulemaking.
3. April 6, 1995 regulatory comment letter from Jere Glover to the FAR Secretariat concerning the Simplified Acquisition Procedures/FACNET proposed rulemaking.
4. April 26, 1995 letter from Jere Glover to Dr. Steven Kelman, Administrator, Office of Federal Procurement Policy.
5. July 20, 1995 testimony of Jere Glover before the House Committee on Small Business regarding the implementation of FASA.
6. August 15, 1995 regulatory comment letter from Jere Glover to the FAR Secretariat regarding the Simplified Acquisition Procedures/FACNET interim rulemaking.
cc: The Honorable Sally Katzen, OIRA
The Honorable Steven Kelman, OFPP