Competition in Federal Contracting: An Overview of the ...

Competition in Federal Contracting: An Overview of the Legal Requirements

Kate M. Manuel Legislative Attorney

June 30, 2011

CRS Report for Congress

Prepared for Members and Committees of Congress

Congressional Research Service

7-5700

R40516

Competition in Federal Contracting: An Overview of the Legal Requirements

Summary

Competition in federal procurement contracting has become a topic of increased congressional and public interest, in part because of alleged misconduct involving noncompetitive contracts and reports that the number of noncompetitive contract actions has increased. President Obama also emphasized competition in his March 4, 2009, memorandum on government contracting. Additionally, prominent officials within the Department of Defense (DOD), which accounts for some 70% of federal procurement spending per year, have expressed their commitment to reducing DOD's use of noncompetitive contracts.

The Competition in Contracting Act (CICA) of 1984 generally governs competition in federal procurement contracting. Any procurement contract not entered into through the use of procurement procedures expressly authorized by a particular statute is subject to CICA. CICA requires that contracts be entered into after "full and open competition through the use of competitive procedures" unless certain circumstances exist that would permit agencies to use noncompetitive procedures. Full and open competition can be obtained through the use of sealed bids, competitive proposals, or other procures defined as competitive under CICA (e.g., procurement of architectural or engineering services under the Brooks Act). Full and open competition under CICA also encompasses "full and open competition after exclusion of sources," such as results when agencies engage in dual sourcing or set aside acquisitions for small businesses.

Any contract entered into without full and open competition is noncompetitive, but noncompetitive contracts can still be in compliance with CICA when circumstances permitting other than full and open competition exist. CICA recognizes seven such circumstances, including (1) single source for goods or services; (2) unusual and compelling urgency; (3) maintenance of the industrial base; (4) requirements of international agreements; (5) statutory authorization or acquisition of brand-name items for resale; (6) national security; and (7) contracts necessary in the public interest. CICA also allows agencies to use "special simplified procedures" when acquiring goods or services whose expected value is less than $150,000, or commercial goods or services whose expected value is less than $6.5 million ($12 million in emergencies).

Issuance of orders under task order and delivery order (TO/DO) contracts is not subject to CICA, although award of TO/DO contracts is. However, the Federal Acquisition Streamlining Act (FASA) of 1994 established a preference for multiple-award TO/DO contracts; required that agencies provide contractors "a fair opportunity" to compete for orders in excess of $3,000 under multiple-award contracts; and authorized the Government Accountability Office (GAO) to hear protests challenging the issuance of task or delivery orders that increase the scope, period, or maximum value of the underlying contract. The National Defense Authorization Act (NDAA) for FY2008 further limited the use of single-award TO/DO contracts. It also specified what constitutes a "fair opportunity to be considered" for orders in excess of $5.5 million under multiple-award contracts and granted GAO jurisdiction to hear protests of orders valued in excess of $10 million. While the provision authorizing GAO to hear such protests regarding the orders of civilian agencies sunset in May 2011, GAO recently found that it has jurisdiction over these protests because the NDAA for FY2008 amended FASA to provide that all limitations on GAO's jurisdiction over task and delivery order protests expired in May 2011, not just its authority over protests of task and delivery orders valued in excess of $10 million. The 111th Congress enacted legislation extending the sunset date for GAO's jurisdiction over protests of orders valued in excess of $10 million issued by defense agencies until September 30, 2016 (P.L. 111-383, ?825).

Congressional Research Service

Competition in Federal Contracting: An Overview of the Legal Requirements

Contents

Introduction ................................................................................................................................1 Background ................................................................................................................................2 Contracts Not Subject to CICA ...................................................................................................6 Contracts Subject to CICA ..........................................................................................................7

Full and Open Competition Defined ......................................................................................7 Competitive Procedures Resulting in Full and Open Competition ..........................................8

"Full and Open Competition After Exclusion of Sources"................................................9 Circumstances Permitting Other Than Full and Open Competition ...................................... 11

Justifications & Approvals ............................................................................................ 13 "Special Simplified Procedures for Small Purchases" .......................................................... 15 Other Competition Requirements ........................................................................................ 18 Competition Requirements for Task and Delivery Order Contracts ............................................ 20 Legislative Initiatives ................................................................................................................ 23

Figures

Figure 1. Contracts Subject and Not Subject to CICA..................................................................7 Figure 2. Simplified Acquisition Procedures: Competition Requirements at Various Price

Thresholds ............................................................................................................................. 17 Figure 3. TO/DO Contracts: Competition Requirements at Various Price Thresholds ................. 23

Tables

Table 1. Approving Officials for Noncompetitive Contracts in General...................................... 13 Table 2. Approving Officials for Noncompetitive Contracts Under the Simplified

Acquisition Procedures .......................................................................................................... 17 Table 3. Types of Competition Under CICA .............................................................................. 18 Table A-1. Potential Applications and Limitations ..................................................................... 26

Appendixes

Appendix. Circumstances Permitting Other Than Full and Open Competition Under CICA ..................................................................................................................................... 26

Contacts

Author Contact Information ...................................................................................................... 29

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Competition in Federal Contracting: An Overview of the Legal Requirements

Introduction

"Procurement" describes the process whereby the government obtains goods and services from private parties that it does not produce or provide for itself. Competition in government procurement means that the government determines from whom to buy goods and services--and thus with whom to contract--by "solicit[ing] or entertain[ing] offers from two or more competitors, compar[ing] them, and accept[ing] one based on its relative value."1 Competition in federal procurement contracting has recently become a topic of increased congressional and public interest, in part because of high-profile incidents of alleged misconduct by contractors or agency officials involving noncompetitive contracts and reports that the number of noncompetitive contract actions by the federal government has increased.2 Hearings in the 110th and 111th Congresses addressed agencies' alleged failures to compete contracts properly,3 and members enacted or proposed legislation addressing reported deficiencies in the laws governing competition in federal contracting, or agencies' compliance with these laws.4 President Obama also emphasized competition in his March 4, 2009, memorandum on government contracting.5 Additionally, prominent officials within the Department of Defense (DOD), which accounts for

1 Ralph C. Nash, Jr., Steve L. Schooner, Karen R. O'Brien-DeBakey, and Vernon J. Edwards, The Government Contracts Reference Book: A Comprehensive Guide to the Language of Procurement 109-110 (2d ed. 2007). 2 See, e.g., Robert O'Harrow, Jr., FDA Takes End Run to Award Contract to PR Firm, Wash. Post, Oct. 2, 2008, available at (reporting that the U.S. Food and Drug Administration made a noncompetitive award to "ensure the work would go to a Washington public relations firm with ties to the FDA official arranging the deal"); Alice Lipowicz, Agencies Spent Billions of Stimulus Money on Noncompetitive Contracts, Fed. Computer Week, Oct. 15, 2009, available at (reporting widespread use of noncompetitive contracts under the American Recovery and Reinvestment Act). 3 See, e.g., Failed Homeland Security Contracts: Hearings Before the Subcomm. on Mgmt., Investigations & Oversight of the House Comm. on Homeland Security, 110th Cong. (Sept. 17, 2008) (testimony of James L. Taylor, Deputy Inspector General, DHS) (noting that DHS did not comply with federal regulations when it awarded a sole-source contract to Chenega Technology Services Corporation); Contracting Revision Bills: Hearing before the Subcomm. on Government Mgmt., Organization & Procurement of the H. Comm. on Oversight & Government Reform, 110th Cong. (Feb. 27, 2008) (testimony of Paul A. Denett, Administrator, Office of Federal Procurement Policy) (highlighting recent executive branch efforts to increase competition in contracting). 4 See infra notes 120 to 131 and accompanying text. 5 The White House, Office of the Press Secretary, Government Contracting: Memorandum for the Heads of Executive Departments and Agencies, Mar. 4, 2009, available at . This memorandum also called for the Director of the Office of Management and Budget to develop guidance to "govern the appropriate use and oversight of sole-source and other types of noncompetitive contracts and to maximize the use of full and open competition and other competitive procurement processes." Id. This guidance was issued on October 27, 2009, and calls for agencies to focus on requirements development and outreach to potential vendors; use performance-based acquisitions and commercial solutions; evaluate alternative competition strategies for larger and more complex requirements; use strategic sourcing; ensure consistent maximization of competition at the task and delivery order level; give maximum practicable consideration to small businesses; limit the length of any noncompetitive contracts; ensure price reasonableness in noncompetitive contracts; regularly assess contractor performance under noncompetitive contracts; engage with the marketplace to determine how barriers to competition can be removed; and analyze the agencies' largest "spend categories." Executive Office of the President, Office of Management and Budget, Increasing Competition and Structuring Contracts for Best Results, Oct. 27, 2009, available at assets/procurement_gov_contracting/increasing_competition_10272009.pdf. The October memorandum also required agencies "reduce by at least 10 percent the combined share of dollars obligated through new contracts in FY 2010 that are ... awarded non-competitively and/or receive only one bid in response to a solicitation or request for quote," among other things. Id.

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Competition in Federal Contracting: An Overview of the Legal Requirements

some 70% of federal procurement spending per year,6 have expressed their commitment to reducing DOD's use of noncompetitive contracts.7

This report describes the competition requirements currently governing the procurement activities of federal agencies. It addresses (1) what contracts are subject to competition requirements; (2) what constitutes full and open competition for government contracts; (3) what is meant by "full and open competition after exclusion of sources"; (4) the circumstances permitting agencies to award contracts on the basis of other than full and open competition; (5) the "special simplified procedures for small purchases"; (6) the competition requirements for task order and delivery order (TO/DO) contracts; and (7) legislative reforms relating to competition. It also briefly describes the benefits and drawbacks of competition, situates recent reform efforts within their historical context, and discusses how the policy debates surrounding competition in federal contracting can shape legislative responses. It does not directly address so-called "public-private competitions" or "competitive sourcing targets" under the Federal Activities Inventory Reform (FAIR) Act or Office of Management and Budget (OMB) Circular A-76.8 Public-private competitions are conducted to determine whether government employees or private contractors will perform functions formerly performed by the government that have been identified as commercial and suitable for contracting out.9

Background

The federal government has promoted competition between offerors seeking to meet its needs since at least 1781, when the Superintendent of Finance advertised in a local newspaper for proposals from potential suppliers of food for federal employees in Philadelphia.10 Then, as now, the government encouraged competition because of its reported benefits to the government and the general public. Proponents of competition note that when multiple offerors compete for the government's business, the government can acquire higher quality goods and services at lower prices than it would acquire if it awarded contracts without competition. Proponents also note that competition helps to curb fraud because it allows for periodic changes in the vendors from which the government acquires goods and services, thereby limiting opportunities for government employees to enter into collusive agreements with their regular suppliers. Competition is similarly said to promote accountability by ensuring that contracts are entered into on their merits and not upon any other basis (e.g., familial or other relationships between contracting officers and

6 Federal Contract Awards by Major Contracting Agency 2009, available at tables.php?tabtype=t1&rowtype=f&subtype=a&sorttype=2008. 7 See, e.g., Gates Cites Acquisition Reform as One of Defense Department's Greatest Challenges, 91 Fed. Cont. R. 71 (Feb. 3, 2009) (Gates' mentioning "seeking increased competition" as one strategy for reforming DOD procurement); Office of the Undersecretary of Defense for Acquisition, Technology and Logistics, Review Criteria for the Acquisition of Services: Memorandum, Feb. 18, 2009, available at (memorandum from Shay D. Assad, Director of Defense Procurement, stating that the requirements of service contracts should be articulated in such a way as to provide for "maximum competition," in general, and for "meaningful competition" for orders under multiple award contracts). 8 See FAIR Act, P.L. 105-270, 112 Stat. 2382 (1998) (codified at 31 U.S.C. ? 501 note); Executive Office of the President, OMB, Performance of Commercial Activities: Circular A-76 Revised, May 29, 2003, available at . 9 For more on public-private competitions generally, see CRS Report RL32079, Federal Contracting of Commercial Activities: Competitive Sourcing Targets, by L. Elaine Halchin. 10 James F. Nagle, A History of Government Contracting 49 (2d ed. 1999).

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