CHAPTER 2 INTRODUCTION TO FEDERAL CONTRACTING
A prospective contractor needs to understand the numerous terms that are commonly used in the federal government marketplace. Starting off with the document that governs all federal contracts, we discuss the types of regulations that impact federal business. Next we discuss procurement methods and competition types. A discussion of contract vehicles follows, and the chapter wraps up with some of the unique contract set-asides available for contractors.
What regulations govern federal acquisition?
A number of regulations have important implications for federal acquisition:
• Federal Acquisition Regulation
• Agency-specific regulations
• Procurement acts and executive orders.
Federal Acquisition Regulation
Standard policies and procedures for federal government acquisitions are outlined in the Federal Acquisition Regulation (FAR). The FAR is available in bookstores (although no longer available in print from the Government Printing Office, it is still available through commercial companies such as Management Concepts) and online, and it should be reviewed to help a company understand the rules of federal procurement. Because the regulations are continually evolving, a contractor should refer to a current edition of the FAR to determine the exact wording of the clauses of interest. The current edition of the FAR can be obtained at the website www.gpo.gov. In addition, www.farsite.hill.af.mil/search.htm allows you to do key word searches on the FAR. The website www.dfsc.dla.mil lists which agencies have been granted FAR exceptions.
Agency-Specific Regulations
Several agencies have developed their own sets of regulations to supplement the FAR; these are designed to work in conjunction with the FAR to accommodate the requirements of a particular agency. For example, the Department of Justice has the Justice Acquisition Regulations, and the Department of Defense has the Defense Federal Acquisition Regulation. Because of these unique requirements, a contractor must always ensure that it has the most current copy of the regulations being used by a particular agency for a procurement.
Procurement Acts and Executive Orders
Never before in the history of procurement have so many new regulations been developed that impact federal acquisition. Former Vice President Al Gore’s National Performance Review, which was later changed to the National Partnership for Reinventing Government, has significantly reduced the time, effort, and resources expended on federal procurement. For example, the Federal Acquisition Streamlining Act has significantly altered the complexion of the FAR by simplifying the procurement process and making the regulations shorter and more user-friendly. The Federal Acquisition Reform Act, passed in 1996, significantly affected FAR Parts 5, 13, 14, 15, 19, 23, and 25.
What are the standard procurement methods used in federal acquisition?
The government may choose either sealed bid or competitive procurement as the procurement method; another method is e-Buy. The government selects the method based on procurement conditions.
Sealed Bid
The government conducts sealed bid procurements when the procuring agency has determined that the award will be made on the basis of price and that discussions will not be held with the bidders. In this procurement method,
1. The government issues an invitation for bid (IFB) outlining the goods and services to be purchased and the terms and conditions by which those items must be offered.
2. Contractors review the IFB and determine if they can be cost-competitive. If the answer is yes, contractors respond with their price for the work solicited.
3. At a designated time, all bids are opened in a public forum.
4. The low-cost contractor wins the bid provided it is deemed a responsible contractor. (FAR 6.4.)
Competitive Proposals
The government conducts a competitive negotiation if it determines that factors in addition to price must be considered as part of the evaluation process and that discussions with companies may be required. In this procurement method:
1. The government issues an RFP.
2. Each contractor reviews the RFP to decide whether to bid on the program. If the answer is yes, the contractor responds with a proposal.
3. If required, each contractor participates in post-submission activities, such as a live test demonstration, an audit, discussions, and a final proposal revision submission.
4. The government makes an award decision based on factors described in RFP Section M, Evaluation Criteria. (FAR 6.5.)
E-Buy
A third type of procurement method is the General Services Administration (GSA) Advantage! system. GSA requires its schedule holder contractors to put their products, services, and prices on the GSA Advantage! system. This system paves the way for the e-Buy program, which allows government procurement officials to solicit price quotes instantaneously from competing product and service providers. In today’s procurement environment, the government buyer may solicit quotes from three to four providers that it has some familiarity with. In the e-Buy arena, companies are categorized according to Dun and Bradstreet’s Universal Standard Products and Services Classification (UNSPSC) categories. When a buyer needs something, the buyer selects the appropriate UNSPSC or GSA Schedule category and all companies within that category are sent a notification about the request for quote (RFQ). Once the RFQ time is closed, the buyer may select the company that represents the best overall value to the government and issue an order to that contractor. This ensures that all companies holding schedules and listed in the GSA Advantage! system will be able to bid on an RFQ.
What are competition requirements?
Three main types of competition are used in federal contracting: full and open competition, sole source acquisition, and set-asides.
Full and open competition means that any source (individual or company) may compete. Typically, full competition requires the government to evaluate at least two offers submitted by two different companies before making the award decision.
Sole source acquisition means that the agency contracts with a source after soliciting and negotiating with only one source.
The government is not using sole source acquisitions as much since the Competition in Contracting Act was passed in 1984 (P.L. 98-369), because it can receive better pricing and terms through the competitive process. The government may use sole source acquisitions, however, in extreme situations:
1. When only one source can satisfy the requirements
2. Unusual and compelling urgency
3. National defense
4. Other special circumstances (FAR 6.302).
Set-asides allow the government to use the procurement process to meet socioeconomic objectives by limiting the types of companies allowed to bid on an otherwise competitive bid. The government may require that the team be composed of the following types of companies:
• Small businesses. Companies that meet the government’s requirements for revenue and size within a particular industry. The government has established Standard Industrial Classification (SIC) codes that categorize the type(s) of work a company performs. If a company applies to the SBA and meets the qualifications, it can be classified as a small business for that particular SIC code and be allowed to compete for small business set-asides within that industry classification. Due to the North American Free Trade Agreements Act and the need for common industry definitions for Canada, Mexico, and the United States, the U.S. Census Bureau issues the North American Industry Classification System Manual. (Additional information can be found at www.census.gov/eos/www/naics.)
• Small and disadvantaged businesses. Companies operated and at least 51 percent owned by a person recognized as having minority status. Small and disadvantaged businesses do not have to be part of the SBA’s 8(a) program. Companies must be prequalified by the SBA for 8(a) participation, and then they are eligible for contract awards that are 8(a) program set-asides.
• HUBZones. Businesses located in areas that have been defined by the government as economically depressed due to high unemployment rates.
What types of contracts exist in the government marketplace?
The government can use any of the many types of contracts. The contract type selection depends on
• Whether the items being procured are commercial and available off-the-shelf or require development
• The degree of risk associated with contract performance
• The degree of certainty the government has regarding the quantity and timing of contract purchases.
Contract Types
All contract types are described in the FAR, but the main contract types and characteristics are
• Fixed-price contracts—In a fixed-price contract, the contractor is held to the dollar amount the company proposed for the goods and services required in the RFP. The contractor is paid this amount regardless of actual costs incurred. In this type of contract, overruns are paid by the company, which benefits from underruns (provided it did not intentionally overbid the contract). Characteristics of a fixed-price contract include
Assigns maximum risk and full responsibility for costs and resulting profit or loss to the contractor
Provides maximum incentive for the contractor to control cost
Imposes a minimum administrative burden on both contracting parties.
There are several different types of fixed-price contracts: incentive contracts, indefinite delivery/indefinite quantity (IDIQ) contracts, cost-reimbursement contracts, and time and materials contracts.
• Incentive contracts—These tie the profit or fee payable under the contract to the contractor’s performance, so if a contractor does well it is awarded money in excess of its contract costs. Characteristics of an incentive contract are as follows:
Establishes reasonable and attainable targets that are clearly communicated to the contractor
Applies incentive increases or decreases to performance targets rather than minimum performance requirements.
• IDIQ contracts—These are used when the exact times and/or quantities of future deliveries are not known at the time of contract award. Characteristics of an IDIQ contract are as follows:
Permits the government to stock at minimum levels
Permits flexibility in quantities and delivery scheduling
Limits the government’s obligation to a minimum quantity specified in the contract
Can be fixed price, cost plus, or time and materials.
• Cost-reimbursement (cost plus) contracts—These allow the contractor to bill the customer for the actual costs incurred, plus a negotiated fee. The fee is an award based on a predetermined fixed amount, an evaluated amount, or incentives. Characteristics are as follows:
Used for contracts requiring research or development, or when the government does not know the magnitude of the work being contracted
Risk is shared between the contractor and the government; all of the contractor’s expenses are recoverable, but the fee portion can be at risk for poor performance.
• Time and materials contracts—These are used for acquiring services on the basis of direct labor hours at a specified fixed hourly rate and materials at cost (including a materials handling fee). Characteristics include the following:
Minimal risk for the company because all costs are covered and the contract requires only the company’s best efforts. However, although all costs are covered, there is some risk for the company because it is locked into the rate proposed. For example, if a contractor bids a $75/hour rate and because of increased salary requirements it would like to charge $85/hour to cover its expenses and protect its profit margin, the government still holds the contractor to providing the service for the agreed-upon $75/hour rate.
Negotiated fixed fee is available to the company, provided that it can operate at the price proposed. If the costs are exceeded, the fee could shrink to zero.
Multiple Award Schedules
There are an increasing number of multiple award schedules (MASs) available for contractors to bid on. MASs are contract vehicles that are awarded to more than one contractor. The MAS gives the government the option of running competitions among the companies selected for award. When a company wins a multiple award schedule, it just wins the right to sell products and services at the prices established by its schedule. The GSA Schedule contracts are the most common and popular multiple award schedules. Companies work to get their products and services on the GSA Schedule contract, and anyone from any agency within the government can buy off the schedule. In addition, the government can request that the company provide a discount from the schedule-established prices.
Blanket Purchase Agreements
The establishment of blanket purchase agreements (BPAs) is another popular trend in government contracting. BPAs are typically tied to a GSA Schedule contract but are established between an agency and a company and list specific products and services that the company can sell to that agency. Like MASs, BPAs help to simplify the acquisition process because the terms and conditions are negotiated up front, and any orders placed against the MAS or BPA must comply with them.
Are there any types of small procurements that can be accomplished without all the paperwork associated with a full and open competition?
The government realizes that it is a waste of contractors’ time and taxpayers’ dollars to procure every product or service using the detailed processes described in this book. To help reduce government administrative overhead burden, the government, in FAR Part 13, identifies two types of small procurements that have simplified procedures for purchasing the necessary goods and services:
• Micropurchase procedures for purchases up to $3,000, many of which can be conducted using a government-issued credit card
• Simplified acquisition procedures for purchases up to $150,000.
Because of the cost savings achieved by these expedited approval and ordering procedures, the government is working to get the dollar thresholds raised even higher so that the simplified procedures can be used to an even greater extent. Review FAR Part 13 to determine if your product or service can be purchased using these methods.
Are there any websites that are particularly useful for government procurements?
The government is developing a website called FirstGov (http://firstgov.gov) that will allow citizens to search all online government documents. This site will have the ability to search one billion documents in less than one-quarter of a second, and it will be able to handle at least 100 million searches a day. This will make it much easier for citizens to find government information and services. In addition, it will allow agencies to determine whether they are duplicating the efforts of other government agencies. Armed with this information, the agencies can then ensure that the data are consistent or streamline their processes so that only one agency provides the data.
In addition, the FAR Council issued a proposed amendment to the FAR to designate “FedBizOpps” (formerly known as the Electronic Posting System) as the single point of universal public access to governmentwide procurement opportunities. FedBizOpps is accessible online at www.fedbizopps.gov. The proposed rule requires contracting officers (COs) to post each contract action that is expected to exceed $25,000, along with the place of contract performance and set-aside status.
Under the proposed rule, agencies had until October 21, 2001, to begin posting all applicable actions on the FedBizOpps website. The Office of Federal Procurement Policy (OFPP) expects that FedBizOpps will create a central point for electronic access to acquisition information; create an index of all business information at one Internet location for searching and downloading; provide access through adaptable, interface-friendly electronic tools with widespread commercial acceptance; and allow potential companies and service providers to access and download information through a variety of commercial electronic means and business applications, including web-based technology, bulk data feeds, and electronic mail. FedBizOpps also offers an automatic e-mail notification feature to provide information about contracting opportunities for specific supplies or services or specified agencies. Finally, FedBizOpps will be linked to the Procurement Marketing and Access Network (“PRO-Net”), an Internet database of small businesses managed by the SBA. This link will increase small business awareness of government procurement opportunities.
What is the HUBZone program?
The HUBZone—Historically Underutilized Business Zones—Empowerment Contracting program was specifically called for in the Small Business Reauthorization Act of 1997. Federal agencies were able to solicit contract offers under the new guidelines starting on January 4, 1999. The program encourages economic development and creates job opportunities in distressed rural and urban areas. These areas are classified as distressed based on specific unemployment or low-income criteria. The program provides a contracting preference to small companies located within the geographic boundaries of these areas, as well as companies that hire employees who live within those areas.
A HUBZone is an area that is located in (a) a qualified census tract (as defined by Section 42(d)(5)(C)(i)(1) of the Internal Revenue Code of 1986) and/or (b) a qualified “nonmetropolitan county” that is not located in a metropolitan statistical area (as defined by Section 143(k)(2)(b) of the Internal Revenue Code of 1986) and in which the median household income is less than 80 percent of the nonmetropolitan state median, or the unemployment rate is at least 140 percent of the state average. To help contractors determine whether geographic areas meet these criteria, the SBA, at http://map.sba.gov/hubzone/init/asp, identifies which parts of a state are classified as HUBZones and even allows you to input a specific address to determine its HUBZone status.
More than 7000 urban census tracts and 900 rural counties, in addition to every Native American reservation, currently qualify for HUBZone status. These HUBZones may change annually since the statistics used by the departments of Labor and Commerce as qualification criteria for the HUBZone program are updated annually.
For a company to qualify under the program, a small business must meet the following requirements, as outlined by FAR Part 19:
1. Its principal office must be physically located within a HUBZone.
2. It must be wholly owned and controlled by U.S. citizens.
3. A minimum of 35 percent of its employees must permanently reside within a HUBZone (although it does not have to be the one in which the company is located). The small business must also be certified by the SBA as a qualified HUBZone business.
Once qualified as a HUBZone business, a small business can be awarded contracts on a sole-source basis, competitively procured through a HUBZone set-aside procurement or under full and open competition in which it will be given a price evaluation preference. This price evaluation preference means that other non-HUBZone and other non-small business companies will have ten percent added to their prices as part of the price evaluation. Manufacturing HUBZone businesses are eligible for sole source contract awards up to $5 million ($3 million for other businesses).
What is the Javits-Wagner-O’Day Act and how does it apply to procurement?
The Javits-Wagner-O’Day (JWOD) Act of 1971, Public Law 92-28 (41 U.S.C. 46–48c), was designed as a follow-on to the Wagner-O’Day Act enacted in 1938. The Wagner-O’Day Act promoted the use of the products provided by blind people in federal procurement. The JWOD Act helped meet socioeconomic goals and established the Committee on Purchases of Blind-Made Products. The committee’s role was to define and establish long-term employment opportunities for blind people by mandating that all federal agencies purchase specified supplies made in nonprofit organizations employing blind individuals.
Senator Jacob Javits believed that the original law did not go far enough. He sought to amend the original Wagner O’Day Act to permit other nonprofit organizations serving people with other severe disabilities to participate in the program. The JWOD Act also authorized nonprofit organizations to sell services, as well as products, to the federal government.
The committee administering this program is now known as the Committee for Purchase from People Who Are Blind or Severely Disabled. Its charter is to determine which products and services should be purchased by the federal government under the JWOD program. In addition, the committee determines the fair market price for supplies and services based on changing market conditions. The committee has designated two central nonprofit agencies—National Industries for the Blind and National Industries for the Severely Disabled—to facilitate the distribution of orders among nonprofit organizations participating in the JWOD program.
Individual Participant Benefits of JWOD
The goal of the program is to increase employment and training opportunities for people who are severely challenged and help, if possible, prepare them for other employment opportunities. In addition, it gives challenged people a way to earn an income, support themselves, and enjoy the benefits of full-time employment. JWOD program participants may lead more productive, independent lives.
Government Procurement Benefits of JWOD
The JWOD items are available to government activities only through GSA, the Defense Logistics Agency, or specific contractors authorized to order from GSA. The JWOD program benefits the federal government by providing it the following:
• A standard source for certain products and services
• A source committed to quality in product and service delivery
• Fair market prices
• Reduced procurement paperwork
• Low pre- and postaward management costs
• A feasible way to improve progress in meeting socioeconomic goals.
What are some of the policies that the government has in place to ensure integrity throughout the procurement process?
The U.S. government works hard to ensure that all citizens are treated equally. That policy holds true for business dealings with the government as well. The government has a whole host of regulations and standards that apply to people working with or within the government, covering federal employees, contractors, and subcontractors. While not all acts might be illegal in the nongovernment world, people working with government business are required to refrain from any activities that even have the appearance of being improper or questionable. The responsibility is placed on both government personnel and contractors. For example, a CO may not accept a bribe because it is illegal, but a company offering a bribe is also an illegal act.
FAR Part 3
FAR Part 3 covers “Improper Business Practices and Personal Conflicts of Interest.” Government personnel and contractors must be aware of and comply with all the regulations outlined in FAR Part 3.
Office of Government Ethics
The Office of Government Ethics establishes an objective and comprehensive set of ethical conduct standards for government officials. These standards address issues such as gifts, conflict of interest, conflicting financial interests, employment outside the government, and other employment issues within the government. It also applies to work being performed on behalf of the government.
Procurement Integrity Act
FAR Part 3.104 establishes the requirements of the Procurement Integrity Act of 1998. Violations of this act could result in up to five years of imprisonment or a fine of up to $100,000. A contractor organization can be fined up to $1 million. This act has two main focuses:
1. It sets forth strict restrictions on federal procurement personnel and contractors. This act applies when a government, contractor, or subcontractor employee works on any activity related to a procurement and, for government personnel, up to two years after the procurement. This includes developing requirements, preparing purchase requests, or drafting a solicitation for a proposal or information. These regulations apply to all procurements including sole source (which is a procurement method used when there is only one provider of a product or service).
2. The act sets forth direction on protecting proprietary information. Companies or individuals competing for a government contract award must provide a Certificate of Procurement Integrity if they are the successful offeror on a contract valued above the simplified acquisition threshold. Subcontractors, while not required to submit a certificate to the government, are required to submit one to the prime contractor.
The bottom line is that all business conducted with the government should be carried out according to these rules and regulations and remain above reproach.
What are the standards for disabled access? What are the section 508 compliance issues?
The government has a responsibility to its employees and constituents using government systems to ensure that people who have a visual, hearing, manual dexterity, or mobility impairment are granted the same access to computer technology as employees who are not impaired. Section 508 requires accommodations for disabilities in equipment procured on government contracts and task orders signed after June 21, 2001. Furthermore, these regulations give impaired persons the right to sue if there is a lack of compliance. The underlying premise of Section 508 is that companies must make computer technology accessible through multiple senses or abilities.
These standards do not apply to existing systems but to all future purchases. Section 508 applies both to systems for use by government employees and to government systems for use by citizens. Currently, it does not apply to commercial or private systems. Section 508 includes hardware, software, systems, and services. Any company that sells directly to the government or acts as a third-party reseller to the government is affected by this legislation.
Currently, companies are required to self-certify their compliance with Section 508 standards. The government fully expects the requirements for this program to continue to become more stringent over time, requiring a third-party certification process. Some of the current requirements include
• Using alternatives to color to indicate important information
• Using the keyboard and mouse as ways to control the program
• Using text equivalents for every nontext element
• Using synchronized captioning techniques for audio portions
• Using warning methods if the program is about to time out
• Allowing volume control features
• Accommodating screen readers and Braille displays.
To comply with the legal standard, a company must demonstrate a “good faith” effort to provide “reasonable accommodation” for disabled people to use the systems. Definitive guidelines and further information can be obtained at http://section508.gov.