Government procurement in the United States
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Government procurement in the United States is the process by which the federal government acquires goods, services (notably construction), and interests in real property. Contracts for government procurement usually involve appropriated funds spent on supplies, services, and interests in real property by and for the use of the federal government through purchase or lease, whether the supplies, services, or interests are already in existence or must be created, developed, demonstrated, and evaluated. See 48 C.F.R. § 2.101 ("Acquisition" defined, as to goods and services only). Federal government contracting has the same legal elements as contracting between private parties: a lawful purpose, competent contracting parties, an offer, an acceptance that complies with the terms of the offer, mutuality of obligation, and consideration. However, federal contracts are much more heavily regulated, subject to volumes of statutes dealing with federal contracts and the federal contracting process, mostly in Titles 10, 31, 40, and 41 of the United States Code.
Private parties entering into a contract with one another (i.e., commercial contracts) are much freer to establish a broad range of contract terms by mutual consent than a private party entering into a contract with the federal government. Each private party represents its own interests and can obligate itself in any lawful manner. Federal government contracts allow for the creation of contract terms by mutual consent of the parties, but many areas addressed by mutual consent in commercial contracts are controlled by law in federal contracts and legally require use of prescribed provisions and clauses. In commercial contracting, where one or both parties may be represented by agents whose authority is controlled by the law of agency, the agent is usually allowed to form a contract only with reference to accepted notions of commercial reasonableness and perhaps a few unique statutes that apply. In federal government contracting, specific regulatory authority is required for the government's agent to enter into the contract, and that agent's bargaining authority is strictly controlled by statutes and regulations reflecting national policy choices and prudential limitations on the right of federal employees to obligate Federal funds. By contrast, in commercial contracting, the law allows each side to rely on the other's authority to make a binding contract on mutually agreeable terms. Of course, there are many nuances to commercial contracting, but, generally speaking, the law favors the creation of commercial contracts by a variety of agents in order to facilitate business.
The authority of a Contracting Officer (the government's agent) to contract on behalf of the government is set forth in public documents (a warrant) that a person dealing with the Contracting Officer can review. The Contracting Officer has no authority to act outside of his or her warrant or to deviate from the laws and regulations controlling federal government contracts. The private contracting party is held to know the limitations of the Contracting Officer's authority, even if the Contracting Officer does not. This makes contracting with the United States a very structured and restricted process. As a result, unlike in the commercial arena, where the parties have great freedom, a contract with the U.S. government must comply with the laws and regulations that permit it, and must be made by a Contracting Officer with actual authority to execute the contract.
2.1 United States Constitution
2.2 Statutes and Regulations
2.2.1 Anti-Deficiency Act
2.2.2 Federal Acquisition Regulation
184.108.40.206 Contractor damage
220.127.116.11 Commercial items
18.104.22.168 Service Contracts
22.214.171.124.1 Personal Services Contracts
126.96.36.199 Health Care
188.8.131.52 Intellectual Property (IP) / Data Rights / Technical Data Rights
184.108.40.206.1 Brand names
220.127.116.11 Clauses for government contracts
2.2.3 Notes regarding FASA
3 Acquisition Process
3.1 Preparing a proposal
3.2.1 Stripped Down Components
18.104.22.168 Requirement Overbundling
3.3 Contract Line Item Numbers
3.4 Statement of Work
3.5 Source Selection
3.5.1 Source Selection Criteria
3.6 Metrics/Performance Measures
3.7 Trade-In or Sales Authority
4 Contract Administration
4.1 Contracting Officer
4.2 Requests for Equitable Adjustments
4.4.1 Release of a Claim
4.4.2 Contract Disputes Act
4.5 Cancellation of Contract
5 Real options analysis
6 See also
8 Further reading
9 External links
Federal Procurement Reports provide contract data that may be used for geographical, market, and socio-economic analysis, as well as for measuring and assessing the impact of acquisition policy and management improvements.
In Fiscal Year 2010, the top five departments by dollars obligated were:
Department of Defense ($365.9 bn)
Department of Energy ($25.7 bn)
Health and Human Services ($19.0 bn)
General Services Administration ($17.6 bn)
NASA ($16.0 bn).
The Top 100 Contractors Report for Fiscal Year 2009 lists contracts totalling $294.6 billion, the top five comprising aerospace and defense contractors:
Lockheed Martin ($38.5 bn)
Boeing ($22.0 bn)
Northrop Grumman ($19.7 bn)
General Dynamics ($16.4 bn)
Raytheon ($16.1 bn)
In the same period, small business contracts totalled $96.8 billion.
The federal government's authority to enter into contracts derives from the U.S. Constitution, which defines its powers. The federal government acts through legislation, treaties, implementing regulations, and the exercise of those authorities. The federal government's power to contract is not set forth expressly and specifically in the U.S. Constitution. However, the U.S. Constitution appears to assume the continued vitality "Engagements" entered into under the Articles of Confederation. U.S. Const., Art. VI. Moreover, the power to contract was and is regarded at law as necessarily incidental to the federal government's execution of its other powers. An early Supreme Court case, United States v. Tingey, 30 U.S. 5 Pet. 115 (1831), recognized that the United States government has a right to enter into a contract. It is an incident to the general right of sovereignty, and the United States, may, within the sphere of the constitutional powers confided to it and through the instrumentality of the proper department to which those powers are confided, enter into contracts not prohibited by law and appropriate to the just exercise of those powers. Scores of statutes now also expressly authorize departments and agencies to enter into contracts. The U.S. Congress passes legislation that defines the process and additional legislation that provides the funds. Executive branch agencies enter into the contracts and expend the funds to achieve their Congressionally defined missions. When disputes arise, administrative processes within the agencies may resolve them, or the contractor can appeal to the courts.
The procurement process for executive branch agencies (as distinguished from legislative or judicial bodies) is governed primarily by the Armed Services Procurement Act and the Federal Property and Administrative Services Act. To address the many rules imposed by Congress and the courts, a body of administrative law has been developed through the Federal Acquisition Regulation. This 53-part regulation defines the procurement process including special preference programs, and includes the specific language of many clauses in government contracts. Most agencies also have supplemental regulatory coverage contained in what are known as FAR Supplements. These supplements appear within the Code of Federal Regulations (CFR) volumes of the respective agencies. For example, the Department of Defense (DOD) FAR Supplement can be found at 10 CFR.
Government contracts are governed by federal common law, a body of law which is separate and distinct from the bodies of law applying to most businesses—the Uniform Commercial Code (UCC) and the general law of contracts. The UCC applies to contracts for the purchase and sale of goods, and to contracts granting a security interest in property other than land. The UCC is a body of law passed by the U.S. state legislatures and is generally uniform among the states. The general law of contracts, which applies when the UCC does not, is mostly common law, and is also similar across the states, whose courts look to each other's decisions when there is no in-state precedent.
Contracts directly between the government and its contractors ("prime contracts") are governed by the federal common law. Contracts between the prime contractor and its subcontractors are governed by the contract law of the respective states. Differences between those legal frameworks can put pressure on a prime contractor.
United States Constitution
The authority to purchase is not one of the explicitly enumerated powers given to the federal government by Section 8 of Article One of the United States Constitution, but courts found that power implicit in the Constitutional power to make laws that are necessary and proper for executing its specifically granted powers, such as the powers to establish post offices, post roads, banks, an army, a navy, or militias.
Statutes and Regulations
Model of the Acquisition Process
Behind any federal government acquisition is legislation that permits it and provided money for it. These are normally covered in authorization and appropriation legislation. Generally, this legislation does not affect the acquisition process itself, although the appropriation process has been used to amend procurement laws, notably with the Federal Acquisition Reform Act (FARA) and the Federal Acquisitions Streamlining Act (FASA). Other relevant laws include the Federal Property and Administrative Services Act of 1949, the Armed Services Procurement Act (ASPA) and the Anti-Deficiency Act.
Main article: Antideficiency Act
U.S. federal fiscal law is about Congressional oversight of the Executive Branch, not principally toward getting the mission accomplished nor getting a good deal for the government. Fiscal law frequently prevents government agencies from signing agreements that commercial entities would sign. Therefore, fiscal law can constrain a federal agency from the quickest, easiest, or cheapest way to accomplish its mission. This Constitutionally mandated oversight of the use of public funds is associated with the principle of checks and balances. A good working relationship and robust communication between the Executive and Legislative branches is the key to avoiding problems in this area[why?].
The teeth for fiscal law comes from the Anti-Deficiency Act (ADA). The Anti Deficiency Act provides that no one can obligate the Government to make payments for which money has not already been authorized. The ADA also prohibits the government from receiving gratuitous services without explicit statutory authority. In particular, an ADA violation occurs when a federal agency uses appropriated funds for a different purpose than is specified in the appropriations act which provided the funds to the agency. The ADA is directly connected to several other fiscal laws, namely the Purpose Act and the Bona Fide Needs Rule.
Money appropriated for one purpose cannot be used for a different purpose, according to the Purpose Act (31 U.S.C. § 1301). The annual DoD appropriations acts include approximately 100 different appropriations (known as "colors of money"), and by this rule operations and maintenance (O&M) funds may not be used to buy weapons. Even an expenditure within the apparent scope of one appropriation may not be permissible if there is a more specific appropriation or the agency has made a previous funds election contrary to the proposed use of funds. For example, O&M fund can be used for purchasing repair parts, but if the parts are required to effect a major service life extension that is no longer repair but replacement – procurement funds must be used if the total cost is more than $250,000 (otherwise known as the Other Procurement threshold, for example, Other Procurement Army (OPA) threshold) or another procurement appropriation is available such as the armored vehicle or weapons appropriation.
An Anti-Deficiency Act violation can also occur when a contract uses funds in a period that falls outside of the time period the funds are authorized for use under what is known as the Bona Fide Needs rule (31 USC 1502), which provides: "The balance of a fixed-term appropriation is available only for payment of expenses properly incurred during the period of availability or to complete contracts properly made within that period."
The Bona Fide Need Rule is a fundamental principle of appropriations law addressing the availability as to time of an agency's appropriation. 73 Comp. Gen. 77, 79 (1994); 64 Comp. Gen. 410, 414-15 (1985). The rule establishes that an appropriation is available for obligation only to fulfill a genuine or bona fide need of the period of availability for which it was made. 73 Comp. Gen. 77, 79 (1994). It applies to all federal government activities carried out with appropriated funds, including contract, grant, and cooperative agreement transactions. 73 Comp. Gen. 77, 78-79 (1994). An agency's compliance with the bona fide need rule is measured at the time the agency incurs an obligation, and depends on the purpose of the transaction and the nature of the obligation being entered into. 61 Comp. Gen. 184, 186 (1981) (bona fide need determination depends upon the facts and circumstances of the particular case). In the grant context, the obligation occurs at the time of award. 31 Comp. Gen. 608 (1952). See also 31 U.S.C. Sec. 1501(a)(5)(B). Simply put, this rule states that the Executive Branch may only use current funds for current needs – they cannot buy items which benefit future year appropriation periods (i.e., 1 October through 30 September) without a specific exemption. The net result of this rule is funds expire after the end date for which Congress has specified their availability. For example, a single year fund expires on 1 October of the year following their appropriation (i.e., FY07 appropriations. (for example, 1 October 2006 through 30 September 2007) expire on 1 October 2007).
For example, operations and maintenance funds generally cannot be used to purchase supplies after 30 September of the year they are appropriated within with several exceptions – 1) the severable services exemption under 10 USC 2410 and Office of Management and Budget (OMB) Circular A-34, Instructions on Budget Execution, 2) Authorized stockage level exceptions and 3) long lead time exception. (see https://www.safaq.hq.af.mil/contracting/affars/fiscal-law/bona-fide-need.doc ) The Government Accounting Office Principles of Federal Appropriations Law (otherwise known as the GAO Redbook at http://www.gao.gov/legal.htm ) has a detailed discussion of these fiscal law rules which directly impact on the ability of a federal agency to contract with the private sector.
Federal Acquisition Regulation
Main article: Federal Acquisition Regulation
The procurement process is subject to legislation and regulation separate from the authorization and appropriation process. These regulations are included in the Code of Federal Regulations ("CFR"), the omnibus listing of Government regulations, as Title 48. Chapter 1 of Title 48 is commonly called the Federal Acquisition Regulation ("FAR"). The remaining chapters of Title 48 are supplements to the FAR for specific agencies.
The process for promulgating regulations including the Federal Acquisition Regulation (FAR) includes publication of proposed rules in the Federal Register and receipt of comments from the public before issuing the regulation. Courts treat the FAR as having the "force and effect of law", and Contracting Officers do not have the authority to deviate from it. Supplements to the FAR have been issued following the same process, and have the same force and effect.
The FAR and its supplements permit a substantial variation from the purchases of paperclips to battleships. The Contracting Officer and the contractor must seek to achieve their sometimes conflicting goals while following the requirements of the regulations. As with any complex document (in book form, Title 48 of the CFR requires several shelves), the FAR and its supplements can be interpreted differently by different people.
FAR Subpart 1.4, Deviations from the FAR, provides the steps needed to document deviations from the mandatory FAR or agency FAR supplement. Deviation documentation is needed if there is a precise FAR clause or provision for the issue.
Commercial Items contracts can be tailored to a great extent, therefore deviating in many particulars from the mandatory clause language. See:
12.401—General. This subpart provides —
(a) Guidance regarding tailoring of the paragraphs in the clause at 52.212-4, Contract Terms and Conditions—Commercial Items, when the paragraphs do not reflect the customary practice for a particular market; and
(b) Guidance on the administration of contracts for commercial items in those areas where the terms and conditions in 52.212-4 differ substantially from those contained elsewhere in the FAR.
See also FAR 12.211, Technical Data; FAR 12.212, Computer Software; FAR 12.213, Other Commercial Practices for additional authority to deviate or "tailor" FAR clauses and provisions in the context of commercial items/services.
A ratification is the proper authorization by a contracting officer of an earlier procurement by a government employee who was not authorized to do it. A ratification package has a legal memo that says an unauthorized commitment was made, that the commitment could properly have been done by contracting officers, and that funds were and are available for it. Other regulations and agency rules apply too, such as those from the Army discussed below.
Ratifications are governed by FAR 1.602-3 (Ratification of Unauthorized Commitment) which defines a ratification as the act of approving an unauthorized commitment by an official who has the authority to do so. Unauthorized commitment means an agreement that is not binding solely because the Government representative who made it lacked the authority to enter into that agreement on behalf of the Government. A ratifying official may ratify only when: (1) The government has received the goods or services; (2) The ratifying official has authority to obligate the United States, and had that authority at the time of the unauthorized commitment; (3) The resulting contract would otherwise be proper, i.e., adequate funds are available, the contract is not prohibited by law, the ratification is in accordance with agency procedures, etc.; (4) The contracting officer determines that the price paid was fair and reasonable and recommends payment, and legal counsel concurs.
There are dollar limits to the authority to ratify unauthorized commitments. A Chief of Contracting Office can approve up to $10,000. A Principal Assistant Responsible for Contracting can approve up to $100,000. A Head of Contracting Authority can approve higher amounts.
Ratifications in the U.S. Army call for a signed statement describing the unauthorized commitment, the value of the procurement, and other documentation. Then a contracting officer is to study the case and recommend action. If the procurement is not ratified, the matter may be handled under FAR Part 50 and DFARS Part 250 (Public Law 85-804) as a GAO claim or some other way.
FAR Part 45 provides rules on the Contractor’s obligations and the Government’s remedies in these cases. Specific clauses should be in the contract to deal with Government Furnished Equipment (GFE) situations and bring your own device (BYOD) situations.
The authority under FAR Part 12, Commercial Items (and services), must be used thoughtfully and carefully. It is very tempting for a contracting officer to use FAR Part 12 and hence FAR Part 13 in situations where such use is clearly not appropriate in view of the basic reasons commercial item acquisition authority was created by Congress.
FAR 2.101 provides that
“a commercial item means – (6) services of a type offered and sold competitively in substantial quantities in the commercial marketplace based on established catalog or market prices for specific tasks performed or specific outcomes to be achieved and under standard commercial terms and conditions. This does not include services that are sold based on hourly rates without an established catalog or market price for a specific service performed or specific outcomes to be achieved. For purposes of these services – (i)catalog price means a price included in a catalog, price list, schedule or other form that is regularly maintained by the manufacturer or vendor, is either published or otherwise available for inspection by customers and states prices at which sales are currently, or were last, made to a significant number of buyers constituting the general public; and (ii) Market prices means current prices that are established in the course of ordinary trade between buyers and sellers free to bargain and that can be substantiated through competition or from sources independent of the offerors."
Note the emphasis in the FAR 2.101 definition for commercial items on established market prices. The reason why simplified acquisition is permitted for items above the $100,000 simplified acquisition procedure threshold for commercial items is there is an efficient market pricing mechanism which pressures market participants to provide goods and services at a fair and reasonable price which represents very efficient / non-wasteful pricing mechanisms. Generally, the more efficient and well developed markets have a large number of participating vendors and information is freely available to consumers in that market on the relative merits of each vendor's products and pricing which permits easy comparison of each vendor's products to each other. FAR Part 12 commercial items acquisition authority was intended to take advantage of the WalMart's (R) and Microsoft's (R) of the world where there is no need to go through the extensive, formalistic and resource/time consuming process of a fully negotiated procurement, which requires vendors provide cost and pricing information, to verify a fair and reasonable price. In other words, FAR Part 12 was intended to increase the number of competitors available to the US Government by jettisoning all of the unique requirements, including cost accounting systems, which are forced upon federal contractors by acquisition processes such as FAR Parts 14, 15, 36 etc.; instead, the federal government could act more like a normal buyer in a fully functioning commercial market where the government was but one of a large number of consumers seeking the same or highly similar products or services. However, FAR Part 12 was never intended to apply where the US Government was the only or one of a very few buyers for an item or service not in demand by the commercial market place.
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