Takeaways

Panel recommends additional exceptions for various domestic preference requirements to encourage innovative companies to bid on government contracts.
Panel recommends that the outdated thresholds for each of the acquisition labor laws be vastly increased to $2 million and that advance payments be made more available for small businesses to assist in financing their operations.
Panel recommends that the preference for procuring commercial products should take precedence over the requirement for small business set-asides.

Section 809 of the National Defense Authorization Act (NDAA) for Fiscal Year 2016 directed the Secretary of Defense to establish a panel to study DoD’s procurement practices and recommend legislative and other changes aimed at modernizing those practices. The Panel has released the third volume of its final report, making a total of 58 new recommendations. As we noted in our overview of Volume 3 of the Panel’s report, a number of the recommendations relate to socioeconomic and small business issues. These recommendations attempt to streamline and improve the efficiency and effectiveness of the defense acquisition process by removing barriers to entry, revising outdated and burdensome requirements, and clarifying the preference for procuring commercial items when considering small business set-asides. We discuss Recommendations 64, 65, 79 and 80 below.

I.  Recommendation 64: Update socioeconomic laws to encourage purchasing from nontraditional suppliers by (a) adopting exceptions for DoD to domestic purchasing preference requirements for commercial products, and (b) adopting a public interest exception and procedures for the Berry Amendment identical to the ones that exist for the Buy American Act.

According to the Panel, domestic purchasing preferences such as the Buy American Act and the Berry Amendment have undermined DoD’s ability to access advanced, state-of-the-art technology. The Panel found that, while intended to prioritize U.S. manufacturing and protect the U.S. supply base, these domestic purchasing preferences ultimately act as a barrier to entry for many of the most innovative U.S. companies that have modern, global supply chains that render their products non-compliant or ineligible to compete for federal government contracts. Thus, in order to strike a better balance between protecting the U.S. supply base and ensuring that DoD has access to the most advanced technologies, the Panel recommends that DoD adopt exceptions to domestic purchasing preference requirements for the purchase of commercial products and implement a public interest exception and procedures for the Berry Amendment.

II.  Recommendation 65: Increase the acquisition thresholds for the Davis-Bacon Act, the Walsh-Healey Public Contracts Act and the Services Contract Act to $2 million.

Seeking to address a problem that has frustrated contractors for decades, the Panel also recommends raising the acquisition thresholds of the Davis–Bacon Act, the Walsh-Healey Public Contracts Act, and the Services Contract Act to $2 million. The Panel found that the duplicative and outdated provisions of these laws—namely, their acquisition thresholds—impose artificially high costs of labor as well as heavy administrative burdens on contractors through their recordkeeping requirements. Indeed, noting that the Davis-Bacon Act was passed in 1931 and has a $2,000 threshold, the Walsh-Healey Public Contracts Act was passed in 1936 and has a $15,000 threshold, and the Services Contract Act was passed in 1966 and has a $2,500 threshold, the Panel explained that nearly all DoD contracts are subject to the cost and administrative burdens associated with these laws. Because private companies with both commercial and federal clients often wish to avoid maintaining two sets of compensation standards for their workforces, the Panel found that these labor laws effectively act as a barrier to entry to working for the federal government. Accordingly, the Panel’s recommendation, if implemented, would seek to strike a more reasonable balance between achieving less burdensome contract actions and continuing to uphold the policy intent of these important laws.

III.  Recommendation 79: Allow advance payment on contract awards to provide small businesses needed capital.

The Panel also found that the government’s payment schedule—whereby the government pays a contractor 30 days after the invoice is officially received by the government—discourages small businesses from bidding on DoD contracts, creates a barrier to entry, and decreases competition, thereby depriving warfighters of new and innovative solutions offered by small businesses. The Panel explained that, unlike large companies, small businesses often have limited cash flow and cannot afford to buy the material, produce the product, and then wait to be paid by the government. Thus, to provide small businesses the necessary incentives to bid on DoD contracts, the Panel recommends modifying the current regulations to allow for advanced payments to small businesses when the head of an agency or his/her delegate determines that doing so would be in the public interest. The Panel believes that such a policy will encourage greater use of advanced payments to finance small businesses and provide the capital needed to develop innovative ideas and solutions.

IV.  Recommendation 80: Preserve the preference for procuring commercial products and services when considering small-business set-asides.

The Panel proposed to resolve a current ambiguity in the law regarding the preference for acquiring commercial products or services and the requirement to procure certain products or services from small businesses. The Panel noted that the Federal Acquisition Streamlining Act of 1994 and its implementing FAR regulations establish a preference for acquiring commercial products and commercial services to satisfy the government’s need, while other statutes and FAR regulations establish a policy for setting aside a fair proportion of awards for small business. The statutes and regulations, however, do not address the resolution of any conflict between the preferences for commercial products and services and for small-business set-asides. For this reason, the Panel recommends modifying the applicable statutes and FAR regulations to give the acquisition of commercial products and commercial services precedence over small-business set-asides.