Chapter 1

The Legislative History of Source Selection

Many people ask “Why do we have to do this?” during their first competitive source selection. Often, certain procedures are required by law. This chapter explains significant pieces of legislation, and the resulting regulatory framework, that affect competitive negotiated source selections. Occasionally, requirements appear not to make sense or seem overly burdensome, but each step of the acquisition process is backed by some law or regulatory interpretation. Laws and regulations drive this very formal, highly regulated method of spending public money.

Congress lays out the overall structure of and mandates for acquisitions in two primary statutes. The Armed Services Procurement Act of 1947 (10 USC 137) prescribes the general requirements for the Department of Defense (DoD), the National Aeronautics and Space Administration (NASA), and U.S. Coast Guard, while the Federal Property and Administrative Services Act (41 USC 251-260) covers almost all of the rest of the executive branch of the federal government.

The process shown in Figure 1-1 illustrates the competitive source selection process. On this flow chart, Gs indicate the government’s responsibilities; the Is, actions taken by industry.

We will discuss the entire acquisition process, from strategy development through contract award. We will not discuss contract performance or closeout, which are important parts of the overall acquisition process but are beyond the scope of this text.

Every aspect of this process has been prescribed by Congress. When Congress perceives that there is a problem related to federal acquisitions, it is often very quick to impose a solution. This is one reason why the process seems extraordinarily complex—and in many respects it is. What must be remembered, however, is that the public is entitled to great visibility into how its tax dollars are spent, and further, it is entitled to a level of assurance that its money is spent in a fair, equitable, and unbiased manner. Hence the close scrutiny, disclosure, and formalization.

Figure 1-1 The Competitive Source Selection Process

Congress has passed many laws, called acts, that affect the way the federal government does business. Some of these acts resulted from studies that were intended to improve the acquisition process, such as the Federal Acquisition Streamlining Act (FASA) and the Federal Acquisition Reform Act. Others were passed in response to heavily publicized horror stories; the Competition in Contracting Act and the Procurement Integrity Act are two examples. In either case, congressional influence on the procurement process is significant.

Even if existing legislation already addresses a situation, Congress sometimes responds to federal acquisition problems by creating additional requirements for the process. The Truth in Negotiations Act and the Procurement Integrity Act are the result of Congress’ desire to fix a problem, even though it was already addressed by law or regulation. Let’s look at both of these acts and their impact on competitive source selection. We begin with the Truth in Negotiations Act (TINA), which became law in 1962.

THE TRUTH IN NEGOTIATIONS ACT

Many acquisition professionals think that TINA established the requirement for certified cost or pricing data, but this requirement was part of the old Armed Services Procurement Regulation (ASPR) clause number 3-807.3, Certificate of Current Cost or Pricing Data, from 1959. The clause required contractors to certify that the cost or pricing data they were submitting was current.

Regardless, the General Accounting Office (GAO) was concerned that contractors were continuing to overcharge the government, and in 1961 a clause (7-104.29) was added to the ASPR that permitted the government to reduce a contract price if a contractor provided defective cost or pricing data.

Congress passed TINA (Public Law 87-653) in September 1962 because it believed that the government was not receiving factual data from contractors and so was hindered in negotiations. This law is codified at 10 USC 2306 and was initially only applicable to the Department of Defense (DoD), the Coast Guard, and NASA, but Public Law 89-369 made TINA applicable to all executive branch departments and agencies.

Cost or Pricing Data

Cost or pricing data are information that prudent buyers and sellers would reasonably expect to have a significant effect on price negotiations and that are true as of the date of price agreement. The contracting officer (CO) and contractor may agree that the data can be accurate as of an earlier date that is as close as practicable to the date of price agreement.

It is important to note that cost or pricing data are factual, not judgmental, and as such, they must be verifiable. While they do not indicate the accuracy of the offeror’s judgment about estimated future costs or projections, they do include the data forming the basis for that judgment. Cost or pricing data are more than historical accounting data; they are all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred. They also include such factors as:

• Vendor quotations
• Nonrecurring costs
• Information on changes in production methods and in production or purchasing volume
• Data supporting projections of business prospects and objectives and related operations costs
• Unit-cost trends, such as those associated with labor efficiency
• Make-or-buy decisions
• Estimated resources to attain business goals
• Information on management decisions that could have a significant bearing on costs.¹

Submitting cost or pricing data can be a burdensome requirement, especially for large or complex acquisitions. For example, companies must certify that the data is accurate, in accordance with Federal Acquisition Regulation (FAR) 15.406-2. Contrary to what some government personnel assert, this information is not typically collected by all companies in the conduct of ordinary business. This is a unique federal government requirement. This is why companies look for exceptions to submitting cost or pricing data.

What exceptions to submitting certified cost or pricing data are available to contractors? Specifically, t he government may not ask for cost or pricing data for acquisitions at or below the simplified acquisition threshold. In addition, t he contracting officer shall not require a company to submit cost or pricing data to support any action (contracts, subcontracts, or modifications) when any of the following conditions apply:

• The contracting officer determines that prices agreed upon are based on adequate price competition. (Adequate price competition is discussed later in this chapter.)
• The contracting officer determines that prices agreed upon are based on prices set by law or regulation.
• The government is purchasing a commercial item , as defined in FAR 2.101, or any modification to the item, as defined in paragraph (3)(i) of that definition, that does not change the item from a commercial item to a noncommercial item.
• The head of the agency has granted a waiver.
• The action is a contract or subcontract modification for commercial items.

Even if one ofthese conditions does exist, however, certified data may still be required. For example, the U.S. Air Force KC-X aerial refueling tanker aircraft request for proposals required certified cost or pricing data even though it was a competitive acquisition.² Sometimes, high-visibility or high-dollar-value acquisitions require certified cost or pricing data, although more recent changes have restricted contracting officers from automatically requesting certified data.

Adequate Price Competition

Adequate price competition exists when two or more responsible offerors, competing independently, submit priced offers that satisfy the government’s expressed requirements. The government will award a contract to the offeror whose proposal represents the best value when price is a substantial factor in source selection. To receive a contract award, the price of an otherwise successful offeror must be reasonable. If the price is found to be unreasonable, the determination of unreasonableness must be factually supported and approved at a level above the contracting officer.³

For example, the CO may be faced with an unusual situation where an urgent requirement must be awarded quickly and all of the offerors submitted price proposals that far exceed the government’s estimate. The CO could select the “lowest” price proposal but it still would exceed the government’s estimate. In this situation the CO must get approval to make the contract award in a timely manner to meet the urgent requirement.

Can there still be adequate price competition if only one offeror submits a proposal? In order for that to occur, the contracting officer must have a reasonable expectation, based on market research or other assessment, that two or more responsible offerors, competing independently, would submit priced offers in response to the solicitation’s requirements. In addition, the contracting officer must be able to reasonably conclude that the offer was submitted with the expectation of competition. Indications of expected competition include the following:

• The offeror believed that at least one other offeror was capable of submitting a meaningful offer, and had no reason to believe that other potential offerors did not intend to submit an offer.
• The contracting officer dete rmines that the proposed price is based on adequate price competition.
• The contracting officer’s price analysis clearly demonstrates that the proposed price is reasonable in comparison with current or recent prices for the same or similar items, adjusted to reflect changes in market conditions, economic conditions, quantities, or terms and conditions under contracts that resulted from adequate price competition.⁴

For example, the CO may determine after conducting market research that three companies are capable of meeting the requirements and send a request for proposals (RFP) to all three companies. One company is too busy to submit a proposal, and another company doesn’t want to enter the federal marketplace. So only one company submits a proposal, but it doesn’t know it submitted the only proposal. Thus, the CO may reasonably conclude that the company that submitted a proposal did so anticipating a competitive acquisition. If the proposed price is reasonable, the CO must get approval to award because only one company submitted a proposal.

The CO may, however, need information other than cost or pricing data to support a determination of price reasonableness or cost realism. A contracting officer should only require an offeror to submit cost information other than cost or pricing data when he or she expects that the offeror will be exempted from submitting certified cost or pricing data, but he or she still needs cost information to determine price reasonableness or cost realism. From the data received, the CO should be able to answer the following questions:

• Does the proposed price appear reasonable based on its relationship with estimated costs?
• Are proposed costs realistic for the work to be performed?
• Do proposed costs reflect a clear understanding of contract requirements?
• Are proposed costs consistent with the offeror’s technical proposal?⁵

The offeror may submit this data in their company’s format.⁶ If a company submits cost or pricing data, they must be current, accurate, and complete, or the government may find its pricing data to be defective and seek a price reduction.

Defective Pricing

The government may not know or suspect that the pricing is defective until contract performance begins. After contract award, the government should pay close attention to invoices and performance and compare actual data to the cost proposal.

Factors suggesting cost or pricing data may be defective include:

• A review of current contract performance indicates that the contractor duplicated cost estimates of the current contract.
• The incurred costs are significantly less than projected.
• The data presented during later negotiations are significantly different from data provided for earlier negotiations.
• The budget plans contain data that are different from data submitted in the proposal.
• An estimating system review reveals deficiencies.
• A review of current contract performance indicates that quantity estimates were erroneous because the contractor did not use current information.⁷

The consequences of providing defective pricing data are beyond the scope of this book, but readers should be aware that a defective pricing investigation can lead to investigations by the inspector general, the Defense Contract Audit Agency, or the Department ofJustice. If a contractor’s pricing information is found to be defective, each invoice it submits may be considered to be a false claim, and additional liability and penalties, both civil (such as fines) or criminal (such as imprisonment), can be levied against the contractor. Thus, if there are any applicable exceptions to submitting certified cost or pricing data, it is advisable for your company to take advantage of them.

The 1986 amendments changed TINA; they required that the government prove that it relied on defective cost or pricing data before it could recover costs that resulted from the defective data. The FASA amendments of 1994 and the Clinger- Cohen Act amendments of 1996 made even more changes. One significant change periodically increased the dollar-value threshold for submitting cost or pricing data. The threshold stands at $650,000 as of June 2009; readers are encouraged to check FAR 15.403-4 for the current threshold. FASA also created a new category of information, “information other than cost or pricing data,” as mentioned above.

In addition to the cost or pricing data requirement, TINA also introduced the concept of a competitive range determination.

The Competitive Range

The highest ranked proposals in a negotiated acquisition competition comprise the competitive range. The use of a competitive range is one way the government narrows down the field in negotiated acquisitions. Contracting officers must hold discussions with all offerors in the competitive range per Public Law 87-653: “Written or oral discussions shall be conducted with all responsible offerors who submit proposals within a competitive range, price, and other factors considered.”⁸

TINA’s Impact on Source Selection

The Truth in Negotiations Act had a significant impact on competitive source selection because it established many requirements that are an integral part of source selection today:

• Pursuing adequate price competition
• Establishing the competitive range.

Certified cost or pricing data include all facts that prudent buyers and sellers would reasonably expect to significantly affect price negotiations. These facts must be accurate as of the date of the price agreement. Note that facts are verifiable. They are not judgments, projections, or estimates. All facts reasonably available as of the date of the price agreement must be disclosed. Some companies have an unwritten policy of “when in doubt, disclose” when it comes to submitting data because it’s safer to disclose information than to withhold it.

An allegation of defective pricing is serious and has serious consequences. FAR 52.215-10 (Price Reduction for Defective Cost or Pricing Data) states in part:

If any price, including profit or fee, negotiated in connection with this contract, or any cost reimbursable under this contract, was increased by any significant amount because (1)The Contractor or a subcontractor furnished cost or pricing data that were not complete, accurate, and current as certified in its Certificate of Current Cost or Pricing Data; (2) A subcontractor or prospective subcontractor furnished the Contractor cost or pricing data that were not complete, accurate, and current as certified in the Contractor’s Certificate of Current Cost or Pricing Data; or (3) Any of these parties furnished data of any description that were not accurate, the price or cost shall be reduced accordingly and the contract shall be modified to reflect the reduction.⁹

Adequate price competition, one exception to submitting certified cost or pricing data, takes advantage of the competitive forces of the marketplace. The presumption in this exception is that competition drives down prices and makes them more reasonable; certified cost or pricing data are thus not needed to establish reasonableness. As we’ll see in the next section, encouraging competition for federal government contracts is a recurring theme in federal legislation.

Narrowing the field of competitors by establishing a competitive range helps to speed up the acquisition process by eliminating those vendors that have no chance of receiving the award. The government can then focus on the proposals that have a reasonable chance of being selected for award.

It is interesting to note that in 1962, the philosophy guiding the inclusion of proposals in the competitive range was “When in doubt, keep them in” ; now it’s “When in doubt, throw them out.” This shift was due, in part, to the desires of offerors, especially small businesses. Proposals are extremely expensive endeavors, and if a company no longer has a reasonable chance of overtaking the front runners, it is better for business to stop spending money on a lost cause. Unfortunately, offerors have no way of knowing if this is the case and must rely on the government to use its best judgment.

THE COMPETITION IN CONTRACTING ACT

In 1979, the Commission on Government Procurement recommended that agencies improve competition. This commission planted a seed that was fertilized by procurement scandals in the early 1980s. During this period, the Pentagon’s peacetime spending increased significantly. It was purchasing everyday items such as hammers, pliers, coffee makers, and ash trays at inflated prices, which engendered mistrust. Congress determined that lack of competition was the cause of the problem and enacted the Competition in Contracting Act (CICA) in 1984.

The regulations in place at the time already required competition; the Federal Procurement Regulations required “all purchases and contracts, whether by formal advertising [the old way of doing sealed bidding] or by negotiation, [to] be made on a competitive basis to the maximum practicable extent.” ¹⁰ But before CICA, agencies used the negotiated acquisition method only if formal advertising wasn’t practical and if one of 17 exceptions to obtaining competition applied. Therefore, the government still awarded many contracts on a sole source basis.^* In 1985, the General Accounting Office asserted:

All potential contractors should have the opportunity to do business with the government and the right to compete with others equally. Contracts should not be awarded on the basis of favoritism, but should go to those submitting the most advantageous offers to the government. Offering all contractors the opportunity to compete also helps to minimize collusion. In addition, competition is intended to insure that the government pays reasonable prices. The benefits of competition go beyond short-term price advantage. The competitive process provides a means for finding out what is available to meet a particular government need and choosing the best solution. The most important benefits of competition can often be the improved ideas, designs, technology, delivery, or quality of products and services that potential contractors are motivated to produce or develop to obtain government contracts. The chance of winning a government contract or the threat of losing it provides a key incentive for greater efficiency and effectiveness.¹¹

CICA Requirements

CICA’s requirement for full and open competition means that all responsible sources may submit proposals or bids. Not only is competitive procurement the law, it also makes good business sense. Competition can offer cost savings, higher quality, better service, and creative solutions. By advertising requirements to a broad industry base, the government will receive better solutions at reasonable prices. Before CICA, competition was required, but just “to the maximum extent practicable.” So if it wasn’t practical to have a competitive procurement, it was pretty easy to simply use a sole source.

CICA requires that the government’s requirements be synopsized, or publicized, in a timely manner. When CICA was passed, synopsis was done through a daily publication called The Commerce Business Daily (CBD). Now synopsis is done electronically through the governmentwide point of entry, www.FedBizOpps.gov (short for Federal Business Opportunities). But the objective remains the same: to advertise the government’s requirements so that more businesses have an opportunity to compete.

Congress felt so strongly about the importance of competition that it established a new position, the competition advocate, for acquisitions. Each agency is now required to appoint a senior official as its competition advocate. He or she is responsible for challenging barriers to full and open competition and submitting annual reports on competition to Congress.¹²

Finally, CICA requires agencies to use advance procurement planning and market research. Conducting market research to find out which companies can meet the government’s requirements can expand the list of potential offerors. The act prohibits the use of noncompetitive procedures based on justifications that rely on funding uncertainties or lack of planning.¹³ In other words, CICA prevents agencies from using sole source acquisition just because they didn’t plan for their requirements or because funding is about to expire.

Despite the requirement for full and open competition, there are still situations in which it is necessary to conduct a sole source procurement. Sole source acquisitions must be justified using one of the following seven exceptions.

Exceptions to Full and Open Competition

CICA requires that “all responsible sources are permitted to compete.”¹⁴ To contract without full and open competition, one of the following exceptions must exist:

• There is only one responsible source, and no other supplies or services will satisfy agency requirements. The source must have a unique and innovative concept or unique capability for this exception to apply.¹⁵
• The need is of such unusual and compelling urgency that the government would be seriously injured unless the agency is permitted to limit the number of sources.¹⁶
• Industrial mobilization; engineering, developmental, or research capability; or expert services. This exception applies when it is necessary to maintain a facility, manufacturer, or other supplier in case of a national emergency. It may also be used to establish or maintain an essential capability to be provided by an educational or other nonprofit institution or a federally funded research and development center, or to acquire the services of an expert or neutral person for litigation or dispute.¹⁷
• International agreement. Full and open competition is not required when precluded by the terms of an international agreement or treaty between the United States and a foreign government or international organization.¹⁸
• A statute (such as the Small Business Act or the Javits-Wagner-O’Day Act) expressly authorizes or requires that the acquisition be made through another agency or from a specified source. ¹⁹
• National security. Full and open competition is not required when disclosing the agency’s needs would compromise national security. Requiring access to classified information is not, in and of itself, a justification for using a sole source.²⁰
• Public interest. When the agency head determines that it is not in the public interest to conduct the procurement with full and open competition, Congress is notified in writing at least 30 days before contract award.²¹

Note that the government is not automatically granted authority for a sole source acquisition just because one of the exceptions applies. Although a contracting officer may conduct an acquisition without using full and open competition when one of the aforementioned conditions exists, he or she is still expected to “solicit offers from as many potential sources as practicable under the circumstances.”²² For example, agencies in the intelligence community still use competitive acquisition, but only vendors that have the appropriate security clearance are considered as potential sources. This is known as a limited competition.

Planning, Solicitation Requirements, and Protests

In an attempt to broaden the industrial base from which the government selects contractors, CICA requires that agencies use advance procurement planning and conduct market research, though it does not explain who should do the market research or how it should be done. The current FAR part 10 (Market Research) stems from the Federal Acquisition Streamlining Act, which we’ll discuss later in this chapter. And although CICA does not state how agencies should perform acquisition planning, the text in FAR part 7 (Acquisition Planning) is a direct result of CICA requirements.

Not only does CICA require full and open competition, market research, and acquisition planning, it also created requirements for how the agency attracts competition. For example, CICA requires that the government:

• Specify its needs and solicit proposals in a manner designed to achieve full and open competition for the procurement
• Develop specifications in such manner as is necessary to obtain full and open competition with due regard to the nature of the property or services to be acquired. ²³

“Specifying needs and soliciting proposals in a manner designed to achieve full and open competition” means that the government must advertise its requirements sufficiently in advance of the proposal due date to give vendors a fair opportunity to compete. In 1985, when CICA was implemented in the FAR, contracting officers were required to “publicize contract actions in order to increase competition, broaden industry participation in meeting government requirements, and assist small business concerns in obtaining contracts and subcontracts.”²⁴ At the time, the government was required to synopsize its requirements at least 15 days before issuing the solicitation, and it had to allow at least 30 days for vendors to submit offers. (These requirements have since been changed.)

CICA also established requirements for how a solicitation should be written. For example, the specifications must permit full and open competition and may include restrictive provisions only to the extent necessary to satisfy the needs of the executive agency or as authorized by law. This requirement addresses the concern of “wiring” an RFP to a particular company. If the specifications are written so that only one company can meet the requirements, it is considered to be “wired.” This doesn’t fulfill the intent of CICA. To avoid this situation, CICA requires that agencies write specifications in terms of:

• Function, so that a variety of products or services may qualify;
• Performance, including specifications of the range of acceptable characteristics or of the minimum acceptable standards; or
• Design requirements.

CICA also introduced minimum requirements for evaluation criteria. Per 41 USC 253a, they must include a statement of:

A. All significant factors (including price) which the executive agency reasonably expects to consider in evaluating competitive proposals and the relative importance assigned to each of those factors; and

B. A statement that the proposals are intended to be evaluated with, and awards made after, discussions with the offerors, but might be evaluated and awarded without discussions with the offerors; and the time and place for submission of proposals.²⁵

Finally, CICA requires agencies to evaluate offers based only on the evaluation criteria stated in the solicitation. It also introduced the concept of award without discussions (with the exception of minor clarifications)

when it can be clearly demonstrated from the existence of full and open competition or accurate prior cost experience with the product or service that acceptance of an initial proposal without discussions would result in the lowest overall cost to the Government.²⁶

CICA also added provisions relating to bid protests to Title 31 of the United States Code, which comprises the entire body of congressional actions. All bills passed by Congress that become permanent law are codified, or placed within a system for finding and referring to the law. In simple terms, the language is given a section number and placed in one of the titles of the U.S. Code. The laws within are grouped into similar subject areas; Title 31 covers money and finance.

The Budget and Accounting Act of 1921 is the basic legislation that established the GAO. The act granted GAO authority to determine the legality of public expenditures. Based on this authority, GAO has ruled on protests filed by interested parties concerning solicitations, proposed awards, or contracts for property or services. CICA established an express statutory basis for such decisions. It set strict time limits for the issuance of bid protest decisions and, in many cases, requires agencies to suspend, or stay, a protested procurement action until the comptroller general issues a decision. In addition, the act authorizes GAO to award successful protestors their costs of pursuing a protest as well as their costs of preparing bids and proposals.²⁷

CICA’s Impact on Source Selection

The effects of CICA on source selection are felt today. They affect the entire acquisition cycle, from planning to solicitation preparation, evaluation, and award. Now we take for granted that agencies plan for competition, but competition was not required by law before CICA. The FAR language that requires agencies to list evaluation factors and their relative importance and to state whether award will be made with or without discussions came directly from CICA. CICA encouraged contracting officers to use competitive procedures by requiring agencies to choose a competition advocate, which added another impediment to contracting on a sole source basis. Finally, CICA also allowed timely protest to stop contract award.