In this piece in the Government Contractor, Christopher Yukins and Kristen Ittig reviewed key issues under Section 3610 of the CARES Act, a provision which allows agencies to modify existing contracts, under appropriate circumstances, to reimburse contractors for leave paid to employees during the COVID-19 pandemic. 62 Government Contractor para. 156 (June 10, 2020).
The U.S. General Services Administration (GSA) on June 26, 2020 announced the award of three contracts which will allow government users to make billions of dollars in purchases directly from “electronic marketplaces” online. The contracts were awarded to Amazon Business, Overstock.com and Fisher Scientific. This “commercial platforms” initiative, detailed in Government Contractor pieces available here and here, could radically reshape public procurement in goods and services, as government users will be able to make “micro-purchases” (typically up to US$10,000) directly from these commercial platforms.
Join a webinar to discuss these developments on Tuesday, June 30, 2020 at 12 noon Eastern. Info. Registration.
This is a three-year pilot (or “proof-of-concept“) initiative. The estimated total value of these contracts is $6 billion annually, and GSA announced that it expects these online platforms to be available in 30 days.
Now that GSA has made awards on the pending solicitation, contractors may choose to join the online marketplaces which could regularize access to approximately 4.5 million federal personnel.
While the cap on micro-purchases is normally $10,000, that cap has increased to $20,000 in the pandemic, and GSA and the Office of Management & Budget (OMB) (within the White House) have urged Congress to increase the limit to $25,000 for purchases through GSA’s approved portals. Although as noted GSA estimates that $6 billion in sales could go to these new electronic marketplaces, micro-purchases across the federal government total several times that amount.
GSA and OMB have urged Congress to increase the micro-purchase threshold to $25,000 for purchases through GSA-approved portals
While the transactions through these electronic marketplaces will be directly between vendors and federal users, GSA will earn a .75% referral fee on every sale, or $45 million on a conservative estimate of $6 billion in sales every year. This fee matches the “industrial funding fee” charged by GSA for sales through the Multiple Award Schedules contracts, though the electronic marketplaces apparently will entail little workload and few legal obligations for GSA. This fee to a centralized purchasing agency may prove attractive to other centralized purchasing agencies, both in the United States and abroad, when those other agencies consider entering into similar arrangements with Amazon or other online marketplaces.
Micro-purchases by users on the commercial platforms will carry almost no regulatory requirements.
Unlike traditional federal contracts, the micro-purchases on the commercial platforms under Federal Acquisition Regulation (FAR) Subpart 13.2 will carry almost no regulatory requirements. This means that buyers and vendors working through the commercial platforms will be able to avoid the competition and transparency normally required for federal procurements, and will not need to meet socioeconomic requirements such as the Buy American Act.
The initiative has raised questions regarding cybersecurity. The U.S. government is imposing tighter cybersecurity requirements, such as the Cybersecurity Maturity Model Certification (CMMC) being implemented at the U.S. Department of Defense. While the awarded contracts should exclude certain products from vendors such as Kaspersky Labs and Huawei, other security issues may arise as security standards change.
Questions have also arisen regarding counterfeit goods on the commercial platforms. GSA has announced that it intends to follow best practices guidance regarding counterfeit goods published by the U.S. Department of Homeland Security.
Because of these and other risks, the new initiative may result in a spike in debarments. Unlike traditional federal contracts, vendors joining the online marketplaces and selling directly to federal users will not go through the same careful vetting for price, quality and qualification (responsibility). Individual government officials using these marketplaces may not have the requisite skills to assess quality and past performance. As a result, the government may seek to exclude vendors, through debarment or otherwise, if they pose serious corruption, reputational or performance risks.
The next month could prove a pivotal time for this initiative. Contractors will need to assess whether and how their federal market strategies may shift if federal users turn to this new sales channel. For government agencies it may also be a time of assessment, as agencies weigh whether federal customers—specifically, non-procurement personnel—should be specially trained to take on more authority for direct micro-purchases.
GWU Law will be hosting a free hour-long webinar on GSA’s “commercial platforms” initiative on Tuesday, June 30, 2020, at 9:00 Pacific, 12 noon Eastern and 18:00 CET.
Tuesday, June 30, 2020 – 9:00 Pacific, 12:00 Eastern, 18:00 CET
On Tuesday, June 30, 2020, at noon Eastern time, join a free hour-long webinar sponsored by George Washington University Law School’s Government Procurement Program to discuss GSA’s recent contract awards in the “commercial platforms” initiative — contracts estimated to be worth $6 billion annually, which were awarded to Amazon Business and two other online marketplaces.
Special guest Roger Waldron, president of the Coalition for Government Procurement (a leading industry association of commercial contractors who sell regularly to the federal government), will join the panel to discuss industry’s perspectives on GSA’s initiative. The Coalition has raised a number of concerns regarding the new commercial platforms initiative, including concerns regarding agency accountability, pricing, supply chain security, counterfeit goods, and market concentration.
The panelists have co-authored a background article for the seminar in the Government Contractor; the piece was published in the days before GSA announced the contract awards. In the article, Professors Christopher Yukins (George Washington University), Robert Handfield (North Carolina State University), Thomas Kull (Arizona State University) and Andrea Patrucco (Penn State University Beaver) discuss key themes for the upcoming webinar: challenges in what is, in essence, a new method of procurement; improvements that the initiative will bring to supply chain resilience; training that will be needed for federal purchasers; and, the possible impacts on procurement markets, both in the United States and abroad.
GSA’s commercial platforms initiative, by opening online marketplaces to federal users’ micro-purchases, could have an enormous impact on broad portions of the federal marketplace. If the challenges can be met—if GSA’s commercial platforms initiative succeeds – it may serve as a model for other public purchasers across the United States, and across the globe.
June 3, 2020 – 9:00 Pacific / 12:00 Eastern / 18:00 CET
Register here
Join GW Law for another free hourlong webinar, on President Donald Trump’s abrupt removal of four inspectors general and his announcement that a fifth will be dismissed shortly. In the last few months Trump has:
In-Depth Assessment: Background for the Webinar
An expert panel will discuss these actions against the inspectors general, which many have criticized as a collapse of the rule of law in Washington, opening the door to corruption in this and future administrations.
The panel will be moderated by Christopher Yukins, who teaches on anti-corruption in the Government Procurement Program at The George Washington University Law School, joined by:
Register here
The European Union has launched important initiatives in response to the COVID-19 pandemic, in joint procurement and funding innovation to drive the recovery. In the United States, governments’ initial response was marred by fierce competition between federal and state governments for critical medical supplies. But U.S. governments have a long tradition of joint procurement (called “cooperative purchasing”) among governments, and in funding innovation through various initiatives including the Small Business Innovation Research (SBIR) program. International organizations, including the United Nations, have also played an important part in coordinating international relief efforts in procurement.
Join a free hourlong webinar held through George Washington University Law School’s Government Procurement Program and the University of Turin’s School of Management and Economics, to discuss the European Union and its member states’ initiatives, and U.S. and transnational perspectives. Experts will present the European initiatives, with commentary from U.S.-based businesspeople, attorneys and academics with long experience in cross-border procurement and innovation through public procurement.
Program Slides – PDF
Background Article for Webinar
Professors Gabriella Racca (University of Turin) and Christopher Yukins (George Washington University
A special note to the international procurement community — the World Bank needs your help in its worldwide survey of emergency procurement practices for the COVID-19 pandemic, available here
Webinar – May 6, 2020 – 12 noon Eastern
Join another outstanding 60-minute webinar with the National Bar Association and George Washington University Law School’s Government Procurement Program, to discuss contractors’ road to recovery – the challenges and opportunities facing government contractors as the country emerges from the COVID-19 pandemic
Register here
Michael Bennett, Evans & Chambers Technology, LLC; Chair, DC Board of Elections
Michelle Coleman, Counsel, Crowell & Moring
Danielle Conway, Dean, Penn State Dickinson Law
Dominique Casimir, Partner, Blank Rome LLP
Liza Craig, Counsel, Reed Smith
Kendra Perkins Norwood, Wiley. For an earlier webinar on Section 3610 reimbursement in which Kendra Perkins Norwood and other attorneys from the government and the private sector participated, click here.
Judge Jeri Somers, Chair, US Civilian Board of Contract Appeals
Moderators: National Bar Association President Alfreda Robinson (GW Law School) & Christopher Yukins (GW Law School)
COVID-19: Small Business Resources
Brochure for Small Businesses – Beating COVID-19
The first phase of the COVID-19 pandemic brought a new wave of trade controls, as countries imposed new barriers against trade in vital supplies such as masks and ventilators. Now as the COVID-19 pandemic enters its next phase – as the disease recedes in some populations, and attacks others with new ferocity – a simple but critical question has come into focus: do trade barriers make sense in a pandemic?
One striking aspect of the pandemic has been the global supply chain needed for supplies essential to fight the virus. In an April 2020 report, the World Trade Organization highlighted the global sources for medical supplies, and the World Health Organization and other international organizations have stressed the need for international cooperation in fighting the COVID-19 pandemic.
Concerns over new protectionism in the United States arose earlier this year, when the Trump administration signaled that the United States might withdraw from the WTO Government Procurement Agreement (GPA) in response to a GAO study which suggested that European exporters enjoy lop-sided access to the federal procurement market. Lucian Cernat and Zornitsa Kutlina-Dimitrova, trade economists at the European Commission, have responded that the U.S.-EU trade balance in procurement, if read broadly, is actually much more favorable to the United States.
Robert Anderson (previously at the WTO) has pointed out that leaving the GPA could do permanent damage to the postwar trade regime in procurement, and Jean Heilman Grier (a former staffer at the Office of the U.S. Trade Representative who has written extensively on the GPA) has argued that leaving the GPA could severely disadvantage the United States in future trade negotiations. [Editor’s note: Robert Anderson’s assessment of the flexibilities already available to member parties in times of crisis is available here: Keeping markets open while ensuring due flexibility for governments in a time of economic and public health crisis: the role of the WTO Agreement on Government Procurement (GPA).] The U.S. business community (including the National Foreign Trade Council) has also lodged strong objections to leaving the GPA. Perhaps as a result of the many voices of opposition, the Trump administration’s initiative to leave the GPA has quieted, at least for now.
Another potential Trump administration initiative would impose new trade controls to force pharmaceutical companies to bring their production to the United States. This initiative, long pressed by senior White House trade advisor Peter Navarro, appears to have faded as well.
The Trump administration instead took a focused approach to trade controls, when on April 10, 2020 the Federal Emergency Management Agency imposed export controls under the Defense Production Act on personal protection equipment, including certain masks and gloves. At the same time, companies such as 3M were being savaged by President Trump for shipping emergency supplies abroad, even when (as 3M made clear) those shipments might be critical to other countries’ efforts to fight the pandemic.
But even the Trump administration’s most aggressive export controls, such as those aimed at Iran, Cuba, Venezuela and other sanctioned nations, will not necessarily block life-saving supplies. As Tom McSorley and his colleagues have pointed out, exceptions built into the U.S. export regime will still allow humanitarian supplies to reach Iran and other nations under U.S. sanctions. The FEMA ban on exports of PPE also allows for exceptions – under FEMA’s approval – for humanitarian purposes, Tom McSorley and his colleagues have noted. [Editor’s update: FEMA’s exceptions to the export ban — including a blanket exception for shipments to Canada and Mexico — are published in draft form here.]
Even more striking was the Trump administration’s decision to waive certain import controls – long the heart of Trump’s “Buy American” rhetoric – on vital items in short supply, from N95 masks to bleach. In normal times, the U.S. General Services Administration, which runs “schedule” contracts used by federal agencies for tens of billions of dollars in annual sales, complies with the Trade Agreements Act (TAA) by banning supplies from countries that have not entered into free trade agreements with the United States (“non-TAA” countries). Because of acute shortages in fighting the pandemic, however, GSA has temporarily lifted that ban for certain supplies. [Editor’s note: Jean Grier’s summary of this development is at Perspectives on Trade: ‘US Temporarily Lifts Procurement Ban’] The Trump administration’s abrupt volte face suggests that trade controls can raise dangerous barriers in times of crisis.
Even more striking was the Trump administration’s decision to waive certain import controls – long the heart of Trump’s “Buy American” rhetoric – on federal procurements of vital items in short supply
U.S. trade controls in the pandemic are part of a broader trend around the world, as nations try to reshape trade flows to husband supplies needed to address the COVID-19 disease. Those trade controls, which Simon Evenett of the University of St. Gallen calls “sickening-thy-neighbor” measures, raise serious humanitarian and political questions now that some countries no longer need equipment that is desperately sought in other nations. With the pandemic receding, New York will now share ventilators it no longer needs with Maryland and Ohio; should the United States do the same for Senegal, or for new hotspots such as Sweden? And what role should international institutions, such as the WTO, the World Bank and the OECD, play in facilitating international cooperation rather than trade barriers – global cooperation, as Laurence Folliot Lalliot has argued, that will be needed to save lives. (An update: EU Commissioner Phil Hogan on April 16, 2020 called for a temporary international ban on tariffs for vitally needed COVID-19 supplies, and made clear that European Union cannot “on-shore” its manufacturing in the long term — it will continue to rely on an international supply chain for key medical supplies.)
Solving that puzzle – weighing protectionism in the pandemic – may require a new set of policy metrics. Zornitsa Kutlina-Dimitrova of the European Commission has argued that trade restraints make little sense when weighed against the secondary economic effects (e.g., the industrial atrophy, the isolation from innovation) that trade controls cause. Her research bears special attention now, when human lives – not just dollars – weigh in the balance.
Editor’s note: Join a free GW Law webinar on Tuesday, April 21, 2020 at 9:00 ET/14:00 UK/15:00 CET/21:00 CST. Simon Evenett, Robert Anderson, Jean Heilman Grier, Tom McSorley and Zornitsa Kutlina-Dimitrova (invited) will convene before a worldwide audience to discuss “Protectionism in the Pandemic.” The program will be moderated by Laurence Folliot Lalliot, Vanessa Sciarra of the NFTC and Christopher Yukins. Program information and registration.
Register here
Tuesday, April 21, 2020, 9:00 ET/14:00 UK/15:00 CET/21:00 CST
Governments around the world are imposing trade controls that may cut off access to life-saving equipment. GW Law held an open webinar on protectionism in the COVID-19 pandemic – the barriers to imports and exports that threaten to deepen the pandemic. The program materials are below.
Background article (with key resources) for this webinar
The panelists discussed:
Presented with the kind cooperation of the National Foreign Trade Council
Simon Evenett, University of St Gallen (Switzerland) – Bio COVID-19 Trade Report
Robert Anderson, Hon. Professor, U. Nottingham (WTO-retired) – Bio – Works – Keeping markets open while ensuring due flexibility for governments in a time of economic and public health crisis: the role of the WTO Agreement on Government Procurement (GPA) (draft – forthcoming, Public Procurement Law Review)
Jean Heilman Grier, Djaghe Consulting (Washington DC) – Bio Works – Perspectives on Trade: ‘US Temporarily Lifts Procurement Ban’
Tom McSorley, Arnold & Porter (Washington DC) – Bio Humanitarian aid US Export Controls
Zornitsa Kutlina-Dimitrova, European Union – DG for Trade – Bio – Works
Moderators: Christopher Yukins, GW Law School; Vanessa Sciarra, National Foreign Trade Council; Laurence Folliot Lalliot (University of Paris Nanterre (joining from Dakar))
Resources on COVID-19 and Procurement
Fighting Fraud in COVID-19 Sourcing – Webinar – April 9, 2020
Straight Talk: Emergency Procurement in the COVID-19 Pandemic – April 2, 2020
Public Contracts and the Coronavirus – Online Colloquium – March 24, 2020
A new threat has emerged in the pandemic: fraud in the supply chain for critical COVID-19 supplies. Governments the world over are fighting back against price gouging and defective supplies. What tools are available, and will they work? Join a free one-hour webinar with GW Law, as experts discuss these critical global developments in anti-corruption and procurement.
April 9, 2020, 9 am ET/15:00 CET/21:00 CST
Presented with the kind cooperation of the International Anti-Corruption Academy (IACA)
Register here
Panelists
Michael Bowsher QC – Monckton Chambers / King’s College, London (London)
Thomas Hendrix – GW Law / Decisive Point (New York)
Aris Georgopoulos — University of Nottingham (United Kingdom)
Rocco Burdo, Head, Analysis and Research Section, Intelligence Office, Anti-Fraud and Controls Department, Customs and Monopolies Agency (Italy)
Jessica Tillipman — GW Law (Washington)
Mihály Fazekas – Central European University (Budapest) DIGIWIST Report
Paul Whittaker – OECD (Paris) OECD – Corruption in Procurement
Moderators: Christopher Yukins, GW Law School (Washington); Jean-Bernard Auby (Professor emeritus, Sciences Po Law School (Paris)); Gabriella Racca (University of Turin); Laurence Folliot Lalliot (University of Paris Nanterre (joining from Dakar))
Resources on COVID-19 and Public Procurement
At a press briefing on March 19, President Trump brushed aside demands that the federal government take the lead in buying medical equipment – including the coronavirus tests, ventilators and protective gear – critically needed to save lives in the current pandemic. “We are not a shipping clerk” Trump said, and left it to the states to take first responsibility for procuring life-saving equipment.
Is President Trump right – should state governments be left to procure emergency equipment – or is this one of the most serious mistakes he has made in this pandemic?
The need for emergency equipment is desperate. On March 18, for example, the New York Times reported that there are only roughly 170,000 ventilators in this country, although many hundreds of thousands of coronavirus patients may need them soon. In a March 19 interview, Governor Andrew Cuomo of New York was brutally direct. “We now have about 5,000, 6,000 ventilators in New York State,” Cuomo reported. “We are going to need about 30,000 ventilators because these people who come in all have respiratory illnesses.” Experience in Italy, already overwhelmed by the pandemic, shows that if emergency equipment is not procured immediately, thousands of American patients and healthcare providers may die unnecessarily.
Trump’s comment deflecting responsibility for buying emergency equipment came at a March 19 White House press briefing, when he was asked why the federal government had (by executive order) invoked, but not triggered, the Defense Production Act. The Act allows the federal government to direct manufacturers to produce vitally needed items. The states’ governors, Trump responded, “are supposed to be doing a lot of this work.” The federal government, he continued, “is not supposed to be out there buying vast amounts of items and then shipping.” “You know,” Trump said, “we’re not a shipping clerk. The governors are supposed to be – as with testing, the governors are supposed – are supposed to be doing it.”
Trump’s insistence that the states take the lead in emergency procurement contradicts his own administration’s “Crimson Contagion” study, confidentially drafted before the pandemic and disclosed on March 19 by the New York Times. The Trump administration draft report clearly foresaw that the federal government would have to coordinate equipment requests from the states in times of pandemic. Public health experts now reinforce the administration’s own conclusion: the federal government must take the lead in purchasing emergency equipment such as ventilators.
Trump’s approach also contradicts what other nations facing the same pandemic are doing. Italy, for example, has centralized (and radically simplified) procurements of emergency equipment. CONSIP, the Italian centralized purchasing agency, has taken charge of buying thousands of ventilators, and it has open requests to the market for emergency equipment.
By pushing procurement responsibility out to the states, Trump’s approach also ignores a critical tool available to the federal government: the United States’ unmatched ability to assure vendors that if they build equipment, the manufacturers’ costs will be covered even if the equipment is never used.
While the Defense Production Act allows the government to direct the production process – always a risky prospect – the federal government’s contracting tools include the power to “terminate for convenience.” This simple, largely unknown contracting power became a central part of U.S. procurement after World War I, when the federal government canceled large numbers of wartime contracts. The termination for convenience clause – now required in every federal supply contract – says that while the government may terminate contracts for its own convenience (a right most commercial parties do not have), the United States will make its contractors whole if the federal government does prematurely end a contract.
This simple termination right is extremely powerful in a time of crisis, because it means that manufacturers – from Ford to Tesla – can incur huge cost risks in retooling to build vital equipment. Although contractors may lose commercial opportunities by temporarily retooling their production lines, at least those companies know their sunk costs will be covered by the United States – and here, that federal government guarantee may enable many more manufacturers to join this battle against death by disease.
“This simple termination right is extremely powerful in a time of crisis, because it means that manufacturers . . . can incur huge cost risks in retooling to build vital equipment.”
This simple procurement tool also explains why the federal government must take the lead in procuring emergency equipment. State governments typically have the same contract clause – the same right of termination for convenience – but state governments do not have the federal government’s massive resources backing the promise to make manufacturers whole, or the United States’ preeminent market position. In contrast to the states’ limited resources, the U.S. government’s procurement rules channel the federal government’s nearly unlimited resources – its commitment to pay, and the world’s largest procurement apparatus – to drive procurement of equipment that will save lives. The time for the federal government to exercise that procurement power is now.
By Christopher Yukins, the Lynn David Research Professor in Government Procurement Law at the George Washington University Law School, Washington, DC. The Law School’s government procurement program will host an international online colloquium on public procurement and the COVID-19 pandemic on Tuesday, March 24, 2020, at 12:00 ET.
