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.
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))
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.
Tuesday, February 18, 2020, 9 to 11 am – GWU Law School, Law Learning Center, 2028 G Street NW, Room LLC006
WTO Government Procurement Agreement Members and Observers
According to press reports, the Trump administration is mulling an executive order that would trigger U.S. withdrawal from the WTO Agreement on Government Procurement (GPA). This free colloquium will assess the United States’ potential withdrawal from the GPA, which would deprive U.S. suppliers of a key point of access to public procurement markets internationally — although the GPA, experts note, has set global standards and opened an estimate $1.7 trillion dollars annually in business opportunities. The United States could forfeit access to important public procurement markets in Canada and many other countries, and the United States could lose its leadership role (which dates back to World War II) in shaping global standards in public procurement, even as more countries (such as Brazil) are joining the GPA.
Colloquium will be held downstairs at the GWU Law Learning Center – 2028 G Street NW (photo: Google)
Jean Heilman Grier is a leading internationally recognized expert on the World Trade Organization’s (WTO) Government Procurement Agreement (GPA), bilateral and regional agreements, international trade negotiations and international procurement systems. She has more than 30 years of experience in international trade as a U.S. trade negotiator, lawyer, adviser and consultant, including as the government procurement negotiator for the U.S. government. For a decade, she represented the United States in the WTO Committee on Government Procurement where she played a leading role in the revision of the GPA and accessions to the Agreement. Since 2013, she has been the Trade Principal with Djaghe, LLC., where she advises and provides technical assistance to governments, international organizations, businesses and trade groups on international procurement and trade issues. She writes extensively on international procurement and other international trade topics, and maintains a blog, Perspectives on Trade, at http://trade.djaghe.com; there, she recently published a piece on the impacts that the United States leaving the GPA could have.
Robert Anderson
Robert Anderson is a teacher and independent researcher on matters relating to the multilateral trading system, competition policy and government procurement. He previously worked in the Secretariat of the World Trade Organization from 1997 through 2019, and held the position of Counsellor and Team Leader for Government Procurement and Competition Policy in the Organization from 2005 through 2019.
Current academic positions include that of Honorary Professor in the School of Law at the University of Nottingham (United Kingdom). Mr Anderson also is an external faculty member at the World Trade Institute, the University of Bern (Switzerland); the University of Rome Tor Vergata (Italy); and the Catholic University of Lyon (France). He also has been a guest speaker, on multiple occasions, in relevant courses of the George Washington University Law School (United States).
Roundtable Participants: Michael Bowsher QC (Monckton Chambers, London) – Andrea Sundstrand (University of Stockholm) – Pascal Friton (Blomstein, Berlin) – Paul Lalonde (Dentons, Toronto) – Colette Langos (University of Adelaide) – Christopher Yukins (GWU Law School)
Program information: Cassandra Crawford, ccrawford@law.gwu.edu
On January 15, 2020, Overstock.com, Inc., a competitor in the pending U.S. General Services Administration (GSA) procurement for “electronic marketplaces” reportedly protested the reissued (and revised) solicitation at the U.S. Government Accountability Office. Per GAO’s rules on the public availability of records, 4 Code of Federal Regulations (CFR) Part 81, Professor Yukins submitted a formal request to GAO for electronic versions of the redacted materials filed in the referenced pending bid protest (attached). These records were requested so that information and analysis regarding the subject procurement – a multi-billion dollar procurement to open commercial electronic marketplaces to federal users – can be made available to the public. If these records are not released, key information on this major procurement may be blocked from the public for roughly three months – the 100-day period for a GAO bid protest to be decided.
On January 22, 2020, GAO denied the request, saying that it is estimated that the documents will not be available until the proceedings are concluded, projected to be on or about April 24, 2020, over three months later. In practical terms, this means that the thousands of vendors and customers which need to prepare for the new electronic markets to be opened by GSA’s procurement may need to wait months for information on the ongoing procurement and protest — even though that information (because redacted) is otherwise publicly releasable.
Roger Waldron, Coalition for Government Procurement
Editor’s Note: On January 24, 2020, the Federal News Network published an op-ed by Roger Waldron of the Coalition for Government Procurement which concluded: “. . . there are broad implications for the procurement system associated with the e-Marketplace acquisition, and those implications extend into other areas of importance, like supply chain security, socioeconomic programs, and the protection of proprietary data. Yukins is right. Absent the release of these [GAO protest] records, ‘key information on this major procurement may be blocked from the public for roughly three months – the 100-day period for a GAO bid protest to be decided.’ So too, from the perspective of Coalition members, it highlights that more review and reflection on the acquisition is needed. “
Jessica Tillipman, GWU Law School – Co-chair, ABA SIL Anti-Corruption Committee
On February 13, 2020, at 12:00 noon ET, the American Bar Association (ABA) Section of International Law (SIL) Anti-Corruption Committee will join with the ABA Public Contract Law Section (PCLS) Suspension and Debarment Committee, for an informal lunchtime session on developments in international debarment. The session will be moderated by Assistant Dean Jessica Tillipman, George Washington University Law School, Washington DC.
Christopher Yukins, George Washington University Law School (who co-teaches courses on anti-corruption with Dean Tillipman), will discuss emerging international models for debarment, and the impact that new electronic marketplaces may have on debarment globally. With regard to the U.S. experience, he has drafted a book chapter with John Pachter and Jessica Tillipman, for a forthcoming book on compliance by Cambridge University Press. Professor Yukins has also co-written a piece with Professor Michal Kania (U. Silesia – Katowice), comparing debarment in the United States and the European Union.
Pascal Friton, a partner in the BLOMSTEIN firm, Berlin, will discuss how the European Union’s member states are addressing exclusion and debarment, drawing on a piece he presented at the Thomson Reuters Government Contracts Year in Review in February 2019. He also will be speaking on the afternoon of Tuesday, February 18, 2020 at this year’s Year in Review conference.
Collin Swan, World Bank
Collin Swan, of the World Bank’s Office of Suspension & Debarment, will discuss his office’s debarment survey and the office’s ongoing research into other debarment systems (beyond the United States and the World Bank). See his FCPA Blog post on the survey.
Grace Sullivan, a third-year student at the George Washington University Law School, recently won first prize in the Public Contract Law Journal annual writing contest for her note (which was also accepted for publication in the Journal). Her note analyzes three case studies of foreign contractors debarred by the U.S. government: Chinese telecommunications giants ZTE and Huawei, and Russian cybersecurity firm Kaspersky. Ms. Sullivan will be presenting on her note at the March 2020 ABA PCLS Federal Procurement Institute in Annapolis, MD.
Dial-in Information:
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Debarment – the exclusion of a firm or individual from working with a government – allows governments to protect themselves from the reputational and performance risks posed by unqualified firms and individuals. As a March 2019 conference at King’s College, London made clear, governments the world over are reforming their debarment systems, though often in strikingly different ways. The U.S. government is now moving to reform its debarment system, by more closely aligning the rules that govern debarments for grants and contracts. The rules would be revised “to improve consistency between the procurement and non-procurement procedures on suspension and debarment, based on recommendations of the Interagency Suspension and Debarment Committee,” under a pending Federal Acquisition Regulation (FAR) reform case No. 2019-015. Many have long argued for this reform, and a 2017 Public Contract Law Journal article by Robert Meunier and Trevor Nelson described the issue in detail. A report on the pending FAR case is currently due in January 2020, and the U.S. Office of Management and Budget anticipates that a Notice of Proposed Rulemaking (NPRM) will be published in February 2020. We will be tracking this issue closely in a special short seminar that George Washington University Law School offers online, on suspension and debarment.
Proposals to the U.S. General Services Administration are due soon in a $6 billion procurement under which multiple no-cost contracts will be awarded to vendors that will open electronic marketplaces to federal users making micro-purchases (generally up to $10,000). Although federal purchase card holders have long been able to make micro-purchases with few regulatory constraints regarding competition, transparency or socioeconomic requirements, this new GSA initiative appears likely to normalize and expand those purchases—and so may revolutionize small purchases in the federal market. This article assesses some of the key concerns — including a lack of competition and transparency, cybersecurity threats, most-favored-customer pricing, and open issues regarding bid protests — that still surround this important initiative. 61 Government Contractor ¶ 303 (Oct. 16, 2019). Available at https://ssrn.com/abstract=3471405 , and below.
The U.S. Defense Department will on September 26, 2019 publish
a long-awaited final
rule to implement Congress’ curbs on low-price awards. Unlike European
governments, since World War II the U.S. government has come to rely heavily
on multilateral competitive
negotiations which trade off price and quality to ensure best value. Recent years, however, saw a resurgence of “lowest
price technically acceptable” (LPTA) procurement –
an award to the vendor that offers the cheapest good or service that is
technically acceptable. The final rule,
which reflects Congress’ concerns that the low-price method is used too often
and inappropriately, may slow the use of LPTA awards.
Many have argued
that the LPTA procurement method is a throwback to a more primitive form of
procurement based on low price.
Contracting officials, however, have embraced this return to low-price
procurement. Critics have suggested
that this is because low-price awards are easier to implement and explain, they
reduce the nominal prices paid by the government, and awards based on low price
allow contracting officials to avoid the often sticky questions raised by
technical and past
performance evaluations. Because
price is simple and technical issues are often quite difficult for contracting
officials to master, critics of the LPTA method have argued
that focusing on low price reduces administrative costs and risks for
contracting officials, even if the award does
not result in the best value for users – a classic “agency”
problem in procurement.
After long debate and numerousstudies noting industry’sopposition to low-priced awards, Congress passed a series of laws intended to curb the use of the LPTA method in federal procurement. Despite early Pentagon guidance urging caution in the use of the LPTA method, Defense Department regulators took long (several years, though Congress had called for swift action) to prepare and publish a final rule implementing those statutory restrictions. Operational guidance for Defense Department contracting officials is being published as well, and civilian agency requirements will be addressed separately under a government-wide rule currently under review.
The final rule reflects a restrictive implementation of Congress’
curbs on low-price awards; in fact, the new rule is in many ways merely a
“copy-and-paste” of the statutory requirements.
Regulators repeatedly rejected suggestions to clarify, for example, that
low-price awards should be limited to non-complex acquisitions. Regulators argued that where Congress did not
impose a specific bar on low-price awards, further limitations should not
appear in the rule – a markedly narrow approach, given the broad discretion allowed U.S. regulators when
implementing legislation.
Despite regulators’ cautious approach, the final rule does impose
important limitations on the use of the LPTA method:
Contracting officials will have to document (but
not necessarily publish) why they chose to use the LPTA method.
Certain goods (such as personal protective
equipment to be used in combat) are not to be purchased using the LPTA method.
The LPTA method is to be avoided in contracts
and orders unless:
Requirements can be described “clearly and
comprehensively”
Little value will be gained from a proposal that
exceeds minimum technical requirements
The technical requirements require little
subjective assessment
Review of the technical proposals is probably
not valuable
A different procurement method is unlikely to
spur innovation
The goods to be purchased are expendable or
non-technical
The contract file explains why the lowest price will
reflect full life-cycle costs
Regulators’ comments to the final rule acknowledged that the government does not hold data on how often the LPTA method is actually used in practice. If, in response to this final rule, industry continues to press Congress for further limitations on low-price awards, future reforms may focus on the need for data on LPTA awards, and on greater transparency in contracting officials’ decisions to make awards based on low price.
Editor’s note: This post was updated on September 26, 2019 to include the two charts from GAO Report GAO-19-691, which was published after the final DFARS rule was released.
Join a special presentation on the United States’ international trade agreements in procurement. Chris Yukins and Allen Green will present on their chapter in The Contractor’s Guide to International Procurement (American Bar Association 2018) (Erin Loraine Felix & Marques Peterson, eds.). They will give an overview of international trade agreements, and discuss recent “Buy American” developments in the Trump administration. The program will be held at the Dentons law firm, 1900 K Street NW, from 12-1:30 pm. Lunch will be served.
