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.
Some of the most difficult issues in U.S. procurement law stem from the nation’s several centuries of accumulated protectionist measures, and from a patchwork of trade agreements meant to contain that protectionism. These conflicting measures reflect a push-and-pull in U.S. procurement policy, between those who favor closed procurement markets and those who favor open competition; the compromises reached between the two camps have created a Byzantine set of rules and requirements. At the same time, though, this area of law holds a special promise for the future of procurement, for cross-border agreements currently offer the readiest means of erasing anti-competitive differences between national rules, by bringing many nations to a common standard of international best practice. To make sense of this complex area, this chapter proceeds in three parts. Part II reviews the major pieces of protectionist legislation passed by Congress, focusing first on the Buy American Act of 1933; this discussion also references some of the most important implementing regulations. Part III reviews the most important U.S. trade agreements which have limited the force of that protectionist legislation, including the World Trade Organization’s Agreement on Government Procurement (GPA). Because barriers to procurement can also arise from structural factors — “non-tariff barriers to trade” which, in practice, may protect domestic vendors — this part also explains how the trade agreements mitigate those non-tariff barriers. Finally, Part IV concludes by offering some practical suggestions for those working in this field, and suggests a possible road ahead for cooperation in international procurement markets.
Yukins, Christopher R. and Green, Allen, International Trade Agreements and U.S. Procurement Law (2018). Chapter 9 to The Contractor’s Guide to International Procurement (American Bar Association 2018) (Erin Loraine Felix & Marques Peterson, eds.); GWU Law School Public Law Research Paper No. 2019-55; GWU Legal Studies Research Paper No. 2019-55. Available at SSRN: https://ssrn.com/abstract=3443244
On April 30, 2019, the U.S. Department of Justice’s Criminal Division announcedrevised guidance for assessing corporate compliance systems. The guidance goes to what authorities abroad sometimes call corporate “self-cleaning” — efforts by private firms to identify and remediate improper behavior. (See, for example, Article 57 of European Public Procurement Directive 2014/24/EU.) The new guidance expands on the 2017 guidance (below), and elaborates on the Justice Department’s summary discussion of corporate compliance programs in the Justice Manual § 9-28.800.
The new guidance is noteworthy, though, for stressing (at pages 9-12) that a firm with an effective compliance system should maintain a strong compliance function, either in-house or through an outsourced vendor. As companies around the world move to implement compliance systems, they should recognize that enforcement authorities will often expect to see a robust compliance function in place, with the autonomy and authority necessary to address emerging risks of corruption and misconduct.
Senior Economist, Chief Trade Economist Unit,
European Commission
Most debates over protectionism
look only at the direct effects of “Buy National” laws — how do those laws
help specific domestic producers, and how do they raise costs and reduce
choice?
The European Commission is taking
a new approach. Building on other
transnational studies, the Commission has undertaken a multi-year effort to
assess the economy-wide impact of
domestic preferences in procurement.
Through this effort, the European Commission will be able to predict the
costs, direct and indirect, of new “Buy National” laws around the world.
Please join Zornitsa Kutlina-Dimitrova, a senior trade economist at the European Commission, in an interactive discussion of this important development in international trade.
On April 5, 2019, scholars from Pace University, the University of Copenhagen and George Washington University hosted an all-day roundtable on emerging issues in sustainable public procurement, through Pace University’s Elisabeth Haub School of Law.
The First Annual Transatlantic Roundtable on Sustainable Public Procurement was hosted by:
Pace Environmental Law and the Elisabeth Haub School of Law,
The Centre of Enterprise Liability, Faculty of Law, University of Copenhagen, and
The George Washington University Law School’s Government Procurement Law Program.
Researchers and renowned specialists from around the globe discussed recent developments in the field of sustainable public procurement. The global value of public procurement spending is enormous. OECD countries alone spend a total of a trillion U.S. dollars per year, and each year their governments spend around 14-19% of GDP on the purchase of services, works and supplies. In many sectors such as energy, transport, waste management, social welfare, education and health services, public authorities are the principal buyers. The sheer scale of public procurement spending can literally create and shape markets, impact lives of citizens across the country, and foster greater sustainability in terms of environmental protection, public health, and economic equality.
Speakers included:
Professor Jason J. Czarnezki, Kerlin Distinguished Professor of Environmental Law and Associate Dean, Elisabeth Haub School of Law at Pace University,
Marta Andhov, Assistant Professor, Faculty of Law, University of Copenhagen, Denmark,
Professors Steven Schooner and Christopher Yukins, George Washington University Law School, Washington, D.C., and
Nicole Darnall, Associate Dean and Professor, School of Sustainability Arizona State University
This event was held at Pace University’s Downtown Campus – 1 Pace Plaza, on the 18th floor in the North and South Boardrooms.
Introductions Jason J. Czarnezki –Kerlin Distinguished Professor and Associate Dean, The Elisabeth Haub School of Law at Pace University, New York
Marta Andhov – Assistant Professor, Faculty of Law, University of Copenhagen, Denmark; Haub Visiting Scholar at Pace University’s Elisabeth Haub School of Law
Session 1 : Does the United States need a sustainable public procurement legal framework?
U.S. Federal Public Procurement – A lack of interest in sustainable purchasing? – Steven Schooner, Nash & Cibinic Professor of Government Procurement Law, The George Washington University Law School
Do state level and local contracting authorities drive the sustainable procurement agenda in the United States? – Jason J. Czarnezki, Kerlin Distinguished Professor and Associate Dean, The Elisabeth HaubSchool of Law at Pace University, New York City
Sustainable Procurement in Local Governments – Nicole Darnall Associate Dean and Professor, School of Sustainability, Arizona State University
Session 2: European Union – A leader in sustainable purchasing?
How we got to the Strategic Public Procurement Agenda-Understanding the EU legal framework – Roberto Caranta, Professor of Administrative Law, University of Turin, Italy
All that glitters is not gold – Paradoxes of EU Public Procurement Law – Marta Andhov, Assistant Professor, Faculty of Law, University of Copenhagen, Denmark; Haub Visiting Scholar at the Pace University’s Elisabeth Haub School of Law
The Evolution of Sustainable Procurement in the United Kingdom: From Thatcherism to the Social Value Act and a widening and deepening policy agenda. Where next post-Brexit? – Michael Bowsher QC – Director of the Distance Learning Diploma and Masters in Public Procurement Law at King’s College London; Visiting Professor, Dickson Poon School of Law, King’s College London; Barrister (Monckton Chambers), England & Wales, Northern Ireland, Republic of Ireland
Session 3: WTO & UNCITRAL
SPP: International perspectives, including under the UNCITRAL Model Law and the WTO Government Procurement Agreement – Christopher R. Yukins – Professor of Public Procurement Law and Co-Director, Government Procurement Law Program, George Washington University Law School
Sustainable public procurement under the OECD and the multilateral development banks- Carol Cravero, PhD student at the University of Turin, Italy and University of Paris Nanterre (CRDP), France
Sustainable procurement at UNOPS –Benedetta Audia, Corporate Legal Advisor, Head of the Commercial and Institutional Law Practice, Legal Group, United Nations Office for Project Services, New York
Session 4: Selected Countries and Their Experiences
Canadian experience with Sustainable Public Procurement –Paul Emanuelli,General Counsel and Managing Director, Procurement Office, Toronto
Challenges and the future of sustainable public procurement in Poland – Michal Kania, Professor, Silesian University, Poland; Fulbright Visiting Scholar The George Washington University Law School
Brazilian experience with SPP – Luciana Stocco Betiol, Professor – Department of Social and Legal Sciences, São Paulo School of Business Administration – FGV/EAESP
On January 31, 2019, President Trump issued an Executive
Order encouraging federal grantees to “Buy American” when purchasing iron, aluminum,
steel and certain manufactured products for infrastructure projects funded by
federal grants. Although the Executive Order on Strengthening
Buy-American Preferences for Infrastructure Projects only directs federal
agencies to encourage grantees to “Buy
American,” it also calls for federal agencies to assess whether federal
grantees (including state and local governments) might be required to buy
U.S.-made goods in the future.
“We want American roads, bridges, and railways, and everything else to be built with American iron, American steel, American concrete, and American hands.”
White House economist Peter Navarro, a key proponent of closing
U.S. borders to international trade, published an op-ed
on Fox News before the order was released, explaining and supporting the
order. As the President and Peter Navarro
made plain in the signing
ceremony in the Oval Office, the new order is part of a broader White House
initiative to boost U.S. manufacturing, a central theme in Trump’s reelection
efforts.
The order highlights a gap in trade agreements, because federal
grants are generally excepted from U.S. trade agreements that require open
trade in procurement. See, e.g., WTO Government Procurement
Agreement, U.S.
Annex 7, General Notes, para. 2.
But even though federal grants
are not themselves subject to the trade agreements, state grantees using
federal funds for their own procurements may be covered by those agreements —
and thus may not be able to discriminate against covered foreign vendors when
they procure using federal grant funds. Two-thirds
of the states, for example, are members of the World Trade Organization’s Government
Procurement Agreement, and so have committed not to discriminate in certain
purchases from other members of the GPA.
The new Trump executive order defers to those prior commitments to open
trade in procurement.
The new order calling on grantees to discriminate across borders contrasts sharply with prior White House guidance, through the Office of Management & Budget (OMB), 2 CFR 200.319(b), which requires many grantees to “conduct procurements in a manner that prohibits . . . state, local, or tribal geographical preferences in the evaluation of bids or proposals.” This prior OMB guidance barring grantees from domestic geographic preferences aims to encourage maximum competition in procurements using grant funds; the new order, calling for international discrimination, logically would probably hurt competition.
If grantees follow the President’s admonition and only “Buy
American,” experience suggests that public projects under federal grants may
take longer and cost more. Under Section
1605 of the American Recovery and Reinvestment Act of 2009 — which imposed a
similar “Buy American” requirement — GAO found that grantees
faced severe operational problems when they were forced to comply with similar “Buy
American” requirements. For many of
these same reasons, the National Association of State Purchasing Officers
(NASPO) has opposed
geographic preferences in procurement, because they can undermine competition and
hurt best value.
In her posting on the new executive order, Jean Heilman Grier suggested that this order is a logical successor to Trump’s April 2017 executive order which called for federal agencies to “Buy American and Hire American.” While that earlier order encouraged federal agencies to Buy American whenever they can, this order extends that admonition to federal grantees.
Because of the latticework of policies and agreements which bar or discourage discriminatory procurement by state and local governments, it is unclear exactly what impact this new executive order may have on federal grantees’ purchasing. What is clear, however, is that even the most aggressive “Buy American” requirements in procurement are unlikely to have any serious impact on the nation’s trade deficit. At the federal level, a December 2018 GAO report showed that only roughly 1.5% of federal procurement ($7.8 billion of approximately $500 billion per year) were foreign products — compared to a national trade deficit of $566 billion in 2017. Foreign purchases probably total an even smaller share of state and local procurement, compared to federal purchases from abroad, because trade agreements force open a much smaller portion of state and local public markets. In sum, therefore, no matter how aggressively federal grantees implement the executive order, it is unlikely that the new order, though trumpeted for political reasons, will reduce the U.S. trade deficit in any significant way.
Effective international trade in government procurement depends on predictable legal structures, including those that address corruption and misconduct in tender processes. But at this point, the purchaser’s primary tools to maintain integrity — debarment or exclusion — remain wildly out of sync on both sides of the Atlantic. This annual free symposium on transatlantic issues in procurement, hosted by King’s College London and George Washington University Law School, focused this year on debarment and exclusion. In a highly successful day of frank and collegial discussions, judges, officials, attorneys and professors from the multilateral development banks, the European Union and the United States joined to discuss the best ways forward to harmonize a common approach to debarment in international trade.
Please note (see below) that because of the strong interest in this program, it was moved to a larger room at Gray’s Inn.
Members of the “GWU” team at the symposium at Gray’s Inn (left to right): Professor Michal Kania (Fulbright scholar), Program Director Karen Thornton, Ruairi Macdonald (alumnus), John Pachter (alumnus and panelist), Paul Khoury (alumnus and panelist), Collin Swan (alumnus and panelist), Alix Town (alumna), and Professor Christopher Yukins (symposium co-chair)Collin Swan (World Bank), Michal Kania (University of Katowice) and Dominique Casimir (Arnold & Porter, Washington DC)
Panel II: Sanctions and Exclusions at the Multilateral Development Banks (11:30-12:30)
Panel II: Lisa Miller (World Bank), Prof Christopher Yukins (GWU), Collin Swan (World Bank) and Paul Kearney (European Bank for Reconstruction and Development)
Panel III: John Pachter (Smith Pachter, McLean VA), Paul Khoury (Wiley Rein, Washington DC), Vera Eiro (Linklaters, Lisbon), Michael Bowsher QC (symposium co-chair/moderator, Monckton Chambers & King’s College, London) and Pascal Friton (BLOMSTEIN, Berlin).
John Pachter, Christopher Yukins & Jessica Tillipman, U.S. Debarment: An Introduction (discussion draft 24 February 2019), forthcoming in Cambridge Handbook of Compliance (Cambridge University Press, Daniel Sokol & Benjamin van Rooij eds.).
Pascal Friton, Debarment in EU Public Procurement Law – Tentative progress or treading water? (presented at Thomson Reuters Government Contracts Year in Review (Feb. 2019))
Panel V: Judge Marc Steiner (Swiss Federal Administrative Court), Judge Christopher Vajda (Court of Justice for the European Union), Prof Carl Baudenbacher (former Chief Judge of the EFTA Court, Monckton Chambers), Michael Bowsher QC (Monckton Chambers/King’s College, London), Judge Katja Hoegh (Chair, Ostre Landstret (High Court of Eastern Denmark), Copenhagen), Judge Helena Rosen Anderrson (Swedish Supreme Administrative Court)
Emmanuelle Auriol & Tina Søreide, An Economic Analysis of Debarment, 50 Int’l Rev. L. & Econ. 36 (2017) (arguing that debarment needs to be rethought in light of its competitive impacts)
Christopher R. Yukins & Michal Kania, Suspension and Debarment in the U.S. Government: Comparative Lessons for the EU’s Next Steps in Procurement, 19-2 UrT 47 (2019), available at https://ssrn.com/abstract=3422499
Background materials by panelists (from a fall 2018 seminar at GWU):
The Congressional Research Service, a research arm of the Library of Congress, has published a very useful overview of the U.S. bid protest (bid challenge) system, by David Carpenter & Moshe Schwartz, Government Contract Bid Protests: Analysis of Legal Processes and Recent Developments (Updated November 28, 2018, CRS Report R45080), https://fas.org/sgp/crs/misc/R45080.pdf
