COMPTROLIER GENERAL OF THE UNITED STATES

WASHINGTON. D.C. 20548

IN REPLY

?EFERTO: B-195505

at. ~~JAN 4 198X

The Honorable William Carney

Dear Mr. Carney:

This is in response to your letter of October 11, 1979,asking for our comments on H.R. 55257 The bill concerns theprocurement an*'supply of personal property and nonpersonalservices by the Administrator of General Services.

We believe the bill addresses in several ways the recom-mendations in our May 2, 1979, report on GSA's management ofthe multiple award schedule program (PSAD-79-11). We have,however, set forth in the enclosure to this letter, somematters for your consideration.

Some of the bill's provisions are broadly drafted andcould have a far-reaching impact on well-established aspectsof the Federal procurement process. Members of your staffhave advised us that the bill is intended solely to respondto our report on the multiple award schedule program. There-fore, we have recommended that some provisions be limited inapplicability to the schedule context, and that certain otherbroad provisions be eliminated altogether.

We also recommended in our May 2, 1979, report that theCongress put GSA under a mandatory timeframe for accomplishingmanagement improvements. The multiple award schedule programis so big, and has been subject to such mismanagement, that itdeserves special attention. We believe a complete review andevaluation of every item on the multiple award schedule pro-gram is necessary to determine whether the items are neededand the use of the scheduled procurement method is proper ineach case. The sense of,this recommendation could be incor-porated into H.R. 5525.

Chairman Jack Brooks also wrote to us requesting commentson the bill, and we are providing a copy of these comments tohim.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ '

We appreciate your interest in correcting problems in

GSA's procurement programs. If we can be of further assis-

tance, please let us know.

Sincerely yours,

SIGNED E.T flE1 B. STAATS

Comptroller Generalof the United States

Enclosure

bc: Mr. Stolarow, PSADMr. Flynn, PSAD/GPMr. Hagenstad, OCRMr. Anderson, OPMr. Fitzgerald, OCRMs. McIlwain, PSAD/GPMr. Bogar, PSAD/GPMs. Maris, OGC

PSAD-8920CFR/gcc

-2-

B-195505

ENCLOSURE

Suggestions for ImprovingH.R. 5525

Section 2

This section would add a new subsection, subsection (f),to 40 U.S.C. §481.

New Subsection (f)

As presently written, the applicability of this subsec-tion may extend beyond the subject of purchases made under themultiple award schedule program. It could well be interpretedto have a significant impact on long established and wellaccepted procurement procedures for both negotiated and for-mally advertised procurements. The use of the term "proposals"suggests that this subsection is applicable to negotiatedprocurements only; however, the intent is not clear and theprovision could be interpreted to apply to formally advertisedprocurements as well. Either way, it would have a far-reachingimpact on established procedures, going much beyond the typeof changes envisioned in our report on the multiple awardschedule program (PSAD-79-11, May 2, 1979).

For instance, in negotiated procurements there is pre-sently no requirement that award be made to the offeror withthe lowest price. This is primarily due to the fact thatnegotiation is often used for procurements of a unique orcomplex nature where technical considerations may often legi-timately override cost considerations. In formally adver-tised procurements, the established rule is that award bemade to the low bidder. However, in addition to offeringthe lowest price, the bidder must also be found to be bothresponsive and responsible. See 41 U.S.C. §253(b) (1976).

Congressman Carney has indicated that section 2 is inpart intended to prevent agency abuse of the multiple awardschedule program by the purchase of products at other thanthe lowest available price. Such a purpose is in accordancewith our May 1979 report on the program. However, we do notbelieve that this provision would accomplish the intendedpurpose.

B-195505

A significant finding contained in our report was thatagencies were not buying the lowest priced product that mettheir minimum needs. What is really needed to solve this pro-blem is a combination of safeguards: GSA monitoring of agencypurchases; limiting the number of items available on the sche-dule; a requirement that agencies purchase from the schedulewhere the class or type of item needed is available on theschedule (with, perhaps, an exception for special use itemssubject to GSA approval); and a requirement that agenciespurchase the lowest priced item on the schedule which meetstheir minimum needs.

Congressman Carney has also noted that another purposeof section 2 is to repeal Federal Property Management Regu-lation 101-26.401(a). That regulation forbids agencies fromsoliciting bids, proposals, quotations, or otherwise testingthe market solely for the purpose of seeking alternativesources to Federal supply schedules.

It is not clear that the provision as written wouldaccomplish that purpose. In addition, we believe that theexisting regulation serves an important function and shouldnot be repealed. In order for the Federal supply scheduleprogram to function effectively, it is necessary that agenciesbe required to purchase from it rather than procuring identicalor similar items through individual agency procurements. Wehave found that the failure of agencies to.comply with man-datory use requirements is one reason for the present lackof the program's effectiveness. While it may be possible foragencies in isolated instances to procure an item more cheaplyby conducting their own procurements rather than buying fromthe schedules, we believe that in terms of overall cost tothe Government, a requirement that agencies use the Federalsupply schedule is most efficient.

For the reasons stated above, we believe that the pro-posed new provision should be deleted from the bill.

Section 3

Subsections o and p

These subsections define "price data" and "cost data"respectively. We believe that they could be interpreted toestablish definitions of cost and price data differing fromthose established by the current law on the subject.

-2-

B-195505

The Armed Services Procurement Act presently requiresthat contractors submit cost and pricing data and certify thatit is current, complete and accurate, in connection withnegotiated contracts exceeding $100,000. 10 U.S.C. §2306(f)(1976). While the Act does not define the terms cost dataand price data, the Defense Acquisition Regulation (DAR) doesprovide a definition of the term "cost and pricing data."See 32 C.F.R. §3-807.3(h) (1976).

The Federal Property and Administrative Services Actpresently contains no requirement for the submission or certi-fication of cost and price data. An equivalent requirementhas, however, been instituted in the Federal ProcurementRegulations (FPR). 41 C.F.R. §1-3.807-3 (1978). The FPRdefinition of "cost and pricing data" is virtually identicalto that contained in DAR.

The Committee should be aware that the new definitionsto be established by the bill could result in an interpre-tation of the terms "cost data" and "price data" inconsistentwith the definitions established by the existing regulationsas interpreted by the courts and the Armed Services Boardof Contract Appeals.

We also note that these definitions are providedbecause section 5 of H.R. 5525 would add a requirement thatthe GSA Administrator prescribe price data and cost data tobe submitted by contractors seeking awards under the multipleaward schedule program. Since, as noted above, the FederalProperty and Administrative Services Act contains no presentrequirement for the submission of cost and price data, theCommittee may wish to consider deleting the definitions andinstead adding an appropriate definition to section 5 ofthe bill. (In that regard, please see our comments on sec-tion 5, new subsection (e), questioning the need for thesubmission of cost data in the schedule context.)

Section 4

Subsection (a)(l)(A)

Subsection (a)(l)(A) amends 40 U.S.C. §481(a) to expandits coverage to all "Federal agencies." Section 481 presentlyapplies only to all "executive agencies." As a result, theAdministrator would be authorized to "prescribe policies andmethods of procurement and supply of personal property andnonpersonal services, including such related functions ascontracting * * *" for all Federal agencies. 40 U.S.C. §472(b)

-3-

B-195505

defines "Federal agency" to include any establishment in thelegislative or judicial branch, exclusive of the Congress andthe Architect of the Capitol, as well as any executive agency.

Thus, the proposed amendment would signficantly expandthe scope of GSA's authority to prescribe policies andmethods of procurement and supply beyond the executive branchof the Government. While the provision being amended is partof Title II of the Act, we believe that it could also possiblybe interpreted to impact on the scope of Title III of the Act,which prescribes procurement procedures applicable to execu-tive agencies only.

We do not believe that this expansion of GSA's authoritybeyond the executive branch of the Government is necessaryin order to respond to the recommendations contained in ourreport. The proposed provision would have a significant impacton existing GSA authority not envisioned by any of our recom-mendations. Therefore, we believe it should be eliminatedfrom the bill.

Subsection (a)(l)(B)

This subsection would amend the proviso to 40 U.S.C.§481(a). That proviso now authorizes the Secretary of Defenseto exempt the Department of Defense from action taken by theAdministrator under paragraphs (1) through (A) of subsection(a) (dealing with procurement, warehousing, and related func-tions) whenever he determines it to be in the best interestof national security, unless the President otherwise directs.

The proviso as amended would require that the Secretaryof Defense henceforth obtain the consent of the Administratorfor any such exemption. Exemptions made prior to the enact-ment of the provision would terminate one year after the dateof enactment unless the Administrator consented to them.Disagreements would be referred to the President for resolution.

This provision appears to be unrelated to the recommen-dations contained in our report. If, however, there is aconcern that the Secretary of Defense is improperly using thispower to exempt the Defense Department from the use of theFederal supply schedule, we believe that the concern can bebest dealt with in a different manner. (See our commentsbelow on subsection (b) and the addition of new subsection1g)(2) to 40 U.S.C. §481.)

-4-

B-195505

Subsections (a)(2)-(3)

These subsections expand the coverage of 40 U.S.C.§§481(c)-(e) to all Federal agencies. We recommend thatthese provisions be deleted from the bill as they are notrelated to the concerns raised in our report on themultiple award schedule program.

Subsection (b)

Subsection (b) would add new subsection (g) to 40 U.S.C.§481.

New Subsection (g)(l)

New subsection (g)(l) states that:

"the policies and methods of procure-ment prescribed by the Administrator(including determinations of minimumneeds) pursuant to this section shallbe binding on all Federal agencies and,to the extent prescribed by the Admin-istrator, all personal property andnonpersonal services shall be acquiredby Federal agencies through the Admin-istrator."

This provision needs clarification. As presently writ-ten, the requirement that agencies acquire all property andservices through the Administrator could be interpreted verybroadly. For example, it could be construed to mean thatagencies must obtain the authorization of the Administratorbefore they enter into any procurement.

In our audit report on the multiple award schedule pro-gram we did recommend that Congress strengthen the posture ofGSA as the primary supplier of products to agencies. Thisrecommendation relates to our finding that in order for GSAto be in the best position to obtain the lowest price formultiple award schedule items, assurance is needed thatagencies will buy their requirements from vendors to whomGSA has awarded contracts.

Implicit in our findings is the assumption that GSAshould have the authority to determine the range of minimumneeds of agencies when contracting with schedule vendors.

5

B-195505

That is, GSA must make assumptions about which of the manyitems of the same type, and which ranges of features avail-able in those items, it will contract for and require agenciesto use.

However, in order to respond to the recommendations inour report, it is not necessary to enact a provision asbroadly written as that presently contained in the bill.We believe that all that is really necessary is a statutoryrequirement making the use of Federal supply schedule con-tracts mandatory on executive agencies. It would, however,also be advisable to provide that the Administrator-mayexempt an agency from this requirement where the agency canshow that it has a genuine need for an item different fromthose available through the schedule program.

New Subsection (g)(2)

New subsection (g)(2) requires executive agencies coveredby one of the authorities referred to in 40 U.S.C. §474 toprocure personal property and nonpersonal services -throughthe Administrator unless the agency head believes any suchauthority would be impaired or adversely affected, and seeksand is granted an exemption from the Administrator. If theexemption is denied and the agency disagrees, the matter isto be referred to the President or his designee.

40 U.S.C. §474 lists a number of authorities which arenot affected or impaired by the Act. Therefore, the effectof new subsection (g)(2) could be very significant. Amongthe authorities listed in 40 U.S.C. §474 are those of execu-tive agencies named in the Armed Services Procurement Act,the Secretary of Defense under the Strategic and CriticalMaterials Stock Piling Act, and the Central Intelligence Agency.

New subsection (g)(2) as written, could be interpretedbroadly to mean that the specified authorities are no longerto be considered exempt from the Act unless the Administratorgrants them an exemption and that without one they must pro-cure in accordance with the Act. This could cause unfore-seen complications since the original rationale for exemptingthese authorities from the Act would be frustrated.

If the intent behind the provision is to further strengthenGSA's authority as the primary supplier of products to agencies,as recommended in our audit report, we believe this could

-6-

B-195505

be accomplished by simply requiring that executive agenciescovered by one of the authorities referred to in 40 U.S.C.§474 nevertheless procure items available on the Federal supplyschedule from the Federal supply schedule, unless the Admin-istrator exempts them. We suggest deleting the words "throughthe Administrator in line 25 and substituting: "from theFederal supply schedule where the type or class of itembeing procured is available therefrom.,

The provision should also then specifically indicatewhether it applies to the military agencies named in theArmed Services Procurement Act notwithstanding the provisocontained in 40 U.S.C. §481(a)(4) (permitting the Secretaryof Defense to exempt the Defense Department f-roi. .actionstaken by the Administrator under clauses (l)-(4) of section481(a)).

New Subsection (g)(3)

New subsection (g)(3) would authorize the Administratorto monitor and review the procurement practices of Federalagencies, or to require that agencies conduct these reviewsunder the direction of the Administrator, and to direct thatcorrective action be taken where deficiencies are found.This provision appears to oe directed at one of the defi-ciencies found in our report on GSA's management of themultiple award schedule program.

In our report we noted a lack of monitoring by GSA ofagency purchasing practices. GSA responded that it did nothave the responsibility for monitoring or enforcing com-pliance with Federal procurement regulations. This provisionwould help change that situation.. It would, however, g.obeyond the scope of our report by allowing GSA to monitorall agency procurement practices, and not just those re-lated to the schedule program.

Section 5

New Subsection (d)

This new subsection would be added to 41 U.S.C. 5252and would specifically authorize the Administrator to usemultiple award schedules as a method of supply if he com-plies with certain requirements. For instance, the Admin-istrator is authorized to use multiple award schedules ifhe determines that such method is the most economical andefficient. However, he can waive this use if he determinesthat the needs of Federal agencies cannot be limited, suitable

-7-

B-195505

purchase descriptions are not available, or the estimatedsales volume is of low dollar value.

These latter waiver de-terminations run counter to thosein our report on the schedule program. In our report, westated multiple award schedules should be restricted to pro-ducts where:

1. Competitive single award procedures are notpractical using commercial item descriptionsor performance specifications.

2. Sales volume justifies centralizing procurement.

3. The majority of needs are divided among severalfunctionally similar products with significantvariances in price.

New Subsection (e)

This subsection would also be added to 41 U.S.C. §252.It would require the Administrator to prescribe price dataand cost data to be submitted by contractors seeking awardsunder the multiple award schedule program where such data isnot otherwise required. We are unsure what purpose the under-scored language is intended to serve. The language should beclarified if its inclusion is deemed necessary to meet a par-ticular concern of the Committee. If not, we believe thatit should be deleted from the subsection.

New subsection (e) further provides that schedule con-tractors shall be required to certify that submitted pricedata and cost data is accurate, complete, and current. Allschedule contracts would be required to provide for a pricereduction where the price was increased because of relianceon data which was inaccurate, incomplete, or noncurrent"as of the date of submission."

Under current regulations contained in the FPR andDAR, the certification of accurate, complete, and currentdata is as of the date when price negotiations were con-cluded and the contract price was agreed to. (The date ofexecution of the certificate can be later.)

It appears that a "date of submission," standard couldin some instances establish a different certification datethan presently required. The Committee may, therefore, wishto consider coordinating this provision with existing regulations.

-8-

B-195505

In addition, it is unclear whether the price reductionwould apply retroactively to agency purchases under theaffected contract made prior to the time when the pricereduction took place. We believe that this should beclarified. We also are concerned that requiring a pricereduction for defective data in the schedule context mayprove impractical in actual application.

We believe that the Committee should carefully considerwhether a requirement that cost data be submitted is reallynecessary here. In our report, we noted that GSA apparentlydoes not receive reliable data from many vendors on suchmatters as past sales, other discounts offered, and com-mercial pricing structure. We believe that a requirementthat price data be submitted by schedule contractors wouldhelp to meet these concerns. However, an additional require-ment for the submission of cost data appears unnecessaryand runs counter to the current statutory assumption thatthe competitive forces of the marketplace assure reasonableprices for commercially available items.

New Subsection (f)

This subsection would be added to 41 U.S.C. §252 and wouldpermit the Administrator to debar a contractor who either knewor reasonably should have known that price or cost data sub-mitted was inaccurate or noncurrent as of the date of sub-mission.

A schedule contractor who submitted defective cost orprice data thus would be subject by statute to possibledebarment as well as a reduction in contract price. Thisprovision, although permissive-in nature, would providestatutory authority for debarment for submission of defec-tive cost or price data under the schedule program while noequivalent provision exists in the nonschedule context, wheremuch larger dollar amounts may well be involved. Therefore,assuming the price reduction could be effectively appliedin the schedule context, the Committee might wish to deletethe further sanction of debarment.

We note that the Administrator is required to establishprocedures affording adequate notice and opportunity for ahearing with respect to proposed debarments. He is, however,also authorized to debar a contractor immediately if it isdeemed necessary to protect the interests of the U.S., and

-9-

B-195505

the contractor is "suspected" of furnishing defective data.Such debarment is to be for no longer than 180 days unless thematter is subject to a Justice Department investigation.

This immediate debarment procedure is similar to cur-rent procedures for administrative debarments which allow"suspension" of the contractor without a prior hearing.See 41 C.F.R. 1-1.605. These existing procedures do, however,provide for adequate notice and a hearing within twentycalendar days of a contractor's request for a hearing.(There are exceptions to the hearing requirement where thereis an outstanding indictment or where possible criminal,civil, or labor proceedings would be affected.) These pro-cedures are the result of the holding in Horne Brothers,Inc. v. Laird, 463 F.2d 1268 (D.C. Cir. 1972).

The Horne Brothers case establishes that fairness re-quires the contractor to be given specific notice of atleast some of the charges against him and, in the usualcase, given an opportunity to rebut those charges in aproceeding to be held within one month of suspension.National security and prejudice to prosecutorial actionare cited as possible exceptions to this requirement.

The contractor in Horne Brothers faced suspension for18 months or more. While the contractor under the proposednew provision can only be suspended for 180 days unless aJustice Department investigation is underway, we believethat the Horne Brothers requirements should be met here.The court in that case stated that under any proper pro-cedural scheme, the Government should be permitted a reasonabletime, not to exceed one month, after it has notified a sus-pended bidder of his suspension status, to conduct a pro-ceeding attended by the contractor and his representatives,to provide an opportunity to offer evidence to rebut chargesand confront accusers. Horne Brothers, Inc. v. Laird, supraat 1272.

Therefore, we suggest that the proposed new provisionbe amended to provide for adequate notice to the suspendedcontractor of the charges against him and for a hearing atthe contractor's request within twenty days of the request.(Although this could be longer than one month after suspen-sion, we believe such a provision assures fundamental proce-dural fairness, while allowing a hearing to be dispensed withwhere the contractor does not desire one.) We also recom-mend that the present standard for suspension, that is thatit be supported by "adequate evidence," be specifically

- 10 -

B-195505

included in this part of the proposed new provision. Thiscould be accomplished by inserting "upon adequate evidence"after "suspected" in line 3 of page 9 of the bill.

A final suggestion is that the phraseology "immediatelydebar" be changed to "immediately suspend" since the terms"debarment" and "suspension" have come to have distinctmeanings in the Government procurement context. "Suspension"more accurately describes the process developed to meet thesituation where the contractor is only suspected of anoffense and further investigation is needed.

,

COMPTROLLER GENERAL OF THE UNITED STATES

WASHINGTON. D.C. 2054a

IN REPLYREFER TO,

B-195505

JAN 4 1980

The Honorable Jack Brooks, Chairman .Committee on Government OperationsHouse of Representatives

Dear Mr. Chairman:

This is in response to your letter of October 29, 1979,asking for our comments on H.R. 5525, which is sponsored byCongressman William Carney. The bill concerns the procurementand supply of personal property and nonpersonal services bythe Administrator of General Services.

We believe the bill addresses in several ways the recom-mendations in our May 2, 1979, report on GSA's management ofthe multiple award schedule program (PSAD-79-11). We have,however, set forth in the enclosure to this letter, some mattersfor your consideration.

Some of the bill's provisions are broadly drafted andcould have a far-reaching impact on well-established aspectsof the Federal procurement process. Members of CongressmanCarney's staff have advised us that their sole intent was torespond to our report on the multiple award schedule program.Therefore, we have recommended that some provisions be limitedin applicability to the schedule context, and that certainother broad provisions be eliminated altogether.

We also recommended in our May 2, 1979, report that theCongress put GSA under a mandatory timeframe for accomplishingmanagement improvements. The multiple award schedule programis so big, and has been subject to such mismanagement, thatit deserves special attention. We believe a complete reviewand evaluation of every item on the multiple award scheduleprogram is necessary to determine whether the items are neededand the use of the scheduled procurement method is proper ineach case. The sense of this recommendation could be incor-porated into H.R. 5525.

Congressman Carney also wrote to us requesting commentson the bill, and we are providing a copy of these comments tohim.

B-195505

We appreciate your interest in correcting problems inGSA's procurement programs. If we can be of further assis-tance, please let us know.

-Sincerely yours,

SIGN]LD . STAATS

Comptroller Generalof the United States

Enclosure

bc: Mr. Stolarow, PSADMr. Flynn, PSAD/GPMr. Hagenstad, OCRMr. Anderson, OPMr.-Titzgerald, OCRMs. McIlwain, PSAD/GPMr. Bogar, PSAD/GPMs. Maris, OGC

PSAD-8925CFR/gcc

-2-

B-195505

ENCLOSURE

Suggestions for ImprovingH.R. 5525

Section 2

This section would add a new subsection, subsection (f),to 40 U.S.C. §481.

New Subsection (f)

As presently written, the applicability of this subsec-tion may extend beyond the subject of purchases made under themultiple award schedule program. It could well be interpretedto have a significant impact on long established and wellaccepted procurement procedures for both negotiated and for-mally advertised procurements. The use of the term "proposals"suggests that this subsection is applicable to negotiatedprocurements only; however, the intent is not clear and theprovision could be interpreted to apply to formally advertisedprocurements as well. Either way, it would have a far-reachingimpact on established procedures, going much beyond the typeof changes envisioned in our report on the multiple awardschedule program (PSAD-79-11, May 2, 1979).

For instance, in negotiated procurements there is pre-sently no requirement that award be made to the offeror withthe lowest price. This is primarily due to the fact thatnegotiation is often used for procurements of a unique orcomplex nature where technical considerations may often legi-timately override cost considerations. In formally adver-tised procurements, the established rule is that award bemade to the low bidder. However, in addition to offeringthe lowest price, the bidder must also be found to be bothresponsive and responsible. See 41 U.S.C. §253(b) (1976).

Congressman Carney has indicated that section 2 is inpart intended to prevent agency abuse of the multiple awardschedule program by the purchase of products at other thanthe lowest available price. Such a purpose is in accordancewith our May 1979 report on the program. However, we do notbelieve that this provision would accomplish the intendedpurpose.

A significant finding contained in our report was thatagencies were not buying the lowest priced product that mettheir minimum needs. What is really needed to solve this pro-blem is a combination of safeguards: GSA monitoring of agencypurchases; limiting the number of items available on the sche-dule; a requirement that agencies purchase from the schedulewhere the class or type of item needed is available on theschedule (with, perhaps, an exception for special use itemssubject to GSA approval); and a requirement that agenciespurchase the lowest priced item on the schedule which meetstheir minimum needs.

Congressman Carney has also noted that another purposeof section 2 is to repeal Federal Property Management Regu-lation 101-26.401(a). That regulation forbids agencies fromsoliciting bids, proposals, quotations, or otherwise testingthe market solely for-the purpose of seeking alternativesources to Federal supply schedules.

It is not clear that the provision as written wouldaccomplish that purpose. In addition, we believe that theexisting regulation serves an important function and shouldnot be repealed. In order for the Federal supply scheduleprogram to function effectively, it is necessary that agenciesbe required to purchase from it rather than procuring identicalor similar items through individual agency procurements. Wehave found that the failure of agencies to comply with man-datory use requirements is one reason for the present lackof the program's effectiveness. While it may be possible foragencies in isolated instances to procure an item more cheaplyby conducting their own procurements rather than buying fromthe schedules, we believe that in terms of overall cost tothe Government, a requirement that agencies use the Federalsupply schedule is most efficient.

For the reasons stated above, we believe that the pro-posed new provision should be deleted from the bill.

Section 3

Subsections o and p

These subsections define "price data" and "cost data"respectively. We believe that they could be interpreted toestablish definitions of cost and price data differing fromthose established by the current law on the subject.

-2-

B-19 5505

The Armed Services Procurement Act presently requiresthat contractors submit cost and pricing data and certify thatit is current, complete and accurate, in connection withnegotiated contracts exceeding $100,000. 10 U.S.C. §2306(f)(1976). While the Act does not define the terms cost dataand price data, the Defense Acquisition Regulation (DAR) doesprovide a definition of the term "cost and pricing data."See 32 C.F.R. §3-807.3(h) (1976).

The Federal Property and Administrative Services Actpresently contains no requirement for the submission or certi-fication of cost and price data. An equivalent requirementhas, however, been instituted in the Federal ProcurementRegulations (FPR). 41 C.F.R. §1-3.807-3 (1978). The FPRdefinition of "cost and pricing data" is virtually identicalto that contained in DAR.

The Committee should be aware that the new definitionsto be established by the bill could result in an interpre-tation of the terms "cost data" and "pr-iee data" inconsistentwith the definitions established by the existing regulationsas interpreted by the courts and the Armed Services Boardof Contract Appeals.

We also note that these definitions are providedbecause section 5 of H.R. 5525 would add a requirement thatthe GSA Administrator prescribe price data and cost data tobe submitted by contractors seeking awards under the multipleaward schedule program. Since, as noted above, the FederalProperty and Administrative Services Act contains no presentrequirement for the submission of cost and price data, theCommittee may wish to consider deleting the definitions andinstead adding an appropriate definition to section 5 ofthe bill. (In that regard, please see our comments on sec-tion 5, new subsection (e), questioning the need for thesubmission of cost data in the schedule context.)

Section 4

Subsection (a)(l)(A)

Subsection (a)(1)(A) amends 40 U.S.C. §481(a) to expandits coverage to all "Federal agencies." Section 481 presentlyapplies only to all "executive agencies."- As a result, theAdministrator would be authorized to "prescribe policies andmethods of procurement and supply of personal property andnonpersonal services, including such related functions ascontracting * * *" for all Federal agencies. 40 U.S.C. §472(b)

3

B-1955:05

defines "Federal agency" to include any establishment in thelegislative or judicial branch, exclusive of the Congress andthe Architect of the Capitol, as well as any executive agency.

Thus, the proposed amendment would signficantly expandthe scope of GSA's authority to prescribe policies andmethods of procurement and supply beyond the executive branchof the Government. While the provision being amended is partOf Title II of the Act, we believe that it could also possiblybe interpreted to impact on the scope of Title III of the Act,which prescribes procurement procedures applicable to execu-tive agencies only.

We do not believe that this expansion of GSA's authoritybeyond the executive branch of the Government is necessaryin order to respond to the recommendations contained in ourreport. The proposed provision would have a significant impacton existing GSA authority not envisioned by any of our recom--mendations. Therefore, we believe it should be eliminatedfrom the bill.

Subsection (a)(l)(B)-

This subsection would amend the proviso to 40 U.S.C.§481(a). That proviso now authorizes the Secretary of Defenseto exempt the Deoartment of Defense from action taken by theAdministrator under paragraphs (1) through (4) of subsection(a) (dealing with procurement, warehousing, and related func-tions) whenever he determines it to be in the best interestof national security, unless the President otherwise directs.

The proviso as amended would require that the Secretaryof Defense henceforth obtain the consent of the Administratorfor any such exemption. Exemptions made prior to the enact-ment of the provision would terminate one year after the dateof enactment unless the Administrator consented to them.Disagreements would be referred to the President for resolution.

This provision appears to be unrelated to the recommen-dations contained in our report. If, however, there is aconcern that the Secretary of Defense is improperly using thispower to exempt the Defense Department from the use of theFederal supply schedule, we believe that the concern can bebest dealt with in a different manner. (See our commentsbelow on subsection (b) and the addition of new subsection(g)(2) to 40 U.S.C. §481.)

-4-

B-195505

Subsections (a)(2)-(3)

These subsections Expand the coverage of 40 U.S.C.§5481(c)-(e) to all Federal agencies. We recormnend thatthese provisions be deleted from the bill as they are notrelated to the concerns raised in our report on themultiple award schedule program.

Subsection (b)

Subsection (b) would add new subsection (g) to 40 U.S.C.§481.

New Subsection (Q)(l)

New subsection (g)(1) states that:.

"the policies and methods of procure-ment prescribed by the Administrattor(including determinations of minimumneeds) pursuant to this section siharlbe binding on all Federal agencies aend,to the extent prescribed by the Admin-istrator, all personal property andnonpersonal services shall be acquiredby Federal agencies through the Admin-istrator."

This provision needs clarification. As presently writ-ten, the requirement that agencies acquire all property andservices through the Administrator could be interpreted verybroadly. For example, it could be construed to mean thatagencies must obtain the authorization of the Administratorbefore they enter into any procurement.

In our audit report on the multiple award schedule pro-gram we did recommend that Congress strengthen the posture ofGSA as the primary supplier of products to agencies. Thisrecommendation relates to our finding that in order for GSAto be in the best position to obtain the lowest price formultiple award schedule items, assurance is needed thatagencies will buy their requirements from vendors to whomGSA has awarded contracts.

Implicit in our findings is the assumption that GSAshould have the authority to determine the range of minimumneeds of agencies when contracting with schedule vendors.

-5-

B-195505

That is, GSA must make assumptions about which of the manyitems of the same type, and which ranges of features avail-able in those items, it will contract for and require agenciesto use.

however, in order to respond to the recommendations inour report, it is not necessary to enact a provision asbroadly written as that presently contained in the bill.We believe that all that is really necessary is a statutoryrequirement making the use of Federal supply schedule con-tracts mandatory on executive agencies. It would, however,also be advisable to provide that the Administrator mayexempt an agency from this requirement where the agency canshow that it has a genuine need for an item different fromthose available through the schedule program.

New Subsection (g)(2)

New subsection (g)(2) requires executive agencies coveredby one of the authorities referred to in 40 U.S.C. §474 toprocure personal property and nonpersonal services "throughthe Administrator' unless the agency head believes any suchauthority would be impaired or adversely affected, and seeksand is granted an exemption from the Administrator. If theexemption is denied and the agency disagrees, the matter isto be referred to the President or his designee.

40 U.S.C. §474 lists a number of authorities which arenot affected or impaired by the Act.. Therefore, the effectof new subsection (g)(2) could be very significant. Amongthe authorities listed in 40 U.S.C. §474 are those of execu-tive agencies named in the Armed Services Procurement Act,the Secretary of Defense under the Strategic and CriticalMaterials Stock Piling Act, and the Central Intelligence Agency..

New subsection (g)(2) as written, could be interpretedbroadly to mean that the specified authorities are no longerto be considered exempt from the Act unless the Administratorgrants them an exemption and that without one they must pro-cure in accordance with the Act. This could cause unfore-seen complications since the original rationale for exemptingthese authorities from the Act would be frustrated.

If the intent behind the provision is to further strengthenGSA's authority as the primary supplier of products to agencies,as recommended in our audit report, we believe this could

-6-

B-195505

be accomplished by simply requiring that executive agenciescovered by one of the authorities referred to in 40 U.S.C.§474 nevertheless procure items available on the Federal supplyschedule from the Federal supply schedule, unless the Admin-istrator exempts them. We suggest deleting the words "throughthe Administrator" in line 25 and substituting: "from theFederal supply schedule where the type or class of itembeing procured is available therefrom."

The provision should also then specifically indicatewhether it applies to the military agencies named in theArmed Services Procurement Act notwithstanding the provisocontained in 40 U.S.C. §481(a)(4) (permitting the Secretaryof Defense to exempt the Defense Department from actionstaken by the Administrator under clauses (1)-(4) of section481(a)).

New SuOsection (g)(3)

New subsection (g)(3) would authorize the Administratorto monitor and review the procurement practices of Federalagencies, or to require that agencies conduct these reviewsunder the direction of the Administrator, and to direct thatcorrective action be taken where deficiencies are found.This provision appears to Oe directed at one of the defi-ciencies found in our report on GSA's management of themultiple award schedule program.

In our report we noted a lack of monitoring by GSA ofagency purchasing practices. GSA responded that it did nothave the responsibility for monitoring or enforcing com-pliance with Federal procurement regulations. This provisionwould help change that situation. It would, however, gobeyond the scope of our report by allowing GSA to monitorall agency procurement practices, and not just those re-lated to the schedule program.

Section 5

New Subsection (d)

This new subsection would be added to 41 U.S.C. §252and would specifically authorize the Administrator to usemultiple award schedules as a method of supply if he com-plies with certain requirements. For instance, the Admin-istrator is authorized to use multiple award schedules ifhe determines that such method is the most economical andefficient. However, he can waive this use if he determinesthat the needs of Federal agencies cannot be limited, suitable

-7-

B-195505

purchase descriptions are not available, or the estimatedsales volume is of low dollar value.

These latter waiver determinations run counter to thosein our report on the schedule program. In our report, westated multiple award schedules should be restricted to proz-ducts where:

1. Competitive single award procedures are notpractical using commercial item descriptionsor performance specifications.

2. Sales volume justifies centralizing procurement.

3. The majority of needs are divided among severalfunctionally similar products with significantvariances in price.

New Subsection (e)

This subsection would also be added to 41 U.S.C. §252.It would require the Administrator to prescribe price dataand cost data to be submitted by contractors seeking awardsunder the multiple award schedule program where such data isnot otherwise required. We are unsure what purpose the under-scored language is intended to serve. The language should beclarified if its inclusion is deemed necessary to meet a par-ticular concern of the Committee. If not, we believe thatit should be deleted from the subsection.

New subsection (e) further provides that schedule. con-tractors shall be required to certify that submitted pricedata and cost data is accurate, complete, and current. Allschedule contracts would be required to provide for a pricereduction where the price was increased because of relianceon data which was inaccurate, incomplete, or noncurrent"as of the date of submission."

Under current regulations contained in the FPR andDAR, the certification of accurate, complete, and currentdata is as of the date when price negotiations were con-cluded and the contract price was agreed to. (The date ofexecution of the certificate can be later.)

It appears that a "date of submission," standard couldin some instances establish a different certification datethan presently required. The Committee may, therefore, wishto consider coordinating this provision with existing regulations.

-8-

B-195505

In addition, it is unclear whether the price reductionwould apply retroactively to agency purchases under theaffected contract made prior to the time when the pricereduction took place. We believe that this should beclarified. We also are concerned that requiring a pricereduction for defective data in the schedule context mayprove impractical in actual application.

We believe that the Committee should carefully considerwhether a requirement that cost data be submitted is reallynecessary here. In our report, we noted that GSA apparentlydoes not receive reliable data from many vendors on suchmatters as past sales, other discounts offered, and comn-nercial pricing structure. We believe that a requirementthat price data be submitted by schedule contractors wouldhelp to meet these concerns. However, an additional require- -

ment for the submission of cost data appears unnecessaryand runs counter to the current statutory assumption thatthe competitive forces of the marketplace assure reasonableprices for commercially available items.

New Subsection (f) -

This subsection would be added to 41 U.S.C. §252 and wouldpermit the Administrator to debar a contractor who either knewor reasonably should have known that price or cost data sub-mitted was inaccurate or noncurrent as of the date of sub-mission.

A schedule contractor who submitted defective cost orprice data thus would be subject by statute to possibledebarment as well as a reduction in contract price. Thisprovision, although permissive in nature, would providestatutory authority for debarment for submission of defec-tive cost or price data under the schedule program while noequivalent provision exists in the nonschedule context, wheremuch larger dollar amounts may well be involved. Therefore,assuming the price reduction could be effectively appliedin the schedule context, the Committee might wish to deletethe further sanction of debarment.

We note that the Administrator is required to establishprocedures affording adequate notice and opportunity for ahearing with respect to proposed debarments. He is, however,also authorized to debar a contractor immediately if it isdeemied necessary to protect the interests of the U.S., and

-9-

3-19X505

the contractor is "suspected" of furnishing defective data.Such debarment is Lo be for no longer than 180 days unless thematter is subject to a Justice Department investigation.

This immediate debarment procedure is similar to cur-rent procedures for administrative debarments which allow"suspension" of the contractor without a prior hearing.See 41 C.F.R. 1-1.605. These existing procedures do, however,provide for adequate notice and a hearing within twentycalendar days of a contractor's request for a hearing.(There are exceptions to the hearing requirement where thereis an outstanding indictment or where possible criminal,civil, or labor proceedings would be affected.) These pro-cedures are the result of the holding in Horne Brothers,Inc. v. Laird, 463 F.2d 1268 (D.C. Cir. 1972).

The Horne Brothers case establishes that fairness re-quires the contractor to be given specific notice of atleast some of the charges against him and, in the usual-case, given an opportunity to reb~ut those charges in aproceeding to be held within one month of suspension.National security and prejudice to prosecutorial actionare cited as possible exceptions to this requirement.

The contractor in Horne Brothers faced suspension for18 months or more. While the contractor under the proposednew provision can only be suspended for 180 days unless aJustice Department investigation is underway, we believethat the Horne Brothers requirements should be met here.The court in that case stated that under any proper pro-cedural scheme, the Government should be permitted a reasonabletime, not to exceed one month, after it has notified a sus-pended bidder of his suspension status, to conduct a pro-ceeding attended by the contractor and his representatives,to provide an opportunity to offer evidence to rebut chargesand confront accusers. Horne Brothers, Inc. v. Laird, supraat 1272.

Therefore, we suggest that the proposed new provisionbe amended to provide for adequate notice to the suspendedcontractor of the charges against him and for a hearing atthe contractor's request within twenty days of the request.(Although this could be longer than one month after suspen-sion, we believe such a provision assures fundamental proce-dural fairness, while allowing a hearing to be dispensed withwhere the contractor does not desire one.) We also recom-mend that the present standard for suspension, that is thatit be supported by "adequate evidence," be specifically

- 10 -

B-1955C5

included in this part of the proposed new provision. Thiscould be accomplished by inserting "upon adequate evidence"after "suspected" in line 3 of- page ° of the bill.

A final suggestion is that the phraseology "immediatelydebar" be changed to "immediately suspend" since the terms"debarment" and "suspension" have come to have distinctmeanings in the Government Procurement context. "Suspension"more accurately describes the process developed to meet thesituation wthere the contractor is only suspected of anoffense and further investigation is needed.

- ~ ~ ~ ~ ~ ~ - 1