United States: Thornberry Acquisition Reform Bill Contemplates DoD's Use Of Online Marketplaces To Purchase COTS Products

David Black is a Partner and Eric Crusius Is Senior Counsel in the Tysons office

Imagine if a DoD agency could purchase commercial-off-the-shelf products of any value simply by placing an order at an Amazon-like website – no need for solicitations, quotes, evaluation, or detailed price analysis and absolutely no government-unique terms and conditions. That is the vision of House Armed Services Committee Chairman Mac Thornberry (R-Texas) in a bill introduced on May 18, 2017. If enacted, this reform would revolutionize the way the Department of Defense acquires COTS products and likely diminish DoD's use of GSA's Federal Supply Schedules. However, as explained below, the prospects of the Bill being enacted into law without significant revision seem low because, as currently drafted, it contravenes many ingrained strands of Federal procurement policy and exposes DoD to unintended consequences and risks.

Proposed Acquisition Streamlining "on Steroids" by Bringing the Online Shopping Experience to Federal Procurement

The proposed use of online marketplaces is set forth in § 101 of the "Defense Acquisition Streamlining and Transparency Act" (H.R. 2511) (the Thornberry Bill). The Thornberry Bill directs the DoD Secretary to establish contracts with one or more "online marketplace providers" to enable DoD-wide use of such marketplaces. For reasons that are not clear, the Bill authorizes DoD to award contracts to marketplace providers without the use of full and open competition.

The purpose of the Thornberry Bill is to allow DoD to leverage existing, robust, privately run online portals for COTS items. The Thornberry Bill specifies that online marketplace providers must be commercial, non-government entities that provide an online portal for the purchase of COTS products (but not COTS services). The Thornberry Bill specifically excludes online portals managed by the Government, such as GSA's e-Buy. The Thornberry Bill requires that the online marketplaces used by DoD be "used widely in the private sector, including in business-to-business e-commerce." The Thornberry Bill also specifies an Amazon-like shopping experience that the online marketplaces must provide to DoD purchasers, including:

  • Ability to sort or filter offers from multiple suppliers on similar products based on product, shipping price, delivery date, and reviews of suppliers or products;
  • Dynamic selection and dynamic prices (i.e., where suppliers frequently update products and prices); and
  • Consolidated invoicing, payment, and customer service functions on behalf of all suppliers.

To promote objectivity in product searches, qualified online marketplaces must not feature or prioritize products of any suppliers based on supplier fees paid to the marketplace provider. In addition, the technology platform of the marketplaces must provide procurement oversight controls, such as spending limits, order approval, and order tracking.

The Thornberry Bill contemplates that use of online marketplaces will result in a breathtaking streamlining of the procurement process for COTS products.

  • As currently drafted, the Bill does not limit the use online marketplaces to micro-purchases, simplified acquisitions, or any other dollar limit. DoD agencies could satisfy requirements for COTS products of unlimited value by shopping online.
  • As currently drafted, the Bill does not require any public notice of the DoD's requirements or any common cutoff date for the receipt of quotes. As long as there are offers from only two suppliers of a required product on the online marketplace, the online purchase will satisfy the Competition in Contracting Act (CICA), and no other competitive procedures are necessary.
  • As currently drafted, the Bill prevents DoD from requiring any Government-specific terms and conditions as conditions of sale, including politically sensitive provisions such domestic preference requirements (other than the Berry Amendment and specialty metals), equal opportunity requirements, whistleblower protections, small business subcontracting requirements, prohibitions against child labor and human trafficking, audit rights, and contracting with inverted domestic corporations. Instead, the Bill requires that online purchases will be made under the standard terms and conditions of the online marketplace, and DoD "shall not require an online marketplace to modify its standard terms and conditions as a condition of receiving a contract" – including presumably dispute resolution procedures under the Contract Disputes Act and protest procedures authorized by CICA and the Tucker Act.
  • The Bill also would obviate the need from any "commerciality" analysis by deeming such procurement to be commercial as long as the product has been purchased within the past year by a non-government entity through the online marketplace.

As currently drafted, the Bill makes only two nods to traditional Federal contracting. First, the online marketplace must allow DoD users to search and identify suppliers and products that are not authorized for Federal procurement because (1) the seller has been suspended or debarred; or (2) the seller's products do not comply with the Berry Amendment or specialty metals requirements; or (3) the products are on the Procurement List of products established by the Committee for Purchase from People Who Are Blind or Severely Disabled. Second, the Bill requires the online marketplace to provide sales data on at least a monthly basis that DoD can enter into the Federal Procurement Data System (FPDS).

If passed, the Bill could have a significant adverse impact on GSA and its Federal Supply Schedules Program and other GWAC programs. In comparison to the private sector online marketplaces contemplated by the Bill, GSA's online processes are slower, more cumbersome, and – with the 0.75% Industrial Funding Fee tacked on to every purchase – potentially more expensive. It is easy to imagine a scenario where, for COTS products, DoD agencies largely abandon the FSS Program in favor of the uber-streamlined process afforded by the private online marketplaces. Contractors seeking to sell COTS products to DoD would likewise shift their marketing and business development strategies away from GSA to the online marketplaces.

Uncertain Political Prospects Due to Policy Hurdles, Unintended Consequences, and Financial Risks

Although the idea of DoD acquisition professionals tossing out the FAR & DFARS and filling major COTS product requirements quickly online may have some surface appeal, the Thornberry Bill appears to cross numerous political "red lines" in Federal procurement policy and expose DoD to unintended consequences and risks. It is difficult to imagine the Bill passing the House and Senate and winning President Trump's approval without significant revisions that would counter its "streamlining" intentions. It is also possible this proposed reform may end up scuttled by the scope of its ambition.

The well-established procurement policies jettisoned by the Thornberry Bill are substantial. For example, as currently drafted:

  • The Bill would authorize DoD to purchase hundreds of millions of dollars in COTS products made in any foreign nation (with the limited exception of products subject to the Berry Amendment and domestic preferences for specialty metals). The Bill would at long last open up the U.S. Defense market to lower cost COTS products manufactured in China, India, Malaysia, Thailand, and Taiwan (which are currently excluded under the Trade Agreements Act). This is because, outside of the Berry Amendment or specialty metals requirements, DoD will have no authority to impose "Buy American" domestic preferences, which are unlikely to exist in the standard terms and conditions of the online marketplace.
  • The Bill would authorized DoD to spend millions in taxpayer dollars on purchases from companies who are inverted domestic corporations. Again, online marketplaces do not impose this kind of prohibition as a standard term and condition.
  • Under the Bill, DoD could spend millions on products sold by contractors or who engage in objectionable employment practices, such as discrimination based on race, sex, national origin, religion, color, sexual orientation, or gender identity; use of child labor; practices that constitute human trafficking, or retaliation against whistleblowers.
  • The Bill imposes no policy or plan to foster small business participation, such as set-aside requirements or a requirement that small business concerns have an opportunity to participate as subcontractors in the online marketplace contracting. (Instead, the Bill's small business provision is limited to allowing DoD to take credit for orders placed directly with prime contractors who happen to be small businesses.)
  • The Bill would also expose DoD to risk of counterfeit electronic parts in COTS products. DoD would be prevented from requiring online marketplace contractors to implement an acceptable detection and avoidance system (as is required in commercial item subcontracts under DFARS 252.246-7007) unless such a requirement was already among the standard terms and conditions of the marketplace, which seems unlikely.

In addition, the Bill also appears to have the unintended effect of waiving of DoD's sovereign immunity from contract claims outside the forums provided by the Contract Disputes Act by subjecting DoD to the dispute resolution mechanisms provided by online marketplaces. The current version of the Bill has this effect by prohibiting DoD from requiring the online marketplace to accept any Government-specific terms and conditions – such as the "Disputes" clause at FAR 52.233-1. Likewise, the Government would be unable to terminate orders for default or convenience or issue stop work orders unless the standard terms and conditions of the online marketplaces already provided buyers with these rights.

Finally, it is unclear how GAO or the Court of Federal Claims could hear protests of orders if the terms and conditions of the online marketplace do not provide for this mechanism. It is not difficult to imagine potential violations of even the streamlined procedures required by the Thornberry Bill. For example, if offers from at least two suppliers of a product were not available, the agency would be required to use "traditional" competitive procedures under CICA. In addition, if an order was placed with a contractor whose product failed to comply with the Berry Amendment or the specialty metals requirement, then the order would be illegal – and compliant contractors would lose an opportunity to win this business. It is unclear how GAO's automatic stay and other protest procedures and remedies would overlap with the "standard terms and conditions" of the online marketplace. Considering that there is no monetary limit on the size of online purchases of COTS products, Congress should be concerned about providing interested parties with some avenue to ensure the integrity of this acquisition process − through which millions of dollars in annual appropriations may flow.

Furthermore, in light of the well documented problems the Government has experienced with the use of streamlined procurement methods – such as the use of government purchase cards for micro-purchases − the absence of internal controls for this kind of online "shopping" would likely expose DoD to increased risk of fraud, waste, and abuse.

Another political risk arises from advocates of GSA's FSS Program. It is possible that these advocates could seek to persuade Congress to either abandon the Thornberry Bill's proposal altogether or add requirements that bring the online marketplaces into competitive equivalence with GSA's eBuy portal, which will thwart the streamlining purpose of this reform.

COTS Product Contractors: "Wait and See" While Staying the Course with Existing Strategies

Contractors who sell COTS products to DoD should monitor this proposal as it develops over the next several months. If the Thornberry Bill becomes law, there will be delays associated with regulatory implementation and establishment of DoD's relationship with the online marketplace(s). Until contractors know which marketplace will be utilized by DoD, there is little to do but wait.

First, it will take time (approximately 6-12 months) to revise the DFARS to implement related regulations regarding award of the contracts with the online marketplaces and how DoD activities can place orders at the marketplaces. Awarding the contracts with the online marketplaces should also take some additional time. Thus, if the Thornberry Bill can find a path through Congress, any changes in how DoD purchases COTS products created by the Thornberry Bill are likely at least 18-24 months away from creating actual business opportunities for COTS product contractors.

Next, contractors must wait and see which online marketplace DoD will actually utilize. Contractors selling COTS products tend to be participating vendors in existing online marketplaces such as Staples and Office Depot, rather than providers of the online marketplaces themselves. While many already have a business presence in the online marketplaces that are possible candidates for a future relationship with DoD, opportunities will not arise until DoD finalizes its contract(s) with the provider(s) of such marketplaces.

Once DoD makes its choice, COTS product contractors will finally be in a position to implement a DoD-specific marketing strategy using the selected online marketplace and to optimize its product presence at such marketplace to maximize DoD sales. But until the online marketplaces become available to transact business with DoD, COTS product contractors should maintain focus on existing marketing and business development strategies in the Federal marketplace, such as the FSS Program and other GWAC vehicles.

Conclusion

The online marketplaces contemplated by the Thornberry Bill are a revolutionary concept that would, if enacted as currently drafted, radically streamline how DoD acquires COTS products and dramatically alter the business strategies of companies seeking to sell such products to DoD. But the first draft of the Bill seems to ignore harsh political, legal, and operational realities that make its passage seem unlikely in its current form. Because of the deeply ingrained procurement policies that would have to be abandoned, legal requirements of the Government "sovereign" when it acts in its proprietary capacity that would have to be ignored, and the potential of fraud, waste, and abuse within the bureaucratic operating environment, the legislative prospects of this reform as currently drafted seem uncertain at best.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.