THE FEDERAL ACQUISITION SYSTEM: VIEWED FROM THE INSIDE LOOKING OUT

Acquisition management is a well-established activity within government, with a set of management responsibilities that are perceived to be broader in scope than procurement. This is because it traditionally has focused on large-scale purchases of major defense systems, usually under the direction of a project or program manager. Acquisition follows an integrated systems approach with applicable technical and management disciplines collaborating to achieve the goals of the acquisition. This integrated team often includes members from logistics, production, quality assurance, finance, contract management, and the appropriate technical disciplines.

An acquisition of a product or service often consists of multiple procurements. The term procurement, when applied to the government environment, includes all stages of the process of acquiring property or services, beginning with the determination of a need for the property or service and ending with contract completion and closeout. In the private sector it is comparable to materials management, which is a concept that integrates the flow and control of materials and services, beginning with identifying the need and ending after delivery to the ultimate user. “Both [acquisition and materials management] are interface functions that interact with both supplier’s and customer’s organizations as well as with internal functions and activities.”

In the federal government, Congress is the source of funds and thereby exercises the ultimate control over government procurement. The executive branch and its associated agencies have been given the authority to regulate the acquisition system. Over the past 200 years, both Congress and the executive branch have relied on legislation to fulfill their constitutional responsibilities to protect the public interest and ensure fairness through common treatment. As Figure 1-2 (Most Significant Procurement Legislation, 1795–1994) illustrates, there has been a noticeable increase in the amount of legislation regulating procurement since the end of World War II.

Over the past few years writing directives to solve the issues has not been left solely to Congress. Agencies within the executive branch have issued supplements to regulations and have developed unique rules and practices in the acquisition process. The DoD FAR supplements are a prime example. The practice has been that whenever there is a snafu, the bureaucracy has responded by revising or writing a regulation to ensure that the problem doesn’t recur. The result was a maze of intertwined legal and accounting rules.

The purpose of the Truth in Negotiations Act (TINA) of 1962, and subsequent revisions, was to “assure that the Government is placed on an informational parity with contractors in price negotiations and avoid excessive contractor prices and profits. Failure by a contractor to disclose current, accurate, or complete cost or pricing data may result in over pricing and government recovery of excess cost.” The contractor also can be charged with fraud if the disclosure is intentionally incorrect. TINA provides the buyer information on the seller’s cost, which is unique to government acquisition. It can also be viewed as a way the government obtains information compensating for the absence of the market forces and enhances its bargaining power. The requirement to provide cost or pricing data does not apply to sealed bids but does apply to modifications to contracts awarded under the sealed bidding process.

Figure 1-2 Significant Procurement Legislation, 1795–1994

The requirement for consistency in a contractor’s accounting practices was the subject of PL 91-379, which was passed as part of the Defense Production Act in 1970. This law was the result of criticism by Admiral Rickhover, the father of the nuclear submarine, of the government’s ability to identify properly the contractor’s cost to specific contracts. He also stated, “the single most serious deficiency in government procurement was the lack of uniform standards,” in testimony before the House Committee on Banking and Currency in 1968. This motivated the Senate Banking Committee to direct the Comptroller General to study contractor accounting practices. The end result was a law in 1972 requiring the establishment of a Cost Accounting Standards Board, which would from time to time review accounting practices and promulgate cost accounting standards. As a condition of contracting with the government, other provisions of the law are: (1) defense contractors and subcontractors with more than $10 million in contracts and subcontracts must disclose their accounting practices, and (2) there must be a contract price adjustment, with interest, for any increased cost paid by the government because of the contractor’s failure to follow the cost accounting standards created by the board.

The Competition in Contracting Act (CICA) of 1984 (PL 98-369) represents another significant legislative initiative. The goal of this legislation is to make the government operate more as a business by requiring more competition. It represents a reaction by Congress to stories of inefficiencies, e.g., $400 hammers and $3,000 coffee pots. CICA was an alteration of Congress’s “historic preference for formal advertising....; it reversed nearly two centuries of tradition...” by “placing negotiated procurement (a World War I innovation to gain flexibility) on the same level as formal advertising.” Statistics reported in his book Government Procurement Management led Dr. Stanley N. Sherman to conclude that the upward trend in modifications to ongoing contracts between 1985 and 1990 may have offset an apparent increase in competitive procurements.

The “federal buying system is undoubtedly the most thoroughly examined, carefully thought-out, and fully documented procurement system in existence.” There have been investigations and studies of the federal procurement process, their stated objective often being to make the government operate more like a business.

In the 1980s there were two major examinations by commissions composed of distinguished citizens from the private sector. Both had charters to hold hearings, make site visits, and submit recommendations on ways to “fix” the procurement system. In 1983 the Grace Commission analyzed the procurement process and submitted recommendations on how to improve federal acquisition. Next, the president’s Blue Ribbon Commission on Defense Management, headed by former Deputy Secretary of Defense David Packard, issued a report in June 1986 titled Quest for Excellence. The Packard Commission had a broader scope than did the Grace Commission, addressing national security planning, military organization and command, acquisition organization and procedures, and government industry accountability. Both commissions submitted recommendations that resulted in passing new or revised laws and issuing more regulations.

The net result of legislation and procedures created by Congress and executive agencies themselves was placed in perspective in a 1987 study by the Center for Strategic and International Studies (CSIS) titled “US Defense Acquisition: A Process in Trouble.” The study found “procurement regulations alone total more than 30,000 pages and were issued by 79 different offices.” In addition, “defense activities were monitored by 55 subcommittees of 29 congressional committees, assisted by more than 20,000 staff and supporting agency members.” Laws, regulations, check lists, and oversight had replaced individual responsibility and accountability.

This all adds up to thousands of pages of regulations and instructions, some of which may even have the force and effect of law because they have been authorized by Congress. Under a unique concept called the “Christian doctrine,” when a federal procurement contract does not contain a clause that is required either by statute, regulation, or executive order, then it is automatically “incorporated by operation of law.” The roots of this doctrine can be traced to a 1963 court case that ruled the Termination for Convenience of the Government clause, required by regulation, that had been excluded from a contract is to be read into a contract whether or not it was physically included in the contract, unless a proper deviation from the contract has been obtained. The Christian doctrine became a method whereby contracting officers (COs) could argue that a required clause is automatically incorporated into the contract by operation of the law. A more recent case law provides clarification. For the Christian doctrine to be applied, the clause must express or implement a deeply ingrained strand of public procurement policy, and then only if its incorporation is not sought by the party who is intended to benefit from the clause’s presence.

In his book The Death of Common Sense, Phillip K. Howard reports that since the 1950s the nation has experienced, in the name of due process, the rise in the use of rules and regulations as a way to minimize discretionary government administrative decisions: “Our regulatory system has become an instruction manual. Detailed rule after detailed rule addressing every eventuality, or every situation the lawmakers and bureaucrats can think of.”

Maintaining an even playing field is key to the government procurement process. All potential suppliers are to be offered an equal opportunity to bid on a potential contract, and the CO must be able to justify the contract award decision publicly. This is a constraint purchasers in the private sector do not enjoy. Therefore, being able to base the award on objective criteria, i.e., written specifications and lowest price, has traditionally been essential to defending the award in the event of a protest by an unsuccessful bidder. Various critics of the process have noted that constraint-driven management may be the enemy of goal-driven management.