Establish New Simplified Acquisition Threshold and Procedures

Establish New Simplified Acquisition Threshold and Procedures

Background

Congress has long recognized federal agencies' need for a simple,
lowcost process for making relatively smalldollarvalue purchases.  For
more than 40 years, Congress has required that procurement regulations
provide for such procedures. Under small purchase procedurescurrently
$25,000 or lesscompetitive purchases can be made simply by obtaining
quotations from contractors by telephone, mail, or in some cases
electronically. The simplified purchase procedures expedite the
procurement process; it normally takes less than one month to conduct
these transactions because only a reasonable number of price quotations
must be obtained to achieve competition. In contrast, larger purchases
over $25,000, even simple ones, normally take at least three months to
complete. For example, to compete a $40,000 janitorial contract to clean
a building for one year requires an extremely cumbersome process that is
excessive considering the size of the acquisition.

Small Business SetAsides. The Small Business Act requires that all small
purchases using simplified acquisition procedures be reserved
exclusively for small businesses if there is a reasonable expectation of
obtaining from two or more small businesses price quotations that will
be competitive in terms of market price, quality, and delivery.1 Under a
small business reserve, a small business may provide products of a large
business. If the proposed procurement is expected to exceed $10,000
($5,000 for defense agencies), but is not expected to exceed $25,000,
the Small Business Act and the Office of Federal Procurement Policy
(OFPP) Act require that agencies post either a notice describing the
proposed procurement or a copy of the solicitation. The posting must be
for a period of not less than 10 days in a public place at the
contracting office issuing the solicitation.

Small Purchase Floors. In the past, when Congress enacted legislation
that increased the complexity of the federal acquisition process, it
accommodated the need for economy and efficiency in the procurement
process by exempting small purchases made using simplified procedures.
This typically was accomplished by establishing a "floor" so that the
new legislation did not apply to contracts written at dollar values
below the existing statutory threshold for use of small purchase
procedures. For example, when the Service Contract Act of 1965 was
enacted, it specified $2,500 as the floor; that was also the small
purchase threshold at that time. However, while the ceiling or threshold
for small purchases was regularly adjusted to account for the declining
purchasing power of the dollar, the statutory floors for applying other
statutory requirements, like the Service Contract Act, were not
adjusted. Similarly, the President often included a floor tied to the
current threshold for use of simplified procedures when issuing
executive orders affecting the procurement process, but did not provide
for these thresholds to be adjusted for inflation. In addition, a number
of other laws and executive orders require contract clauses be included
in all contracts regardless of dollar amount.

As if small purchase proceduresoriginally designed to be a simple method
of buyingwere not complex enough with government laws and rules,
individual agencies often add further limitations or additional
administrative burdens on their use. For example, agencies have placed
additional limits on use of imprest funds or require more documentation
than contemplated by the Federal Acquisition Regulation (FAR).

Need for Change

Government line managers and procurement officers are frustrated with
the procurement process when trying to buy supplies or services under
$100,000 because the administrative costs, burdensome rules, and time
frames seem so far out of proportion with the cost and nature of the
things being acquired. The result is that managers cannot get
smalldollar items and services quickly and with a reasonable
administrative burden. The federal procurement process requires a
minimum of three months for purchases under $100,000. Contrast this with
a major company local to Washington, D.C., that averages one to four
weeks from the time a request is submitted to the purchasing office to
the time a contract is awarded to a vendor for purchases in the range of
$100,000.2

The Current Threshold. The current threshold of $25,000 was established
in 1986. The OFPP Act provides for periodic review every five years
beginning in 1995, with adjustments limited to the rate of inflation.3
The Acquisition Law Advisory Panel to the United States Congress on
Streamlining Defense Acquisition Law (Section 800 Panel) has recommended
that Congress raise the threshold to $100,000 for DOD.4 Congress has
also begun to think in terms of a higher threshold by setting $100,000
as the amount that triggers application of several recent statutes
(e.g., procurement integrity and antilobbying).

Raising the Threshold. A compelling reason to raise the threshold for
use of simplified procedures to $100,000 governmentwide is that it would
simplify the paperwork burden for a significant number of procurement
transactions without adversely impacting the socioeconomic programs and
competitive aspects of most federal spending. For example, during fiscal
year 1992, the federal government purchased $200 billion in goods and
services.  Fiftyseven percent, or 11.5 million, of the total
transactions were made using small purchase procedures, yet these
transactions represented only 5.6 percent, or $11.3 billion, of the
total amount spent. Based on fiscal year 1992 data, if the threshold
were raised to $100,000, an additional 45,500 procurements per year
could be made using simplified acquisition procedures. The increased
threshold would capture a large number of additional transactions,
thereby significantly reducing the paperwork burden and its associated
costs, but would only increase the total federal spending using this
simplified process from $11.3 billion to $13.8 billion, an increase of
$2.5 billion.5 The vast majority of federal procurement dollars would
still be spent under the umbrella of all socioeconomic laws and
regulations.

Conforming Other Requirements to the New Threshold. Adjusting the floors
of the other statutory requirements consistent with the simplified
acquisition threshold would eliminate 1,600 federal jobs. In addition,
it would save $50 million in administrative costs by reducing the
paperwork burden caused by the current threshold. Further savings could
also accrueup to $800 million per yearand be passed to the government
and taxpayers from lower contractor costs for goods and services. For
example, the threshold for the DavisBacon Act (DBA), which sets wage
rates for contracts for construction, alteration, or repair (including
painting and decorating) of public buildings or public works, is $2,000.
This threshold has remained unchanged since enactment in 1931. As a
result, if the government hires a contractor to perform a $2,500
painting job at a federal building, the contracting official is required
to:

-- find and select a wage determination (a list of minimum wage rates)
or request a wage determination from the Department of Labor (DOL) if
none of the published wage determinations apply;

-- include the wage determination in the solicitation and contract;

-- give the contractor a poster explaining the DBA that is posted at the
job site along with the wage determination;

-- collect and review the contractor's and subcontractor's weekly
payroll records and statements of compliance with the minimum wage and
fringe benefit requirements;

-- return payroll records for correction if discrepancies are found;

-- periodically interview contractor employees to ensure they are being
paid the proper wages and provided applicable benefits; and

-- withhold contract payments and take other steps, if necessary, to
enforce the requirements of the DBA.

When Congress originally established the DBA threshold in 1931, it
apparently intended that the DBA apply to larger purchases.6 However,
because the thresholds for applying the DBA and other statutes have not
been raised over the years, these requirements continue to be applied to
what are now very small purchases. The requirements of the various
statutes, identified in Table 1, place significant administrative
burdens, especially on small businesses, on a process originally
intended to be free from such burdens. Raising the thresholds of other
statutes to the same threshold for using simplified procedures and
eliminating requirements for contract clauses would make more than 11
million small purchases (that would fall under the new simplified
acquisition threshold of $100,000) simpler and less expensive to execute
and administer.

As the DavisBacon example illustrates, the administrative requirements
of these laws are highly complex and cause heavy paperwork burdens to
government and businesses alike. The cumulative effects of these
outmoded thresholds applied to the millions of small purchase
transactions annually is enormous. In passing the original legislation
for each program, Congress recognized the need to balance the cost of
these social requirements with their benefits to various segments of the
public and established thresholds below which the requirements do not
apply. In failing to raise these thresholds commensurate with inflation,
that balance has been lostwith large resulting costs to the taxpayer.
Amending these requirements will result in large savings to the
government and businesses while restoring the balance originally
intended between costs to the government and benefits to the public.
Opening purchases of $2,500 or less to both small and large businesses
will simplify the many very small purchases most needed to provide line
managers their working tools.

Introducing Technology. Finally, application of electronic data
interchange (EDI) technology will facilitate the simplified acquisition
process by ensuring full access by small businesses to government
contracting opportunities and minimizing procurement lead time. Use of
EDI can replace transactions traditionally conducted on paper with
paperless transactions conducted electronically by automated processes.

Under current law, purchases over $25,000 must be advertised in the
Commerce Business Daily (CBD). The advertisement process is intended to
provide adequate notice to businesses of the government's requirements
and normally takes a period of 45 days.7 The threshold for the
requirement to advertise in the CBD would automatically increase to the
new threshold of $100,000 for simplified acquisition procedures as
recommended by NPR. Below the new level, the requirement for CBD
advertisement would be eliminated. Even though most purchases below that
level would be set aside for small businesses, there is substantial
concern in the small business community about this increase. While
federal managers would benefit from a reduction of the 45day lead time,
small businesses fear that there would be insufficient visibility of and
access to federal contracting opportunities due to the loss of the
public announcement in the CBD.

Table 1


1. Law:            WalshHealey Public Contracts Act 
Threshold:         Supply contract over $10,000  
Statutes Affected/  
Changes Proposed:  Repeal law [see PROC05]. (41 U.S.C. 35 et seq.)

2. Law:               Work Hours and Safety Standards Act of 1962   
Threshold:         Construction contract over $2,000     
                   Service contract over $2,500  
Statutes Affected/
Changes Proposed:  Tie to simplified acquisition (40 U.S.C. 327 et seq.)
                   threshold as defined in OFPP Act (41 U.S.C. 403).
                   [NPR proposal is for new $100,000 threshold under
		   OFPP Act.]

3. Law:            Buy American Act (41 U.S.C. 10a et seq.)    
Threshold:	   Zero $ threshold  
Statutes Affected/
Changes Proposed:  Same as #2.

4. Law:            Cargo Preference Act (46 U.S.C. app 1241(b))   
Threshold:         Zero $ threshold 
Statutes Affected/
Changes Proposed:  Same as#2.and Preference to U.S. Vessels
		   (10 U.S.C. 2631)
    
5. Law:	           DavisBacon Act (40 U.S.C. 276(a))  
Threshold:         $2,000  
Statutes Affected/
Changes Proposed:  Same as #2.

6. Law:            Service Contract Act of 1965    
Threshold:         $2,500    
Statutes Affected/
Changes Proposed:  Same as #2. (41 U.S.C. 351 et seq.)

7. Law:		   DrugFree Workplace (41 U.S.C. 701) 
Threshold:	   $25,000   
Statutes Affected/
Changes Proposed:  Same as #2.

8. Law:	           Miller Act (40 U.S.C. 270a et seq.)
Threshold:         $25,000  
Statutes Affected/
Changes Proposed:  Same as #2.

9. Law:	           Gratuities (10 U.S.C. 2207)     
Threshold:         Zero $ threshold    
Statutes Affected/
Changes Proposed:  Continue to apply law but eliminate contract
		   clause for purchases made using simplified
		   acquisition procedures.

10. Law:	   Covenant Against Contingent Fees    
Threshold:         Zero $ threshold    
Statutes Affected/
Changes Proposed:  Same as #9. (10 U.S.C. 2306(b)
                   and 41 U.S.C. 254(a))

11. Law:	   Officials Not To Benefit (41 U.S.C. 22) 
Threshold:         Zero $ threshold    
Statutes Affected/
Changes Proposed:  Same as #9.

12. Law:	   AntiKickback Act (41 U.S.C. 57 et seq.) 
Threshold:         Zero $ threshold    
Statutes Affected/
Changes Proposed:  Same as #9.

13. Law:	   Restrictions on Subcontractor Sales to the
                   Government (10 U.S.C. 2402 and 41 U.S.C. 253g)
Threshold:         Zero $ threshold    
Statutes Affected/
Changes Proposed:  Same as #9. 
   
14. Law:	   Office of Federal Procurement Policy Act
Threshold:	   Zero $ threshold    
Statutes Affected/
Changes Proposed:  Repeal certification (41 U.S.C. 423(e)) 
	           requirements for purchases under simplified
		   acquisition threshold [see PROC11].

Use of EDI in the contracting process should allay these fears.  The
Canadian government has established an electronic bulletin board to
provide online access to information on contracting opportunities
similar to the information published in the CBD.  The bulletin board
provides timely information and easy access for business. By
establishing a similar capability to replace the CBD, the federal
government can ensure small business access to information on
contracting opportunities while at the same time reducing the 45day
delay associated with advertising in the CBD and reducing printing and
mailing costs.

In addition, the private sector is increasingly turning to EDI to
conduct business, and some federal agencies have started using EDI to
conduct purchasing activities. This trend is highly promising because
purchases made through simplified acquisition procedures are the most
easily adaptable to an electronic environment.8

Cross References to Other NPR Accompanying Reports

Streamlining Management Control, SMC07: Reduce Internal Regulations by
More Than 50 Percent.

Endnotes

1. Section 15(j) of the Small Business Act (15 U.S.C. 644(j)).

2. Interview with Allied Signal Technical Services Corporation, Space
Operations Group, Columbia, MD.

3. Section 4(II) of the Office of Federal Procurement Policy Act (41
U.S.C. 403(II)).

4. Acquisition Law Advisory Panel to the United States Congress,
Streamlining Defense Acquisition Laws, Executive Summary (March 1993),
p. 28.

5. Data as of July 1993 provided by the General Services Administration,
Federal Procurement Data Center.

6. This is supported by the fact that when Congress first provided for
small purchase procedures in the Armed Services Procurement Act in 1947
(and the Federal Property and Administrative Services Act in 1949), it
defined small purchases as those under $1,000.

7. Section 18 of the Office of Federal Procurement Policy Act (41 U.S.C.
416) and Section 8(e) of the Small Business Act (15 U.S.C.  637(e)).

8. Ibid.