[Senate Report 114-416]
[From the U.S. Government Publishing Office]


                                                       Calendar No. 308
                                                       
114th Congress  }                                            {    Report
                                 SENATE
 2d Session     }                                            {   114-416

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           SMALL CONTRACTORS IMPROVE COMPETITION ACT OF 2015

                                _______
                                

               December 20, 2016.--Ordered to be printed

   Filed, under authority of the order of the Senate of December 10 
                  (legislative day, December 9), 2016

                                _______
                                

Mr. Vitter, from the Committee on Small Business and Entrepreneurship, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2139]

    The Committee on Small Business and Entrepreneurship, to 
which was referred the bill (S. 2139) to amend the Small 
Business Act to prohibit the use of reverse auctions for the 
procurement of covered contracts, having considered the same, 
reports favorably thereon with amendments and recommends that 
the bill (as amended) do pass.

                            I. INTRODUCTION

    The Act (S. 2139) was introduced by Chairman David Vitter 
and Ranking Member Jeanne Shaheen on October 6, 2015.
    The Act amends the Small Business Act to prohibit the use 
of reverse auctions for the procurement of covered contracts.
    Senator Cardin offered an amendment to the bill to provide 
for an increase from 70 percent to 90 percent to the Small 
Business Administration's (SBA) guarantee to sureties in the 
Preferred Program which enables sureties to issue, monitor, and 
service bonds without prior approval by the SBA.

              II. HISTORY (PURPOSE & NEED FOR LEGISLATION)

    A reverse auction is an auction between a group of offerors 
who compete against each other by submitting offers for 
requirement when those offerors have the ability to submit 
revised offers with lower prices throughout the course of the 
auction. Reverse auctions first gained popularity in the late 
1990s, as Internet-based technologies allowed potential vendors 
to underbid each other in real time. Since then, they have 
grown to account for nearly 1 percent of federal prime contract 
dollars awarded each fiscal year. When used properly, reverse 
auctions are an important tool that may benefit taxpayers and 
contracting agencies. However, when used inappropriately, 
reverse auctions may place taxpayers, warfighters and small 
businesses at risk.
    While the Office of Federal Procurement Policy (OFPP) has 
been promising guidance on the use of reverse auction 
procurements since 2000, to date no guidance or regulations 
have been forthcoming, meaning that over $828 million in 
procurements are awarded using a methodology never mentioned in 
the Federal Acquisition Regulation or in Statute. Instead, OFPP 
and the Office of Management and Budget have encouraged the use 
of reverse auctions without offering guidance on how to best 
use this methodology.

                      III. HEARINGS & ROUNDTABLES

    The House Committee on Small Business has held four 
hearings documenting abuses of reverse auctions, including a 
joint hearing with the House Committee on Veterans Affairs. 
These hearings documented that the misuse of reverse auctions 
put agency requirements at risk, denied small businesses the 
opportunity to fairly compete, and wasted taxpayer dollars. The 
GAO report titled ``Reverse Auctions: Guidance is Needed to 
Maximize Competition and Achieve Cost Saving'' published 
December 9, 2013 confirmed these findings.

                        IV. DESCRIPTION OF BILL

    This bill creates a new section of the Small Business Act 
to limit the use of reverse auctions when using small business 
contracting authorities.
    Specifically, the provision requires training of 
contracting officers, and prohibits the use of reverse auctions 
for sole source contracts or contracts with inadequate 
competition. It also states that when reverse auctions are 
used, technical acceptability of offers can be rated only 
either technically acceptable or unacceptable. This provision 
requires that the government communicate honestly with bidders 
regarding the ranking of offers, as some reverse auctions have 
misled offerors regarding the status of bids. The bill also 
makes it clear that when using a third-party reverse auction 
service, the government must still follow all of the normal 
procurement rules, as there are cases where a third party 
provider is excluding companies from competing or using third 
party data to inform responsibility determinations.
    Finally, the provision states that reverse auctions may 
only be used for contracts other than contracts for 
construction, goods used to protect people from bodily harm, 
and technical goods and services.
    The Cardin amendment provides for an increase from 70 
percent to 90 percent to the SBA's guarantee to sureties in the 
Preferred Program which enables sureties to issue, monitor, and 
service bonds without prior approval by the SBA.

                           V. COMMITTEE VOTE

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following vote was recorded on October 7, 2015.
    A motion to adopt the Small Contractors Improve Competition 
Act, a bill to amend the Small Business Act to prohibit the use 
of reverse auctions for the procurement of covered contracts as 
amended by the Cardin amendment, was approved unanimously by 
voice vote with the following Senators present: Vitter, Scott, 
Fischer, Gardner, Ernst, Enzi, Shaheen, Cantwell, Cardin, 
Booker, Hirono, and Peters.

                           VI. COST ESTIMATE

    In compliance with rule XXVI(11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts discussed in the 
following letter from the Congressional Budget Office:
                                                 February 16, 2016.
    S. 2139 would change the collateral requirements for surety 
bonds on federal construction projects and allow the Small 
Business Administration (SBA) to guarantee a larger portion of 
certain surety bonds. Surety bonds provide financial guarantees 
that contracts will be completed according to mutual, agreed 
terms and that the bond will cover any loss if a contract is 
not completed. In addition, S. 2139 would prohibit the federal 
government from using reverse auctions to obtain design and 
construction services. In a reverse auction, a buyer seeking a 
good or service solicits bids, multiple sellers offer bids, and 
the seller with the lowest bid wins the competition.
    Under current law, contractors working on federal 
construction projects are required to insure their performance 
using surety bonds. Based on information from the General 
Service Administration (GSA), private contractors, and bond 
providers, CBO expects that provisions of S. 2139 that would 
change some collateral requirements would not affect the cost 
of procuring construction services. CBO also estimates that 
provisions of the bill that would raise the portion of certain 
surety bonds that the SBA can guarantee from 70 percent to 90 
percent would not have a significant effect on discretionary 
spending because we expect the agency would increase fees to 
cover any additional guarantee costs.
    CBO also reviewed information on the use of reverse 
auctions in government procurement contracts by the Army Corps 
of Engineers, and GSA. Those agencies have found that using 
this type of reverse auction in complex procurements does not 
consistently result in lower procurement cost than would result 
from other methods such as sealed bids or negotiated 
procurements. Those agencies generally do not use reverse 
auctions to obtain such services.
    A memorandum from the Office of Management and Budget dated 
June 1, 2015, reviews the benefits of reverse auctions and 
builds on the guidance from the Office of Federal Procurement 
Policy to advise agencies and contracting officers on the use 
of reverse auctions. Consequently, CBO estimates that 
implementing S. 2139 would not result in agencies making 
significant changes in their typical contracting process and 
thus would not have a significant effect on the federal budget.
    Enacting the bill could affect direct spending by agencies 
not funded through annual appropriations; therefore, pay-as-
you-go procedures apply. CBO estimates, however, that any net 
increase in spending by those agencies would be negligible. 
Enacting S. 2139 would not affect revenues.
    CBO estimates that enacting S. 2139 would not increase 
direct spending or on-budget deficits by more than $5 billion 
in any of the four consecutive 10-year periods beginning in 
2027. S. 2139 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    The CBO staff contact for this estimate is Matthew 
Pickford. This estimate was approved by Theresa A. Gullo, 
Assistant Director for Budget Analysis.

                  VII. EVALUATION OF REGULATORY IMPACT

    In compliance with rule XXVI(11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation. There will be 
no additional impact on the personal privacy of companies or 
individuals who utilize the services provided.

                   VIII. SECTION-BY-SECTION ANALYSIS

Section 1. Short title

    This bill may be call the Small Contractors Improve 
Competition Act of 2015.

Section 2. Limitation on reverse auctions

    Section 2 provides a Sense of Congress and adds a section 
to the Small Business Act (the Act).
            Section 2(a)--Sense of Congress
    The Sense of Congress provides that reverse auctions for 
commercially available commodities are a useful tool in federal 
procurement and, when used appropriately, may increase 
competition, save money and increase opportunities for small 
business participation.
            Section 2(b)--Limitations on reverse auctions
    Section 2(b) creates a new section 47 of the Act which 
addresses the use of reverse auctions that conducted using the 
set aside or sole source authorities provided by the Act.
            Section 47(a)--Definitions
    The new section 47(a) provides definitions:
    Paragraph (1) defines the term ``contracting officer'' to 
have the meaning typically provided in contracting, as found at 
41 U.S.C. Sec. 2101.
    Paragraph (2) defines the term ``covered contract'' to mean 
one of three categories of contracts. The first is a contract 
for design and construction services, which is further defined 
in paragraph (3) to include a variety of design and 
construction activities derived from the Brooks Act, the 
Federal Property and Administrative Services Act, and the 
Federal Acquisition Regulation. The second category of covered 
contracts is contracts for protective equipment, such as body 
armor, since price is not the only factor in the award of these 
goods. The third category of covered contracts are contracts 
for goods and services when the contract is awarded using a 
best value method of award, rather than contracts awarded 
simply based upon price. This recognizes that a reverse auction 
is well suited to obtaining the lowest price, but is not 
designed to help a contracting officer assess the technical 
advantages of one product versus another.
    Paragraph (3) defines the term ``design and construction 
services'' to include a variety of design and construction 
activities derived from the Brooks Act, the Federal Property 
and Administrative Services Act, and the Federal Acquisition 
Regulation.
    Paragraph (4) defines the term ``responsible source'' to 
have the meaning typically provided in contracting, as found in 
41 U.S.C. Sec. 113.
    Paragraph (5) defines the term ``reverse auction'' for 
purposes of federal procurement. In a normal auction, multiple 
potential buyers bid up the price of an item by competing 
against each other to obtain the item. In a reverse auction, 
multiple potential sellers bid down the price of a good or 
service by competing against each other to sell the good or 
service. Thus, the term is defined as an auction between a 
group of offerors who compete for a contract, task order or 
delivery order by submitting multiple, revised offers each with 
a lower price.
            Section 47(b)--Prohibition on using reverse auctions
    The new Section 47(b) provides that in the case of a 
covered contract, the contracting officer may not use a reverse 
auction if the award is made pursuant to one of six enumerated 
sections of the Act. These are: Sec. 8(a) (socially and 
economically disadvantaged business program); Sec. 8(m) (women-
owned small businesses and economically disadvantaged women-
owned small business program); Sec. 15(a) (small business set 
asides); Sec. 15(j) (small business reserve); Sec. 31 (HUBZone 
program); or Sec. 36 (service-disabled veteran-owned small 
business program).
            Section 47(c)--Limitations on using reverse auctions
    In cases where reverse auctions are not prohibited by 
section 47(b) but use Sec. 8(a), Sec. 8(m), Sec. 15(a), 
Sec. 15(j), Sec. 31, or Sec. 36 to make the award, the new 
section 47(c) institutes six limitations. These are as follows:
    Paragraph (1) requires that the decision to use a reverse 
auction and determine the evaluation criteria for award, 
eligibility of vendors, and the selection of an awardee must 
all be made by a contracting officer, not a program officer or 
a contractor.
    Paragraph (2) requires that a contracting officer using 
reverse auctions must have been trained on the use of reverse 
auctions. The required training should be similar to that 
already provided by the Department of Defense in response to 
Sec. 824 of the Carl Levin and Howard P. `Buck' McKeon National 
Defense Authorization Act for Fiscal Year 2015 (Public Law 113-
291; 127 Stat. 3436).
    Paragraph (3) requires that federal agencies not award 
contracts using reverse auctions if only one offer is received 
or if offerors aren't given the ability to revise their bids. 
GAO found that in over one third of reverse auctions, there is 
only one bidder or one round of bids, which effectively negates 
the benefits of a reverse auction. (GAO-14-108 Reverse Auctions 
at 22).
    Paragraph (4) requires that agencies using reverse auctions 
determine that the item or service is technically acceptable, 
but not further differentiate between the technical 
capabilities of offerors. In cases where a contracting officer 
needs to differentiate technical capabilities of offerors, 
other procurement methods allow this to happen more 
transparently.
    Paragraph (5) requires that agencies may not mislead 
contractors as to whether they have the lowest offer. As 
companies cannot mislead contractors on any element of a bid, 
the government should also not mislead offerors.
    Paragraph (6) limits the use of third-party reverse auction 
providers to functions that are not inherently governmental. 
This means that the government may not use third-party past 
performance or financial responsibility information when making 
an award unless the information is collected and shared in 
accordance with current statutes, such as Sec. 8(b) of the Act 
or 41 U.S.C. Sec. 1126. It also means that disputes between 
offerors and third-party reverse auction providers must be 
settled privately, and that the reverse auction provider may 
not use access to government contracts as leverage. The 
provisions in paragraph (6) have been the subject of numerous 
bid protests, which have held that the government cannot 
contract around federal procurement laws.