Contract Management: Comments on Selected Provisions of the	 
Services Acquisition Reform Act of 2003, H.R. 1837 (13-JUN-03,	 
GAO-03-802R).							 
                                                                 
This is a follow up to our April 30, 2003, testimony on the	 
proposed Services Acquisition Reform Act of 2003 (SARA). Because 
our testimony was based on a section-by-section analysis of the  
proposed legislation, the House Committee on Government Reform	 
requested that we review the specific provisions of the bill as  
introduced and provide any additional comments. 		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-802R					        
    ACCNO:   A07195						        
  TITLE:     Contract Management: Comments on Selected Provisions of  
the Services Acquisition Reform Act of 2003, H.R. 1837		 
     DATE:   06/13/2003 
  SUBJECT:   Federal procurement				 
	     Federal procurement policy 			 
	     Proposed legislation				 
	     Procurement planning				 
	     Strategic planning 				 

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GAO-03-802R

GAO- 03- 802R Contract Management

United States General Accounting Office Washington, DC 20548

June 13, 2003 The Honorable Tom Davis Chairman The Honorable Henry Waxman
Ranking Minority Member Committee on Government Reform House of
Representatives

Subject: Contract Management: Comments on Selected Provisions of the
Services Acquisition Reform Act of 2003, H. R. 1837

This is a follow up to our April 30, 2003, testimony 1 on the proposed
Services Acquisition Reform Act of 2003 (SARA). Because our testimony was
based on a section- by- section analysis of the proposed legislation, the
Committee requested that we review the specific provisions of the bill as
introduced and provide any additional comments. The enclosure summarizes
our comments on the sections covered in our testimony, and contains our
comments on other selected provisions of SARA to which our past or ongoing
work may be relevant.

We conducted this analysis in May 2003 in accordance with generally
accepted government auditing standards. If there are any questions
concerning this letter, please call me at (202)- 512- 8214. The principal
contributors to this analysis include Blake Ainsworth, Christina Cromley,
Paul Greeley, and Karen Sloan.

We will make copies of this letter to others upon request. In addition,
this letter will be available at no charge on the GAO Web site at http://
www. gao. gov.

William T. Woods Director Acquisition and Sourcing Management

1 Contract Management: Comments on Proposed Services Acquisition Reform
Act, GAO- 03- 716T (Washington, D. C.: April 30, 2003)

2 GAO- 03- 802R Contract Management Enclosure Comments on Selected
Provisions of the

Services Acquisition Reform Act of 2003, H. R. 1837

Section 101 - Definition of Acquisition This section would provide a
broad, governmentwide definition of the term *acquisition.* We support the
definition because it recognizes that acquisition is more than just
awarding contracts. Acquisition includes development of requirements,
solicitation and selection of sources, contract performance, and the
management and measurement of performance through final delivery and
payment.

Section 102 - Acquisition Workforce Training Fund This section would
establish, within the General Services Administration (GSA), an
acquisition workforce training fund, which would be managed by the Federal
Acquisition Institute. The fund is to be financed by depositing five
percent of the fees collected by various executive agencies under their
governmentwide task and delivery order contracts as well as under GSA*s
schedule contracts.

Acquisition workforce training is critical, and we recognize the need for
adequate funds for this training. However, we believe the procuring
agencies should ensure that adequate funding for training is available
through the normal budgeting process. We are concerned about relying on
contract program fees* which are intended to cover other requirements and
which can vary from year to year* as a source of funding for such an
important priority as acquisition workforce training.

Section 103 - Government- Industry Exchange Program This section would
establish a program to permit the temporary exchange of highperforming
acquisition professionals between the federal government and participating
private- sector concerns.

Comptroller General David Walker has strongly supported the concept of
exchange programs. Specifically, in July 2001, 1 he recommended that the
Congress explore greater flexibilities to allow federal agencies to
enhance their skills mix by leveraging the expertise of private sector
employees through innovative fellowship programs.

1 Human Capital: Building the Information Technology Workforce to Achieve
Results, GAO- 01- 1007T (Washington, D. C.: July 31, 2001).

Enclosure Enclosure 3 GAO- 03- 802R Contract Management The exchange
program proposed in SARA* which is modeled after the Information
Technology Exchange Program included in the recently passed E- Government
Act of

2002 2 *could enhance the ability of federal workers to successfully
transform the way the federal government acquires services. We support
this provision.

Section 201 - Chief Acquisition Officers This section would create a Chief
Acquisition Officer within each civilian executive agency. Our discussions
with officials from leading companies, indicate that a procurement
executive, or Chief Acquisition Officer, plays a critical role in changing
an organization*s culture and practices. 3 Section 201 of SARA provides
the Chief Acquisition Officer with clear lines of authority,
accountability, and responsibility for acquisition decision- making. We
support this provision.

Section 211 - Ensuring Efficient Payment This section would provide for a
streamlined payment process under which service contractors could submit
invoices for payment on a biweekly or a monthly basis. Biweekly invoices
would be required to be submitted electronically.

Implementation of this provision could increase the number of improper
payments made and further stress weak systems and related internal
controls. Agency efforts to address improper payment problems have been
hampered by high payment volume, inadequate payment systems and processes,
internal control weaknesses, and downsizing in the acquisition and
financial management community. Until federal agencies make significant
progress in eliminating their payment problems, any requirement to
accelerate service contract payments would likely increase the risk of
payment errors, backlogs, and late payment interest.

Section 212 - Extension of Authority to Carry Out Franchise Fund Programs
This section would reauthorize the government*s franchise funds until
October 1, 2006. At the request of the Chairman of the Committee, the
General Accounting Office (GAO) has initiated a review of these franchise
fund programs.

Section 213 - Agency Acquisition Protests This section would provide for
agency- level protests of acquisition decisions alleged to violate law or
regulation. An agency would have 20 working days to issue a decision on a
protest, during which time the agency generally would be barred from
awarding a contract or continuing with performance if a contract already
had been awarded. If an agency- level protest were denied, a subsequent
protest to GAO that

2 Public Law 107- 347, section 209. 3 Best Practices: Taking a Strategic
Approach Could Improve DOD*s Acquisition of Services,

GAO- 02- 230 (Washington, D. C.: Jan. 18, 2002).

Enclosure Enclosure 4 GAO- 03- 802R Contract Management raised the same
grounds and was filed within 5 days would trigger a further suspension of
award or performance pending resolution of that protest.

We believe that a protest process that is effective, expeditious, and
independent serves the interests of all those involved in or affected by
the procurement system. This section appears to address each of these
criteria. First, this section would provide for a more effective agency-
level protest process by requiring that an agency suspend, or *stay,* the
procurement until the agency protest is resolved. Although the Federal
Acquisition Regulation (FAR) currently provides for agency protests and
includes similar stay provisions, continuation of the FAR stay through a
subsequent GAO protest is left to agency discretion. The provisions of
this section would eliminate this discretion by providing for an
additional stay for protests filed at GAO within 5 days of decisions on
protests at the agency level.

Second, the process would be relatively expeditious because decisions
would be required within 20 working days. We are concerned, however, that
20 working days might not be adequate for a thorough review, particularly
in complex procurements.

Finally, requiring protests to be decided by the head of the agency may
help to mitigate longstanding concerns about a perceived lack of
independence when decisions on agency- level protests are issued by
officials closely connected with the decision being protested. The
mitigation potential could be affected, however, by delegation of decision
authority to lower levels within the agency.

Section 301 - Share- in- Savings Initiatives Share- in- savings
contracting, with an opportunity to participate in a project*s monetary
benefits, can motivate contractors to generate savings and revenues for
their clients. We have found few documented examples of share- in- savings
contracting in the federal government. Officials in federal agencies we
spoke with noted that such arrangements might be difficult to pursue given
potential resistance and the lack of good baseline performance data.
Department of Energy officials have told us that they believe such
contracts can be best used when federal funding is unavailable. 4 We
issued a report earlier this year in response to your request that we
determine

how the commercial sector uses share- in- savings contracting. 5 The
companies in our study found that successful arrangements have generated
savings and revenues. In one case highlighted in our report, $980,000 was
realized in annual energy savings.

To achieve the potential benefits from the use of share- in- savings
contracting, it may be worthwhile to examine ways to overcome potential
issues. For example, in a letter

4 Energy Conservation: Contractor*s Efforts at Federally Owned Sites, GAO/
RCED- 94- 96 (Washington, D. C.: Apr. 29, 1994). 5 Contract Management:
Commercial Use of Share- in- Savings Contracting, GAO- 03- 327
(Washington, D. C.: Jan. 31, 2003).

Enclosure Enclosure 5 GAO- 03- 802R Contract Management to the Office of
Federal Procurement Policy (OFPP) in March of this year, 6 we pointed out
that share- in- savings contracting represents a significant change in the

way the federal government acquires services. To address this challenge,
we underscored the need for the OFPP to develop guidance and policies that
could ensure that members of the federal acquisition workforce understand
and

appropriately apply this new authority. Further, agencies would need to
consider the extent to which they can achieve comparable savings through
in- house efforts or traditional contracting approaches.

Section 401 - Additional Incentive for Use of Performance- Based
Contracting for Services This section authorizes agencies to treat a
contract or task order as being for a

commercial item if it is performance- based* that is, it describes each
task in measurable, mission- related terms, and identifies the specific
outputs* and the contractor provides similar services and terms to the
public. This section also establishes a center of excellence that would
help federal agencies learn about

successful ways to implement performance- based contracting. In our
September 2002 report, 7 we recommended that the OFPP Administrator
clarify existing guidance to ensure that performance- based contracting is
appropriately used, particularly when acquiring more unique and complex
services that require strong government oversight. If this section is
enacted, we believe that clear guidance will be needed to ensure effective
implementation.

In a May 22, 2003, letter 8 to congressional committees, we reported on
DOD*s implementation of temporary authority 9 to treat certain
performance- based service contracts as contracts for commercial items.
DOD issued regulations to implement the legislative authority, but because
there is no tracking mechanism, DOD does not know the extent to which the
authority has been used. DOD officials believe, however, that use of the
authority has been limited, at best. In our view, agencies need to track
these contracts so the implementation of this tool for promoting greater
use of performance- based contracting can be evaluated. 10 6 Contract
Management: OFPP Policy Regarding Share- in- Savings Contracting Pursuant
to the EGovernment

Act of 2002, GAO- 03- 552R (Washington, D. C.: Mar. 24, 2003). 7 Contract
Management: Guidance Needed for Using Performance- Based Service
Contracting,

GAO- 02- 1049 (Washington, D. C.: Sept., 23, 2002). 8 Use of Legislative
Incentive for Performance- Based Contracting Unknown, GAO- 03- 674R
(Washington D. C.: May 22, 2003). 9 Section 821( b) of the Defense
Authorization Act for Fiscal Year 2001, Pub. Law 106- 398, Oct. 30, 2000.
10 In this regard, section 1441 of H. R. 1588, the Defense Authorization
Act for fiscal year 2004, which

has passed the House and which contains most of the provisions of SARA as
originally introduced, would require agencies to collect data on the use
of this provision.

Enclosure Enclosure 6 GAO- 03- 802R Contract Management Section 402 -
Authorization of Additional Commercial Contract Types This section would
provide for a change to the FAR to permit the use of time- andmaterials
and labor- hour contracts for commercial services commonly sold to the

general public. This change would make it clear that such contracts are
specifically authorized for commercial services.

According to the FAR, a time- and- materials contract may be used only
when it is not possible to estimate accurately the extent or duration of
the work or to anticipate costs with any reasonable degree of confidence.
Further, it states that a time- andmaterials contract provides no positive
profit incentive to the contractor for cost control or labor efficiency.
Therefore, appropriate government surveillance of contractor performance
is required to give reasonable assurance that efficient methods and
effective cost controls are being used. The FAR also requires that a time-
and- materials contract contain a ceiling price. Because of the enhanced
level of surveillance required, agencies facing acquisition workforce
shortages need to consider carefully whether they have sufficient
resources to properly oversee timeand- materials contracts.

Section 404 - Designation of Commercial Business Entities This section
would designate as a commercial item any product or service sold by a
company that over the past 3 business years made 90 percent of its sales
(in dollars) to private sector entities. We are concerned that this
provision would allow for products or services that had never been sold or
offered for sale in the commercial marketplace, regardless of amount, to
be considered a commercial item. In such cases, the government may not be
able to rely on the commercial marketplace to gauge the quality and
pricing of the product or service. If this provision is approved,
consideration should be given to establishing a dollar limit on products
or services deemed to be commercial items under this provision.

Section 501 - Authority to Enter into Certain Procurement- Related
Transactions and to Carry Out Certain Prototype Projects This section
would authorize those civilian agencies approved by OMB to use socalled

*other transactions* for projects related to defense against or recovery
from terrorism, or nuclear, biological, chemical, or radiological attacks.
Other transactions are agreements that are not contracts, grants, or
cooperative agreements. This authority would be similar to that currently
available to the Departments of Homeland Security and Defense.

Because statutes that apply only to procurement contracts do not apply to
other transactions, this authority may be useful to agencies in attracting
firms that traditionally decline to do business with the government. In
fact, our work shows that DOD has had some success in using other
transactions to attract nontraditional firms to do business with the
government. However, our work also has shown that there is a critical need
for guidance on when and how other transactions may best be used.

Enclosure Enclosure 7 GAO- 03- 802R Contract Management The guidance
developed by DOD may prove helpful to other agencies should the Congress
decide to expand the availability of other transaction authority.

Section 503 - Authority to Make Inflation Adjustments to Simplified
Acquisition Threshold This section would permit the Administrator for
Federal Procurement Policy to adjust the simplified acquisition threshold
as defined in the Office of Federal

Procurement Policy Act 11 every 5 years to an amount equal to $100,000 in
constant fiscal year 2003 dollars (rounded to the nearest $10,000).

The inflation adjustment in this section would maintain the value of the
simplified acquisition threshold established by the Congress. It is
similar to the periodic inflation adjustment provision applicable to
thresholds for cost or pricing data requirements in the Truth in
Negotiations Act. 12 We support this provision.

(120255) 11 41 U. S. C. 403 12 10 U. S. C. 2306a
*** End of document. ***