House attempt to streamline commercial buying runs into trouble in Senate

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The version of the annual Defense authorization bill being debated on the floor of the Senate this week sets up a potential conflict for one of the major acquisition reforms contained in the House’s version: An attempt to streamline and encourage the use of the Defense Department’s procedures for buying commercial goods and services.

The House version of the NDAA contains what’s arguably the biggest overhaul to DoD’s commercial buying practices in a quarter-century. Its proponents argue it would make it easier for contracting officers to use the simplified commercial purchasing rules that already exist in law by rewriting the definition of “commercial” to better reflect the state of the market.

And by recognizing that DoD now spends more on services than on products, it would differentiate between commercial goods and commercial services.

But the Senate’s version takes a much more cautious approach. Instead of making any substantive changes, it would merely require the Defense Department itself to submit a report on how its leaders believe commercial procurements should be reformed.

“The committee remains committed to pursuing ongoing reforms to commercial item procurement including, through implementation of recommendations from the Section 809 Panel, among other entities,” members of the Senate Armed Services Committee wrote in a report accompanying the bill. “The committee is encouraged by the discussion of this important topic. However, the committee believes that Department of Defense leadership should be engaged in this discussion.”

The Section 809 Panel — a Congressional-chartered group of acquisition experts whose members already include multiple senior Defense procurement officials — provided the intellectual underpinnings for the language in the House bill, whose language closely mirrors that of a legislative draft the panel submitted in January as part of its first volume of acquisition reform recommendations.

After a year of study, the panel concluded that DoD’s use of what was supposed to be a simpler pathway through the acquisition bureaucracy for commercial items has become progressively thornier since 1994. This is also when Congress first ordered the department to give preference to goods and services that could be bought directly from commercial vendors, and on less-onerous terms that more closely match the sorts of contracts used in the private sector.

“The purpose was to allow the department to purchase with less stictures, less government-unique requirements,” said David Drabkin, the panel’s chairman. “But the definition of commercial item seemed to create a cottage industry over the last 20-plus years in terms of trying to figure out what was commercial and what wasn’t.”

One consequence of that confusion: According to the panel’s analysis of federal acquisition data, less than one-fifth of the department’s spending on goods and services goes toward commercial items, and the share of commercial items in its overall acquisition portfolio has declined by 29 percent since just 2012.

By the 809 Panel’s count, the Federal Acquisition Regulation now contains more than 40 different definitions of what constitutes a “commercial item.”

The absence of a common understanding about when DoD’s simplified procedures for commercial items can actually be used affects not just the department’s acquisition professionals, but also inspectors general and other members of the oversight community who are tasked with playing a watchdog role over Defense procurements, said Dr. Bill LaPlante, who served as the Air Force’s assistant secretary for acquisition from 2013 to 2016.

“There was a lot of uneven application and definitions during my time,” he said. “Companies would say that they got the determination of commercial item over here in one part of the Air Force, but over here, in another part, they didn’t.”

He said it also affected enforcement and because of the confusion, it made it unattractive for people to use commercial item procedures.

“And so I asked around, ‘What’s happened’?” Somebody dropped a bunch of IG reports on my desk, all of which were very critical of a decision that had been made to designate a particular commercial item, or what price was determined. And so it was not just a cottage industry…”

Another commissioner, retired Air Force Maj. Gen. Darryl Scott, said the hand-wringing about exactly when the simplified commercial procedures can be used has, in many cases, caused them to actually take longer than traditional Defense procurements.

He cited one particular example: the purchase of auxiliary power units that were eventually installed on the Air Force’s C-17 cargo aircraft.

“The C-17 has two of them: one on the left side and one on the right, and they’re commercial items,” said Scott. “On one of them, the contracting officer said, ‘Yeah, that’s a commercial item — it’s clearly listed in the [commercial] supplier’s catalog, no problem.’ The other one, the only difference was that the tailpipe exhaust pipe came out at the opposite side of the unit. And it took 400 days to make a determination that that item was commercial.”

Aside from coalescing the Defense acquisition community around a common understanding of when it’s allowed to use commercial item procedures, the panel also strongly recommended that Congress delineate the differences between commercial products and commercial services, a change that was also incorporated into the House bill.

Those differences weren’t fully taken into account when Congress first passed the Federal Acquisition Streamlining Act — the 1994 law that ordered federal agencies to codify their commercial item procedures in what eventually became Part 12 of the FAR — particularly because DoD’s spending on services was only a fraction of what it is today.

“That was a big source of confusion early on,” said Terry Raney, who helped write the initial rules as a then-member of the FAR Council. “We said, ‘Wait a minute … Services? What are commercial services?’ There were a lot of questions about that. But we’ve certainly gone through a lot of growth in that area … and I think [the House bill] would make a huge increase in understanding, and will help people understand a lot better how to use commercial items.”