Pentagon Issues New Procurement Guidelines and Adds Hurdles to Sole Source Awards
On August 21, 2014, the Undersecretary of Defense for Acquisition, Technology and Logistics issued a Memorandum titled Actions to Improve Department of Defense Competition. This Memorandum serves as a reminder to Department of Defense (“DOD”) contracting officials, and the contracting community at large, that the DOD will continue to emphasize competition in contracting.
The Memorandum announces the issuance of the Guidelines for Creating and Maintaining a Competitive Environment for Supplies and Services in the Department of Defense (“Guidelines”). These non-mandatory Guidelines highlight ten impediments to competitive procurement, including arbitrary time constraints, failure to secure government data rights, and scope creep. The Guidelines suggest a number of steps that DOD procurement officials may consider to increase competition, including:
Open Systems Architecture: The Guidelines encourage the use of Open Systems Architecture (“OSA”) whenever practical, noting that “OSA may be used to overcome barriers to competition by applying open standards and open business model principles.” OSA is intended to prevent “vendor lock” and allow alternative sources to be integrated into existing systems.
Intellectual Property: The Guidelines note the importance of properly managing intellectual property, both in data deliverables and data rights. DOD recognizes the need for an IP strategy that avoids “vendor lock” and permits DOD to competitively procure future requirements. The Guidelines highlight the importance of segregating DOD-funded development from privately funded technology. A welcome sight to many experienced contractors is the Guidelines’ repeated statements that DOD should avoid coercing greater government IP rights than necessary.
Alternatives to “Winner Take All” Weapon System Procurements: The Guidelines note the challenges presented by “winner take all” procurements where potential bidders face incredible gains with a successful bid and devastating losses with an unsuccessful bid. DOD points to the Air Force’s positive experience with the F-15 and F-16 fighter aircraft engines, which resulted in dual-production, competitive split-buy annual awards that allowed the Air Force to maintain competition between two contractors and avoid locking in to only one contractor. The Guidelines point to this type of “dual-sourcing” and other options for “multi-sourcing” as alternatives to the “winner take all” system.
In addition to issuing the Guidelines, the Memorandum adds new procedural steps for contracting officers using sole source procurements. In situations where contracting officers intend to rely upon FAR 6.302-1 (“Only One Responsible Source”), contractors officers are now required to issue Requests for Information or Source Sought Notices and incorporate the results in the sole source Justification and Approval (“J&A”), unless a waiver is granted by the head of the contracting activity.
The Memorandum goes further and requires that for follow-on acquisitions of sole source awards, the subsequent J&A must be approved at a level above the prior J&A and that the follow-on acquisition documents must include the prior J&A. This additional administrative step is intended to give acquisition officials an opportunity to evaluate whether the prior J&A’s proposed steps to overcome barriers to competition have been addressed. While nothing in the Memorandum precludes the use of sole source awards or alters the substantive criteria contracting officers must evaluate prior to making a sole source award, the Memorandum demonstrates the Pentagon’s desire to limit sole source awards.
The Memorandum closes by noting the importance of competition in light of the DOD’s budget realities. As budget pressures on DOD and throughout the government continue to increase, contractors with longstanding sole source contract relationships may face increased scrutiny for follow-on awards, and entrepreneurial contractors may be better positioned to convince contracting officials that previously sole-sourced procurements should become full and open.