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entitled 'Contract Management: Comments on Selected Provisions of the 
Services Acquisition Reform Act of 2003, H.R. 1837' which was released 
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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[Footnote 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:

Signed by William T. Woods:

FOOTNOTES

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

[End of section]

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 high-performing 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,[Footnote 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.

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[Footnote 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.[Footnote 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 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.[Footnote 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.[Footnote 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 to the Office of Federal Procurement 
Policy (OFPP) in March of this year,[Footnote 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,[Footnote 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[Footnote 8] to congressional committees, we 
reported on DOD's implementation of temporary authority[Footnote 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.[Footnote 10]

Section 402 - Authorization of Additional Commercial Contract Types:

This section would provide for a change to the FAR to permit the use of 
time-and-materials 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-and-materials 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 time-and-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 so-called "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. 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[Footnote 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.[Footnote 12] We support this provision.

(120255):

FOOTNOTES

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

[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).

[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).

[6] Contract Management: OFPP Policy Regarding Share-in-Savings 
Contracting Pursuant to the E-Government 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.

[11] 41 U.S.C. 403 

[12] 10 U.S.C. 2306a