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Acquisitions, Solicitations and Contracts

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3. How the U.S. buys

3.1 Acquisitions, Solicitations and Contracts

3.2 Information for Contractors

The U.S. federal government, and its agencies, use a number of different methods to handle acquisitions, solicitations and contracts. It is important to be familiar with these procedures so that Canadian businesses can compete for U.S. business in the most effective manner possible. This section will attempt to highlight some of the more common procedures that U.S. entities may use for procurement of goods and services.

Table of Contents

Micro-Purchases

U.S. government agencies are allowed to buy items and services costing US$3,500 or less, without complying with Buy American Act (BAA) laws and laws requiring U.S. small business set-asides. The micro-purchase threshold for U.S. government construction contracts is US$2,000.

In addition, if any particular procurement is determined to support a contingency operation or to facilitate defense against or recovery from nuclear, biological, chemical, or radiological attack, the threshold is raised to US$30,000 for purchases made outside the United States and US$20,000 for purchases made inside the United States. Micro-purchases may be made without competition if the U.S. buyer considers the price to be reasonable.

Authorized U.S. government employees use a Governmentwide commercial purchase card (credit card) that allows them to make micro-purchases without prior approval from a centralized procurement office, and these cards are the preferred method to purchase and pay for micro-purchases.

Micro-purchases offer a window of opportunity for Canadian contractors who succeed in getting information concerning their products or services to potential customers, especially for products involving nuclear, biological, chemical, or radiological defence, primarily because Buy American and other barriers do not apply at the micro-purchase level.

Refer to FAR Subpart 13.2, for micro-purchases.

Simplified Acquisition

Simplified acquisitions involve procedures that are simplified to minimize costs, promote efficiency and economy in contracting and avoid unnecessary burdens for both agencies and contractors.

FAR Part 2 establishes the basic threshold for simplified acquisitions at US$150,000. Procurements above the micro-purchase threshold but not over US$150,000 (not considering exceptions), "shall be set aside for small business unless the Contracting Officer determines that there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of market prices, quality and delivery." Otherwise, provisions of NAFTA, joint defence agreements, or BAA apply.

Similar to micro-purchases, an exception exists for procurements that support contingency operations or support recovery from or defenses against nuclear, biological, chemical, or radiological attack. In these cases, the simplified acquisition threshold is US$300,000 for purchases made in the U.S. and up to US$1.0 million for purchases made outside the U.S.

Simplified acquisition procedures include:

Oral Solicitation of Quotes from a Limited Number of Suppliers: Oral solicitations or written/electronic solicitations usually result in the issuance of a purchase order to the successful contractor. A purchase order signed by both the Contracting Officer and the authorized contractor representative constitutes a contract. A purchase order signed by only the U.S. Contracting Officer, is considered an offer to buy that is accepted when the contractor begins to perform.

Issuance of Orders Against: Orders against agreements discussed above may vary in type. An order against a blanket purchase agreement could be an oral "call" or it could be written on a form acceptable to the parties. Orders against indefinite delivery contracts are called "delivery orders" (or "task orders" if for services).

Standard Form 44: A standard form 44 (SF-44, see FAR Subpart 13.306) is a pocket size purchase order form, designed for on-the-spot, over-the-counter purchases of supplies and non-personal services while away from the purchasing office or at isolated activities or areas. It is a multi-purpose form that can be used as a purchase order, receiving report, invoice and public voucher. It can be used when the purchase is limited to $3,500 or less, the supplies or services are immediately available, one delivery and one payment are to be made, and the use of SF-44 is determined to be more economical and efficient than the use of other small purchase methods. Generally, the Governmentwide commercial purchase card is preferred for small purchases.

Source List: Contracting officers use the Central Contractor Registration database as their primary sources of vendor information, and it is essential to be on this list. In many cases, firms known by the buyer or recommended by the organizational entity that needs the product or service are contacted. You will be called only if you have previously made your product or service known to these persons.

Refer to FAR Part 13, for simplified acquisitions.

Negotiated Procurement

By definition, a negotiated procurement is any non-sealed bidding procurement that is above the simplified acquisition threshold. Negotiated procurement policies and procedures are found at FAR Part 15.

In negotiated procurement the competing contractors may be asked to submit written or oral proposals or, both. These submissions can involve a significant investment in time and money, as compared to simplified acquisitions which are more streamlined and, therefore less of an investment.

Negotiated procurements have a closing date by which offers are to be received. Late proposals are treated in the same manner as late bids and are not reviewed. By contrast, sealed bids have an opening date by which bids are to be received.

Negotiated procurement may involve any legal pricing structure including, cost reimbursement. Sealed bids may be used only for fixed-price contracts.

Unlike other bidding procurement, proposals are not opened in public.

Negotiated procurement contracts can be awarded based on factors other than price if competing contractors are so notified in the Request for Proposal (RFP).

How Negotiated Procurement Works

Sealed Bidding

Sealed bidding is used when there is expectation of competition, an adequate purchase description, time to issue invitations and receive bids, no perceived need to hold discussions and contemplation of a fixed price. There is no limitation on dollar amount.

Under sealed bidding procedures, contractors are asked to submit price, and sometimes brochures describing their product. Written proposals are not requested. In rare cases, contractors are asked to submit a "bid sample" of their product. It is designed to be objective, not colored by evaluator bias.

While sealed bidding is officially the preferred way of buying items priced above the simplified acquisition threshold, it has lost favour among many practitioners. Many buyers believe that accepting the low bid is often false economy, and differences in quality and past performance ought to be considered together with price or cost. Those buyers may prefer to use negotiated procurement as an alternative to sealed bidding.

Refer to FAR Part 14, for sealed bidding.

Two-Step Sealed Bidding

The FAR also permits a variation known as two-step sealed bidding. In step one, technical proposals are obtained, and discussions may be held. In step two, those contractors with technically acceptable proposals from the first step are invited to submit bids based on their individual proposal. An award is then made to the lowest bidder in the same way it would have been made under sealed bidding procedures.

This procedure is preferred when acquiring technical or complex items and, must allow for sufficient time to evaluate the technical proposals and request submission of priced bids from those offerors determined to be acceptable in step one.

One significant difference between sealed bidding and negotiated procurement is in the evaluation of contractor past performance. Provided that potential contractors were informed of the possibility under a negotiated procurement, the U.S. government can pay more to a contractor with an "exceptional" rating than for a contract from an offeror with only an "adequate" rating but a lower cost/price. This is not the case using sealed bidding. Under sealed bidding procedures, a responsibility determination (considering past performance) is pass or fail. In sealed bidding, an acceptable contractor who bids a penny less would be chosen over a contractor rated exceptional.

At an announced time following the deadline for receipt of bids, they are opened in public and recorded on an abstract of bids. You may attend the bid opening, hear the bid prices being read publicly, and even examine other bids. Afterward, the abstract is posted in the procurement office so that everyone can examine it. Attendance at opening of bids with security classifications is limited.

Bidders are responsible for getting their bids to the designated office in time. Bids received after the time set for opening are not accepted.

If a mistake was made (for example, your bid price is per egg when the government asked for a price per dozen), you may be allowed to withdraw your bid. Bid prices cannot be changed unless a mistake in price is apparent on the face of the bid. The appropriate U.S. Contracting Officer determines if a bid may be withdrawn or changed.

Only fixed-price contracts are awarded under sealed bidding. Prices on firm-fixed-price contracts remain for the duration of the contract. Fixed-price contracts with economic price adjustment are used for products in volatile markets such as petroleum. Economic price adjustment protects both parties against unpredictable price fluctuations.

The government advertises proposed sealed bid procurements at FedBizOpps and an Invitation for Bid (IFB) is made available to those who request it. Bids received by the agency are kept unopened in a locked box until bid opening time. Bids sent by electronic means are similarly protected.

For unclassified procurements, the contracting officer is required to notify unsuccessful bidders that an award is made. For NAFTA country bidders, this information must include the dollar amount of the successful bid and the name and address of the successful bidder.

Awards are made to the responsible low bidder who has offered a fair and reasonable price, and who has not taken exception to the government's requirements in its bid. Factors used to determine the low bidder may include price-related factors such as transportation costs or the cost of making multiple awards rather than a single award.

Advisory Multi-Step Process

Under FAR Subpart 15.202, an agency may publish a presolicitation that provides a general description of the scope or purpose of the acquisition and invites potential offerors to submit information to the government about their potential to be viable competitors.

The advisory multi-step process is favoured because it allows the technical and contracting community the ability to receive technical information prior to the posting of the Request for Proposal (RFP). Agencies often prefer this process because it tends to reduce the number of inadequate proposals that fail to meet technical specifications.

Notices can be found on FedBizOpps and must contain enough information to permit a potential offeror to make an informed decision about whether to participate in the acquisition. This process is not used for multi-step acquisitions in order to avoid offerors repeatedly submitting identical information.

Indefinite Delivery Contracts

U.S. government agencies may also use any of the three types of Indefinite Delivery (ID) contracts for acquiring supplies and/or services when the exact times and/or quantities are not known at the time of contract award. They include:

For some products and services, failure to obtain an ID contract with an agency, can result in a contractor being virtually shut out of the government market. Contractors should consider teaming with other contractors who have already been awarded ID contracts, to overcome this barrier.

As basic contracts are awarded competitively, any delivery order (for supplies) or, task order (for services), are considered to have already fallen under the umbrella of competition, thus complying with U.S. laws requiring competition.

While many agencies have their own ID contracts, the General Services Administration (GSA) is the largest agency using ID contract through their Schedules Program. Visit our Points of Entry section for more details on the GSA.

The use of ID contracts offers agencies the advantage of negotiating orders in a matter of days or weeks rather than entering into a new contract which could take six months or more. Anticipated quantities required over a fixed period, allow for greater flexibility for both the agency and the contractor.

FAR Subpart 16.505 states that when ordering, "the contracting officer must provide each awardee a fair opportunity to be considered for each order exceeding US$3,500." Some contracting officers consider all contractors and then choose one. Others hold a competition between two or more task order contractors, using either low price, low price technically acceptable or a tradeoff of the two as a basis for award.

In awarding ID contracts, "the contracting officer must, to the maximum extent practicable, give preference to making multiple awards…under a single solicitation for the same or similar supplies or services to two or more sources."

Depending on the terms of the basic contract, any order under an indefinite delivery contract could be for as little as a few thousand dollars, to millions of dollars and, any legal contract pricing structure (fixed price, cost reimbursement, etc.) may be used.

U.S. government buyers are required to synopsize (advertise) proposed ID contracts on FedBizOpps, and you should be alert for these opportunities. Buyers are not required, however, to synopsize proposed individual delivery or task orders, under existing ID contracts.

Unsolicited Proposals

It is "the policy of the U.S. government to encourage the submission of new and innovative ideas…when the new and innovative ideas do not fall under topic areas publicized…The ideas may be submitted as unsolicited proposals." Guidance on unsolicited proposals is provided at FAR Subpart 15.6.

An unsolicited proposal must:

While commercial items are excluded, contractors may propose unique configurations or uses of commercial items offered for further development. Thus, if you were a manufacturer of fasteners and you conceived a novel use of your product for homeland security purposes, you have an opportunity to submit an unsolicited proposal for evaluation.

The program requires agencies to:

Procedures specific to an agency can be found in regulations that implement the FAR for that agency. Many agencies are receptive of unsolicited proposals, particularly the Department of Transportation and the U.S. Agency for International Development.

If you think you have a product or technology that is unique and fits the requirements for an unsolicited proposal, contact the technology officer at the agency to who you are interested in marketing for an evaluation.

The primary intent of this guidance is to avoid the "solicited unsolicited proposal." A solicited unsolicited proposal results when a government scientist approaches a favored contractor and suggests the contractor submit a specific unsolicited proposal. Preliminary discussions with government personnel are not precluded. In fact, FAR Subpart 15.604 states, "Preliminary contact with agency technical or other appropriate personnel before preparing a detailed unsolicited proposal…may save considerable time and effort for both parties."

Preliminary contact may also be a good idea from a marketing perspective. If you establish preliminary contact with appropriate agency personnel, and they are impressed by your concept, you may have a champion for your position when your proposal is submitted.

Review FAR Subpart 15.6 for all the specific guidance on the content of unsolicited proposals. Again, it is important that you follow the directions. You may also want to check the agency implementing instructions (such as an agency supplement to the FAR) for any further direction that might be available.

Commercial Items

The U.S. government prefers commercial item procurements. This policy results from criticisms of many instances of excess where exorbitant prices were paid for items built to government specifications. (In one case, the government paid more than US$1,100 for a plastic cap that went on the leg of a stool). Now government agencies are expected to meet needs to the maximum extent using a "commercial item," with or without customary or minor modifications.

The term "commercial item" is meant to include much more than off-the-shelf items. In brief, FAR Part 2 defines commercial items as:

Standard Form 1449: For commercial item procurements, the preference is for using Standard Form 1449 (see FAR Subpart 12.204). This Form can serve as a solicitation (Request for Quotation, Invitation for Bid, or Request for Proposal), as a delivery order, and as a contract.

When Form 1449 is used, it may have specific FAR clauses attached, or it may just make reference to them. Since some clauses require the entry of data from competing contractors, you are cautioned to check any referenced FAR citations. Otherwise your bid or offer may not be responsive.

Fix Priced Contracts: Only fixed-price contracts should be used for commercial item procurements, including the use of various economic price adjustments or award and incentive arrangements. In the near future, time and material contracts and labor hour contracts are expected to be permitted for some commercial services.

Competitive source selection for commercial items may be based on low price, low price technically acceptable, or a tradeoff between the two. Many awards, perhaps most, are based on low price.

FAR guidance for commercial items also permits a streamlined procedure in which a single notice published on FedBizOpps serves both as the normal advertisement and as the solicitation. Competing contractors submit offers in accordance with instructions in the FedBizOpps notice.

Exceptions: A number of laws have been waived for products and services designated as commercial items. However, waivers do not apply to:

Accordingly, the acquisition of commercial items would appear to offer no particular advantage or disadvantage for Canadian firms. But there is a catch. In addition to specifying the North American Industry Classification System (NAICS) code and size standard for the particular product or service involved, commercial solicitations advise competing contractors that, "…the small business standard for a concern which submits an offer in its own name, but which proposes to furnish an item which it did not itself manufacturer, is 500 employees." This means that dealers (wholesalers, retailers) can have up to 500 employees and be considered a small business for purposes of the procurement. Consequently, a greater number of small business set-asides are possible. Remember that small business set-asides are excluded from provisions of NAFTA.

Refer to FAR Part 12, for commercial items.

Non-Developmental Items

Before U.S. buyers initiate a procurement to satisfy a government need, they conduct market research to determine if the government's needs could be met with commercial items or non-developmental items (NDIs). Using commercial items avoids the necessity of developing and using specifications peculiar to government. Using government specifications can inhibit competition and increase cost, while using NDIs that meet government needs avoids time and money to develop something already available.

The official FAR definition of NDI is, "Any previously developed item of supply used exclusively for governmental purposes by a Federal agency, a State or local government, or a foreign government with which the U.S. has a mutual defense cooperation agreement."

An item already in use by a civilian Federal agency or a state and local government can be considered an NDI, and marketing it that way to Federal government agencies might prove fruitful. The item would, however, have to be unique and not readily available from other sources in order for you to be the recipient of a sole source contract.

Some federal agencies, including the U.S. Department of Defense have active NDI programs. Be sure to keep abreast of the needs of federal agencies and programs to take advantage of these opportunities.


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