Mr. Chairman, the Coalition welcomes the opportunity to address the Subcommittee in order to help identify problems currently existing in the Federal procurement system.

The Coalition for Common Sense in Government Procurement is a nonprofit alliance on nine trade associations as well as numerous small and large businesses who have an interest in commercial product procurement issues. Eighty percent of our members are small businesses. The associations and our corporate members represent the vast majority of commercial product companies who sell to the government.

Through Coalition members and through our own effort of monitoring the procurement system, we have become aware of a number of problems that require the attention of the subcommittee. The issues we cite here have been brought to the attention of various congressional subcommittees and to the agencies involved before, but, for whatever reasons, no one has taken the responsibility or offered any help to resolve the problems. We are encouraged by this subcommittee's efforts to examine the procurement system in what appears to be such an in depth and equitable fashion. The attention you are paying to industry's view is most welcomed!

One of the most critical problems currently facing commercial product suppliers is the frequent changes the General Services Administration (GSA) makes to its internal procurement policies without considering the impact these new requirements will have on contractors and customer agencies. Often the changes to internal policies, particularly in the multiple award schedule area, are costly to suppliers and do not have any apparent cost-saving benefits to the government; in fact, they have the opposite effect. GSA seems to believe that unless it is an FPR that is being changed, industry does not need to be informed. In fact, the internal procurement policies of FSS which are published in "procurement letters" normally have much greater impact than FPR changes.

EXAMPLES

GSA is attempting to cut out the small business dealer and distributor from the Federal Procurement chain through a policy of requiring manufacturers to give GSA the same price as their dealers on multiple award contracts. This obviously forces manufacturers to exclude their dealers if they want to continue to have a GSA contract. GSA overlooks the training, storage, distribution, and service and repair that have been traditionally handled by dealer organizations. This policy change has a potential impact of well over $100 million on small businesses around the country.

In the furniture area, GSA changed its policy of requiring contractors to quote GSA shipping prices from point of origin (F.O.B. origin) to that of destination (F.O.B. destination). This change in policy directly impacted industry. Reasons cited by Coalition members:

- it is impossible to estimate freight charges; they increase almost on a monthly basis;

- with the slow pay record of many agencies, a small firm paying FOB destination costs would suffer hardships, especially today with interest rates on borrowed money so high;

the burden of proof for damage for destination shipments would be on contractors.

In some instances, a shipment is received by the government and items are stored without inspection. Claims for damages

or loss must be made within a certain time period; if items are stored without inspection and damage is found later upon use, suppliers are unable to be reimbursed from the shipper for damage, much less know who -- supplier, shipper or receiver is responsible for the damage. This change from F.0.B. origin to F.O.B. destination results in higher prices being paid by the government in that suppliers are forced to average freight costs for the entire country.

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GSA has a "Maximum Order Limitation" (MOL) on the value of items that can be purchased off the multiple award schedule. Above that limit, agencies have to advertise the procurement for competitive bids. On some products, however, the MOL has been arbitrarily reduced to very low levels.

In some product lines, the LOW MOL creates a situation where agencies are not able to buy even a small system off the schedule. For example, in micrographic equipment, the MOL is set so low that it is impossible to buy even a small system off the schedule unless the user agency has established a Basic Purchasing Agreement (BPA) tied into the multiple award schedule.

The ironic part of these BPA's is that they allow the agencies to buy virtually an unlimited amount off the schedule without any further price competition. On the one hand, GSA is telling agencies that they can only buy very small quantities off the schedule, while on the other hand, they are encouraging agencies to develop BPA's that have no dollar limitations. As long as agencies release against their BPA in quantities that are lower than the MOL, they are able to buy an unlimited amount of material off the schedule.

Industry feels that there is an inconsistency in these policies. GSA should probably raise their MOL's to realistic levels in the first place and not encourage the agencies to make unlimited use of BPA's. BPA's can be useful tools for the agencies, but there should be some limitation placed upon their use; say, for example, two to three times the dollar level of the MOL. However, for extremely large buys over the MOL, it makes more sense to go out on a single award procurement.

We would like to see agencies, especially GSA since their daily activities impact industry and its customer agencies so heavily, justify and conduct impact analysis studies before changing policies that directly affect their suppliers and customers. While we do not want to make the procurement system any more cumbersome than it already is, we do want to protect industry from government agencies whimsically and irrationally changing their policies (at the expense of industry) just because someone has come up with an idea they think will save time and money.

It is our belief that these policy changes by GSA fall under the jurisdiction of P.L. 96-354 (Regulatory Flexibility Act) and Executive Order 12291 (of February 17, 1981). Both call for an examination of the impact of proposed and existing rules. P.L. 96-354 requires agencies to solicit and "consider flexible regulatory proposals and to explain the rational for their actions to assure that proposals are given serious consideration." E.O. 12291 was enacted to increase agency accountability for regulatory actions and insure well-reasoned regulations. The Executive Order impacts "any regulation that is likely to result in":

"an annual effect on the economy of $100 million or more;" "any major increase in costs or prices for consumers and individual industries" (in addition to others);

"Significant adverse effects on competition, employment, investment, productivity, innovation..."

GSA's changes clearly have impacts in many of the areas listed above, but the agency did not follow the proper procedures. There seems to be a feeling that only FPR changes are subject to this act.

We wonder about the effectiveness of the statute and the Executive Order if agencies are able to circumvent it at will.

Another procurement problem issue that needs the attention of the subcommittee is one for which a bill has already been introduced and which has already received considerable attention from Congress: the Federal government's poor bill paying habits. This is costly to businesses, and, in turn, to the government. It is also one of the major reasons more firms choose not to do business with the Federal government. This, of course, reduces competition and is also indirectly responsible for higher prices for products and services bought by the government. As we have already testified, the Coalition supports the goals of the "Delinquent Payments Act of 1981" (S.1131) which Senator Danforth (and others) introduced in early May and which attempts to relieve contractors from delayed reimbursements by the government. We are aware of opposition from two agencies Treasury and OFPP and would like to see the bill reported out and, hopefully, passed as soon as possi

ble.

III.

The Use of Commercial Item Descriptions

We are quite concerned over the way in which commercial item descriptions (CID's) have been used and may be used in the future. There is a great rush to develop a CID as if it were some miracle device that will automatically make the procurement process easier. But, in fact, CID's are clearly inappropriate for many types of procurements. They are, after all, nothing more than shortened, more functionally-oriented specifications. We would like to see more thought given to their development and use.

There are preconceived notions in the government that because a CID is developed, automatically it is tied to a single award. If, in fact, we are talking about a commodity where a single award is appropriate and the CID will replace a detailed specification, we heartily support this action.

However, an innovative approach can be taken to using CID's if the government truly feels they ensure quality and if it wants to be responsive to agencies' needs. In certain commodities, it may be approrpiate to have a CID in a multiple award contract. We do not understand why the government could not develop a CID which would set minimum quality levels for certain types of commercial products and make it a requirement for contractors to receive a multiple award in these commodity areas only if they meet the standards outlined in the CID. We realize this is a little different approach than the government has ever done, but we do not see why it would not solve the problem of establishing certain minimum quality requirements for the government and still allow the use of the very flexible multiple award contract for those commodities where there are numerous vendors and many small purchases by the government.

A problem that has been mentioned frequently by our members is the inability of contracting officers to do their jobs adequately. In short, they lack the proper training to negotiate contracts. Although we hear lip service paid to the improved educational courses developed for government contracting personnel, our members continue to be dissatisfied with the lack of contractors' expertise.

There continue to be problems with the commercial product provisions of P.L. 95-507 (Small Business Act Amendments). The law lacks coordination among the agencies; each interprets it differently. There appears to be no one coordinating and managing the provisions of the law. There remains confusion among the agencies as to the proper format for industry suppliers' subcontracting plans, the number of plans suppliers are to create and submit to agencies and the time-frame these plans are to cover.

We would like to see leadership in this area for the establishment of a subcontracting plan format to be followed by suppliers and used by all agencies. Leadership is needed also to clarify what P.L. 95-507 means when it says, "the contractor shall be required to submit one company-wide, annual plan to be reviewed for approval by the first agency with which it enters into a prime contract (which requires a subcontracting plan) during the company's fiscal year Even though the law says that the plan will remain in effect for the company's entire fiscal year, agencies are applying different interpretations.

VI. A-76 Policy

One final problem which we want to bring to the attention of the subcontractors is in the area of the A-76 contracting out policy that is currently being practiced by the Federal government, federally funded projects, and GOCO's (government owned companies). These federal groups and organizations are well aware of the A-76 policy whereby they are directed to rely on the private sector for their goods and services when it is cost effective, and know they are not supposed to be competing with private industry. But in spite of the Administration's reiteration of the policy, there is nothing with any teeth in it to prevent government organizations from competing with industry.

In March, 1980 the SBA published a report entitled Government Competition: A Threat to Small Business which gives excellent coverage of the issue and offers valuable illustrations and warrants the attention of the subcommittee.