Thank you for your letter of May 18, 1981, requesting the Scientific Apparatus Makers Association (SAMA) to submit its comments on current major problems in the procurement system which are of particular concern to members of our association. It is our understanding that your Subcommittee will use our comments, and those of other groups, in planning future hearings on the Federal procurement system.

You will recall that on March 25, 1981, in response to your request, SAMA did submit comments on several areas of government regulation which our membership believes to be unnecessarily burdensome. In that letter, we noted that SAMA is a national trade association representing the leading firms engaged in the design, manufacture, and distribution of over 40,000 types of high technology instruments and related products. This equipment is used in research, measurement, analysis, testing and control by government, industry, education, public utilities, and health care professions. The industries that SAMA represents had annual sales of over $12 billion in 1980.

It is important to note that the industries represented by SAMA are essentially commercially oriented. We are not totally dependent upon the government for our sales, employment and profits. In fact, only about 12 percent of our industries' sales can be attributed to sales to the U.S. government. Rather, our companies depend on their initiative, ingenuity and marketing capabilities to sell their products in the non-captive, commercial market environment.

And, in this commercial market environment, the general orientation of our industries is to supply off-the-shelf equipment to their customers. Under these circumstances, SAMA members are becoming increasingly concerned over the tendency of the government to disrupt what we believe to be a healthy and competitive environment within which we currently operate.

In your letter of May 18th, you indicated that you were not looking for a detailed analysis of all of the problems in the procurement system which were of concern to our membership, but rather an outline of some of the major areas of concern. In this context, and with the expectation that your Subcommittee will be conducting additional hearings on specific

SCIENTIFIC APPARATUS MAKERS ASSOCIATION

issues during the summer, I have appended a list of items which are causing a number of our members problems in their dealings with the Federal government. This list is intended to indicate areas of concern to SAMA companies; unfortunately because of the fact that the deadline for submission of this statement preceeds by four days a meeting of SAMA's Federal Procurement Task Group, I am unable to assign a priority rating for each of these matters at this time.

There are, however, several issues which have already been identified by SAMA as being of priority concern in the area of Federal procurement policy. There follows a brief description of these matters, and SAMA's recommendations with respect to what action should be taken to alleviate unnecessary burdens on commercial high technology suppliers to the Federal government.

THE SERVICE CONTRACT ACT

As you know, in June of 1977, the U.S. Department of Labor extended the requirements of the Service Contract Act to highly skilled technicians in the electronics, computer and telecommunications industries. Such an extension means that the Department of Labor has the authority to establish minimum annual compensation and fringe benefit rates for these workers when they are servicing government owned or leased equipment.

In our letter to you of March 25, 1981, I did discuss in considerable detail the ramifications of the Service Contract Act to our industries. I will not repeat that discussion here since it is a matter of record.

Suffice it to say that the Service Contract Act was originally passed to prevent the award of "low bid" from industry bidders on labor contracts who could reduce wages to get government business; i.e., to prevent "wage busting." Our industries offer product support services to the Federal government based upon nationwide prices established in the commercial marketplace; there is no incentive to "wage bust" to obtain government business and there has been no history of "wage busting" in our industries because our employees are compensated under identical wage plans whether they are servicing government or commercial customers. In other words, service employees in our industries have a compensation program under which their wages are not determined by the award of government contracts. The fact of the matter is that, according to a recent Department of Commerce study, our industries are among the few who are compensating their employees at a rate which exceeds inflation.

It is SAMA's belief that the Congress should act upon a recommendation of the General Accounting Office, and pass legislation to exempt commerical product support services from the Service Contract Act. We have drafted legislation to accomplish this objective, and would be happy to discuss it with you and your staff.

INCREASED FEDERAL AUDIT AUTHORITY

As you are well aware, last year the House passed legislation (H.R. 5381), a bill affecting the audit authority of the General Services

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Administration (GSA). Similar legislation (H.R. 2580) has been reintroduced in this session of the Congress.

In SAMA's view, H.R. 2580 is a very bad bill for the future of Federal procurement practices. The legislation says, in effect, that GSA is incompetent, and will always be incompetent, and therefore we must have a renegotiation process to recover from vendors contracting with GSA in order to protect the taxpayer. We would agree that there is much wrong with GSA. The thrust of H.R. 2580 however, is in the wrong direction and is inconsistent with the recommendations of the Commission of Government Procurement, which your Subcommittee will be considering later this year.

It is SAMA's view that GSA does need reform in the procurement area. However, we believe the nature of the reform should be for better trained contracting officers and, at the same time, making them responsible for the contracts they negotiate. Reform should not be a post-contract review process which relieves the contracting officer of responsibility through an audit and price redetermination process.

What follows is a preliminary analysis of the major provisions of H.R. 2580 as they might impact SAMA member companies. The analysis will point out some of the difficulties we see with the proposed legislation in its present form.

Section 1 of H.R. 2580 requires, for contracts exceeding $10,000, a certification by the contractor that he: has furnished all material information required by the GSA administrator, will furnish such information, has not furnished "false or misleading material information," and will not furnish false or misleading information, all "in connection with obtaining, execution, and performance of the contract."

The bill's definition of "material information" is extremely broad. Under Section 1(a)'s definitional provision, [proposed Section 306(j)(1) of the act], "materially" would be defined in three alternative ways. First, it would include information relating to the identity of parties, their relationship or to the place of performance. Second, it would apply to a variety of information, "the change or correction of which alters or would alter the price, time, quality, or quantity by more the 5 percentum or $10,000 in value, whichever is less." Third, material information would also consist of information having "a natural tendency to create a reasonable belief of its materiality."

The Committee's report on H.R. 5381, the predcessor to H.R. 2580, argues that the 5 percent or $10,000 part of the definition would prevent the GSA from bringing charges for de minimis violations. Because the three parts of the definition are stated in the alternative, however, and because the third part is subject to expansive interpretation, the 5 percent or $10,000 provision would appear to provide little protection for contractors.

B. Standard for Violation of the Certification Requirement:

The penalty provisions of H.R. 2580 would apply to persons making a certification which is either false or which otherwise violates terms of the certification "to the prejudice of the Government's interest." Here too, prejudice is defined broadly and could arguably include any sort of impact on the contractor's performance or the Government's "expectation" under the contract. Equally important, H.R. 2580 does not require that violations of the certification requirement be intentional. Even inadvertent omissions of information would allow the initiation of assessment proceedings.

In summation, the proposed legislation requires a blanket certification of completeness and accuracy of all but the most inconsequential information and could be used to impose penalties for unintentional violations having relatively insubstantial impacts on contractor performance.

You will recall that last year, during hearings on H.R. 5381, several industry groups raised concerns over the broad nature of these certification requirements in the conduct of complex procurement of high technology commercial products. The experience of our member companies is that the information required by GSA's solicitation documents, or which may be required during the life of a contract, is often not explicit or completely specified. As a consequence, it was recommended last year that these proposed certification requirements could be improved through the addition of such qualifying terms as:

To the best of the contractor's knowledge

Material information explicitly and completely defined in the solicitation and/or contract

The contractor will not willfully withhold information or
provide misleading information

Penalty Provisions:

H.R. 2580 specified six types of monetary penalties which may be imposed by the GSA Administrator in the event of a proven violation. Once a violation is established, the Administrator is required to make a penalty assessment "taking into account the nature, circumstances, and extent of the false certification or violation, the substantiality of the prejudice to the Government's interest, any pattern of other such false certifications or violations, or the degree of good faith exhibited under the contract." The minimum assessment is one of not less than $1,000 nor more than $15,000. Three of the penalities are potentially substantial. Proposed Section 206(a)(2) (E) would allow a penalty of twice the consideration given by the government under the contract. A second provision established an assessment equal to three to five times the Government's damages resulting from the violation plus consequential damages. A third penalty is restoration to the Government of all payments under the contract.

Those provisions would, for the first time, permit administrative imposition of monetary penalties by the GSA to collect the penalties by offsetting them against sums otherwise owed by the United States. They are, therefore, quite significant. Presently, civil penalties are collected only through action by the Justice Department under statutory provisions more limited than those in H.R. 2580.

When any of the three substantial assessments are imposed, the B111 requires the Administrator to debar the contractor for a period of two or five years. When lesser assessments are imposed, however, the debarment period is not less than one month nor more than two years and may be waived, provided that the Administrator gives a full written statement of his reasons for the waiver. The debarment provisions also allows the Administrator to impose a "partial" rather than complete debarment on a contractor by limiting the action to particular divisions or other components of the contracting company.

SAMA has some basic concerns with the philosophy of these new punitive powers given to the Administrator of GSA, in addition to the existing civil remedies available to the Justice Department. It is our understanding that the rationale for such an approach is that the Justice Department currently cannot process enough of its current caseload on abuses of concern to GSA. We are troubled that, if this is the problem, the solution should be the implementation by statute of a second system of punitive action, rather than an attempt to make existing laws enforceable. If a duplicate system of penalties is politically unavoidable, then we would urge that H.R. 2580 be amended so that the penalties which the Administrator of GSA can impose are clearly related to the seriousness and willfulness of the violation. H.R. 2580 should clearly reserve the penalty power of Section 1 for cases of fraud and not allow such penalties for inadvertent contractor errors in the process of procurement or contract performance.

The bill would empower the Administrator of GSA to subpoena the attendance of witnesses and the production of documents "which the Administrator . . . deems relevant or material to the inquiry."

Significantly, the proposed legislation states that the subpoena power is granted "for the purposes of an investigation leading to a hearing or the entering of an order (or for the conduct of a hearing)." This language could be interpreted to allow issuance of a subpoena, prior to initiation of administrative proceedings by written notice to the contractor purely for purposes of investigating potential violations of the certification requirement.

F. Judicial Review:

The bill would provide a right of judicial review of a final order of the Administrator in the United States Court of Appeals for the circuit in