which the contractor resides, but only if the contractor requested "a hearing with respect to an assessment and who is aggrieved by a final order assessing an amount." The judicial proceeding would not be a de novo review on the merits, but would be limited to a determination of whether the Administrator's findings of fact were supported by substantial evidence, and were not arbitraily capricious or whether the Administrator committed legal error in the proceeding. G. New Audit Procedures: Generally, the bill would greatly expand the frequency of GSA audits of civilian contracts, require substantial numbers of random and unannounced audits, and require the issuance of regulations providing for contingent authority to audit advertised contracts in circumstances indicating a lack of full compensation. H. Examination of Records Provision: Presently, regulations governing civilian agency procurement provide that an examination of records clause must be included in all negotiated fixed price supply and R&D contracts, and all cost type supply and R&D contracts, and may be included in fixed price construction contracts. The present clause gives the Comptroller General access to "directly pertinent" records of the contractor. H.R. 2580 would give both the GSA Administrator and the GSA Inspector General similar examination of records rights in connection with any of the audits required to be performed under the provisions of the biTT. In addition to providing examination of records rights to GSA, the bill expands the potential category of contracts to which the examination right may be applied. SAMA questions whether it is necessary to extend to the GSA by statute GAO's right of access to contractor records. The experience of our industries has been that GSA currently has available sufficient audit authority to administer its contracts effectively. Further, since the major portion of the pertinent information of interest to GSA relates to establishing the "commerciality" of the products, it would seem that the requirement for auditing 10 percent of all of GSA negotiated contracts above $10,000 each fiscal year will place unnecessary burdens upon both GSA and the industry. The burden upon GSA will be the audit staff required to conduct this number of audits. The burden upon industry will be the requirement to review and justify (possibly with multiple award teams) the information required to establish the commerciality of the same product or product lines. Additionally, since much of the information involved in the establishment of "commerciality" is of a "proprietary" nature, we are concerned about the public document room provisions in the legislation. We feel this provision should be modified to limit the audit abstracts, in the case of commercial products, to summarize findings and clearly prohibit the inclusion of detailed, back-up contractor proprietary data. In conclusion, I would point out that H.R. 2580 would make certification requirements applicable to contracts "for the procurement, transfer, or disposition of property or services (entered into) pursuant to the Act," i.e., the Federal Property and Administrative Services Act of 1949. The certification and penalty provisions of Section 1 of the legislation would be inserted as a new section (306) under Title III of that Act, which presently sets forth the basic statutory scheme for civilian procurement. Section 302 of the Act, 41. U.S.C. § 252, states that Title III applies, with limited exemptions, to contracts for property and services made by all "executive agencies" except the Department of Defense, the Coast Guard, and NASA. In short, the procurement procedures required by the Federal Property and Administrative Services Act apply generally to civilian procurement. Accordingly, the introductory language of H.R. 2580, applying the certification requirement to contracts entered into "pursuant to this Act, "would appear to make the proposed certification and penalty amendments applicable to all civilian procurement, whether by GSA or otherwise. PARTICIPATION OF DISTRIBUTORS IN THE MULTIPLE AWARDS SYSTEM Several times last year, at meetings with SAMA's Government Affairs Committee, GSA officials expressed some concern over what SAMA believes to be the important role distributors play in providing scientific apparatus and related equipment to Federal users either directly or through the Federal Supply Service via Multiple Award contracts. In recent months, this concern has been translated into specific requests by GSA contracting officers to many SAMA member company manufacturers. In essence, these requests seek a justification for the use of distributors in selling their products to the General Services Administration. It appears that the presumption underlying these requests is that the General Services Administration can achieve a dollar savings by purchasing directly from those manufacturers. Two other questions have been raised by our manufacturers relating to discounts offered to distributors and discounts offered to the General Services Administration. The first question is: Why do distributors in our industry receive discounts greater than those published in a manufacturer's discount schedule? A second and related question is: Why do manufacturers not offer the same discounts or better ones to the GSA as they do their distributors? ROLE OF THE DISTRIBUTOR It seems to us that to answer these questions, it is important to first ask "What value does the distributor provide?" Many manufacturers of scientific products and related equipment do not have equally extensive or efficient distribution systems as those of distributors in our industry. Furthermore, most manufacturers do not keep large inventories of their products in stock, as do our distributors. In our view, elimination of the distributor from the procurement process would inevitably slow delivery times at best, and at worst, would deny some small government outpost ordering one or two items access to those items at all, since it would be uneconomical for a manufacturer to deliver small quantities of a low cost item to a distant location. A normal volume of orders received in a given day by our large distributors may reach 3,000. These, of course, will be from both government and commercial customers. There is, I am told, no distinction in the way these orders are processed. Thus, a distributor's commercial customers are treated in the same manner as their government customers, and far more efficiently than would be the case using a depot system. A typical distributor in our industry will catalogue, update and inventory between 50,000 and 80,000 items. The distributor will provide geographic coverage for sale and service of these items to all points in the U.S. The distributor will maintain in his inventory current state-ofthe-art products, thus precluding the need to use discontinued or outdated items. A distributor in our industry is in the business of filling small orders: an average order is less than $200.00, but filling that order requires a great deal of processing by both manual and sophisticated systems. Our distributors offer post warranty service and technical assistance to commercial and government customers. CAPABILITIES OF A MANUFACTURER We presume that the reason our manufacturers are being asked why they are using distributors to sell to the Government revolves around the question of whether a manufacturer can provide the same services as a distributor thus elimianting the "middle man profit." We do not believe this to be the case, at least in our industries. Manufacturers in our industries selling through distributors use them for both commercial and government sales. Typically, a manufacturer in our industry will do approximately 90 percent of his total business with commercial customers, and he will therefore be unwilling or unable to develop his own distribution system for the 10 percent of his business that goes to the government. We also believe that the elimination of distributors from the procurement process would be especially detrimental to small companies or new firms just starting up. These firms simply do not have the capital to invest in large advertising budgets, large sales forces and significant service capabilities. A distributor in our industry can provide all of these services to a small firm and thereby permit that firm to compete on a more even basis with larger companies for government business. Without the distributor, this simply will not be the case. It is also important to remember that many manufacturers in our industries limit their marketing activities to areas near where their plants are located or when they have a large commercial market. For these companies, filling small orders to remote areas would be impractical. Finally, manufacturers work from production schedules which make certain items available only at certain times of the year. Since these manufacturers will continue to use distributors for 90 percent of their business (i.e., the commercial portion), the majority of a given production run will be shipped to the distributor, thus leaving the government in a position of not being able to procure certain items when it needs them. THE FEDERAL DEPOT SYSTEM It has been suggested by some that the Federal Depot System could be used to replace the commercial distributor. We do not believe this would be a cost effective and efficient alternative. The first argument against the use of the depot system is that it has historically proven itself to be too slow, particularly to outlying areas. In addition, a medium or large distributor in our industry will receive 80 percent of its orders by telephone. It is our understanding that Federal depots do not take telephone orders, thus further enhancing delays in supplying needed products. We have also reviewed the various depot catalogues and have found that none of the systems stock more than 500 items in Group 66 (the product group which covers most of SAMA's member products). It is our belief that these depots would have difficulties in gearing up to stock 50,000 to 80,000 items. It is also our understanding that Federal depots charge the using agencies a handling fee of up to 18.5 percent which is added to the invoice cost. This 18.5 percent additional charge should be taken into account from a cost of acquisition basis. Finally, for each million dollars of a contract, 5,000 demands are generated using the following formula: Value of Contract. Using the $200/Order estimated sales figures supplied by GSA on one of its recent solicitations, we can offer the following example for Group 66-II-B: Is the Depot system ready for this type of volume? distribution system is. The commercial As we understand it, the Multiple Award System is designed to provide goods and services for small quantities, governed by a maximum order limitation, for those situations where use cannot be accurately predicted, and for all government locations in the country, thus giving even the smallest outpost the benefit of volume purchasing and, more importantly, quaranteeing the availability of delivery and servicing of goods and supplies. In our view, if manufacturers were denied the option of utilizing distributors for the purpose of selling to the Federal government through the General Services Administration, many of the benefits of the system would be eliminated. CONCLUSION At the outset of this letter, I indicated that SAMA member companies were facing a number of other problems in the procurement area which, due to the deadline for submission of this statement, were impossible for me to prioritize at this time. Many, if not all of these issues are related to policies developed by the procuring agencies, and not those developed directly by the Congress. I have listed below some of these problem areas for your information. However, one of the biggest complaints I have heard in recent months from our member companies is that there is no way for industry to develop an on-going dialogue with Federal procurement agencies so that all of the ramifications of proposed procurement policy changes, and the objectives of those changes, can be discussed before they are implemented. This has particular significance to small companies who do not have the resources to monitor new developments as they occur. In this connection, it might be appropriate for your Subcommittee to consider establishing, by legislation, what might be termed a Technical Advisory Committee, which would work either in conjunction with the Office of Federal Procurement Policy or with the major procuring agencies (i.e., the Department of Defense, the GSA, etc.). There might have to be more than one of these committees to address the needs of various segments of the supplier base to the government. Since all of SAMA's members are, as noted, essentially commercial, and most are engaged in high technology, and many sell through distributors, this could form the basis for one such committee. The purpose of these advisory committees would be to work with the government to anticipate problems in current and proposed procurement regulations. Obviously, the government would have the final decisionmaking authority; these committees would serve as a sounding board and industry resource for government policy makers. However, these groups could serve as a continuing means of communication between the government and the private sector, a link which I am told is currently missing except on an ad hoc, issue-oriented basis. For example, our membership would like to engage in a dialogue with the GSA on a number of current procurement practices including: 1. 2. 3. 4. Negotiation of new terms relative to price increases, specifically terms which would allow them to pass on price increases during the contract period. Negotiation of new terms relative to extension of existing contracts which would retain the terms of the existing contract but with current pricing. Negotiation of new terms which would permit qualification of a Negotiation of new terms which would grant GSA/FSS most |