[Senate Report 114-416]
[From the U.S. Government Publishing Office]
Calendar No. 308
114th Congress } { Report
SENATE
2d Session } { 114-416
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SMALL CONTRACTORS IMPROVE COMPETITION ACT OF 2015
_______
December 20, 2016.--Ordered to be printed
Filed, under authority of the order of the Senate of December 10
(legislative day, December 9), 2016
_______
Mr. Vitter, from the Committee on Small Business and Entrepreneurship,
submitted the following
R E P O R T
[To accompany S. 2139]
The Committee on Small Business and Entrepreneurship, to
which was referred the bill (S. 2139) to amend the Small
Business Act to prohibit the use of reverse auctions for the
procurement of covered contracts, having considered the same,
reports favorably thereon with amendments and recommends that
the bill (as amended) do pass.
I. INTRODUCTION
The Act (S. 2139) was introduced by Chairman David Vitter
and Ranking Member Jeanne Shaheen on October 6, 2015.
The Act amends the Small Business Act to prohibit the use
of reverse auctions for the procurement of covered contracts.
Senator Cardin offered an amendment to the bill to provide
for an increase from 70 percent to 90 percent to the Small
Business Administration's (SBA) guarantee to sureties in the
Preferred Program which enables sureties to issue, monitor, and
service bonds without prior approval by the SBA.
II. HISTORY (PURPOSE & NEED FOR LEGISLATION)
A reverse auction is an auction between a group of offerors
who compete against each other by submitting offers for
requirement when those offerors have the ability to submit
revised offers with lower prices throughout the course of the
auction. Reverse auctions first gained popularity in the late
1990s, as Internet-based technologies allowed potential vendors
to underbid each other in real time. Since then, they have
grown to account for nearly 1 percent of federal prime contract
dollars awarded each fiscal year. When used properly, reverse
auctions are an important tool that may benefit taxpayers and
contracting agencies. However, when used inappropriately,
reverse auctions may place taxpayers, warfighters and small
businesses at risk.
While the Office of Federal Procurement Policy (OFPP) has
been promising guidance on the use of reverse auction
procurements since 2000, to date no guidance or regulations
have been forthcoming, meaning that over $828 million in
procurements are awarded using a methodology never mentioned in
the Federal Acquisition Regulation or in Statute. Instead, OFPP
and the Office of Management and Budget have encouraged the use
of reverse auctions without offering guidance on how to best
use this methodology.
III. HEARINGS & ROUNDTABLES
The House Committee on Small Business has held four
hearings documenting abuses of reverse auctions, including a
joint hearing with the House Committee on Veterans Affairs.
These hearings documented that the misuse of reverse auctions
put agency requirements at risk, denied small businesses the
opportunity to fairly compete, and wasted taxpayer dollars. The
GAO report titled ``Reverse Auctions: Guidance is Needed to
Maximize Competition and Achieve Cost Saving'' published
December 9, 2013 confirmed these findings.
IV. DESCRIPTION OF BILL
This bill creates a new section of the Small Business Act
to limit the use of reverse auctions when using small business
contracting authorities.
Specifically, the provision requires training of
contracting officers, and prohibits the use of reverse auctions
for sole source contracts or contracts with inadequate
competition. It also states that when reverse auctions are
used, technical acceptability of offers can be rated only
either technically acceptable or unacceptable. This provision
requires that the government communicate honestly with bidders
regarding the ranking of offers, as some reverse auctions have
misled offerors regarding the status of bids. The bill also
makes it clear that when using a third-party reverse auction
service, the government must still follow all of the normal
procurement rules, as there are cases where a third party
provider is excluding companies from competing or using third
party data to inform responsibility determinations.
Finally, the provision states that reverse auctions may
only be used for contracts other than contracts for
construction, goods used to protect people from bodily harm,
and technical goods and services.
The Cardin amendment provides for an increase from 70
percent to 90 percent to the SBA's guarantee to sureties in the
Preferred Program which enables sureties to issue, monitor, and
service bonds without prior approval by the SBA.
V. COMMITTEE VOTE
In compliance with rule XXVI(7)(b) of the Standing Rules of
the Senate, the following vote was recorded on October 7, 2015.
A motion to adopt the Small Contractors Improve Competition
Act, a bill to amend the Small Business Act to prohibit the use
of reverse auctions for the procurement of covered contracts as
amended by the Cardin amendment, was approved unanimously by
voice vote with the following Senators present: Vitter, Scott,
Fischer, Gardner, Ernst, Enzi, Shaheen, Cantwell, Cardin,
Booker, Hirono, and Peters.
VI. COST ESTIMATE
In compliance with rule XXVI(11)(a)(1) of the Standing
Rules of the Senate, the Committee estimates the cost of the
legislation will be equal to the amounts discussed in the
following letter from the Congressional Budget Office:
February 16, 2016.
S. 2139 would change the collateral requirements for surety
bonds on federal construction projects and allow the Small
Business Administration (SBA) to guarantee a larger portion of
certain surety bonds. Surety bonds provide financial guarantees
that contracts will be completed according to mutual, agreed
terms and that the bond will cover any loss if a contract is
not completed. In addition, S. 2139 would prohibit the federal
government from using reverse auctions to obtain design and
construction services. In a reverse auction, a buyer seeking a
good or service solicits bids, multiple sellers offer bids, and
the seller with the lowest bid wins the competition.
Under current law, contractors working on federal
construction projects are required to insure their performance
using surety bonds. Based on information from the General
Service Administration (GSA), private contractors, and bond
providers, CBO expects that provisions of S. 2139 that would
change some collateral requirements would not affect the cost
of procuring construction services. CBO also estimates that
provisions of the bill that would raise the portion of certain
surety bonds that the SBA can guarantee from 70 percent to 90
percent would not have a significant effect on discretionary
spending because we expect the agency would increase fees to
cover any additional guarantee costs.
CBO also reviewed information on the use of reverse
auctions in government procurement contracts by the Army Corps
of Engineers, and GSA. Those agencies have found that using
this type of reverse auction in complex procurements does not
consistently result in lower procurement cost than would result
from other methods such as sealed bids or negotiated
procurements. Those agencies generally do not use reverse
auctions to obtain such services.
A memorandum from the Office of Management and Budget dated
June 1, 2015, reviews the benefits of reverse auctions and
builds on the guidance from the Office of Federal Procurement
Policy to advise agencies and contracting officers on the use
of reverse auctions. Consequently, CBO estimates that
implementing S. 2139 would not result in agencies making
significant changes in their typical contracting process and
thus would not have a significant effect on the federal budget.
Enacting the bill could affect direct spending by agencies
not funded through annual appropriations; therefore, pay-as-
you-go procedures apply. CBO estimates, however, that any net
increase in spending by those agencies would be negligible.
Enacting S. 2139 would not affect revenues.
CBO estimates that enacting S. 2139 would not increase
direct spending or on-budget deficits by more than $5 billion
in any of the four consecutive 10-year periods beginning in
2027. S. 2139 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would impose no costs on state, local, or tribal governments.
The CBO staff contact for this estimate is Matthew
Pickford. This estimate was approved by Theresa A. Gullo,
Assistant Director for Budget Analysis.
VII. EVALUATION OF REGULATORY IMPACT
In compliance with rule XXVI(11)(b) of the Standing Rules
of the Senate, it is the opinion of the Committee that no
significant additional regulatory impact will be incurred in
carrying out the provisions of this legislation. There will be
no additional impact on the personal privacy of companies or
individuals who utilize the services provided.
VIII. SECTION-BY-SECTION ANALYSIS
Section 1. Short title
This bill may be call the Small Contractors Improve
Competition Act of 2015.
Section 2. Limitation on reverse auctions
Section 2 provides a Sense of Congress and adds a section
to the Small Business Act (the Act).
Section 2(a)--Sense of Congress
The Sense of Congress provides that reverse auctions for
commercially available commodities are a useful tool in federal
procurement and, when used appropriately, may increase
competition, save money and increase opportunities for small
business participation.
Section 2(b)--Limitations on reverse auctions
Section 2(b) creates a new section 47 of the Act which
addresses the use of reverse auctions that conducted using the
set aside or sole source authorities provided by the Act.
Section 47(a)--Definitions
The new section 47(a) provides definitions:
Paragraph (1) defines the term ``contracting officer'' to
have the meaning typically provided in contracting, as found at
41 U.S.C. Sec. 2101.
Paragraph (2) defines the term ``covered contract'' to mean
one of three categories of contracts. The first is a contract
for design and construction services, which is further defined
in paragraph (3) to include a variety of design and
construction activities derived from the Brooks Act, the
Federal Property and Administrative Services Act, and the
Federal Acquisition Regulation. The second category of covered
contracts is contracts for protective equipment, such as body
armor, since price is not the only factor in the award of these
goods. The third category of covered contracts are contracts
for goods and services when the contract is awarded using a
best value method of award, rather than contracts awarded
simply based upon price. This recognizes that a reverse auction
is well suited to obtaining the lowest price, but is not
designed to help a contracting officer assess the technical
advantages of one product versus another.
Paragraph (3) defines the term ``design and construction
services'' to include a variety of design and construction
activities derived from the Brooks Act, the Federal Property
and Administrative Services Act, and the Federal Acquisition
Regulation.
Paragraph (4) defines the term ``responsible source'' to
have the meaning typically provided in contracting, as found in
41 U.S.C. Sec. 113.
Paragraph (5) defines the term ``reverse auction'' for
purposes of federal procurement. In a normal auction, multiple
potential buyers bid up the price of an item by competing
against each other to obtain the item. In a reverse auction,
multiple potential sellers bid down the price of a good or
service by competing against each other to sell the good or
service. Thus, the term is defined as an auction between a
group of offerors who compete for a contract, task order or
delivery order by submitting multiple, revised offers each with
a lower price.
Section 47(b)--Prohibition on using reverse auctions
The new Section 47(b) provides that in the case of a
covered contract, the contracting officer may not use a reverse
auction if the award is made pursuant to one of six enumerated
sections of the Act. These are: Sec. 8(a) (socially and
economically disadvantaged business program); Sec. 8(m) (women-
owned small businesses and economically disadvantaged women-
owned small business program); Sec. 15(a) (small business set
asides); Sec. 15(j) (small business reserve); Sec. 31 (HUBZone
program); or Sec. 36 (service-disabled veteran-owned small
business program).
Section 47(c)--Limitations on using reverse auctions
In cases where reverse auctions are not prohibited by
section 47(b) but use Sec. 8(a), Sec. 8(m), Sec. 15(a),
Sec. 15(j), Sec. 31, or Sec. 36 to make the award, the new
section 47(c) institutes six limitations. These are as follows:
Paragraph (1) requires that the decision to use a reverse
auction and determine the evaluation criteria for award,
eligibility of vendors, and the selection of an awardee must
all be made by a contracting officer, not a program officer or
a contractor.
Paragraph (2) requires that a contracting officer using
reverse auctions must have been trained on the use of reverse
auctions. The required training should be similar to that
already provided by the Department of Defense in response to
Sec. 824 of the Carl Levin and Howard P. `Buck' McKeon National
Defense Authorization Act for Fiscal Year 2015 (Public Law 113-
291; 127 Stat. 3436).
Paragraph (3) requires that federal agencies not award
contracts using reverse auctions if only one offer is received
or if offerors aren't given the ability to revise their bids.
GAO found that in over one third of reverse auctions, there is
only one bidder or one round of bids, which effectively negates
the benefits of a reverse auction. (GAO-14-108 Reverse Auctions
at 22).
Paragraph (4) requires that agencies using reverse auctions
determine that the item or service is technically acceptable,
but not further differentiate between the technical
capabilities of offerors. In cases where a contracting officer
needs to differentiate technical capabilities of offerors,
other procurement methods allow this to happen more
transparently.
Paragraph (5) requires that agencies may not mislead
contractors as to whether they have the lowest offer. As
companies cannot mislead contractors on any element of a bid,
the government should also not mislead offerors.
Paragraph (6) limits the use of third-party reverse auction
providers to functions that are not inherently governmental.
This means that the government may not use third-party past
performance or financial responsibility information when making
an award unless the information is collected and shared in
accordance with current statutes, such as Sec. 8(b) of the Act
or 41 U.S.C. Sec. 1126. It also means that disputes between
offerors and third-party reverse auction providers must be
settled privately, and that the reverse auction provider may
not use access to government contracts as leverage. The
provisions in paragraph (6) have been the subject of numerous
bid protests, which have held that the government cannot
contract around federal procurement laws.