United States: Change Is Upon Us: An Analysis Of The Section 801 COTS Provisions Of The 2018 NDAA

In the words of Taylor Swift, "This is a new year. A new beginning. And things will change." While I suspect Ms. Swift was not writing about Section 801 of the National Defense Authorization Act of 2018 when she tweeted this inspirational prognostication, she might as well have been – although, admittedly, it probably would not have generated quite so many re-tweets. In any event, if you have not done so yet, you should give it a read (Section 801 that is; not Ms. Swift's tweets).

Section 801 of the NDAA, which is set to be voted on in the House Armed Services Committee (HASC) as early as this afternoon, directs DOD to purchase COTS items through existing online commercial marketplaces, and to make such marketplaces available to other federal agencies for COTS purchases as well. The directive to purchase products through an online marketplace upends current federal contracting rules and will have a significant impact on all current federal purchasing vehicles – including GSA Schedules, NASA SEWP, FedMall, NIH CIO-CS, and more. Consequently, it also will have a significant impact on all COTS manufacturers, distributors, and resellers.

Here is a summary of the key provisions of Section 801 with some related observations that may be of interest to those who manufacture, sell, and/or resell COTS items to the Government:

Section 801 directs GSA to establish and administer a program through which DOD will purchase COTS items through existing online marketplaces. While GSA will administer the program, it is prohibited from running the marketplaces. The bill makes clear the marketplaces may not be managed by the Government and may not be used primarily by the Government. The marketplaces must be run by private entities that aggregate, distribute, sell, and/or manufacture products.

  • Observation: GSA Advantage and FedMall are run by the Government and, thus, neither meets the requirements of an online COTS marketplace under the bill. Interestingly, industry attempted to have the draft HASC language modified so that a Government online portal that could meet the marketplace requirements would receive the same benefits as a commercial portal, but the authors of the legislation rejected the idea of any acceptable Government-run marketplace.
  • Observation: The bill seems to permit a marketplace run by an entity that distributes products and sells its own products, which has led some industry groups to express concern over potential conflicts between the marketplace and the vendors selling through it.

GSA must award "multiple" marketplace contracts. Notably, however, GSA is not required to use competitive procedures to award the marketplace contracts. GSA expressly may award the marketplace contracts without the use of full and open competition.

  • Observation: The draft legislation originally contemplated the award of "one or more" marketplace contracts. The current language reflects a change championed by multiple vendor and industry groups to increase competition among marketplace providers. The current language, however, does not go as far as industry wanted. Multiple industry groups recommended the legislation be modified to require GSA to execute "the maximum number of contracts as practicable with online marketplace providers." This language was rejected.
  • Observation: The bill does not instruct GSA how it should evaluate and select an appropriate marketplace. The bill only authorizes GSA to make the award without competition. It is unclear whether this means GSA may award the marketplace contracts without any formal evaluation. It also is unclear what basis for legal challenge non-selected marketplace vendors will have.

While directed at DOD purchasers, the bill makes clear GSA must design the program so that it enables government-wide use; not just DOD use.

  • Observation: The HASC staff has been working with the House Oversight and Government Reform Committee to look for ways to expand the online marketplace plan to cover the entire Federal Government. HOGR Chairman Gowdy apparently has waived his committee's jurisdiction over this issue in order to permit the HASC to proceed with its government-wide legislation.

While DOD is not required to use the marketplace for all purchases, the bill requires that DOD "shall" use the marketplace "as appropriate" for COTS purchases. The directive does not extend to services and does not extend to non-COTS commercial items.

  • Observation: The requirement to use the marketplace for all COTS purchases "as appropriate" would seem to open the door to future legal challenges. GSA will have to figure out what is "appropriate" and what is not, or at least provide guidelines for DOD purchasers to make that determination at the purchase level.

The bill identifies a number of capabilities a marketplace must possess in order to qualify under the new program. The marketplace must:

  • Be widely used in the private sector, including for business-to-business purchases.
  • Offer dynamic product selection.
  • Offer dynamic product pricing.
  • Present offers from multiple suppliers.
  • Be sortable by
    1. Product price,
    2. Shipping price,
    3. Delivery date,
    4. Supplier reviews, and
    5. Product reviews.
  • Not feature or prioritize any product or supplier based on fees or compensation that is "exclusively" paid for such featuring or prioritization.
    1. Observation: The bill does not appear to prohibit prioritization based on fees paid not "exclusively" for that purpose. Industry groups attempted to modify this language before its incorporation into the NDAA to prohibit any featuring or prioritization "based directly or indirectly on any form of compensation, consideration, or fee paid to the online marketplace . . . ." This language was rejected by the HASC.
    2. Observation: The bill also does not appear to prohibit prioritization for reasons other than fees or compensation, such as the marketplace owner prioritizing its own products over those of others.
  • Provide the capability of ensuring procurement oversight controls, including
    1. Spending limits,
    2. Order approval, and
    3. Order tracking.
  • Allow for consolidated invoicing, payment, and customer service.
  • Provide for product screening by Government purchasers for
    1. Excluded vendors (i.e., vendors that have been suspended or debarred from selling to the Government),
    2. Products that comply with the Berry Amendment,
    3. Products that comply with DOD's Specialty Metals rules,
    4. Buy American Act (BAA)-compliant products,
    5. Trade Agreement Act (TAA)-compliant products,
    6. JWOD (AbilityOne)-compliant products, and
    7. Products sold by small and other disadvantaged businesses.
  • Collect necessary government purchasing data. (The bill directs GSA to maintain the ability to access purchasing data on a monthly basis, including the number of suppliers that offered a similar product on the same date a product was purchased.)
  • Observation: These requirements (a-j) severely limit the number of existing marketplaces that conceivably could qualify as a DOD COTS marketplace.

The bill requires GSA to conduct reviews of suppliers to ensure they meet the requirements listed above.

  • Observation: Ultimately, GSA will have to establish regulations to implement these requirements.
  • Observation: While not identified in the bill, presumably the GSA OIG will be involved in this facet of the new program.

With respect to ordering/purchasing, agencies will be relieved of current competition obligations. A purchase through the marketplace automatically will meet CICA's competition requirements so long as two or more similar products are available through the marketplace.

  • Observation: Query what exempting marketplace purchases from full and open competition means when it comes to DOD's purchasing decisions. Will DOD purchase through the marketplace on an LPTA (low price technically acceptable) basis, or will value still come into play? Also, will disappointed bidders have any vehicle to challenge irrational and/or unreasonable purchasing decisions? Since there is no cap on the size of marketplace purchases, industry could see massive non-competitive purchases become the norm. Considering the Federal Government makes flawed procurement decisions quite often (remember, according to GAO, more than 40% of bid protests are effective, meaning the agency takes some form of corrective action), the idea that purchasers need not engage in any competitive process is concerning.

Agencies still may set aside purchases for small businesses, and awards to the vendors selling through the marketplace are considered awards to prime contractors for small business tracking purposes.

All purchases made through the marketplace must be made in accordance with the marketplace's standard terms and conditions. And Government purchasers may not require the marketplace to change its standard Ts&Cs.

  • Observation: The bill's language suggests that when DOD requires changes to standard commercial terms and conditions they will be precluded from purchasing through the marketplace, and will have to use a different purchasing vehicle. This hints at a small window of ongoing usefulness for GSA Schedules, FedMall, etc.
  • Observation: The bill is silent regarding what happens when a vendor's standard terms and conditions conflict with the marketplace's. Presumably, the marketplace vendor will be able to exert significant pressure on the commercial terms and conditions of all sellers.

Regarding the massive amounts of data the marketplace will control, the bill provides that the marketplace may not make data available to any third party.

  • Observation: The bill places no limitation on how the marketplace itself can use the data for its own marketing and sales purposes. This could create a significant power differential where the marketplace provider acts as a reseller and a seller of its own products at the same time.
  • Observation: Several industry groups have objected to what they view as an unjustified Government giveaway. Recognizing the value of the data that will be available to the marketplace providers, industry pushed to have the initial language modified to require "just compensation from the entity receiving" the Government's purchasing data. The proposed language was rejected.

The bill directs GAO to assess the program's impact on small businesses after three years.

However the foregoing issues resolve themselves, if enacted, Section 801 unquestionably will change the way the Government purchases – and the way vendors sell – COTS items. And it also almost certainly will have a dramatic impact on the viability of the Government's current purchasing vehicles, including GSA's MAS Program. In fact, as noted above, industry attempted to modify the initial HASC language so that the regulatory advantages going to commercial online marketplace providers under the bill also would apply to Government online marketplace providers like GSA Advantage, FedMall, etc. The authors of the bill rejected the proposal outright.

While the foregoing discussion outlines some of the concerns expressed by some companies and industry groups, other groups have expressed additional concerns over the potential negative consequences of the legislation. Some have complained the use of a marketplace that treats "similar" items as the same for competition purposes effectively renders COTS purchases LPTA and (a) will drive prices into a dangerous downward spiral and (b) will drive the Government toward cheaper foreign products. Others, in contrast, have expressed concern the significant fees charged by online marketplaces will increase the Government's costs. Other criticisms have centered around the potential monopolistic power of the online marketplaces to drive prices, product attributes, and terms and conditions. In the same vein, some vendors worry about the negative impact of putting the totality of DOD's purchasing data in the hands of two marketplaces that also are direct competitors of the vendors they host. (As noted above, the bill allows the marketplace to sell products as well as host products.)

The current version of the online marketplace provision, designated Section 801 of the 2018 NDAA, heads into Full Committee Markup later today. Then, depending on how things go in the House, the bill will head to the full House, and then to the Senate where new voices will be heard and, perhaps, changes made. If Section 801 makes it past the Senate, and becomes law, GSA will have to mobilize to develop the rules and regulations that will govern the new program. Here again, there will be new opportunities for supportive and concerned voices to be heard. Regardless of what tune these voices sing, Ms. Swift had it right: "This is a new year. A new beginning. And things will change."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
25 Jul 2017, Seminar, California, United States

This evening, we will feature a panel which addresses the emerging and developing technologies of Unmanned Maritime Systems (UMS) as well as business and operational employment in various industries. Come hear experts from Video Ray, SeaBotix (Teledyne), SeaByte and Ocean Wings.

2 Aug 2017, Seminar, Palo Alto, United States

Sheppard Mullin and PwC invite “traditional” defense contractors and “non-traditional” defense contractors -- commercial companies -- intrigued by DOD’s focus on new technology to a discussion regarding the emerging defense innovation sector. We will provide analysis and insight on DOD’s innovation outreach using commercial contracting methods, the related compliance and government contracting issues, as well as offer practical advice and helpful tools for working with the Department of Defense.

15 Aug 2017, Seminar, Los Angeles, United States

August 15, 2017 - Pasadena Area
DoubleTree by Hilton Hotel - Monrovia

August 23, 2017 - Orange County
Embassy Suites Anaheim Garden Grove

September 19 - Los Angeles
Sheraton Gateway Hotel - LAX

October 4, 2017 - San Francisco
DoubleTree by Hilton Hotel - SFO

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.