Commercial Quality Programs

Most Government contracts for commercial products provide for inspection of the products before they are accepted by the Government. Some commercial items may be simple enough to permit inspection and acceptance on delivery, but for more complex equipment and products there often is a need for an in-plant inspection or quality assurance program. The type of product, requisite product reliability, size of purchase, statutory requirement, or availability of qualified personnel are factors considered in selecting the method used to assure delivery of quality products. In most cases the selection is based on more than one of these factors.

The competitive forces in the market for commercial products compel a manufacturer to maintain a program of quality assurance. Economy and efficiency dictate that the Government, in buying commercial products, usually should rely on these quality programs; however, the Government may be justified in making its own in-plant inspection in cases where the contractor makes a production run solely for the Government and may permit a lower product quality than his commercial standard.

When contract specifications require special production runs, conformity, including interpretation of specifications, must be established and determined for each run; hence, the extent of in-plant inspection for commercial products is affected by the size of the purchase and the degree to which the products vary from standard production items.

Other exceptions to reliance on manufacturers' quality assurance programs occur when special products, statutory requirements, or the public health and safety are involved.

ture, and the Food and Drug Administration. All of these agencies can offer quality control services within their capabilities to other agencies.

GSA and DSA have an extensive quality control program to support the Government procurement function. GSA's Quality Control Division has operating offices in each of the ten GSA regions. Contractor quality control in DSA is operated through DSA's 11 Defense Contract Administration Services Regions (DCASR), 10 whose primary objective is to provide quality control and field contract administration for Federal agencies.

GSA and DSA each provides a range of inspection and quality assurance programs, depending on the terms of the contracts and the products involved. Use of these inspection programs by civilian agencies is optional. Where plant cognizance is assigned to a military department, inspection services are also available to other DOD and civilian activities.

The Veterans Administration performs quality control inspections on medical items for which it is responsible, and the Department of Agriculture and the Food and Drug Administration operate extensive inspection programs in support of public health and safety. Other Government agencies also have quality control programs to protect the health and safety of Government personnel. For example, the Defense Personnel Support Center (DPSC) has a medical laboratory to develop safe drug specifications and programs for testing their quality.

What is lacking in the executive branch is an integrated program to disseminate information on the quality control programs of the individual agencies and a policy to maximize the use of the existing services by all Government procurement organizations."1

kind of inspection procedure that products meet quality requirements. Good business practice dictates that, in buying commercial products, the Government should not impose inspection requirements beyond those normally needed to assure quality in the commercial marketplace.

Government inspection units have been criticized because they sometimes accept shoddy products, duplicate effort, and perform different types of inspection for similar products.

The Government has not coordinated its quality assurance programs required by contract with its various inspection functions required by law or regulation, nor has it promoted the full use of existing quality capability in lieu of each procurement organization performing its own inspection. The system within DOD and the informal arrangements between some agency procurement organizations provide a framework for achieving this objective, as recommended in Part A, Chapter 10.

CHAPTER 4

Acquisition

This chapter presents the results of our studies of the various procurement systems and methods as they interrelate to produce the most economical and efficient acquisition of commercial products. We believe improvements in work-force productivity, with reductions in personnel and other operating costs, can be achieved through a more effective evaluation and selection of alternative systems of procurement and distribution.

Many of the Commission's recommendations affect a broad range of procurement. For example, our recommendation in Part A, Chapter 3, to raise the small purchase limitation to $10,000 is particularly applicable to commercial products. Similarly, the need for a welltrained, effective procurement work force, as discussed in Part A, Chapter 5, is as necessary to the acquisition of commercial products as it is to other goods and services.

The chapter concludes with an analysis of the use of Federal sources of supply by grantees and other non-Federal agencies.

PROCUREMENT METHODS AND OPERATIONAL EFFECTIVENESS

Both ASPR and FPR outline several methods for the procurement of supplies and services, including indefinite delivery contracts and several small purchase procedures. When used with various pricing techniques and delivery systems, these alternatives provide extensive choices in tailoring contracts to respond to differing needs and conditions.

The results of Commission field visits, public meetings, and correspondence from industry

associations indicate concern over the complexity of procurement. Much of the criticism is directed at the sheer bulk of paperwork and procedural detail associated with Government procurement. Many small businessmen said that they do not seek Government business because they are afraid of missing some costly detail in the mass of paperwork.

Through the years, complexities slowly have been built into the procurement system. Many of the standard forms used in solicitation contain provisions expressly applicable to a range of purchases, but since they include all conceivable variables, they have become unduly complicated. For example, several food industry representatives noted that USDA's largevolume purchase bids contain fewer pages and are awarded faster than those of DSA. USDA and DSA endeavor to simplify their bid packages by incorporating standard provisions by reference. The most obvious difference is that USDA uses a letter form of solicitation that presents the procurement in a business-like package, while DSA uses a standard form that looks complicated and formidable because it covers every type of contract. Also, USDA's use of a computer to evaluate bids makes award within a few days standard practice.

Small Purchases

The value of Government purchases ranges from a few cents to several million dollars; however, most purchases are small. In fiscal 1972, 98.2 percent of DOD purchases were for less than $10,000. The percentages of pur

1 Military Prime Contract Awards and Subcontract Payments and Commitments, July 1971-June 1972, Sept. 1972, p. 38.

chases under $10,000 in the civilian agencies are probably comparable, except for special activities such as the USDA food programs, but data to verify this could not be obtained.

2

The Armed Services Procurement Act of 1947 and the Federal Property and Administrative Services Act of 1949 both make exceptions to formal advertising for purchases under $1,000. This ceiling was raised to $2,500 in 1958 by legislation that established the basis for considering all Federal purchases of less than $2,500 as small purchases. ASPR and FPR prescribe simplified procedures for small purchases. In Part A, Chapter 3, we recommend that the statutory ceiling on procurements for which simplified procedures are authorized be raised to $10,000. This recommendation has special relevance to commercial products since they account for the greatest number of purchases under $10,000.

Small purchases can be made through imprest funds, blanket purchase agreements, purchase orders, or basic ordering agreements." All small purchase techniques involve individual requisitioning, solicitation, price analysis, ordering, delivery, acceptance, and (except for blanket purchase orders) payment.

Figure 1 shows the proportion of purchases under $2,500 by the military departments, interagency depots, and the Veterans Administration (VA). The data reveals that the VA Marketing Center has the lowest percentage of small purchases. This is due to VA's policy of limiting depot stock to high-volume items. The most significant element of the chart is the high percentage of small purchases made by the other central agencies to satisfy individual field requirements, and of slow turnover items of low value. It raises the question of why so many centrally managed small purchases are necessary.

Recurring requirements for specific items or within a family of items (such as plumbing or electrical supplies used in maintenance) account for a major portion of small purchases. Difficulties in forecasting cumulative requirements for economical stock purchases or in

2 Public Law 85-800, 72 Stat. 966, 41 U.S.C. 252, 10 U.S.C. 2304 (1970).

3 FPR 1-3.6; ASPR 3-600. Individual orders against indefinite quantity contracts also are considered to be small purchases, although the basic contract may have resulted from formal advertising.

establishing definitive call contracts generally result in satisfying each requirement as it occurs. The requirements of formal advertising for purchases over $2,500 inhibit the consolidation of individual purchases.

The $2,500 statutory ceiling on the use of small purchase procedures is regarded as unrealistic by virtually every agency and procuring activity. The most vocal critics are field activities that are limited in negotiation authority to the small purchase exception.

Comments from agencies and field activities indicate that if the ceiling were raised to an amount generally identified as $10,000, the Government would achieve large administrative savings. The arguments for this increase are that the value of the dollar has declined since the ceiling was established and that ex