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(c) The product or service is not and cannot be made available in the private sector and is available from a Federal source.

Take all practical steps to encourage and develop additional private sources in the unlikely event that sufficient competitive sources are not available in the private sector. Only as a last resort consider in-house performance in comparison to the private sector. (Offered in lieu of Commission recommendations 23, 24, 25, and 26.) 1-63, 187

Dissenting Recommendation 3. Establish a 15-percent cost differential favoring the private sector over ongoing activities. Of this figure, ten percent would be in support of the general policy of reliance on the private sector. 1-65, 188

Chapter 7

Timely Financing of Procurement

27. Initiate effective measures to make procurement funds available to the procuring activities in a timely manner.

(a) The executive branch should eliminate delays in the submission of authorization and appropriation requests.

(b) Congress should eliminate delays in its consideration of requests. Among the techniques which hold promise of providing substantial improvement, we believe each of the following deserves serious consideration by the Congress:

(1) Making greater use of authorization statutes covering periods of two years or

more.

(2) Making greater use of authorizing legislation covering program objectives rather than annual segments of work.

(3) Making greater use of appropriations for a period longer than one fiscal year. (4) Changing the fiscal year from July 1June 30 to October 1-September 30. [One Commissioner dissents.] 4-204, 205

(c) The executive branch and its agencies should assure that apportionment, allocation, and allotment of appropriated funds are

promptly made available to the procuring activities. 1-67, 188

Chapter 8

Selected Areas in the Acquisition Process

28. Establish Government-wide principles on allowability of costs. 1-76, 188

29. Establish procedures for a single, final overhead settlement binding on all Federal contracts at a given contractor location.

1-77, 188

30. Develop uniform Government-wide guidelines for determining equitable profit objectives in negotiated contracts. The Office of Federal Procurement Policy should take the lead in this interagency activity. The guidelines should emphasize consideration of the total amount of capital required, risk assumed, complexity of work, and management performance.

1-77, 188

31. Evaluate procurement negotiation procedures on a continuing basis to compare results obtained in completed contracts with original objectives. This evaluation should take place Government-wide. 1-78, 188

32. Establish contract payment offices to make payments for all Federal agencies in each of the ten Federal regional areas. This could be accomplished by a lead agency designated to formulate standard procedures to implement this recommendation. 1-79, 188

33. Establish standards and criteria for estimating costs and benefits of product data requirements. The need for product data should be determined on the basis of cost-benefit analyses. Selective after-the-fact reviews should be used as a basis for eliminating unnecessary requirements. 1-81, 188

34. Establish Government-wide criteria for management systems which are prescribed for use by contractors, including standards for determining mission-essential management data requirements. 1-82, 188

35. Provide new incentives to stimulate contractor acquisition and ownership of production facilities, such as giving contractors additional profit in consideration of contractor-owned facilities and, in special cases, by guaranteeing contractors full or substantial amortization of

their investment in facilities specially acquired for Government production programs.

1-86, 188

36. Enact legislation to authorize negotiated sale of surplus elephantine tools (such as heavy machine tools) and of equipment which is "excess to Government ownership but not to Government requirements," with adequate protection to the Government for its future needs when competition is not feasible. While the lack of such authority now appears to be a problem only for the Department of Defense, to provide for future contingencies the legislation should cover all agencies. 1-87, 189; 4-205

37. Establish a Government-wide policy for the review and approval of cost-type prime contractor procurement systems and transactions.

Chapter 9

Procurement of Professional Services

1-93, 189

38. The procurement of professional services should be accomplished, so far as practicable, by using competitive proposal and negotiation procedures which take into account the technical competence of the proposers, the proposed concept of the end product, and the estimated cost of the project, including fee. The primary factors in the selection process should be the professional competence of those who will do the work, and the relative merits of proposals for the end product, including cost, sought by the Government. The fee to be charged should not be the dominant factor in contracting for professional services. 1-98, 189

Chapter 10

Field Contract Support

39. Establish a program to coordinate and promote interagency use of contract administration and contract audit services; and use, to the fullest extent possible, for comparable contract support requirements, the services of those Federal agencies charged with performing designated support services for the general public at contractors' facilities. 1-103, 189

40. Transfer all plant cognizance now assigned to the military departments to the De

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technical and managen.nt capabilites in laboratories by:

(a) Clarifying the assigned roles of the laboratories;

(b) Providing training and temporary assignment of technical manpower to intra-agency and interagency program management offices and regulatory bodies;

(c) Undertaking test and evaluation (T&E) of conceptual design, hardware, and systems that are proposed, designed, and built by private sources; and

(d) Maintaining technical competence by continuing to conduct basic and applied research and development projects. 2-14, 64

5. Continue the option to organize and use FFRDCS to satisfy needs that cannot be satisfied effectively by other organizational resources. Any proposal for a new FFRDC should be reviewed and approved by the agency head and special attention should be given to the method of termination, including ownership of assets, when the need for the FFRDC no longer exists. Existing FFRDCS should be evaluated by the agency head periodically (perhaps every three years) for continued need.

2-16, 64

6. Monitor the progress of the NSF/NBS experimental R&D incentives program and actively translate the results of this learning into practical agency application. 2-21, 64

Chapter 4

Procurement Policy

7. Eliminate restraints which discourage the generation and acceptance of innovative ideas through unsolicited proposals. 2-25, 64

8. Eliminate cost sharing on R&D projects, except in cases where the performer of the project would clearly benefit, e.g., through economic benefits on commercial sales. Decisions with respect to the placement of R&D contracts or grants should not be influenced by potential involvement in cost sharing.

2-26, 64; 4-205

9. Eliminate recovery of R&D costs from Government contractors and grantees except under unusual circumstances approved by the agency head. 2-28, 64; 4-205

10. Recognize in cost allowability principles that independent research and development (IR&D) and bid and proposal (B&P) expenditures are in the Nation's best interests to promote competition (both domestically and internationally), to advance technology, and to foster economic growth. Establish a policy recognizing IR&D and B&P efforts as necessary costs of doing business and provide that:

(a) IR&D and B&P should receive uniform treatment, Government-wide, with exceptions treated by the Office of Federal Procurement Policy.

(b) Contractor cost centers with 50 percent or more fixed-price Government contracts and sales of commercial products and services should have IR&D and B&P accepted as an overhead item without question as to amount. Reasonableness of costs for other contractors should be determined by the present DOD formula with individual ceilings for IR&D and B&P negotiated and trade-offs between the two accounts permitted.

(c) Contractor cost centers with more than 50 percent cost-type contracts should be subject to a relevancy requirement of a potential relationship to the agency function or operation in the opinion of the head of the agency. No relevancy restriction should be applied to the other contractors. 2-31, 64; 4-205, 206

Dissenting Position 1

Dissenting Recommendation 10. Recognize in cost allowability principles that IR&D and Bid and Proposal expenditures are in the Nation's best interests to promote competition (both domestically and internationally), to advance technology, and to foster economic growth. Establish a policy recognizing IR&D and B&P efforts as necessary costs of doing business and provide that:

(a) IR&D and B&P should receive uniform treatment, Government-wide, with exceptions treated by the Office of Federal Procurement Policy.

(b) Allowable projects should have a potential relationship to an agency function or operation in the opinion of the agency head. (These will be determined in the negotiation

of advance agreements with contractors who received more than $2 million in IR&D and B&P payments during their preceding fiscal year.)

(c) Agency procurement authorization and appropriation requests should be accompanied by an explanation as to criteria established by the agency head for such allowances as well as the amount of allowances for the past year.

(d) A provision should be established whereby the Government would have sufficient access to the contractor's records for its commercial business to enable a determination that IR&D and B&P costs are allowable. (e) In all other cases, the present DOD procedure of a historical formula for reasonableness should be continued.

(f) Nothing in these provisions shall preclude a direct contract arrangement for specific R&D projects proposed by a contractor. 2-39, 65

Dissenting Position 2

[One Commissioner believes that in addition to the prime and dissenting recommendations advanced above, additional mechanisms exist which if explored adequately may offer reasonably acceptable solutions to the IR&D dilemma. [See Chapter 4 for full text of his views.] 2-40, 65

Chapter 5

Procurement Procedures

11. Encourage the use of master agreements of the grant and contract types, which when executed should be used on a work order basis by all agencies and for all types of performers. 2-46, 65

12. When a potential organizational conflict of interest exists and use of a hardware exclusion clause is proposed, require a senior official of the procurement agency to examine the circumstances for benefits and detriments to both the Government and potential contractors, and reach and justify his decision to contract with either no restraint, partial restraint, or strict hardware exclusion provisions.

2-47

PART C

ACQUISITION OF MAJOR SYSTEMS

Chapter 3

Needs and Goals for New Acquisition Programs

1. Start new system acquisition programs with agency head statements of needs and goals that have been reconciled with overall agency capabilities and resources.

(a) State program needs and goals independent of any system product. Use long-term projections of mission capabilities and deficiencies prepared and coordinated by agency component(s) to set program goals that specify:

(1) Total mission costs within which new systems should be bought and used

(2) The level of mission capability to be achieved above that of projected inventories and existing systems

(3) The time period in which the new capability is to be achieved.

(b) Assign responsibility for responding to statements of needs and goals to agency components in such a way that either:

(1) A single agency component is responsible for developing system alternatives when the mission need is clearly the responsibility of one component; or

(2) Competition between agency components is formally recognized with each offering alternative system solutions when the mission responsibilities overlap.

2-77, 109, 188

2. Begin congressional budget proceedings with an annual review by the appropriate committees of agency missions, capabilities, deficiencies, and the needs and goals for new acquisition programs as a basis for reviewing agency budgets. 2-78, 109, 188

Chapter 4

Exploring Alternative Systems

3. Support the general fields of knowledge that are related to an agency's assigned responsibilities by funding private sector sources and Government in-house technical centers to do: (a) Basic and applied research

(b) Proof of concept work

(c) Exploratory subsystem development. Restrict subsystem development to less than fully designed hardware until identified as part of a system candidate to meet a specific operational need. 2-78, 133, 188

4. Create alternative system candidates by: (a) Soliciting industry proposals for new systems with a statement of the need (mission deficiency); time, cost, and capability goals; and operating constraints of the responsible agency and component (s), with each contractor free to propose system technical approach, subsystems, and main design features.

(b) Soliciting system proposals from smaller firms that do not own production facilities if they have:

(1) Personnel experienced in major development and production activities.

(2) Contingent plans for later use of required equipment and facilities.

(c) Sponsoring, for agency funding, the most promising system candidates selected by agency component heads from a review of those proposed, using a team of experts from inside and outside the agency component development organization. 2-80, 133, 188

5. Finance the exploration of alternative systems by:

(a) Proposing agency development budgets according to mission need to support the exploration of alternative system candidates. (b) Authorizing and appropriating funds by agency mission area in accordance with review of agency mission needs and goals for new acquisition programs.

(c) Allocating agency development funds to components by mission need to support the most promising system candidates. Monitor components' exploration of alternatives at the agency head level through annual budget and approval reviews using updated mission needs and goals. 2-80, 133, 189

6. Maintain competition between contractors exploring alternative systems by:

(a) Limiting commitments to each contractor to annual fixed-level awards, subject to annual review of their technical progress by the sponsoring agency component.

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