CHAPTER 11

The magnitude of the Government's outlays for procurement and grants creates opportunities for implementing selected national policies. The opportunities lie in the disciplining effect which the Government can exert on its contractors and grantees. It can require, for example, that suppliers maintain fair employment practices, provide safe and healthful working conditions, pay fair wages, refrain from polluting the air and water, give preference to American products in their purchases, and promote the rehabilitation of prisoners and the severely handicapped. However, the pursuit of these opportunities also creates problems in the procurement process. The enormity of the dollar figure involved ($57.5 billion for direct procurement and $39.1 billion for grants in fiscal 1972) makes the procurement process appear to be an attractive vehicle for achieving social and economic goals. The procurement process also draws attention because its flexible regulatory system makes it readily adaptable to the implementation of diverse policies. However, its effectiveness in accomplishing such goals is perhaps overrated; for example, even though a large share of the Government procurement dollar is spent for commercial products, sales to the Government amounted to less than two percent of the Nation's total commercial sales in 1967.3

1 See Appendix D.

1

U.S. Office of Management and Budget, Special Analyses of the United States Government, Fiscal Year 1978, table P-9, Federal Aid to State and Local Governments, p. 254.

11967 Census of Business, vol. III, Wholesale Trade Subject Reports, table I, Wholesale Trade Sales by Class of Customer, 1969, D 4-1. indicates sales to the Government constitute about 1.6 percent of the total sales in wholesale trade.

The problems engendered by use of the procurement process in the implementation of national goals are that procurement becomes more costly and time-consuming with the addition of each new social and economic program. The cumulative effect of programs already imposed on the procurement process and the addition of those contemplated could overburden it to the point of threatening breakdown. At the very least, the imposition of national goals and objectives on the procurement process, as beneficial as they may be, add numerous obligations and administrative complexities for Government contracting officers. Legitimate questions arise as to how much of the extra costs and other burdens of social and economic programs should be absorbed in the procurement process and how much should be supported by more explicit means.

The procurement process is only one means, and in the main a supplemental one, for achieving social and economic objectives. The Government grants tax benefits, licenses, and privileges; makes direct grants of money and equipment; and uses other instruments to achieve national purposes by encouraging certain types of conduct and discouraging others.

The cost burden in extra time and money of pursuing nonprocurement objectives through the procurement process cannot be precisely measured, although we can say with certainty that these costs are significant. For some programs, incremental costs of administration can be identified, as when a line item is requested for administration of fair employment prac

4

tices or for contract awards to minority enterprises. They can also be identified when, as in the case of the Noise Control Act, specific amounts are authorized for the payment of price differentials in the purchase of low-noiseemission products." In other cases, costs are absorbed within the procurement process itself, without any ready means to identify them.

In a larger sense, it may be cost-effective for the Government and society at large to use the leverage of the procurement process for achieving selected national objectives. It is doubtful that such achievement is costeffective for the procurement process itself. Herein lies the dilemma. We do not believe this dilemma can be resolved by simply disengaging the procurement process from the whole complex of other objectives attached to it through many decades. However, there are limits to the number of such objectives that the procurement process can support, and both Congress and the Executive should consider the consequences for procurement each time a law is passed or an Executive order is issued which mobilizes the procurement process for some other purpose-regardless of the worthiness of that purpose.

Our mandate is to improve the procurement process, not to assess the value or relative importance of all the nonprocurement objectives associated with that process. However, our statutory charter directs us to consider the problem of conforming Government procurement policies and programs, wherever appropriate,

4 Budget figures for fiscal 1972 indicated that the procurement agencies budgeted approximately $24 million for the enforcement of nondiscrimination in employment. This figure does not reflect the time and effort of procurement personnel, who have implementation responsibilities, or of contractors, whose costs are ultimately borne by the Government.

The fiscal 1972 budget of the Small Business Administration contained $8 million for "business development expense," that is, the price differential paid small business enterprises over what the goods or services could be obtained for elsewhere. (U.S. Congress, House, Select Committee on Small Business, hearings on Government Minority Small Business Programs before the Subcommittee on Minority Small Business Enterprise, 92d Cong., 2d sess., 1972, vol. 2, p. 395.)

Public Law 92-574.

Section 15 of the act provides for the prequalification and certification of low-noise-emission products and also provides that the Government is to acquire certified low-noise-emission products for its use in lieu of other products if the Administrator of General Services determines that the procurement costs of low-noise-emission products are not more than 125 percent of the retail price of the least expensive products for which they are substitutes. It authorizes appropriation of $1 million for fiscal 1973 and $2 million for each of the two succeeding fiscal years for the payment of price differentials and to carry out the purposes of section 15.

to other established Government policies and programs. Our studies in this area necessarily have been limited because of the wide-ranging impact of procurement on everything else that the Government does or supports. Our recommendations recognize the dilemma mentioned earlier. We do not propose to divorce the procurement process from other national objectives. We do believe, however, that more deliberate attention and analysis should be given to the nonprocurement obligations placed on the procurement process and to the consequences that are adverse to efficient and economic performance.

Nature and Scope

One of the earlier attempts to bring about social change through the procurement process was the enactment of the Eight Hour Laws, a series of statutes setting standards for hours of work." The eight-hour day was first extended to workers employed by contractors and subcontractors engaged in Federal projects in 1892. In 1905 an Executive order by President Theodore Roosevelt prohibited the use of convict labor on Government contracts,10 thereby implementing through the procurement process an 1887 statute prohibiting the hiring-out of convict labor. A list of several social and economic programs implemented through the procurement process is set forth in table 1. Each of these programs results in the addition of a clause or clauses to Federal contracts or in the requirement for a certification, notification, or some other administrative procedure related to obtaining bids or proposals. Some problems associated with the most significant of these programs are summarized in table 2.

8 Our detailed studies have been limited to statutes, Executive orders, or other pronouncements which are implemented solely or principally through the procurement process. Many other social and economic measures which are of general application also have an impact on the procurement process in that procuring agencies are required to take action to assure that such measures are not violated in connection with their procurements. The current wage and price controls are an example.

• These confusing and overlapping work standard statutes were superseded on Aug. 13, 1962, by the Work Hours Act of 1962, 76 Stat. 357.

10 Executive Order 325A, An Order Forbidding the Hiring of Prisoners by Contractors to the U.S. Government, May 18, 1905.

An awareness of the potential of the Government contract as a means for promoting social and economic objectives developed during the depression of the 1930's. In the face of high unemployment and depressed wages, Congress enacted the Buy American Act 11 and most of the labor standards legislation relating to public contracts, including the Davis-Bacon Act, 12 the Walsh-Healey Public Contracts Act, 13 and the Copeland "Anti-Kickback" Act." While the Buy American Act, with its procurement preference for domestically-made products, sought to protect American industry and promote jobs, the labor standards legislation was aimed largely at protecting workers from exploitation by unscrupulous employers. This period also produced the Federal Prison Industries Act 15 and the Wagner-O'Day Act 16 which established preferences for products produced by Federal prisoners and by the blind.

The exigencies of war mobilization also have given impetus to the use of the Government contract for accomplishing objectives other than procurement. Executive orders requiring nondiscrimination in employment by Government contractors are among measures which originated during World War II when maximum use of the Nation's manpower and resources was a chief concern." This concern also gave birth to the program begun in 1952 for placing Government contracts in labor surplus areas.18 Certain of these programs gained new emphasis in the late 1960's as part of the broader Government effort to provide more jobs in the inner cities. In 1967, the procurement preference for "areas of persistent or substantial labor surplus" was expanded to include a new preference category, "sections of concentrated unemployment or underemployment," aimed at reducing urban unemployment.19 Similarly, although Section 8(a) of the Small Business Act 20 is aimed at small business generally, it has become the instrument of

"141 U.S.C. 10a-10d (1970).

40 U.S.C. 276a-276a-5 (1970).

41 U.S.C. 35-45 (1970).

18 U.S.C. 874; 40 U.S.C. 276c (1970).

18 U.S.C. 4124 (1970).

41 U.S.C. 46-48 (1970).

"Executive Order 8802, 3 CFR 957 (1938-1943 Comp.).

"Defense Manpower Policy No. 4, 32A CFR 33 (1972). Ibid.

15 U.S.C. 637(a) (1970).

a special Government program to create and upgrade minority-owned business firms.

The 1960's was also a period of expanded labor-related legislation designed to close some of the gaps in the legislation of the 1930's. An amendment to the Davis-Bacon Act in 1964 broadened the prevailing wage concept to include certain fringe benefits as well as actual wages.21 The Service Contract Act of 1965 22 extended to service employees of contractors the wage and labor standard policies established by the Davis-Bacon Act and the Walsh-Healey Public Contracts Act. Like the Walsh-Healey Act, this law also required safe and sanitary work conditions for service employees. In 1969, the Contract Work Hours Standards Act was amended to give the Secretary of Labor authority to promulgate safety and health standards for workers on construction contracts.23

Today, the procurement process increasingly is being recognized as a means of implementing Government policies. New and diverse national programs are being grafted upon the process at a rapid pace. For example, it was recently used to help meet the employment needs of Vietnam veterans by requiring Government contractors and subcontractors to list employment openings with appropriate State employment service offices 24 and to promote training opportunities in construction crafts by requiring the employment of apprentices and trainees on Federal construction projects.25 New proposals are currently being advanced to incorporate into the process the Nation's efforts to mitigate air and water pollution.

26

Other social and economic measures that will be implemented through the procurement process are the Noise Control Act of 1972 and the Vietnam Veterans Readjustment Assistance Act of 1972.27 The Noise Control Act estab

21 Act of July 2, 1965, Public Law 88-349, 78 Stat. 238.

22 Public Law 89-286, 79 Stat. 1034. The purpose of the bill as set forth in S. Rept. 798, 89th Cong., 1st sess., Sept. 30, 1965, was "to provide labor standards for the only remaining category of Federal contracts to which no labor standards protection applies." 23 Public Law 91-54.

24 Executive Order 11598, 3 CFR 161 (Supp. 1971).

25 Statement by the President on "Combating Construction Inflation and Meeting Future Construction Needs," Mar. 17, 1971 (6 Weekly Comp. of Pres. Doc. 376 (1970), art. III, sec. B.4.

26 In particular, see the Clean Air Act, 42 U.S.C. 1857 et seq. (1970) and Executive Order 11602 of June 29, 1971, pursuant thereto, 3 CFR 167 (Supp. 1971); the Water Quality Improvement Act of 1970, 33 U.S.C. 1151, 1151 note, 1155, 1156, 1158, 1160-1172, 1174 (1970).

27 Public Law 92-540.

Program

Buy American Act*

Authority

41 U.S.C. 10a-10d

Purpose

To provide preference for domestic materials over foreign materials

To provide preference for domestic manufactures in construction of diplomatic and onsular establishments Το restrict U.S. Forest Service from purchasing twine manufactured from materials of foreign origin To require the purchase of U.S. end products for the military assistance program

To restrict the Department of Defense from purchasing specified classes of commodities of foreign origin

To prohibit members of Congress from benefiting from any Government contract

To prohibit contracting with a company convicted of criminal violation of air pollution standards

To prohibit discrimination in Government contracting

To prohibit kickbacks from employees on public works

To prescribe minimum wage, hours, age, and working conditions for supply contracts

To prescribe minimum wages, benefits, and work conditions on construction contracts in excess of $2,000 To prescribe wages, fringe benefits, and work conditions for service contracts To prescribe eight-hour day, forty-hour week, and health and safety standards for laborers and mechanics on public works

To establish minimum wage and maximum hours standards for employees engaged in commerce or the production of goods for commerce

To prohibit use of appropriated funds for the construction of any Navy vessel in foreign shipyards

To restrict use of appropriated funds to purchase, lease, rent, or otherwise acquire foreign-manufactured buses To encourage dissemination of Government documents containing product information of possible use to consumers To prohibit use of appropriated funds for payment of price differential on contracts made to relieve economic dislocation

To preserve a mobilization base for manufacture of jewel bearings