CHAPTER 1 Introduction From the time the Second Continental Congress established a Commissary General in 1775, Government procurement has commanded the attention of public officials and private citizens. All too often, the attention has focused on individual abuses rather than the overall system. In many respects, Government procurement is guided by the same considerations the Commissary General faced in 1775: maximize competition, obtain reasonable prices, and assure accountability of public officials for public transactions. Despite the similarity of principles, present-day purchasing agencies have additional problems. Huge and exotic systems to meet military and civilian needs; spiralling costs; and far-reaching economic and political effects of Government purchases complicate the Government procurement process and continually keep it before public and congressional attention.1 cerned about the effectiveness of procurement and the manner in which it is conducted. In establishing the Commission, Congress recognized that the annual expenditures for procurement and the attendant administrative costs are so great that even small improvements promise large rewards; that not only the Government but industry and ultimately the American people could benefit greatly from a full-scale study of the entire procurement proc ess. Procurement Expenditures The Commission estimates that in fiscal 1972 the Government contracted to spend $57.5 billion for goods and services. Savings of two percent on these contracts would have saved the American taxpayer more than $1 billion. THE NEED FOR THIS STUDY The extensive hearings 2 conducted by Congress on Public Law 91-129 indicated that: (1) the procurement process is overly complex, (2) patchwork solutions to procurement problems will no longer suffice, (3) Government procurement is important economically and politically in both its methods and goals, and (4) Congress and the public are deeply con 1 See Appendix G for an account of the "Historical Development of the Procurement Process." * U.S. Congress, House, hearings before a subcommittee of the Committee on Government Operations on H.R. 157, 90th Cong., 1st sess., 1967, on H.R. 474, 91st Cong., 1st sess., 1969; Senate, hearings before the Committee on Government Operations, 91st Cong., 1st Bess., 1969. Modernize and Simplify the System No systematic review of Government procurement has been undertaken since the First Hoover Commission in 1949 and the Second Hoover Commission Task Force in 1955, which was limited to military procurement. Neither of these bodies was devoted exclusively to studying the procurement process. In the meantime, numerous newly created departments and agencies have undertaken significant procurement activities in support of their programs, such as improving the Nation's transportation system, purifying the environ 'See Appendix D. ment, and providing adequate housing. The military arsenal continues to require multibillion dollar weapon systems, and undertakings of similar size and complexity are needed for space, nuclear power, and other technologically advanced programs. 5 Over the past 20 years, Government procurement has increased sixfold. Some 80,000 ' Federal employees are engaged in this process, and many more are employed in private industry. Despite new programs, spiralling growth. and complicated products, military and civilian procurements still are governed primarily under laws enacted more than 20 years ago—the Armed Services Procurement Act of 1947 and the Federal Property and Administrative Services Act of 1949. The procurement process as it has developed over the years has, in general, served the Nation well and should not be subject to blanket criticism. At the same time, it has developed in a piecemeal fashion. The magnitude of the outlays involved, the important program needs dependent on procurement, and the impact of procurement policies on the private sector underscore the importance of making certain that procurement operations are carried out as effectively and economically as possible. Better Coordination and Management The congressional hearings disclosed that procurement regulations, practices, and procedures are relatively uncoordinated and often inconsistent. The volume of expensive paperwork swells yearly, and procurement procedures grow more complicated with each passing day. New agencies grope for direction as they begin to establish procurement ground rules. As a result each one's rules may differ from those already used by older agencies or from those being developed by other new agencies. As the agencies generate new rules to control procurement and new devices to motivate contractors, Congress continues to receive an Legislative History of Commission on Government Procurement, Public Law 91-129, Nov. 26, 1969, prepared by Office of General Counsel, U.S. General Accounting Office, p. 19. "See Appendix E for summary of data developed through a questionnaire used by Study Group 5. • See note 2, supra. cussion that follows highlights only selected aspects. Economic Significance The $57.5 billion spent on procurement by the Government in fiscal 1972 represented about one-fourth of the budget (fig. 2), a truly formidable amount, particularly when combined with the estimated $39.1 billion expended through Federal grants. Procurement expenditures are thought to generate some three times their amount through the "multiplier" effect (secondary and related consumer spending). Thousands of Government activities are involved in acquiring products and services or supporting programs that affect millions of persons. The impact of Government procurement on the Nation's economic and social well-being is more far-reaching than even these figures suggest. The award of a major contract can stimulate the growth of States and localities; the withdrawal of a contract may cause the decline of long-established communities and enterprises; and the failure of a large Government contractor may plunge sizeable areas into economic hardship. Catalytic Role in Economy Federal procurement plays a catalytic and pacing role in bringing Government-developed standards and products into practical commercial use. These range from automobile safety standards and Apollo fire-resistant materials to solid-state computer components. Entire segments of industry have been spawned by technological breakthroughs and spinoffs from Government procurements for electronics, metallurgy, fuels, and lubricants. Social and Economic Implications The magnitude of Government procurement provides leverage which is used as an instrument for achieving national, social, and economic objectives that do not pertain directly Part F outlines a plan for improving the use of grants and contracts in Federal assistance programs. ing a long leadtime. This includes not only major weapon systems but also large commercial or Government buildings and other large but conventional undertakings. Because of their magnitude and because they do not contribute directly to the fulfillment of growing domestic needs, investments in major weapon systems inevitably are singled out for special scrutiny. Cost increases have been ascribed to early planning deficiencies, organizational rivalries, abnormal inflation, changes in design to meet new threat assessments or to counter obsolescence, weak contractor management, Government interference, contractors underestimating in order to "buy-in" to the ultimate production stages, overoptimism by program advocates, and premature progression toward more costly stages of development without adequate technical validation. The degree to which these factors contribute to cost growth is considered in the discussion of major system acquisition, Part C. Source Selection and Competition The procedures for selecting a contractor for a major system frequently are challenged on grounds of integrity, priority, or competence. Most major systems and many lesser procurements are subjected to such challenges. Sometimes the Government is charged with disregarding its own selection criteria to assure preservation of a needed industrial source; at other times, it is charged with conveying or transfusing information on the superior technical characteristics of one bidder to his competitor; and still other charges allege that the Government uses techniques that inhibit true competition. Accounting Practices and Profits During periods of crisis, the profits of major contractors often come under public scrutiny. Such scrutiny has been particularly close in the past few years. Concern over total procurement costs has led to various attempts to com pare profits of defense contractors with those of other commercial enterprises. It also has led to enactment of a new law intended to promote more uniform cost accounting standards in order that costs and profit comparisons can be made with greater ease and validity. The Industrial and Technological Base The United States recognizes that industrial preparedness for defense is a major deterrent to war. In the post-World War II era, planning for industrial preparedness has become extremely complicated since rapidly evolving technology has accelerated the rate of obsolescence of existing equipment. The weapons build-up caused by international tensions of the past two decades and the space and nuclear competitions have maintained and nurtured the technological and industrial base. However, recent fluctuations, adjustments, and cutbacks in almost every field of technological and industrial activity raised serious questions regarding the future viability of the base. Characteristics of the Private Enterprise System Coupled with concerns over the industrial base are questions related to the traditional reliance of the Government on the private sector of the economy. The diversity of Government needs has compelled it to develop new purchasing methods in order to optimize the blending of public and private skills and resources. For example, the Government furnishes industry with facilities such as machine tools or heavy equipment, and provides advance funding, thus relieving industry of many of the normal risks of commercial enterprise. The degree of risk industry assumes is debated continually; particularly with respect to firms that are Government-fostered, partially Government-protected, and which, in some respects, operate outside of the traditional free enterprise concept. One important issue is the amount of profit that should be permitted on capital invested in this environment as contrasted with return on risk capital in the regular commercial world. bound by legal, procedural, and social program requirements not generally applicable to other customers. Contract Disputes and Remedies Disputes and protests result from the award, performance, and administration of Government contracts. Such disputes must be resolved fairly, efficiently, and economically. The system for resolving contract disputes is said. to be too time-consuming and costly for resolution of smaller claims and is often said to lack procedural safeguards. Protesting a contract award is allegedly confused by a multiplicity of forums and lack of an effective remedy for those with valid protests. GOVERNMENT NEEDS AND RESOURCES Types of Procurement The Government as a consumer participates in thousands of activities that involve millions of people and each year spends billions of dollars for the purchase or development of products and services. Many of these products and services are consumed by Government employees and military personnel, but billions of dollars go to buy "program support" in fields such as atomic energy development, scientific research, space technology, environmental improvement, housing, transportation, health protection, and many others. An increasing number of acquisitions consist of major military or civilian systems of vital importance to the Nation's defense, technological advancement, and future well-being. Because the Government usually is the only customer for such major systems and the number of suppliers is limited, the normal rules of the commercial market do not apply fully. Thousands of products, off-the-shelf or specially fabricated, and services are acquired from the commercial marketplace. Even here, the rules are partially tailored to the unique character of the Government as a customer, Alternative Sources To satisfy its needs, the Government may rely on private industry, the academic community, or other nonprofit organizations. It may also resort to in-house facilities run by Government employees, or it may turn to notfor-profit organizations established and funded by the Government but operating in a manner that is neither wholly Government nor wholly private enterprise. Traditionally, the criticality of the need and the "relative cost" to the Government of relying on private enterprise rather than Government sources have been the primary factors in deciding on the resources to be used. Businessmen worry over what they believe is a trend, particularly in a period of cutback or belt-tightening, to retain work "in-house" that was previously performed commercially. It is alleged that this trend is encouraged by Government policy that favors performance in-house. However, Government Government employee groups are concerned that there is a trend toward increased use of contracts for services, especially when Government personnel ceilings limit hiring. BLUEPRINT FOR ACTION As may be gathered from the foregoing discussion, Government procurement is more than a purchasing function. It is affected by a wide range of Government needs influenced by numerous social, political, and economic activities-all of which act and react on each other. The Commission tried to identify the principal problem areas and the concerns of Congress, the public, and the procurement community itself. We outline now the direction of our proposals for improving the process in accordance with the mandate of Congress. |