Key Legal Requirements for Executive Agencies in Entering Procurement Contracts

Key Legal Requirements for Executive Agencies in Entering Procurement Contracts

February 23, 2015
Key Legal Requirements for Executive Agencies in Entering
Procurement Contracts
Executive agencies that seek to obtain supplies or services
must develop their specifications “in such a manner as is
for their own direct benefit or use from nongovernmental
necessary to obtain full and open competition,” and may
sources are subject to various legal requirements. Certain
include restrictive provisions or conditions only to the
requirements of generally government-wide applicability
extent necessary to satisfy agency needs or as authorized by
can be found in the provisions of the Armed Services
law. See 10 U.S.C. §2305(a); 41 U.S.C. §3306(a). Notices
Procurement Act codified in Title 10 of the United States
of proposed contracts must generally be made publicly
Code; the parallel (if not always identical) provisions of the
available for set periods of time. See 48 C.F.R. Subpart 5.2.
Federal Property and Administrative Services Act codified
Agencies must evaluate sealed bids and competitive
in Title 41; and the Federal Acquisition Regulation (FAR).
proposals based solely on the factors specified in the
However, numerous agency-specific requirements are also
solicitation, which generally must include contractors’ “past
provided for in statutes, regulations, or policy guidance.
performance” in the case of negotiated procurements.
This “In Focus” briefly notes key requirements, and
provides citations to CRS reports that discuss these
See CRS Report R40516, Competition in Federal
requirements in more detail.
Contracting: Legal Overview, by Kate M. Manuel; CRS
Report R41562, Evaluating the “Past Performance” of
See generally CRS Report R42826, The Federal
Federal Contractors: Legal Requirements and Issues, by
Acquisition Regulation (FAR): Answers to Frequently
Kate M. Manuel.
Asked Questions, by Kate M. Manuel et al.
Competition in Selecting Awardee
Limitations on Contracting Out
Particular Supplies or Services
When selecting vendors, agencies are generally required to
obtain “full and open competition through the use of
Agencies must ensure that they may acquire the supplies or
competitive procedures” unless other procedures are
services in question from the private sector. Various
expressly authorized by statute or special circumstances
provisions of federal law bar agencies from contracting out
permit “other than full and open competition” (e.g., the
“inherently governmental functions,” or functions that are
necessary supplies and services are only available from one
“so intimately related to the public interest” as to require
responsible source, the agency head determines it is
performance by government employees. There are also
“necessary in the public interest” to use other than
restrictions, although generally not outright prohibitions, on
competitive procedures). However, various provisions of
contracting out other functions, such as “functions closely
law expressly authorize agencies to use other than full and
associated with inherently governmental functions” and
open competition in order to promote contracting with
“critical functions.” In addition, in recent years, agencies
small businesses in particular (e.g., 15 U.S.C. §637(a)).
have been barred from conducting the “public-private
competitions” under Office of Management and Budget
The issuance of orders under “multiple award contracts”
(OMB) Circular A-76 that are generally required for
(i.e., contracts held by more than one vendor) is not subject
agencies to arrange for contractor performance of
to “full and open competition,” as described above. Instead,
commercial functions performed by federal employees.
all vendors holding the contract must generally be given a
“fair opportunity to be considered” for orders valued in
See CRS Report R42325, Definitions of “Inherently
excess of $3,000 (e.g., 48 C.F.R. §16.505).
Governmental Function” in Federal Procurement Law and
Guidance, by Kate M. Manuel; CRS Report R42039,
See CRS Report R40516, Competition in Federal
Performance of Inherently Governmental and Critical
Contracting: Legal Overview, by Kate M. Manuel; CRS
Functions: The Obama Administration’s Final Policy
Report R42981, Set-Asides for Small Businesses: Legal
Letter, by Kate M. Manuel, Elaine Halchin, and Erika K.
Requirements and Issues, by Kate M. Manuel and Erika K.
Lunder; CRS Report R40854, Circular A-76 and the
Lunder.
Moratorium on DOD Competitions: Background and Issues
for Congress, by Valerie Bailey Grasso.
Selection of Contract Type
Describing and Soliciting Requirements
The FAR recognizes seven broad types of contracts and
other agreements, including fixed-price, cost-
While agencies generally have broad discretion to
reimbursement, and incentive contracts. In a few cases,
determine their “requirements” (i.e., the supplies and
federal law expressly restricts the use of particular types of
services they seek to procure) based on their needs, they
contracts. Namely:
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Key Legal Requirements for Executive Agencies in Entering Procurement Contracts
• the use of cost-plus-a-percentage-of-cost contracts—
debarred or suspended (collectively known as excluded)
which provide for the government to reimburse
from government contracts. 48 C.F.R. §404. Debarment
contractors’ costs and pay them a percentage of these
lasts for a prescribed period of time, generally reflecting the
costs as an allowance for profit—is prohibited;
perceived seriousness of the vendor’s conduct, while
•
suspension generally lasts for the duration of any
the use of any type of cost-reimbursement contract to
investigation or litigation involving the contractor.
acquire “commercial items” is prohibited; and
• contracts resulting from “sealed bidding” must be firm-
The agency must also determine that the vendor is
fixed-price or fixed price with an economic adjustment.
affirmatively “responsible” prior to awarding the contract.
To be deemed to be responsible, the contractor must have
In other cases, agencies may select which type of contract
“adequate financial resources” and a “satisfactory
to use in particular procurements, subject to the FAR’s
performance record,” among other things.
guidance (e.g., time-and-materials contracts may be used
only when, among other things, the parties cannot
CRS Report R40633, Responsibility Determinations Under
accurately estimate the extent or duration of the work).
the Federal Acquisition Regulation: Legal Standards and
Procedures, by Kate M. Manuel; CRS Report RL34753,
See CRS Report R41168, Contract Types: Legal Overview,
Debarment and Suspension of Government Contractors:
by Kate M. Manuel.
Legal Overview, by Kate M. Manuel
Preferences for Domestic Content or on
Inclusion of Specific Contract Terms
Other Grounds
Certain terms must be included in any contract that the
In structuring their procurements, agencies are required to
government enters, and agencies are, in some cases,
give “preference” to certain supplies, services, or vendors.
prohibited from entering the contract unless the vendor
For example, where applicable, the Buy American Act bars
agrees to specific terms (e.g., terms obligating the vendor to
agencies from acquiring or using end products or
subcontract certain amounts and percentages of the work to
construction materials that are not mined, produced, or
small businesses, 15 U.S.C. §637(d)(4)(D)). Such required
manufactured in the United States “substantially all” from
terms address a range of topics, including payment of
components that are similarly mined, produced or
locally prevailing wages and fringe benefits (e.g. 48 C.F.R.
manufactured in the United States, unless specified
Subparts 22.4 & 22.10); antidiscrimination and affirmative
circumstances exist (e.g., the cost of domestic materials is
action obligations (e.g., 48 C.F.R. Subpart 22.8); and
“unreasonable”). Various provisions of law similarly
notification of employee rights under the National Labor
require or encourage the acquisition of supplies with
Relations Act (e.g., 48 C.F.R. Subpart 22.16).
specific environmental attributes, including biobased
products (7 U.S.C. §8102); Energy Star® and energy-
Protests of Solicitations and Awards
efficient products (48 C.F.R. §23.203), and recovered-
content products (42 U.S.C. §6962), among others.
Agencies could face challenges to the terms of their
solicitations, or proposed contract awards, in the form of
Federal law also establishes various preferences for small
“bid protests.” Such protests can be heard by the procuring
business vendors (48 C.F.R. Part 19); Federal Prison
agency, the Government Accountability Office (GAO), and
Industries (48 C.F.R. Subpart 8.6); the AbilityOne program
the U.S. Court of Federal Claims. The protester must show
for persons who are “blind or severely disabled” (48 C.F.R.
that the challenged agency action was arbitrary, capricious,
Subpart 8.7); and “local contractors” residing or doing
an abuse of discretion, or otherwise not in accordance with
business primarily in disaster zones (42 U.S.C. §5150).
the law to prevail on the merits. However, even if the
protester does not prevail on the merits, the filing of a
See CRS Report R43140, The Buy American Act—
protest could delay contract award or performance,
Preferences for “Domestic” Supplies: In Brief, by Kate M.
particularly in the case of protests timely filed with GAO—
Manuel; CRS Report R43354, Domestic Content
which often results in an automatic stay of contract award
Restrictions: The Buy American Act and Complementary
or performance. The agency could also opt to take
Provisions of Federal Law, by Kate M. Manuel et al.; CRS
corrective action on its own, without a judgment on the
Report R43633, The Federal Prison Industries: An Analysis
merits.
of Sales, FY1993-FY2013, by Nathan James.
See CRS Report R40228, GAO Bid Protests: An Overview
Avoiding Nonresponsible or Excluded
of Time Frames and Procedures, by Kate M. Manuel and
Contractors
Moshe Schwartz; CRS Report R40227, GAO Bid Protests:
Trends and Analysis, by Moshe Schwartz, Kate M. Manuel,
Agencies are required to take various steps to ensure that
and Lucy P. Martinez.
they do not enter contracts with vendors who have failed, or
are deemed likely to fail, to meet their obligations under
Kate M. Manuel, kmanuel@crs.loc.gov, 7-4477
federal law or government contracts. For example, agencies

must check the System for Award Management (SAM)
prior to awarding a contract to ensure that the vendor is not
IF10136
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