DoD Removes "Reasonable Expectation" Rule from Adequate Price Competition

The FAR (Federal Acquisition Regulation) has been amended to eliminate the so-called "Reasonable Expectation" rule when it comes to awarding contracts based on adequate price competition for DoD, NASA, and the Coast Guard procurements.

The Reasonable Expectation rule provided that a price is based on adequate price competition when there was a reasonable expectation, based on market research or other assessment, that two or more responsible offerors, competing independently, would submit priced offers in response to the solicitation's expressed requirement, even though only one offer is received from a responsible offeror. There's more to the rule but that covers the essence of it. Agencies other than DoD, NASA, and the Coast Guard can still use the "reasonable expectation" rule in awarding contracts based on price competition.

This tightening of the adequate price competition rules was brought about by the FY 2017 National Defense Authorization Act. Evidently, Congress had some concerns over the potential abuse of the reasonable expectation rule and took action to eliminate it - at least for DoD, NASA, and the Coast Guard. Our limited research did not uncover any anecdotal evidence of abuse of the reasonable expectation rule. In fact, one commentator writing in response to the rule after it was first proposed stated that it was unclear what problem this rule was trying to resolve. The respondent urged reconsideration of the regulation until the actual problem can be identified and targeted with an expected outcome that proves an acceptable solution.

The Defense Department is working on a rule to implement this at the subcontractor level.

DoD Proposes to Double the CPSR Threshold

The Defense Department has issued a proposed rule to increase the CPSR (Contractor Purchasing System Review) threshold from $25 million to $50 million in sales to the Government.

Currently, there are about 670 defense contractors that are subject to DCMA's (Defense Contract Management Agency) CPSR reviews (at least) once every three years. Increasing the threshold from $25 million to $50 million will reduce that number by 20 percent or 133 contractors.

The Defense Department maintains that the $25 million threshold has not been increased since 1996 and by doubling it now, roughly equates to inflation over that same time period. Under the proposed rule, contracting officers will retain the flexibility to lower that threshold if determined to be in the best interest of the Government.

The proposed rule will certainly reduce the burden on small contractors and, according to DCMA, will allow a more efficient and effective use of CPSR resources at larger contractors where more taxpayer dollars are at risk. Larger contractors, we're certain, are thrilled at the prospect of additional oversight. We guess that its too much to expect that if DCMA's work goes down by 20 percent that there would be a commensurate reduction in DCMA staffing.

There is one downside for small contractors. There could be additional requirements for those firms to request consent to contract from ACOs (see FAR 52.244-2, Subcontracts). With approved purchasing systems, the consent to subcontract requirement does not apply.