Limits on Micro-Purchases and Simplified Acquisition Thresholds Increased

The National Defense Authorization Act (NDAA) for 2018 increased the micro-purchase threshold from $3,000 to $10,000 and the simplified acquisition threshold (SAT) from $150,000 to $250,000 (see 2018 NDAA Sections 806 and 805 respectively). Until the Federal Acquisition Regulations (FAR) can be formally amended, Government agencies have been authorized to issue class deviations implementing these provision. The Energy Department has already issued its class deviation to raise these thresholds and most likely, other agencies will soon issue their own class deviations.

This is good news for both the Government and contractors because it will expedite the process and reduce the amount of work involved in procuring small dollar purchases. However, it comes at a risk as many have pointed out. We have reported on several instances of contract fraud where contracting officers and willing contractors have taken advantage of the reduced oversight that comes with purchases under the simplified acquisition threshold. These $250,000 purchases can add up to big money after awhile.

With micro-purchases, Federal agencies can bypass many of the ordinary competitive requirements under FAR. Authorized purchasers can make contract awards without soliciting competitive quotations. The FAR rules on micro-purchases are set form in FAR Subpart 13.2.

FAR Part 13 also governs purchasing below the simplified acquisition threshold. It sets forth shorter terms and conditions, especially in the areas of reporting requirement and subcontracts. Simplified acquisition transactions above the micro-purchase threshold are reserved for small businesses.

The new rules also provide for increased simplified-acquisition thresholds for contracts to support humanitarian or other peacekeeping operations and for contracts to be awarded and performed or purchases to be made outside the United States.

Some "Simplified Acquisition Procedures" Thresholds to Increase

FAR (Federal Acquisition Regulations) Part 13 covers "simplified acquisition procedures" for purchasing supplies and services. The purpose of "simplified acquisition procedures" is to (i) reduce the Government's and the prospective contractors administrative costs, (ii) improve opportunities for small, small disadvantaged, women-owned, veteran-owned, HUBZone, and service-disabled veteran-owned small business concerns to obtain a fair proportion of Government contract, (iii) promote efficiency and economy in contracting, and (iv) avoid unnecessary burdens for agencies and contractors.

These streamlined procedures for acquiring goods and services are especially beneficial to small businesses where in most cases, the requirements are reserved for companies in SBA's 8(a) program, HUBZone companies, SDVOSBs and WOSBs.

There is a dollar threshold for using simplified acquisition procedures. Currently, that threshold is $150,000 with two exceptions. The first exception applies when acquisition of supplies or services that are determined by the head of the agency  to support a contingency operation or to facilitate defense against or recovery from nuclear, biological, chemical or radiological attack. The threshold for that category of purchases is $300,000. The second applies to contracts awarded and performed, or purchase to be made, outside the United States meeting the same criteria. That threshold is $1 million.

The FAR Councils have just proposed a change to the exception thresholds.  For domestic contingency operations, the threshold, if enacted, will more than double from $300,000 to $750,000. For international contingency operations, the threshold will increase from $1 million to $1.5 million.

There is little doubt that these threshold will not be implemented as they are based on statutory provisions in this year's (Fiscal Year 2016) NDAA (National Defense Authorization Act).

Refer to FAR Part 13 for more details on "Simplified Acquisition Procedures".

The Difference Between "Clarifications" and "Discussions"

FAR Part 13 prescribes policies and procedures for the acquisition of supplies and services that do not exceed the simplified acquisition threshold (currently $150,000). There is a special authority under FAR 13.500 for acquisition of commercial items that exceed the simplified acquisition threshol but not exceeding $6.5 million.

Simplified acquisition procedures are designed to reduce administrative expenses, promote efficiency and economy in contracting, and avoid unnecessary burdens for agencies and contractors. When using these procedures, an agency must conduct the procurement consistent with a concern for fair and equitable competition and must evaluate proposals in accordance with the terms of the solicitation.

It is important for an agency, when conducting simplified acquisitions to ensure that the procurements are conducted consistent with a concern for fair and equitable competition with the therms of the solicitation. Although an agency is not required to conduct discussions under simplified acquisition procedures, where an agency avails itself of negotiated procurement procedures, the agency should fairly and reasonably treat offerors in the conduct of those procedures.

FAR 15.306 describes a range of exchanges that may take place when the agency decides to conduct exchanges with offerors during negotiated procurements. The two broadly stated exchanges are "clarifications" and "discussions". Clarifications are limited exchanges between an agency and an offeror for the purpose of eliminating minor uncertainties or irregularities in a proposal. Clarifications do not give an offeror the opportunity to revise or modify its proposal. Clarifications are not to be used to cure proposal deficiencies or material omissions, or materially alter the technical or cost elements of the proposal, or otherwise revise the proposal.

Discussions on the other hand, occur when an agency communicates with an offeror for the purpose of obtaining information essential to determine the acceptability of a proposal, or provides the offeror with an opportunity to revise or modify its proposal in some material respect. As a general matter, when an agency conducts discussions with one offeror, it must afford all offerors remaining in the competition an opportunity to engage in meaningful discussions. Further, it is the actions of the parties that determines whether discussions have been held and not merely the characterization of the communications by the agency.

A recent bid protest decision handed down by the Comptroller General illustrates the difference between "clarifications" and "discussions". The Air Force issued a solicitation for a solid waste incinerator for use at Wake Island. Award was to be made to the vendor submitting the lowest-priced technically acceptable quotation that conformed to the terms of the solicitation. The solicitation advised that the Government intended to evaluate offers and award without discussion, but reserves the right to conduct discussions.

During the course of evaluating proposals, the Air Force communicated with the company that ultimately won the award in two critical areas. First, the offeror proposed progress payments instead of Net 30 upon delivery and second, the offeror proposed one line item as cost-reimbursable when the solicitation required firm-fixed price. The Air Force inquired concerning these discrepancies and the offeror was allowed to revise its bid.

The Air Force contended that its communications with the awardee were clarifications, not discussions. The Comptroller General disagreed. The contractor "...was permitted to revise portions of its quotation that did not comply with the solicitation's terms." When the Air Force communicated with the offeror about these discrepancies, the offeror altered its quotation,

The Air Force's communications with the awardee invited a response that was necessary to determine the acceptability of the quotation and , in fact, resulted in the offeror being permitted to supplement or alter its quotation. This is quintessentially the nature of discussions, not clarifications.

The Comptroller General (CG) concluded that the Air Force, having conducted discussions with the awardee, was required to also conduct discussions with all other vendors in the competition. The CG sustained the protest on that basis.

You can read the full text of the CG's decision here.

DoD Preparing to Raise Some Acquisition-Related Thresholds

Every five years or so the Government goes through its procurement regulations and decides whether to raise certain acquisition-related dollar thresholds. For example, the TINA (Truth In Negotiations Act) threshold was last raised back in 2010 from $650 thousand to $700 thousand. Look for another bump next year, in 2015. Most of these threshold adjustments are required by statute or regulation and the changes are based on published indices such as the CPI.

The Department of Defense has just published a proposed change to its FAR Supplement (DFARS) that will affect many of the dollar thresholds found in the supplement. Most of these would not interest contractors as they pertain to internal policies, guidance, and instructions. We were able however to find a few changes that might be of interest to contractors and prospective contractors.

Simplified Acquisition Threshold. According to FAR 2.101, the simplified acquisition threshold is essentially $150 thousand except when needed to support contingency operation or to facilitate defense against or recovery from nuclear, biological, chemical, or radiological attack, doubles to $300 thousand. FAR also sets the a threshold of $1 million for contracts awarded and performed outside the US. The DFARS lowers the overseas threshold to $300 thousand for humanitarian and peacekeeping operations. That $300 thousand threshold will rise to $400 thousand under this new proposal.

Contract Code of Business Ethics and Conduct. Currently, DFARS requires contractors with contracts exceeding $5 million to display a Hotline Poster. The new regulation raises that threshold to $5.5 million. Its probably a good idea for all contractors to display hotline posters regardless of contract value. Its part of a setting the "tone at the top" and contributes to good internal controls.

Commercial Items. FAR prohibits contracting officers from requiring cost or pricing data where there is adequate competition, when prices are set by law or regulation or for the acquisition of commercial items. Waivers are available for exceptional circumstances. DFARS requires an annual report for any waivers granted on acquisitions expected to exceed $15 million. The proposed regulation will increase that threshold to $20 million.

There is probably nothing here that is going to change the way contractors bid or perform contracts. The Hotline Poster requirement, at least, is a good reminder for contractors that are not complying with the current requirement. We've wandered the halls of many contractors and subcontractors who have five million dollar contracts and are not complying with the hotline poster requirement.

Simplified Acquisition Threshold Raised for Humanitarian and Peacekeeping Operations

For Government procurement under the Simplified Acquisition Threshold described in FAR 2.101, agencies are not required to prepare formal evaluation plans, establish competitive ranges, conduct discussions or score offers. Additionally, contracting officers usually have the authority to personally choose the "winner" without subjecting his/her recommendation to a source selection team. The Simplified Acquisition Threshold is currently $150 thousand.

The Department of Defense just published an interim rule in its FAR supplement (DFARS) raising the Simplified Acquisition Threshold from $150 thousand to $300 thousand for humanitarian and peacekeeping operations. Humanitarian or peacekeeping operations means a military operation in support of the provision of humanitarian or foreign disaster assistance or in support of a peacekeeping operation under the United Nations Charger. It does not include routine training, force rotation, or stationing.

The Simplified Acquisition Threshold was previously set at $300 thousand for acquisition of supplies or services that are to be used to support a contingency operation or to facilitate defense against or recovery from nuclear, biological, chemical, or radiological attack (or, $1 million if awarded or performed outside the United States). This  current action adds additional categories to those exceptions.