In a few short weeks, President Donald Trump has issued several executive orders (EOs) that, once implemented, will significantly alter federal procurement. We previously reviewed the EO directing the modernization of defense acquisition processes. Last week, the president issued another EO, “Ensuring Commercial, Cost-Effective Solutions in Federal Contracts,” to fulfill the administration’s goal of eliminating unnecessary and imprudent expenditures of taxpayer dollars by focusing on commercial products and services that provide better, more cost-effective solutions to taxpayers.
This EO directs federal agencies to procure commercially available products and services, including those that can be modified to fill agencies’ needs, “to the maximum extent practicable.” To achieve these ends, the EO requires a complete review of all open solicitations for noncommercial products or services to determine whether commercial alternatives are available for procurement instead.
The EO’s broad application to all pending, non-commercial solicitations means that government contractors should start strategizing now on how to take full advantage of the administration’s directive. Contractors offering products or services to both the commercial and federal marketplaces in substantially unmodified form may experience an edge in federal contracting once the EO is fully implemented. Offerors of non-commercial products or services, on the other hand, potentially could face fewer opportunities to compete for the government’s business.
What the EO Requires
Requiring agencies to procure commercially available products and services, including those that can be modified to fill agencies’ needs, “to the maximum extent practicable” has appeared in the federal procurement landscape since enactment of the Federal Acquisition Streamlining Act (FASA) of 1994. Now, the administration seeks to give FASA’s preference for commercial solutions some teeth through the EO:
- By June 15, each agency approval authority shall direct its contracting officers to conduct a review of all open agency solicitations, pre-solicitation notices, solicitation notices, award notices and sole source notices for non-commercial products or services, such as highly specialized, government-unique systems, custom-developed products or services or research and development requirements where the agency has not identified a satisfactory commercial option. Each contracting officer will then be responsible for consolidating that list of notices into a proposed application requesting approval for the purchase of the non-commercial products or services and then submitting that list to their respective agency approval authorities.
- Within 30 days of receiving the proposed applications, agencies are directed to assess each application’s compliance with FASA. If the applications fail to sufficiently comply with FASA, the approval authorities must take appropriate action “including returning the application or any portion of the application to the contracting officer for additional research or action with respect to potential commercial products or services.”
- The EO also creates an ongoing FASA compliance obligation, beginning on Aug.14 and annually thereafter, requiring each agency’s approval authority to provide a detailed report to the director of the Office of Management and Budget (OMB). Contracting officers, moving forward, are required to obtain approval from their agency approval authority before proceeding with a non-commercial procurement by submitting a description of the proposed procurement, including “the specific reasons a non‑commercial product or service is required” and “all market research and price analysis in support of the proposed solicitation.” The agency’s approval authority will approve or deny the proposal in writing. In conducting its review, the agency approval authority may seek help from the director of OMB to make the final decision.
Impact on Government Contractors
While the EO’s ultimate effects remain to be seen, they are sure to pose both benefits and challenges for government contractors. Contractors that focus on providing commercial products and services could stand to benefit with the administration’s push to expand the market for commercial solutions. As commercial providers may have experienced, the government may issue solicitations for some kind of highly customizable item to meet its “special” needs, with what it appears to be cursory market research in the contract file to justify its determination that a commercial offering – even one that can be modified – is unavailable. The EO places the onus upon procuring officials who demand such developmental items by requiring an application review process against FASA’s commercial preference before those demands can be met.
This could give the statutory commercial preference some actual bite. It also comes at a pivotal time in FASA’s history. Last year, a majority panel of the Federal Circuit ruled a provider of a commercial AI product had standing to sue the government for its prime contractor’s failure to award the provider a subcontract as violative of FASA’s commercial preference. This decision is currently being reconsidered by the Federal Circuit sitting en banc. That a commercial AI provider was able to assert standing to enforce FASA at the subcontractor level – and have a majority panel of the Federal Circuit agree with it – shows that FASA’s “to the maximum extent practicable” language is not aspirational but mandatory and applicable throughout the entire supply chain. The EO’s emphasis on fulfilling FASA’s purpose may signal, then, a true beginning of the end to agencies offering insufficient justifications for noncommercial gizmos that add little apparent value to what commercial products and services could offer.
But while there are benefits to enforcing FASA’s commercial preference, the method by which the EO aims to achieve that goal is not without potential drawbacks. Federal procurement as a whole could suffer because the new approval oversight process required by the EO could result in delays. The EO puts added pressure and responsibility on agencies, possibly leading to longer deliberations and more selective decision-making on whether non-commercial procurements will be worth pursuing. This, in turn, could impact commercial and non-commercial providers alike, as any delay to award decisions delays the revenues expected from them.
Then there are the million-dollar questions of which non-commercial solicitations will be selected for a proposed application and how those applications will be assessed to determine compliance with FASA. Surely, one would expect solicitations for submarines and littoral combat ships to remain noncommercial. After all, how often do you see your neighbor driving their submarine or warship at the local marina?
But what about the parts and services that go into manufacturing these end-products? Lug nuts and electricians can be found on the commercial marketplace, but they can be found at a shipyard as well. Will agencies have to compete these requirements as commercial acquisitions? Or can agencies include the whole kit-and-kaboodle that is a submarine in a proposed application, and then leave it up to their prime contractors to decide whether these items can be supplied by a commercial provider? The EO does not answer these questions. So, much like the other procurement-related EOs issued by the administration recently, only time will tell how things will work out in practice.
Despite the uncertainty, contractors should stay informed about developments stemming from all the administration’s actions to alter federal procurement. The changes contemplated by them are substantial, and understanding the new landscape, whatever its final form may be, is paramount for government contractor success. Miles & Stockbridge’s government contracts lawyers are monitoring developments and are available to answer any questions related to this and other EOs and their potential impact on government contractors.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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