B2B Payments

Federal Procurement Practices Raise Alarms

Thanks to the convenience and speed offered by online shopping, more purchasers are bypassing procurement officials in their firms to buy for their companies. Research conducted by Forrester Consulting last fall found that not only was online procurement faster and more convenient than going through the traditional procurement channels, but one-third of those buyers also reported understanding better than procurement staff what products and services they need.

This trend could prove beneficial to suppliers that offer a frictionless procurement process – buyers can quickly make a purchase without the hassle of their corporation’s procurement roadblocks.

But when government procurement officials ignore the rules, the stakes are much higher. A recent study conducted by the Government Business Council and sponsored by Brocade revealed troubling statistics about how frequently the rules of procurement are ignored or misunderstood, and how those revelations can lead to an anticompetitive environment for suppliers.

The Federal Acquisition Regulation

The Federal Acquisition Regulation, or FAR, stems from 1984 legislation that prohibits product and service sourcing from a specific brand. Brand-specific sourcing, the regulation says, is only allowed if market research done by the federal agency shows that that brand is the only available option to fulfill that agency’s needs. Even then, the agency must publicly advertise to the industry its plans to procure from a single brand.

Of the 299 high-level government managers, surveyed within 31 federal and defense agencies, 62 percent reported a sufficient understanding within their agency of the FAR, while 54 percent said their procurement processes are adequately competitive.

But additional findings from the GCB report “The Competitive Landscape of Federal IT Procurement” found significant gaps between what procurement officials think they know, and what they actually know, about the FAR. For example, 69 percent of respondents incorrectly identified the practice of soliciting goods and services from multiple sellers of one manufacturer’s products as competitive.

The GCB’s research explored how this gap in understanding of federal procurement rules affected actual IT procurement within federal agencies.

Brand-Specific Sourcing

While procuring from a specific brand is prohibited by the FAR, a significant portion of respondents to the GCP report revealed that such a process is often commonplace. Of the federal employees that reported at least some familiarity with the IT procurement process, 42 percent said brand-specific procurement is frequent within their agencies. Further, 27 percent of respondents revealed that brand-specific procurement is sometimes used in an inappropriate manner.

When asked to pinpoint why procurement officials used vendor-specific strategies, the majority (57 percent) stated that the existence of only one source for the necessary product or service is the top reason brand-specific, non-competitive procurement solicitation would occur.

A vendor lock-in agreement was cited as the second-most common reason, followed by reduced risk when using an existing supplier, brand loyalty, budget cycle limitations and a limited understanding of the FAR. All of these scenarios, the research noted, was explicitly prohibited by the FAR as a justification for brand-specific procurement.

Inadequate Market Research

While the majority of respondents noted a valid reason for brand-specific procurement measures (the availability of only one brand that meets the needs of that agency), the FAR requires that when this occurs, this needs to be proven through market research and publicly advertised.

The study, however, found significant instances in which inadequate market research is occurring within federal agencies. Only 38 percent of respondents said they believed procurement officials were sufficiently skilled in market research to determine which IT products and services would provide the highest value. Only 37 percent reported that they believed those procurement officials held adequate expertise in evaluating commercial, off-the-shelf IT products and services.

Further, less than one-third (30 percent) agreed with the statement that meeting with a wide range of suppliers is part of the market research process.

Regarding the required advertisement, only about half (52 percent) of respondents reported that their agency always posts this notice.

Barriers to Proper Federal Procurement Strategy

The GCP report certainly reveals concerning trends within federal procurement procedures, but the research notes that there are other factors than ignorance of the rules that pressure procurement officials to anticompetitive procure IT products and services.

While 23 percent of respondents said brand-loyalty would compel them to procure from a specific brand – a stark violation of the FAR – 39 percent reported unusual or compelling urgency for a product or service as the top reason for brand-specific sourcing, “suggesting that the standard federal IT procurement process struggles to meet agencies’ needs,” the report said.

Other challenges cited by procurement officials included agency rules that favor low price over high value (45 percent) and a lack of input from end users of the product or service (42 percent). Further, 38 percent reported that their agency’s IT requirements were so specific that they often, by nature, “violate the principle of vendor neutrality.”

As a whole, the GBC said, these failures to adhere to the FAR not only jeopardize the public trust in the federal procurement process, but can create an unfairly anticompetitive environment for suppliers and vendors. “This study reveals many barriers to the effectiveness of the current federal IT procurement process,” said Brocade vice president of federal Anthony Robbins. “Limiting competition and failing to follow federal acquisition regulations reduces opportunities for innovation and wastes limited budget dollars.”

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