e-Commerce: To be or not to be

This column was originally published on Roger Waldron’s blog at The Coalition for Government Procurement and was republished here with permission from the author.

Since the enactment of the Competition in Contracting Act (CICA) in 1984, competition has been a foundational tenant of the federal procurement system.

Pursuant to the statute, outside certain circumstances, the government must, “… obtain full and open competition through the use of competitive procedures…” when purchasing goods and services. CICA’s mandate reflects an understanding that, through competition, the forces of the marketplace incentivize vendors to provide the government with their best products at their best prices. Further, by maintaining competition in the federal marketplace, the government keeps downward pressure on prices and, over time, incentivizes innovation.

Clearly, there are many benefits associated with ensuring competition. Recent reform proposals related to commercial e-Commerce platforms, however, raise concerns about whether competition will continue to be leveraged to bring value to agency purchasers. Accordingly, this week’s blog examines the layers of competition that are inherent to commercial e-Commerce platforms that should be addressed by the General Services Administration in its March 2019 Phase II report.

Competition across commercial e-Commerce platforms

In its recent request for information (RFI), GSA proposed piloting only one of the portal provider models it chose to develop in its Phase I report, the so-called “e-Marketplace model” that may offer the portal provider’s proprietary products, products from third-party vendors, or both. As the Coalition noted in a prior blog, this approach appears to circumvent the deliberative approach provided by Congress, and signed into law by the president, by artificially and unilaterally narrowing the focus of the Section 846 pilot based on GSA’s own, non-statutory categorization of e-Commerce models.

Consequently, by not fully exploring all commercial solutions, GSA’s proposal removes competition for the pilot by placing the agency, rather than the market, in the position of determining the winning and losing platform model(s). In addition, as the Coalition discussed in its comments on the RFI, the approach prevents the direct channel competition Congress called for in Section 846, which identified the initiative as:

“[A] program to procure commercial products through commercial e-commerce portals… [carried out] “through multiple contracts with multiple commercial e-commerce portal providers.” [Emphasis added.]

Further, in its draft ordering procedures that accompanied its recent RFI, GSA proposed that, when placing an order under the Section 846 pilot, “[a]n ordering official may, but is not required to, review items on more than one e-marketplace platform.” Again, this approach contradicts the intent of Congress, as expressed in Section 846, by effectively waiving the statutory requirements related to ensuring government’s access to multiple e-Commerce solutions.

Congress manifestly set forth the language found in Section 846 to foster healthy competition between various e-Commerce models and minimize the potential for one provider to serve as a gatekeeper to the government market. GSA’s current approach, however, does not align with this intent, as it only further narrows the focus of the Section 846 pilot.

In addition, to date, there has been no publicly released analysis, data, or rationale supporting the business case for limiting the focus of the Section 846 pilot to GSA’s e-Marketplace model. This lack of substantive assessment is particularly troubling when considering, again, the findings of several recent studies, including the Coalition’s study of the AbilityOne Commission’s e-Commerce pilot, which have confirmed that GSA’s current e-Commerce tools already provide lower pricing and faster and cheaper shipping for its customers than the commercial alternatives to which they are compared.

Without greater transparency about the business case used to select the e-Marketplace model, and by excluding the other models it developed in the Commercial e-Commerce Portals Implementation Plan, GSA risks the appearance of a bias toward a desired platform solution. Instead, GSA should pilot multiple portal provider models so that the advantages and disadvantages of each model can appropriately be assessed.

Competition Within Commercial e-Commerce Platforms

Section 846, as well as Section 838 of the FY 2019 National Defense Authorization Act, provide specific protections related to the use of data, including an unequivocal prohibition on portal providers using supplier transaction data for their own competitive purposes. These protections are crucial for suppliers, as there is significant concern that the data could be used to the advantage of any portal provider that also offers its own products within its portal. Absent such protections, competing suppliers within the portal would be disadvantaged relative to the portal provider, as they would have to operate on an unlevel playing field.

Further, recognizing that data traversing the pilot platform fundamentally belongs to the government, any portal provider efforts to monetize that data would amount to an unjust enrichment of those providers at the expense of American taxpayers.

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In addition to these statutory requirements, a recent Yale Law Journal article highlights how vital it is for the government to conduct a comprehensive review of the terms and conditions of portal providers to identify potential inconsistencies with federal law and/or policy. Specifically, the article focuses on the competitive impact of Most Favored Nation (MFN) provisions within the context of commercial e-Commerce marketplaces. Pursuant to these provisions, portal providers require portal suppliers to refrain from offering their solutions at lower prices on other portals. Under these circumstances, portal providers have less incentive to lower costs, and therefore price, for a solution, as it has contractually assured that no other competing portal can provide the same solution at a lower price.

Ultimately, these provisions limit competition, lead to higher prices, and can discourage innovative new companies from entering into the federal market.

Further, in reviewing the commercial terms and conditions of the portal providers, it is also critical that a comprehensive assessment be undertaken to understand the impact that fees, commissions, or other market-affecting terms and conditions have on the over-arching best interests of the government. These fees could have a negative impact not only on the prices paid by Federal customers, but could also impact competition, small business participation, fairness, and government access to innovative solutions.

Moving forward, GSA should address the forgoing concerns related to the use of data, MFN pricing, and other potential inconsistencies with Federal law and/or policy as part of its March 2019 report. Through comprehensive analysis, GSA can understand and address these concerns through the terms and conditions of the pilot contracts, and in turn, ensure that its customers have access to best-value solutions that are competitively priced.

Competition with Pre-Existing Programs

The Coalition has continued to raise the concerns of its members regarding GSA’s current approach for the Section 846 pilot as it establishes a channel to the government market that competes directly with existing programs like the GSA Schedules without the standard compliance and other government-unique requirements like the Trade Agreements Act (TAA) and the Buy American Act. Specifically, as currently put forth, this approach will establish dual procurement systems for commercial items, e.g. a pre-existing commercial item contract channel where compliance with government-unique requirements, like the TAA, is mandated (e.g., the Multiple Awards Schedules program, NASA Solutions for Enterprise-Wide Procurement and National Institutes of Health CIO-CS), and another seemingly GSA-approved channel where products from non-TAA countries, like China, which is not a TAA-designated country, are available for purchase.

By so doing, it sets up an unhelpful competition between such channels, from the standpoint of determining value to the government, because one channel will be accounting for the concerns and costs of product compliance and cybersecurity, and the other will not.

In summary, there are many layers of competition that the Coalition looks forward to seeing addressed by GSA in its March 2019 report. The Coalition looks forward to continuing its robust dialogue with GSA on each of these aspects of competition, and it looks forward to working with the agency to assure a best value procurement solution.

Pursuant to of Section 846 of the FY 2018 NDAA, GSA is responsible for establishing and managing an e-Commerce portal program described under the statute. In March 2018, GSA, in consultation with the Office of Management and Budget (OMB), issued the Section 846 implementation plan, “Procurement Through Commercial E-Commerce Portals.”

The implementation plan is the end-product of Phase I of GSA’s Section 846 implementation efforts which focused on information gathering and analysis. Currently, GSA is in Phase II of Section 846 implementation focused on market research that will support the agency’s Phase III efforts to develop and implement e-Commerce procurement guidance. GSA’s Phase II report is expected to be released in March 2019.

Roger Waldron is the president of the Coalition for Government Procurement, and host of Off the Shelf on Federal News Radio.