Earlier this month, the General Services Administration, in consultation with the Office of Management and Budget, issued the Phase II Report related to the implementation of Section 846 of the fiscal year 2018 National Defense Authorization Act.*
In the report, GSA reiterated its legislative recommendation to raise the Micro-Purchase Threshold (MPT) from $10,000 to $25,000 for purchases made through the Section 846 pilot. This requested increase in the MPT is significant because it has the potential to substantially expand the market for micro-purchases by millions of transactions and tens of billions of dollars over the coming years. Such an increase in the MPT, however, appears to set the Section 846 e-commerce program on a course that will conflict with many counterfeit, cybersecurity, and supply chain risk concerns of both the government and government contractors.
Section 846 calls for the OMB director, in consultation with the GSA administrator and the heads of other agencies, to implement the phases set out in the statute and submit to Congress the information required by the statute’s Phase II Market Analysis and Consultation. That analysis and consultation includes, among other things, information about:
An assessment of product categories that are suitable for purchase on the commercial e-commerce portals
An assessment of the precautions necessary to safeguard federal information especially precautions necessary to protect against national security or cybersecurity threats.
GSA acknowledges in the Phase II Report that protections need to be in place to ensure safeguarding against supply chain risks, i.e. cyber threats and counterfeit items. The Phase II Report, however, also states that, “[i]t is not GSA’s role, nor is it the intention of the proof of concept, to ‘solve’ all supply chain security issues on behalf of the purchasing agencies.” Further, the report does not indicate whether IT or other products that connect with networks will be excluded under the program.
U.S. Customs and Border Protection reports that seizures of counterfeit goods have increased by more than 120% since 2008. Moreover, nearly 90% of seizures have been connected with the use of international mail, which CBP attributes to an increase in the use of e-commerce. It is important to note that the average value of the counterfeit consumer electronics seized by CBP is $20,767, and the average value of counterfeit products that are non-cargo — which CBP identified as the main method for e-commerce — is $18,339. Both these averages are below GSA’s proposed MPT increase.
Against this backdrop, Congress enacted legislation to address source code reporting, supply chain risk in acquisition, and the presence of certain products in the supply chain. Moreover, on the eve of the Coalition for Government Procurement’s Spring Training Conference, the president issued an executive order on “Securing the Information and Communications Technology and Services Supply Chain,” which, generally, bars certain transactions involving information and communications technology from adversaries or that pose a risk to the economy, infrastructure or national security.
Counterfeit products, Section 846 implementation, appearance of ghost pilots
We should not forget that the government, its agency buyers, its suppliers, and its e-commerce providers, all have a role in assuring that a secure marketplace exists to facilitate transactions on a level playing field. Under the Section 846 e-commerce program, significant revenue opportunities await e-marketplace providers entering the government space. With revenue, however, comes responsibility. GSA has an opportunity to assure that these e-marketplace providers fulfill this responsibility by proactively addressing the obligations of these providers with respect to product screening and supply chain assurance in the upcoming e-commerce pilot.
In sum, the Phase II Report does not affirmatively address this issue. Meanwhile, counterfeit, cyber, and supply chain risks are ubiquitous and growing threats. GSA should leverage the time remaining under the statutory schedule to address these risks and, consistent with Section 846, develop a platform that offers the benefits of e-commerce without facilitating significant counterfeit, cyber, and supply chain risks. To this end, the Coalition looks forward to discussing positive steps to assure the success of GSA’s 846 initiative.
*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. In May 2019, GSA issued its Phase II report, “Procurement Through Commercial E-Commerce Portals Phase II Report: Market Research & Consultation,” which details the agency’s market research that will support its Phase III efforts to develop and implement e-Commerce procurement guidance.
Roger Waldron is the president of the Coalition for Government Procurement, and host of Off the Shelf on Federal News Network.