Maybe the micro purchase threshold is a little too micro

Most of the purchases the government makes are small. For every aircraft carrier, agencies buy a million printers, desks, airplane tickets. Most of these fall under what’s known as the micro purchase threshold. That threshold stands at $10,000. Emily Murphy has made the case that raising it to $20,000 would save the government tens of millions of dollars, along with some other virtues. Joining the Federal Drive with Tom Temin is Murphy, co-author of an analysis from the Baroni Center for Government Contracting at George Mason University and former administrator of the General Services Administration.

Interview transcript: 

Tom Temin
Ms. Murphy, good to have you with us.

Emily Murphy
It’s wonderful to be here. Thanks for inviting me.

Tom Temin
And, of course, every little aspect of procurement in the FAR, from section one to section ump-tee-ump, you know, studied, why micro threshold purchases, of all things, small as they are?

Emily Murphy
So, there were two reasons I thought it was really interesting. First, the commercial platforms program that we implemented at GSA when I was there, and that has really taken off in the last few years. And I wanted to see what was happening there. But, also, the smart pay program, how the government purchased cards, because the government purchase cards have such an ability to return savings to the government, but they are mainly used on those micro purchases. And then as I was starting my study, Congress started talking about raising the simplified acquisition threshold, and usually the two are increased or moved in tandem. So, it was an ideal time to just really dive into some of that data, right?

Tom Temin
The simplified is what?

Emily Murphy
Currently it’s 250,000.

Tom Temin
Right. I remember back when it was 100,000 at one time.

Emily Murphy
Yes, back when the micro purchase used to be $2,000, $2,500. It’s increased over the years. And they’ve both gone up pretty much in tandem over time, as we’ve realized that having simplified procedures for smaller dollar value purchases adds a lot of efficiency to the government. But it also raises a lot of small business challenges. So, trying to study what efficiency gains are there, and how do you offset those small business challenges? Or how do you even at least understand what those challenges might be?

Tom Temin
Right. So, the model of this, then, is that typically an agency or a practitioner making a small micro purchase acquisition uses a government credit card for most of them.

Emily Murphy
Correct.

Tom Temin
And they would go to one of the commercial platforms.

Emily Murphy
They can go to commercial platforms. The majority of purchases aren’t made using the commercial platform. A lot of them are made using just the GSA schedule. Some are made just as point of sale purchases. So when you stop and buy, and you’re traveling, and you decide you need to pick up a notebook or you buy a candy bar at the convenience store, it counts is a micro purchase at that point in time, using your travel card. But there are a lot of small dollar value purchases that are made where the credit card itself, or the purchase card, acts as the contract vehicle as well, not just a method of payment, that the smart pay card can also be the just the method of payment for larger contracts. And the government gets a good rebate on those purchases. So, it goes back to the agencies themselves. And, so, it’s an efficient way of managing government dollars. And what is the small business challenge, then, in this context? So, when all of these thresholds were originally put into place, there was something called a small business reserve. And, at the time, it was a separate definition in the FAR. It’s now been unified to it’s the same as that simplified acquisition threshold. And it says that anything under that simplified acquisition threshold shall be reserved for small businesses. So, when you increase the micro purchase threshold, where it none of those small business rules apply, you’re taking something out of that small business reserve. But, if you’re also increasing the small supply acquisition threshold, and therefore the small business reserve at the same time, you’re probably increasing your small business dollars. And, so, one of things I wanted to figure out was what percentage of those micro purchases go to small business? What percentage of the simplified acquisition threshold dollars go to small businesses? And what would that change mean, because I’ve always been a huge small business fan, I spent many years working for the House small business committee, I worked for SBA. So, I want to be very cautious when I make a policy recommendation that’s going to save the government money if it’s going to do so at the expense of the industrial base, and at the expense of the small businesses. So, wanted to make sure we understood what those ramifications were going to be.

Tom Temin
And is that data available?

Emily Murphy
To an extent, it is. So, if you look at purchases that are made using the purchase cards, you’re looking at about a third of the dollars go under the micro purchase threshold, go to small businesses. GSA does a really good job of capturing that data, and they make it available. When you start looking at dollars outside of the purchase cards, it’s really, really hard to tell what’s happening there. When you start looking then at dollars in between that micro purchase threshold and a simplified acquisition threshold, if you take out task order purchases, because those aren’t usually covered, you find out even though 100% of the sellers are supposed to go small business, less than 50% do.

Tom Temin
So, should one of the reforms then be that all micro purchases shall be on a government credit card, simply because it captures all of the data surrounding it?

Emily Murphy
Well, I think that anything you can do to increase data would be a definite win. I hate to have absolutes, because I don’t want to tell someone when they’re someplace where they’re not going to take a government credit card that they can’t buy what they need that moment to get the government’s mission done.

Tom Temin
Of course, it’s getting harder to find places that accept cash anymore.

Emily Murphy
But at some point in time, I know that GSA has been looking at how do you do app payments. So, they’re going to be continual reforms. And they’re going to hopefully be also advantageous to the government. But it saves the government about $70 in purchasing and transaction fees by using the payment card rather than actually using a contract vehicle.

Tom Temin
We’re speaking with Emily Murphy. She’s now senior fellow at the George Mason University Baroni Center for Government Contracting, and former administrator of the General Services Administration. I just had a detail question, as GSA launches these platforms that are Amazon-like. One of them is Amazon, but there’s other similar ones. I mean, you can’t classify a sale through Amazon as small business, but small businesses are passing through Amazon. So, how do you count those?

Emily Murphy
So, it’s actually one of the interesting challenges, and one that GAO has looked at, one that Congress has looked at, and when Congress passed the legislation, they said that purchases made from small businesses using one of these portals could be counted towards a small business goal, as long as the company was registered in SAM. The challenge is, most companies on these portals are not registered in SAM, and going in and registering in SAM is a lot more compliance.

Tom Temin
Well, that’ll send most people running away, screaming.

Emily Murphy
Correct. And that’s one of the reasons that one of my recommendations in the paper was that policymakers should be looking at a simplified certification for micro purchases, so that we get to the heart of whether or not someone is a small business without asking them to attest to every FAR clause. The exact reason we have the micro purchase threshold is to avoid having a lot of these clauses. So, we figure out what the absolute minimum number of attestations and certifications would need to be, and then make it easier, so that we capture more of those, not simply just to get credit for small business dollars, but to actually start figuring out where we may have more small business capability in our base, and then figuring out how to use that as a tool to expand and grow that industrial base. Because, Tom, as you know, one of the big challenges for the last 20 years has been the the drop in small businesses participating in that industrial base.

Tom Temin
Yeah, that’s the difficult trend. The dollars are there.

Emily Murphy
The dollars are there.

Tom Temin
But the number of participating companies, which means that the companies that are leftover, have to, by definition, keep growing, and will, you know, graduate.

Emily Murphy
And once they graduate, do we lose them to the industrial base? Do they succeed as a midsize business, when there isn’t technically a government term of midsize business? So, what happens to those companies? And where are we getting new companies to come in? Where are we getting innovative companies? Where are we? To the extent we can be doing more at the micro purchase level, the more we can afford to do smaller purchases, pilot something, try out a new technology, try out a new company, and then see what what comes from that.

Tom Temin
Maybe we need micro purchase thresholds for the OTA, Other Transaction Authority. We can really get complicated here.

Emily Murphy
We can get very complicated, although I’d hate to put more, the, I’m thinking through that idea now. If we had OTAs, with micro purchase thresholds, which set of rules would apply? Would it be the normal rules of the OTA or the micro purchase rules? I think that you might have just made my head explode a little bit.

Tom Temin
But you don’t want those bloodlines to cross necessarily, because both could get ruined.

Emily Murphy
Yes, the goal is to try and take away the burden that doesn’t actually benefit the government. And, in a lot of these very small dollar purchases, it’s just not worth the government, the juice isn’t worth the squeeze for some of the compliance we’re asking for.

Tom Temin
Well, getting back to the paper that you have co-authored, you’re recommending a $20,000 micro threshold purchase limit. What benefits would accrue from that, both for the government and maybe for small business?

Emily Murphy
I looked at raising the micro purchase threshold to $20,000, $30,000, $40,000, $50,000, to see what the savings would be. And by raising the micro purchase threshold to $20,000, we’d save about $30 million a year, which doesn’t sound like a lot, but it’s actually the bigger advantage is when you no longer need contracting officers to be making those awards, to using a purchase card can be done by anyone who’s gone through the training, and has the authority. It has a review process. We’re not just setting people wild with government dollars. But it means you can take those contract specialists and those contract officers and have them work on more substantive requirements. And frankly, given how long it’s taking to get the appropriations process done and the compressed buying cycle, if we can free those contract specialist and contracting officers up to do the contracts that require a warranted contracting officer, it lets the government save money on the bigger dollar purchases. And that’s not reflected because that’s very hard to quantify, but I think it’s one of the biggest advantages.

Tom Temin
It’s sort of a catalyzing type of effect.

Emily Murphy
Exactly.

Tom Temin
Any reception yet to that idea? That would require congressional lawmaking to raise that level.

Emily Murphy
When I’ve talked unofficially to staffers about it, their concern had always been that raising the micro purchase threshold could hurt small businesses. And so what we talked about was, well, if you’re doing it in conjunction with what now was proposed as a doubling of the simplified acquisition threshold from $250,000 to $500,000, that small business reserve is going to go from being a $10,000 to $250,000 to being a $20,000 to $500,000 range. So, it actually increases opportunities for small business on more meaningful contracts. So, that could be a really good thing for small businesses. So, hopefully, as they’re working through these issues, it’s one that they’ll consider. Because just frankly, taking a lot of that administrative burden away from both small businesses and contracting officers just makes sense.

Tom Temin
And, by the way, while we have you, since leaving the GSA, and it was a difficult circumstance at that time surrounding the last presidential transition, what have you been up to otherwise?

Emily Murphy
So, in addition to my work with the Baroni Center, which I absolutely love, they love to do research in all sorts of government contracting areas where I just get to go and be a complete nerd. It’s great. I’ve got my own consulting company. It’s called Government Procurement Strategies, and I help companies who are looking for sort of bespoke approaches to how they want to navigate federal procurement. Work with a lot of SBIR companies. Really enjoy being able to dive into some problems with some smaller businesses.

Tom Temin
Emily Murphy is a senior fellow at the George Mason University Baroni center for government contracting, and former GSA administrator. Thanks so much for joining me.

Emily Murphy
Thank you, Tom.

Tom Temin
And we’ll post this interview along with the link to the micro threshold paper at federalnewsnetwork.com/federaldrive. Hear the Federal Drive on demand, subscribe wherever you get your podcasts.

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