Delivering for Best-in-Class Wholesaler-Distributors
November 1, 2019

The Fiscal Year 2018 National Defense Authorization (NDAA) bill was enacted on December 12, 2017 (PL 115-91). The provisions included in Sec. 846 (“Procurement Through Commercial E-Commerce Portals”) restructured the process by which Federal agencies acquire more than $50 billion in commercial-off-the-shelf (COTS) products annually. The General Services Administration (GSA) is directed to establish a program for their procurement through commercial online e-commerce portals.

In the spring of 2017, NAW organized its Online Procurement Working Group (“NAW Working Group”) comprised of private sector businesses which sell commercial products to federal agencies. Its purpose is to evaluate proposals to implement the Sec. 846 program and offer advice grounded in commercial and e-Commerce expertise to procurement professionals and to policy makers both on Capitol Hill and in the Executive Branch.

Section 846, the so-called “Amazon Amendment,” establishes a framework to use commercial e-Commerce portals across the government to acquire COTS products outside of the rules normally governing federal procurement. As initially introduced, Section 846 could be met by only one existing commercial marketplace provider. Instead, as a result of analysis and debate, Congress directed GSA to go beyond a single marketplace and include multiple commercial e-commerce portal providers in pilot tests to validate their appropriateness as procurement vehicles before final implementation.

Even though GSA identified three credible e-commerce purchasing channels, GSA’s latest Request for Proposal (RFP) Commercial e-Marketplace Acquisition (October 1, 2019), confines its pilot test to only one model, that of the e-marketplace portal, the Amazon platform. All other e-commerce models have been excluded. GSA will permit the e-Marketplace platform provider to play multiple roles. First, the provider may own, operate and manage a platform made up of 3rd party sellers who are chosen by the provider and who will pay a fee to the provider. Second, as well as listing the 3rd parties’ products, the platform provider can also list its own products on the platform.

To date, Sec. 846’s implementation challenges several core principles – adhering to the law’s direction, best serving the government customer, fair opportunity for small and large businesses and that decisions be based on public comment and accompanied by reasoned explanations. Preeminent concerns to NAW Working Group members include:

  • Analyze and Balance Competing Policies

The government must balance the need to improve the purchaser’s experience (“ease-of-use”) with ensuring that it has purchasing systems that deliver products in compliance with current requirements for ethics, procurement integrity, and range of choice; explain how “trade-off” determinations (e.g., price v. quality, price v. availability) will be made; and state what it proposes to maintain/eliminate.

  • Portal features

Supplier access to the portals must be fair and promote competition and choice among vendors. In particular, access of third-party suppliers to the portals and their placement on those platforms to which they are admitted; various antitrust, cyber security and national security concerns; the fees that may be charged by portal providers; and promoting portal specialization based on product category must be addressed with clarity.

  • Proprietary information/transactional data

FY’18 NDAA Sec. 846(h) limits a portal’s ability to use proprietary information/transactional data derived from third-party suppliers. Portal providers must not be able to use third-party supplier data to gain a competitive edge over those suppliers or to favor one third-party supplier over another. That proprietary information/transactional data of third-party suppliers is protected by clear and enforceable standards is critical to the success of the program.

GSA’s latest Request for Proposal (RFP) acknowledges the limitation on the use of data by e-marketplace providers set forth in Sec. 838(b)(3) of the FY’19 NDAA. However, NAW remains concerned that the RFP does nothing to explain or provide further information on how these provisions will be enforced in the proof of concept. That proprietary information and transactional data of third-party suppliers will be protected by clear and enforceable standards is critical to the credibility of the program.

  • GSA’s Product Choice Presents Real Supply Chain Security Risk

Section 846 requires GSA, during its market analysis, to assess “the products or product categories that are suitable for purchase on the commercial e-commerce portals…” In stakeholder meetings and reiterated in blog postings, GSA has noted that “health and IT products have unique supply chain requirements and warrant special consideration.”

Contrary to Section 846’s direction, GSA does not address in the Phase II report those product categories not suitable for its e-marketplace platform, it only conveys “it does not intend to start with specialized marketplaces” for IT or medical devices. And, in a public forum earlier this year, GSA representatives stated that IT/medical devices could be sold in the pilot if such items were offered for sale in the e-marketplace. GSA’s equivocating and conflicting positions ignores its own finding – “there are real concerns focused primarily around supply chain security” as to health care and IT products.

Counterfeit and grey market IT products, from software to equipment, can cripple agency systems; they are the entry way to those with malicious intent to harm the United States. Federal IT providers adhere to rigorous standards to reduce this risk. Healthcare products serve individuals the federal government cares for; agencies with this mission impose heightened supply chain standards. These standards, as to both IT and healthcare, are not replicated in the e-marketplace. GSA’s equivocation increases risk; IT and healthcare products should not be part of the pilot.

 

NAW has arranged and participated with members of our working group in many meetings on the Hill with key Committee and Member staff. On June 13, 2019, we were successful in having language included in the House FY’20 NDAA that directs the GSA to conduct the upcoming pilot with multiple e-commerce models, not just the Amazon model.

While our efforts have been successful in the House, the battle continues as the NDAA Conference Committee finalizes the FY’20 NDAA legislation. To date, no Congressional oversight hearings have examined the program, either prior to or subsequent to its enactment. Further implementation by GSA or any legislative action should await a studied review by the Congress.

NAW recently sent letters to the Federal Trade Commission and the U.S. Department of Justice requesting their agencies to investigate GSA’s Section 846 program and Amazon’s unfair and anti-competitive practices and processes.

 

ajax-loader