Happy 40th birthday to the FAR, but has it gone too far?

April 1 marked the 40th birthday of the Federal Acquisition Regulation (FAR).  No one can question the need for a regulation implementing procurement law and providing guidance to tens of thousands of Federal procurement professionals and industry partners. There has always been something comforting in knowing that everything needed to conduct an acquisition was contained in one (albeit very large) procurement “bible.” The FAR’s guiding principles include maximizing the use of commercial products and services, promoting competition, and minimizing administrative operating costs. These principles are buttressed by the underlying FAR principle that the acquisition team can take actions that are in the best interests of the government even if the proposed action(s) are not outlined in, or contemplated by, the FAR (and not prohibited by law). This empowering FAR principle, in theory, provides the acquisition team with a flexible framework supporting efficient and effective competition for customer agency mission requirements.

Does the “theory” jibe with reality or has the FAR gone too FAR?

The current FAR is over 2,000 pages long, and a new Part 40 on cybersecurity and supply chain risk management is coming. There are also over 30 agency FAR supplements accounting for thousands of additional pages of regulations. In addition, various procuring agencies have issued thousands of pages of internal acquisition guidance, most, if not all, of which have not gone through public notice and comment. The sheer number of contract clauses, certifications, prescriptions, representations, reporting requirements, and compliance mandates is staggering. This highly complex regulatory framework increases administrative burdens, performance costs, and compliance risks for small, medium, and large businesses. As a result, the federal customer has reduced access to innovation and best value solutions from the commercial market.

The data is clear. The industrial base supporting the federal government is shrinking. Small business participation in the federal market has fallen approximately 50% between 2010 and 2022, during a decade where the overall economy grew, and the number of small businesses increased. From fiscal 2011 to 2020, the number of small businesses receiving Department of Defense (DoD) contract awards decreased by 43% despite obligations increasing by 15%. The number of large businesses receiving contract awards fell, on average, by more than seven percent annually over the same period. A telling indicator is the decrease in the number of small businesses participating in the federal market, while at the same time, overall obligations to small businesses have increased. This dynamic reflects a market where the regulatory barriers to entry have stymied the growth of the industrial base, leaving an ever shrinking “incumbent class” of contractors available to the federal customer.

The federal customer deserves streamlined, efficient access to competition and innovation driven by the commercial market. Acquisition teams across government are looking for the path of least resistance in acquiring innovative solutions from the commercial market. Significantly, spending by the DOD and other agencies under Other Transaction Authority (OTA) has increased by 1,600% since 2015, at least in part, to avoid the FAR processes and associated requirements. Other popular streamlined procurement channels outside the FAR include the Department of Homeland Security’s and the General Services Administration’s commercial solutions opening (CSO) authority. These streamlined channels are evolving into strategically important procurements tools at a time of growing competition with near-peer adversaries.

The increasing interest in procurement frameworks outside the FAR-based system is likely based on a view that the system cannot reform itself. In this regard, the commercial item regulatory framework is instructive. Ten years after the FAR was issued, Congress streamlined the Federal procurement system by promulgating the Federal Acquisition Streamlining Act of 1994 (FASA). FASA created a streamlined commercial item contracting regime and institutionalized a preference for exempting commercial items and services from new laws unless the law provided otherwise. The impact was immediate. In 1995, there were 28 FAR clauses that could be included in a commercial item contract, with only six clauses required.  Today, some 90 FAR clauses can be included in commercial item contracts and more than 30 clauses are mandatory. Regarding clauses that flow down in subcontracts for commercial items, in 1995 there were four, today there are at least 22 clauses that must be flowed down.

Individual agency FAR supplements include additional clauses that apply to commercial item contracts. For example, there are 110 Defense Federal Acquisition Regulation Supplement (DFARS) clauses applicable to commercial item contracts. As the Section 809 panel report noted:

“Since FASA was implemented, the number of DoD‐related commercial buying provisions and clauses has increased by 188 percent, and the number of commercial clauses that may be flowed down has increased five‐fold. In 1995, the FAR and DFARS contained a combined total of 57 government clauses applicable to commercial items. Today there are 165 clauses, with 122 originating in statute, 20 originating in executive orders, and 23 originating in agency‐level policies.”

Since the 809 Panel report was published in 2018, things have not gotten better. This re-regulation of commercial item contracts has contributed to customer agencies and contractors looking to mechanisms outside the traditional FAR framework to get work done.

Significantly, FASA provided the FAR Council with the tools to maintain the streamlined commercial item contracting framework. The FAR Council has the statutory authority to essentially exempt commercial item contracting from new laws and executive orders. However, the default position over the last 30 years has been for the FAR Council to determine that it would not be in the best interests of the Government to exempt commercial items and services from most new laws and executive orders. In 2018, the Section 809 Acquisition Advisory Panel recommended eliminating the 55 DFARS provisions applicable to commercial item contracts and, despite a recent Congressionally mandated review of the DFARS clauses, the resulting review left approximately 50 DFARS clauses still applicable.

So as the FAR enters its 41^st year, it is time to identify and empower a governmentwide champion to streamline procurement. This champion would be responsible for a section-by-section review of the FAR to identify and address/eliminate requirements where the cost/burdens outweigh the benefits.  Additionally, this champion would conduct a review of the various procurement processes and establish criteria as to when the default acquisition methodology should be an OTA or CSO depending on the nature of the requirement.

The Coalition stands ready to work with all stakeholders to streamline the procurement process to ensure sound business opportunities for commercial firms that deliver best value mission support for customer agencies. Let us know your thoughts on streamlining the FAR!  Ideally, we would love to have them before our spring training conference, on May 8^th and 9^th. Good ideas come from all stakeholders across government and industry.

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