An Introduction to U.S. Procurement�Day 3

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Professor Christopher Yukins

George Washington University Law School

Washington DC

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Monday-Wednesday

December 9-11 2024

University of Paris Nanterre

Wrapping Up Trade Issues

Administrative Cooperation: U.S. Defense Department�Cybersecurity for Unclassified Information Technology

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Security of Supply:�Angela Merkel’s Mobile Phone

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Germany Canceled Verizon Contract

Thu Jun 26, 2014

German government cancels Verizon contract in wake of U.S. spying row

BERLIN

REUTERS/RICK WILKING

The German government has cancelled a contract with U.S. telecoms firm Verizon Communications Inc VZ.N as part of an overhaul of its internal communications, prompted by revelations last year of U.S. government spying.

Reports based on disclosures by former U.S. intelligence contractor Edward Snowden alleged Washington had conducted mass surveillance in Germany and had even eavesdropped on Chancellor Angela Merkel's mobile phone.

Berlin subsequently demanded talks with Washington on a "no-spy" deal, but these collapsed after the United States appeared unwilling to give the assurances Germany wanted.

Germany also launched an overhaul of its internal communications and secure government networks. This is one of the first actions involving a U.S. firm to result.

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GPA, Art. III Leaves Discretion To Discriminate Regarding Classified Work

1. Nothing in this Agreement shall be construed to prevent any Party from taking any action or not disclosing any information that it considers necessary for the protection of its essential security interests relating to the procurement of arms, ammunition or war materials, or to procurement indispensable for national security or for national defence purposes.

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GPA, Art. III Leaves Discretion To Discriminate Regarding Classified Work

1. Nothing in this Agreement shall be construed to prevent any Party from taking any action or not disclosing any information that it considers necessary for the protection of its essential security interests relating to the procurement of arms, ammunition or war materials, or to procurement indispensable for national security or for national defence purposes.

“Huawei” Ban:

U.S. bans contractors from using Huawei and other Chinese companies – or from relying on systems that use Huawei and other companies

“Essential Medicines”: Trump wanted to remove pandemic-essential medicines and supplies from GPA, angered EU; Biden will exercise Article III exception to favor domestic producers

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Sustainable Public Procurement��

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Sustainability in Public Procurement: Trajectory

TRUMP

Brazil’s New Law – Sustainability – Assessing Social and Environmental Impacts As Part of Infrastructure Planning

• Article 18: Procurement planning to include “description of possible environmental impacts and respective mitigating measures, including requirements for low consumption of energy and other resources, as well as reverse logistics for undoing and recycling goods and waste, when applicable”
• Subject to review by Court of Account

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Environmental provisions in the Brazilian law

Brazil’s New Law – Sustainability – Assessing Environmental Impact in Bid Price

Art. 34. Asssessing by the lowest price or highest discount and, when applicable, by technique and price will consider the lowest expenditure for the Administration, in compliance with the minimum quality parameters defined in the bidding notice.

§ 1 The indirect costs, related to the expenses of maintenance, use, replacement, depreciation and environmental impact of the bid object, among other factors related to its life cycle, may be considered for the definition of the lowest expenditure, whenever objectively measurable, as provided for in regulation.

§ 2 The assessment for the highest discount will be based on the global price established in the bidding notice, and the discount will be extended to any additional terms.

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SUSTAINABILITY IN THE EUROPEAN UNION

Key Goals in European Procurement Directives – Are These Inherent to Procurement?

• “The principles of transparency and equal treatment of bidders, best value for money and the free movement of goods and services form the basis of the Public procurement Directives.”

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Three “Pillars” to European Sustainable Procurement

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Three “Pillars” to European Sustainable Procurement

Public Procurement spending amounts to as much as 16% of the EU’s gross domestic product, which is a sum equivalent to the GDP of Germany. This purchasing power can have a significant impact on the market by influencing the suppliers and setting an example for private procurements. Through adopting the principles of sustainable development to the public procurement procedures, public authorities can provide the industry with incentives to develop new and better technologies and encourage sustainable patterns of behaviour

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Compare: Portland, Oregon

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Sustainable Procurement in U.S. Federal Procurement

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Energy Savings Performance Contracts (ESPCs)

• “Energy-savings performance contracts (ESPCs) are unlike other federal contracts in that they have substantially longer terms (up to 25 years) and the agency pays the contractor a percentage of the savings realized from energy savings measures it proposes and implements for the agency.” - CRS

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PRESIDENTIAL POLICIES

• Executive Order (EO) 13423, “Strengthening Federal Environmental, Energy, and Transportation Management,” was signed by President Bush on January 24, 2007. EO 13423 instructs Federal agencies to conduct their environmental, transportation, and energy-related activities under the law in support of their respective missions in an environmentally, economically and fiscally sound, integrated, continuously improving, efficient, and sustainable manner

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President Obama – E.O. 13514�Federal Leadership in Environmental, Energy, and Economic Performance� (Oct. 5, 2009)

SUPERSEDED

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President Obama – E.O. 13514 (Oct. 5, 2009)

• Sec. 13. Recommendations for Vendor and Contractor Emissions. Within 180 days of the date of this order, the General Services Administration, in coordination with the Department of Defense, the Environmental Protection Agency, and other agencies as appropriate, shall review and provide recommendations to the CEQ Chair and the Administrator of OMB's Office of Federal Procurement Policy regarding the feasibility of working with the Federal vendor and contractor community to provide information that will assist Federal agencies in tracking and reducing scope 3 greenhouse gas emissions related to the supply of products and services to the Government. These recommendations should consider the potential impacts on the procurement process, and the Federal vendor and contractor community including small businesses and other socioeconomic procurement programs. Recommendations should also explore the feasibility of:�(a) requiring vendors and contractors to register with a voluntary registry or organization for reporting greenhouse gas emissions;�(b) requiring contractors, as part of a new or revised registration under the Central Contractor Registration or other tracking system, to develop and make available its greenhouse gas inventory and description of efforts to mitigate greenhouse gas emissions;�(c) using Federal Government purchasing preferences or other incentives for products manufactured using processes that minimize greenhouse gas emissions; and�(d) other options for encouraging sustainable practices and reducing greenhouse gas emissions.�

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Executive Order 13514 Section 13: Recommendations for Vendor and Contractor Emissions

General Services Administration

April 2010

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Goal: Reduce Government Scope 3 Emissions

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GSA concluded that it is feasible, if employing the recommended phased approach, for the Federal Government to track and reduce its scope 3 supply chain emissions through coordination with suppliers and other stakeholders. The reporting of scope 3 supply chain emissions is an emerging field, and all stakeholders will need time and resources to adjust to a steep learning curve. Adopting a phased approach should allow the Government to incorporate leading practices as they develop. The recommended mechanism for achieving scope 3 supply chain emissions tracking is based on existing requirements for agencies to measure and set reduction goals for scope 3 GHG emissions. Specifically including supply chain emissions in agency scope 3 inventories should provide the incentive for agencies to track supplier emissions and possibly use emissions information in procurement decisions.

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Government supply chain GHG emissions tracking should be done in partnership with the supplier community to reduce any duplication of effort across agencies and industry and to leverage existing GHG emissions programs. Any Government GHG emissions tracking approach should strive to minimize the burden placed on industry—especially small and disadvantaged businesses and other socioeconomic groups—while facilitating measurable scope 3 supply chain emissions reductions. Most importantly, reporting of scope 3 emissions should be done with the recognition that it is an emerging management concept, and any initiative should be flexible enough to work with changing practices.

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• Ease of use. Strive to be easily understood and used by both suppliers and agencies, keeping in mind that most users are not experts in sustainability.
• Transparency. Ensure the data and goals are clearly understood and available to key stakeholders while protecting sensitive supplier and agency information.
• Parity. Do not favor a specific industry sector, company, or region.
• Realizing Federal GHG reductions. Foster effective improvements to assist Federal agencies in tracking and reducing scope 3 GHG emissions . . .
• Leveraging existing systems and mechanisms. . . .

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PRINCIPLES

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It is feasible to have suppliers report to a voluntary registry, but it is not necessary. As long as suppliers make their emissions information available to the Government, the storage location of that information is not important. Ultimately, emissions information disclosed to the Government should be calculated using an acceptable standard and then verified. Voluntary registries offer significant value in terms of inventory calculation assistance and data management to the supplier community; however, that value does not clearly translate to equal value for the Government.

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• GSA found no product standard or label for GHG emissions
• Government could use preferences as in other socioeconomic programs
• But until product standards available, preferences not effective at product level
• Government should define criteria for identifying reliable product standards
• When sufficient suppliers voluntarily disclose GHG emissions, corporate-level GHG emissions can be used as an evaluation factor, until product-level standards are available as evaluation factors

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• GSA found no product standard or label for GHG emissions
• Government could use preferences as in other socioeconomic programs
• But until product standards available, preferences not effective at product level
• Government should define criteria for identifying reliable product standards
• When sufficient suppliers voluntarily disclose GHG emissions, corporate-level GHG emissions can be used as an evaluation factor, until product-level standards are available as evaluation factors

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Why use corporate GHG emissions as an evaluation factor:

The reasoning behind recommending an evaluation factor instead of a purchasing preference or mandatory contracting goal is an evaluation factor allows agencies the discretion to trade the price of a given procurement against the GHG emissions associated with that procurement and thereby enable reductions in agency scope 3 GHG emissions through the acquisition system.

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The GHG emissions reporting status evaluation factor should be made mandatory for all acquisitions using the recommended phased approach. Agencies should retain discretion over the weight given to the evaluation factor in each solicitation, and an offeror should be evaluated as neither favorable nor unfavorable if they have not reported completion of a GHG emissions inventory.

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Executive Order 13693 of March 19, 2015 - Planning for Federal Sustainability in the Next Decade

• Initiatives to encourage use of eco-labels
• Council on Economic Quality (CEQ) to publish whether major suppliers have published a GHG emissions target
• Largest agencies to undertake pilot – 5 procurements annually – with contract requirements or evaluation criteria which address GHG

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U.S. “Eco-Label” Requirements

23.103 -- Sustainable Acquisitions.

(a) Federal agencies shall advance sustainable acquisition by ensuring that 95 percent of new contract actions for the supply of products and for the acquisition of services (including construction) require that the products are—

(1) Energy-efficient (ENERGY STAR® or Federal Energy Management Program (FEMP)-designated);

(2) Water-efficient;

(3) Biobased;

(4) Environmentally preferable (e.g., EPEAT-registered, or non-toxic or less toxic alternatives);

(5) Non-ozone depleting; or

(6) Made with recovered materials.

(b) The required products in the contract actions for services include products that are—

(1) Delivered to the Government during performance;

(2) Acquired by the contractor for use in performing services at a Federally-controlled facility; or

(3) Furnished by the contractor for use by the Government.

(c) The required products in the contract actions must meet agency performance requirements.

(d) For purposes of meeting the 95 percent sustainable acquisition requirement, the term “contract actions” includes new contracts (and task and delivery orders placed against them) and new task and delivery orders on existing contracts.

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EU Directive – On Eco-Labels

Article 43 - Labels

1.   Where contracting authorities intend to purchase works, supplies or services with specific environmental, social or other characteristics they may, in the technical specifications, the award criteria or the contract performance conditions, require a specific label as means of proof that the works, services or supplies correspond to the required characteristics, provided that all of the following conditions are fulfilled:

(a) the label requirements only concern criteria which are linked to the subject-matter of the contract and are appropriate to define characteristics of the works, supplies or services that are the subject-matter of the contract;

(b) the label requirements are based on objectively verifiable and non-discriminatory criteria;

(c) the labels are established in an open and transparent procedure in which all relevant stakeholders, including government bodies, consumers, social partners, manufacturers, distributors and non-governmental organisations, may participate;

(d) the labels are accessible to all interested parties;

(e) the label requirements are set by a third party over which the economic operator applying for the label cannot exercise a decisive influence.

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ENVIRONMENTAL SUSTAINABILITY IN THE BIDEN ADMINISTRATION

IMPACT OF RISING WATERS

DoD Request for Information (July 7, 2021)

A. Disclosure of Greenhouse Gas (GHG) Emissions

• Does your organization measure and report Scope 1 and Scope 2 GHG emissions in line with the GHG Protocol Corporate Standard or equivalent? If not the GHG Protocol, which standard(s) are used?
• Does your organization currently report Scope 3 GHG emissions? If so, which Scope 3 categories are reported and which methodologies and/or standards are used?
• Does your organization publicly report your GHG results either through a third-party organization or as part of an external corporate sustainability report?
• Does your organization disclose its GHG emissions inventory on an annual basis? If so, where or by what platform?
• Does your organization set and disclose targets for GHG emissions reduction and/or science-based targets? If so, are these targets reviewed or verified by a third party?
• Does your organization report climate risk-related information as part of your standard financial reporting disclosures?
• Would your organization be willing to participate in a pilot program involving voluntary disclosure of actual GHG emissions and GHG emission targets?

B. Environmental, Social, and Governance (ESG)—General

• Does your organization participate in ESG reporting? If so, which sustainability standards or platforms does your organization use (e.g., Carbon Disclosure Project (CDP), Global Reporting Initiative (GRI), Science Based Targets initiative (SBTi), Supplier Ethical Data Exchange (SEDEX))?
• What is the role of third-party verification in your ESG activities?
• Does your organization's ESG-related reporting include accounting for and addressing disparate impacts on disadvantaged communities and communities of color?
• Does your organization's ESG-related reporting include creation of jobs associated with the shift away from carbon-intensive energy sources?

C. Supply Chain GHG and Risk Management

• Does your organization have the ability to provide customers with GHG emissions information specific to their purchases or contracts? If so, at what level can your organization provide this information (e.g., by customer on an annual basis, contract, item)?
• Does your organization collect GHG emissions information from your suppliers? If so, what systems, standards, or instruments are used to collect this information? If so, how is this information used?
• Do you require your suppliers to set GHG emissions reduction targets or related targets (e.g., energy efficiency, clean electricity)?

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Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk�Proposed Rule, 87 Fed. Reg. 68312 (14 Nov 2022)

• Contractors with over $7.5 million in annual contracts will need to compile and disclose greenhouse gas emissions
• If not, presumptively non-qualified (“non-responsive”)
• Contractors must set reduction goals
• “The foundation to properly analyze and mitigate climate risks is public and standardized disclosure, which will enable the Federal Government to conduct prudent fiscal management of all major Federal suppliers.”

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Webinars available at PublicProcurementInternational.com

Strategies for Environmental Sustainability

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Steven L. Schooner

EU-U.S. Trade and Technology Council

• The catalogue was released as part of the sixth ministerial meeting of the Trade and Technology Council (“TTC”), which took place in Leuven, Belgium, on 4 and 5 April 2024. The meeting was co-chaired by European Commission Executive Vice President Margrethe Vestager, European Commission Executive Vice President Valdis Dombrovskis, United States Secretary of State Antony Blinken, United States Secretary of Commerce Gina Raimondo, and United States Trade Representative Katherine Tai, joined by European Commissioner Thierry Breton, and hosted by the Belgian Presidency of the Council of the European Union.
• The “EU-US Trade and Technology Council provides a forum for the United States and European Union to coordinate approaches to key global trade, economic, and technology issues and to deepen transatlantic trade and economic relations based on these shared values.  It was established during the EU-US Summit on 15 June 2021 in Brussels.”

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The joint catalogue reflects a common understanding on how “green public procurement” — public procurement grounded in environmental sustainability — can positively contribute to achieving shared environmental goals posed by climate change. The catalogue identifies key policies, actions and best practices in green public procurement, as part of a broader effort to use public procurement to “catalyze” reductions in the greenhouse gasses which cause global warming.

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Catalogue Demonstrates Parallel Developments – EU / US

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U.S. Green Procurement Initiatives

• Requiring major Federal suppliers to publicly disclose emissions and set reduction targets. This initiative would center on contractor qualification (known as “responsibility” in U.S. procurement.) Under a proposed rule published in November 2022, to be considered qualified (“responsible”), major federal contractors (those with over US$50 million in annual federal obligations) would be required to publicly report their annual corporate-level GHG emissions and set targets to reduce them. Major contractors would also be required to disclose climate risks and vulnerabilities that may affect their future economic stability or their ability to deliver goods and services that are critical to Federal agency missions (see summary table below).
• Launching a Buy Clean initiative for low-carbon materials. This initiative promotes purchase of low-carbon materials in the construction industry. In February 2022, the Biden Administration launched its Federal Buy Clean Initiative and Task Force that will “promote use of construction materials with lower embodied emissions and pollutants across their lifecycle.”

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https://publicprocurementinternational.com/2023/12/04/cop-28-uae-roundtable-on-environmentally-sustainable-public-procurement/

U.S. Green Procurement Initiatives

• Changing Federal procurement rules to minimize the risk of climate change, including factoring in the social cost of greenhouse gas (SC-GHG) in procurement decisions. This initiative seeks to require agencies to consider lifecycle costs of sustainable alternatives. Under Federal Acquisition Regulation (FAR) Part 7, federal agencies must already consider the life-cycle cost of alternatives in procurement decisions. In 2021, President Biden issued Executive Order 14030, which directed regulators to amend the FAR to “ensure that major Federal agency procurements minimize the risk of climate change, including requiring the social cost of greenhouse gas emissions to be considered in procurement decisions and, where appropriate and feasible, give preference to bids and proposals from suppliers with a lower social cost of greenhouse gas emissions.” The Biden administration says that it “aims to strengthen lifecycle cost approaches to include the SC-GHG—the incremental future economic damages caused by each ton of carbon pollution—can be a valuable tool to guide agencies toward investments that are compatible with the low-carbon economy of the future.” In September 2023, the White House announced that it was directing federal regulators to incorporate SC-GHG estimates into a wide range of federal agency actions, including each agency’s procurement function. In October 2021, regulators had issued a request for comments on minimizing the risk of climate change in federal acquisitions, and a draft proposed rule (FAR Case 2021-016) is under review.

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https://publicprocurementinternational.com/2023/12/04/cop-28-uae-roundtable-on-environmentally-sustainable-public-procurement/

U.S. Green Procurement Initiatives

• Maximizing the procurement of sustainable products and services. This initiative stresses the use of approved eco-labels to identify sustainable products for acquisition, and calls for purchase of those products whenever practicable. In September 2021, the Biden administration issued a proposed rule to update FAR Part 23 to “focus on current environmental and sustainability matters and to implement a requirement for agencies to procure sustainable products and services to the maximum extent practicable.” Specifically, the proposed rule would call on agencies to purchase the products identified by the U.S. Environmental Protection Agency (EPA) under various eco-labels. Under the proposed revised FAR 23.103, agencies would be required to “procure sustainable products and services . . . to the maximum extent practicable.” Procuring sustainable products and services would be considered practicable unless the agency could not acquire products or services (i) competitively within a reasonable performance schedule; (ii) that meet reasonable performance requirements; or (iii) at a reasonable price.
• Establishing the Net-Zero Emissions Procurement Federal Leaders Working Group, including a Buy Clean Task Force, to drive strategy and implementation. This initiative is part of the federal government’s overall strategy for reducing climate change. These federal officials would work within the Biden administration’s broader Federal Sustainability Plan Strategy Mix, which includes procurement as a core pillar of the Biden administration’s overall plan for meeting sustainability goals.

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https://publicprocurementinternational.com/2023/12/04/cop-28-uae-roundtable-on-environmentally-sustainable-public-procurement/

New U.S. Rule on Green Procurement �89 Fed. Reg. 30212 (Apr. 22, 2024)

• New clause FAR 52.223-23, Sustainable Products and Services (May 2024)
• Requiring agencies must procure sustainable products and services “to the maximum extent practicable”
• Applies to all procurements, including micro-purchases
• Does not apply to weapon systems, or to contracts performed abroad
• Requiring agency is to list the required sustainable products and services in the solicitation
• Agency may decide not to require sustainable goods or services (FAR 23.103-.104) (and if so must prepare written justification) because of:
• Price not reasonable (life-cycle cost assessment recommended but not mandatory)
• Performance issues (e.g., mission demands, quality, “Buy American” and cybersecurity)
• Time (cannot purchase competitively within a reasonable performance schedule)
• Requiring agency lists sustainable products/services, evaluates and enforces
• Defines “sustainable products and services” to specify that products and services must meet, e.g., the Environmental Protection Agency (EPA) Recommendations of Specifications, Standards, and Ecolabels (“EPA Recommendations”) in effect as of October 2023
• EPA Recommendations include 40+ ecolabels – Ecolabel Index reports 456 ecolabels worldwide
• Compare EPA Framework for assessing ecolabel standards vs. EU Procurement Directive Art. 53 / Max Havelaar (CJEU C-368-10)

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TRADE AGREEMENTS AND GREEN PROCUREMENT

Government Procurement Agreement (2014) �on Social and Environmental Criteria

• “The evaluation criteria set out in the notice of intended procurement or tender documentation may include, among others, price and other cost factors, quality, technical merit, environmental characteristics and terms of delivery.”

Art. III “Measures [may] not [be] applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between Parties where the same conditions prevail or a disguised restriction on international trade . . . .”

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GPA – Article X

Article X — Technical Specifications and Tender Documentation

Technical Specifications

A procuring entity shall not prepare, adopt or apply any technical specification or prescribe any conformity assessment procedure with the purpose or the effect of creating unnecessary obstacles to international trade.

In prescribing the technical specifications for the goods or services being procured, a procuring entity shall, where appropriate:

set out the technical specification in terms of performance and functional requirements, rather than design or descriptive characteristics;  and

base the technical specification on international standards, where such exist;  otherwise, on national technical regulations, recognized national standards or building codes.

Where design or descriptive characteristics are used in the technical specifications, a procuring entity should indicate, where appropriate, that it will consider tenders of equivalent goods or services that demonstrably fulfil the requirements of the procurement by including words such as “or equivalent” in the tender documentation.

A procuring entity shall not prescribe technical specifications that require or refer to a particular trademark or trade name, patent, copyright, design, type, specific origin, producer or supplier, unless there is no other sufficiently precise or intelligible way of describing the procurement requirements and provided that, in such cases, the entity includes words such as “or equivalent” in the tender documentation.

A procuring entity shall not seek or accept, in a manner that would have the effect of precluding competition, advice that may be used in the preparation or adoption of any technical specification for a specific procurement from a person that may have a commercial interest in the procurement.

For greater certainty, a Party, including its procuring entities, may, in accordance with this Article, prepare, adopt or apply technical specifications to promote the conservation of natural resources or protect the environment.

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Anti-Corruption

Risks of Corruption

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• Public corruption occurs when an office-holder or other governmental employee acts in an official capacity for personal gain.

Principal

Agent 1

CO

Purchase

MONITORING

BONDING (PUNISHING)

Agent 2

Contractor

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Processes

Planning

Cost Reimb.

Competition - Methods

Qualification

Responsiveness

Rules

Contract

Provisions

Anti-Corruption

Professionalism

Users

Conditions for Use

Challenges

Audits

Exclusion/

Debarment

Fraud

Gov. Claims

UNCAC

Transparency

Compliance

“Brains”

Ethics

Objective Criteria

Tools for Fighting Corruption

Suspension / Debarment

Tendering Rules

Prosecution

Audits

Bid Challenges

Transparency

Oversight

Corporate Compliance

Ethics

Red Flags – Third Parties

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UK Bribery Act of 2010

• Strict liability – unless compliance plan
• UK Ministry of Justice guidance (2011)
• Extraterritorial application
• Covers commercial bribery

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CORPORATE COMPLIANCE

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Brazil’s Anti-Corruption Law

Art. 5th. For the purposes of this Law, acts harmful to the public administration, national or foreign, are those performed by the legal persons cited in the paragraph of Art. 1st, which violate the national or foreign public patrimony, principles of the public administration, or the international commitments assumed by Brazil, defined thus:

. . .

IV – insofar as requests for bids and contracts:

. . .

f) to obtain an improper advantage or benefit, fraudulently, for modifications or extensions in contracts entered into with the public administration, not authorized by law, the invitation to the public request for bid, or the respective contractual instruments; or

g) to manipulate or defraud the economic and financial balance of contracts entered into with the public administration;

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France’s Law “Sapin II” (2016)

• The new law “also lays down an obligation to implement a corruption prevention plan in large companies. The National [Anti-Corruption] Agency will ensure that companies with a workforce of over 500 and whose annual turnover exceeds €100 million put in place procedures to guard against the risk of corruption, for example by training their employees. This obligation already exists in a number of countries, including the United Kingdom and Switzerland. The Agency will be able to penalise any failings in the 1,600 companies in France in this bracket. In this way, it will be able to issue a formal warning or impose a fine of up to €1 million for legal entities and €200,000 for natural persons, and make the proposed penalty public.”

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France’s Law “Sapin II”

• Corporate compliance system must include (Art. 17)

1. Code of Conduct

2. Internal alert system

3. Risk-mapping

4. Customer and supplier assessment

5. Internal accounting controls

6. Training for those at risk

7. Discipline

8. Evaluation and oversight of system

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Mexico’s General Law of Administrative Accountability (2017)

• However, Mexico’s new law also provides that sanctions shall be mitigated by 50-70 percent where a company self-reports past or ongoing misconduct and has implemented and enforced an adequate “Integrity Policy.” An “Integrity Policy” is defined to include, at a minimum: (1) a document setting forth the functions and responsibilities of each of the company’s areas, the leadership throughout the company and a clear chain of command; (2) a code of conduct with enforcement protocol; (3) control and audit systems that regularly supervise standards of compliance within the organization; (4) internal whistleblower and reporting systems that allow for appropriate reporting to enforcement authorities and disciplinary procedures for employees acting contrary to company policy or Mexican law; and (5) human resources policies for preventing the hiring of persons that may pose compliance risks to the organization.

https://www.corporatecomplianceinsights.com/anti-corruption-enforcement-mexico/

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What Is a Compliance System?

See Reading

List

Issues in Compliance

• Framing system:
• Gifts
• Revolving door
• Conflicts of interest (personal)
• Integrity of the procurement process
• Bid & proposal
• Internal government procurement information
• Oversight by compliance officers
• Disclosure – voluntary or mandatory?

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U.S. Anti-Fraud Law

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UNCAC Peer Review

SUSPENSION/DEBARMENT/�EXCLUSION

US – Mexico – Canada Agreement �(USMCA)

Article 13.17: Ensuring Integrity in Procurement Practices

1. Each Party shall ensure that criminal, civil, or administrative measures exist that can address corruption, fraud, and other wrongful acts in its government procurement.
2. These measures may include procedures to debar, suspend, or declare ineligible from participation in the Party’s procurements, for a stated period of time, a supplier that the Party has determined to have engaged in corruption, fraud, or other wrongful acts relevant to a supplier’s eligibility to participate in a Party’s government procurement . . .

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United States: �Procurement Suspension or Debarment =�“Meta”- Responsibility Determination

FAR 9.402  Policy.

(a) Agencies shall solicit offers from, award contracts to, and consent to subcontracts with responsible contractors only. Debarment and suspension are discretionary actions that, taken in accordance with this subpart, are appropriate means to effectuate this policy.

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U.S. Federal Discretionary Debarment

Criminal or Civil Fraud

Adverse Past Performance Reports

Suspension or Debarment

Other problems:

• No uniform procedures
• Huge disparity in actions

Administrative Agreement / Compliance

Comparing Causes for Debarment/Exclusion

United States

• Conviction of a crime or civil fraud
• Poor contract performance
• Other serious misconduct showing the contractor is not responsible

World Bank

• Misconduct, as narrowly defined by Anti-Corruption, Guidelines, and Consultant and Procurement Guidelines: fraud, corruption, collusion, coercion and obstruction

European Union

Mandatory:

Corruption, fraud, money laundering

Non-Mandatory:

• Bankruptcy
• Convicted re: professional conduct
• Grave professional misconduct
• Social security / taxes

World Bank Sanctions System

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• Investigates allegations of fraud, corruption, collusion, coercion and obstruction
• Prepares and submits a Statement of Accusations and Evidence (SAE) to the Office of Suspension and Debarment

• Evaluates evidence presented by INT
• Issues Notice of Sanctions Proceedings to respondent
• Temporarily suspends respondent
• Recommends a sanction (becomes effective if respondent does not contest)
• 61% of cases resolved at this level

• Comprised of 4 external members and 3 Bank staff
• Reviews case ‘de novo’
• May hold a hearing with parties and witnesses
• Imposes sanctions (not bound by SDO’s recommendation)
• Decisions are final and not appealable
• 39% of cases resolved at this level

Adjudicative

Investigative

Compliance

• Monitors integrity compliance by sanctioned companies (or codes of conduct for individuals)
• Decides whether the compliance condition established by the SDO or Sanctions Board as part of a debarment has been satisfied.

Four Paradigms

Performance Risk

Reputation Risk

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Using Exclusion/Debarment Information Across Borders:�Key Issues

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Cross-Debarment:

Options

Options:

• Automatic cross-debarment
• Debarment list + Reasons
• Debarment list
• Do nothing

VOLUNTARY VERSUS MANDATORY DISCLOSURE

U.S. Federal Mandatory Disclosure:�FAR 52.203-13

• Report to Contracting Officer and Inspector General
• Failure to report: grounds for suspension or debarment

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World Bank Voluntary Disclosure Program

World Bank Voluntary Disclosure Program

Combine?

Combine?

Goal:

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Reputation Risk?

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Performance Risk?

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Reverse Auctions

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Assessing Electronic Procurement

• More efficient?
• More transparent?
• Discriminatory?
• Ready source of comparative lessons?

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What Is a Reverse Auction?

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Background

• For centuries, governments have asked bidders to submit bids against government specifications, and made award to the lowest-price, qualified bidder
• Reverse auctions are the next step in that evolution: iterative bidding at ever-lower prices

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Photo: Financial Times

Sample Reverse Auction

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Case study: Georgia – �Using E-Procurement To Combat Corruption

• Link to presentation on Georgian e-procurement system:
• https://prezi.com/1yugudjld6rw/e-procurement-reform-in-georgia-everyone-sees-everything/
• Transparency International – Georgia report on e-procurement system:
• http://www.transparency.ge/en/node/3117

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Georgia E-Procurement

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Sample Georgian Auction

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Which types of auction can be used?

• Type 1 – allowed; is the most common in UK
• winning tender is chosen based solely on the auction phase (usually price only)
• winner (usually lowest price) is apparent to participants during the auction process

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European Perspective

- Sue Arrowsmith

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Which types of auction can be used?

• Type 2 – allowed

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• award is based on aspects of tenders assessed before the auction (e.g.quality) and on the auction (where usually only price only is subject to change)
• winner is apparent during the auction process

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European Perspective

- Sue Arrowsmith

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Which types of auction can be used?

• Type 3 – not allowed under directives at all; was rare before new directives except for utilities

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• As in type 2, award is based on aspects of tenders not changed in the auction (e.g. quality) and on the auction
• winner is not apparent during the auction process (e.g. quality is judged after the auction and then an overall judgment made on price/quality)

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European Perspective

- Sue Arrowsmith

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European Union Directive – Cont’d

The electronic auction shall be based:

- either solely on prices when the contract is awarded to the lowest price,

- or on prices and/or on the new values of the features of the tenders indicated in the specification when the contract is awarded to the most economically advantageous tender.

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Any Recourse in GPA?

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Revised GPA Defines Electronic Reverse Auction

Article I:

(e) electronic auction means an iterative process that involves the use of electronic means for the presentation by suppliers of either new prices, or new values for quantifiable non-price elements of the tender related to the evaluation criteria, or both, resulting in a ranking or re‑ranking of tenders;

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And GPA Regulates . . .

Article XIV Electronic Auctions

Where a procuring entity intends to conduct a covered procurement using an electronic auction, the entity shall provide each participant, before commencing the electronic auction, with:

(a) the automatic evaluation method, including the mathematical formula, that is based on the evaluation criteria set out in the tender documentation and that will be used in the automatic ranking or re-ranking during the auction;

(b) the results of any initial evaluation of the elements of its tender where the contract is to be awarded on the basis of the most advantageous tender; and

(c) any other relevant information relating to the conduct of the auction.

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NEW U.S. RULES

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Over the Last 20 Years, Procurement Regimes Around the World – But Not the FAR – Have Embraced Electronic Reverse Auctions

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Reverse Auctions Can Yield Substantial Savings

GAO 2013 report found that “the four agencies [GAO] studied (Army, Department of Homeland Security (DHS), Department of the Interior, and the Department of Veterans Affairs (VA)) reported approximately 12% in savings from purchases totaling more than $800 million during fiscal year (FY) 2012 for a range of commercial items . . . . The Department of Energy separately reported seeing an average savings of about 14% per contract awarded to provide core supplies and services for its National laboratories. These savings were generally calculated by comparing the agency’s independent government cost estimate to the closing price of the reverse auction.”

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Lack of Governmentwide Rule Has Impaired Reverse Auctions

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GAO’s 2018 report showed that 1/3 of reverse auctions had only one bid or bidder

Pathway to the Final Rule

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Q: Have reverse auctions been adopted broadly in other public procurement markets?

What the Final Federal Rule Says

• Coordinating with the OFPP Memorandum
• Enforcers’ Access to Auction Data Through Service Providers
• Disclosure of Lowest Bidder Prices
• Limited Guidance on When to Use Reverse Auctions
• Limited Guidance on Conducting a Reverse Auction
• Only a Contracting Officer May Exclude Bidders
• Reverse Auctions Integrated Into Other Contracting Methods
• Reverse Auction Service Providers and Bidders
• If Only One Bidder

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Issues with the Final Rule

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No Encouragement to Use Reverse Auctions

• Why has the federal government not moved more quickly to embrace reverse auctions?
• DLA’s rule calls for an explanation if a contracting official does not use reverse auctions – why not create that sort of presumptive encouragement?

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Limited Guidance on When To Use Reverse Auctions

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Army Guidance on When to Use Reverse Auction

Reverse auctions are especially appropriate where there are:

• Healthy price competition
• A well-defined requirement
• Bulk commodity type procurements (such as IT equipment, spare parts
• Procurements in which there is a well-defined supplier base
• Procurements where the award evaluation criteria are not subject to interpretation (e.g., lowest price versus multiple criteria for tradeoffs and subjective judgments)

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Guidance on How To Design an Auction

• Almost no guidance in final rule on how auctions to be structured (FAR 17.804)
• National Defense Authorization Act in 2014 called for guidance from Defense Department which would state:
• If a reverse auction is to be conducted by a third party, “inherently governmental functions are not [to be] performed by private contractor,” and any “past performance or financial responsibility information created by the third party is [to be] made available to offerors.”

Questions:

• Is guidance on structuring a reverse auction important?

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Defense Logistics Agency Guidance on Structuring a Reverse Auction

• Notification to bidders
• Use of a reverse auction in conjunction with other competitive methods
• Price information to be disclosed to bidders during the auction
• In reverse auctions for delivery orders under a standing contract (L10): at the contracting officer’s discretion to declare whether all prices or only the lowest (“lead”) price will be disclosed during the auction
• How final auction prices will be treated, and how the auction may be reopened
• Conditions for vendors to participate in the reverse auction
• How to deal with two bids that are tie (equal) offers
• What the contracting officer will do if a vendor cannot access the auction
• Contracting officer’s authority to extend the auction
• Training for offerors

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The Winner’s Curse

Question: Nothing in the final rule addresses unrealistically low (abnormally low) bids. Is this a problem?

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Bidders’ Prices Disclosed During Auction

• Final rule says that reverse auction service provider must:

“Allow[] offerors to see the successive lowest price(s) offered in the auction without revealing an offeror's identity.”

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Question: Does this raise risks of collusion?

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When the Awardee Will Be Found Qualified (Responsible)

• Final rule is silent on when bidders to be assessed for qualification (responsibility)

Question: Is this an important issue?

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Utah: Qualification Before Auction

“Reverse auction is a two-phase process consisting of a technical first phase composed of one or more steps in which bidders submit a statement of qualifications to be evaluated against the established criteria by the executive director, and a second phase in which those bidders whose statement of qualifications are determined to be acceptable during the first phase submit their price bids through a reverse auction.”

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Service Providers and Source Selection Concerns

• The final guidance does not, however, detail the source selection issues that may arise with private service providers — due, for example, to the reverse auction providers’ unique access to non-public information on when an agency might launch a reverse auction.
• Compare the multilateral development banks’ guidance on reverse auctions, which bars premature disclosure of materials on an upcoming reverse auction.

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Alternative Approaches

• No guidance in the final rule on alternative auction formats

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Questions:

• Are there successful alternative models for reverse auctions, such as (1) Vickrey auctions, or (2) auctions in which quality is taken into account in an initial evaluation, and those scores are fed into the price portion of the auction by algorithm to give “better-quality” bidders an advantage (see Oregon)?
• What about using private auctions?

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Vickrey Auction

(see paper by Ryan Taft)

Sharing Pricing Outcomes Across Government

• Final rule is silent on disseminating pricing outcomes
• OFPP Guidance (2015) called for sharing pricing information across government

Question: Should pricing information from the outcome of a reverse auction be shared across government, and/or made publicly available?

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Assessment of Costs and Benefits

Because this was deemed not a “significant” rule with over $200 million impact, no cost/benefit assessment

Questions:

• Is this rule likely to have over $200 million impact on an $800 billion procurement market?
• Would a cost/benefit analysis help clarify the rule’s assumptions and guidelines, and set benchmarks for assessing future use of reverse auctions?

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The Loper Bright Effect

Loper Bright (June 2024) abandoned judicial deference to agency interpretations of ambiguous legislation.

Question: Who might bring a court challenge against the final rule or its implementation?

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MOCK AUCTION

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Mock Auction Rules

• Group descriptions drive bidding strategy
• Auction per mock solicitation
• U.S. bid protest rules apply
• Bids to be submitted; low bid posted
• Professor is both auctioneer and arbiter

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Mock Auction

• General Facts: Solicitation

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• Team-Specific Facts (to be distributed)

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Time

PRICE

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AUCTION RESULTS

Essay Question

• You have been asked to prepare a contractor compliance plan per FAR 52.203-13 for a large French manufacturer entering the U.S. federal market. Please address each element of the plan; feel free to cite other analogous standards from around the globe. Are these standards similar, and if so how? (See the U.S. Department o Justice’s “FCPA Resource Guide” at page 56 and notes.) Can you explain their similarity by reference to the risk reduction strategies outlined by the Organisation for Economic Cooperation and Development (OECD) in its June 2023 report, Managing Risks in the Public Procurement of Goods, Services and Infrastructure? Please limit your essay to no more than 1200 words. Please include your name and the word count in the upper right-hand corner of the page.

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Conclusion

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