An Introduction to U.S. Procurement�Part I

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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

Class Materials on publicprocurementinternational.com

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Monday’s Program

Introduce Yourself

Please send an email to Professor Yukins, cyukins@law.gwu.edu, with

1. your name and email address,
2. your academic program, and
3. a quick summary of your background and goals.

Professor Christopher Yukins George Washington University Law School

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Readings & Videos

• Christopher R. Yukins, The U.S. Federal Procurement System: An Introduction (UrT 2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3063559.
• Video: An Introduction to U.S. Procurement, by Prof. Christopher Yukins
• Steven L. Schooner, Desiderata: Objectives for a System of Government Contract Law (PPLR 2002), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=304620
• Christopher R. Yukins, A Versatile Prism: Assessing Procurement Law Through the Principal-Agent Model (PCLJ 2010), https://ssrn.com/abstract=1776295
• Johannes Schnitzer & Christopher Yukins, Combatting Corruption in Procurement, in UNOPS: Future-Proofing Procurement 26-29 (2015), https://content.unops.org/publications/ASR/ASR-supplement-2015_EN.pdf?mtime=20171214185135
• Video: Fighting Corruption in Procurement (40:12) – in this video excerpted from GWU Law School’s “Foreign Government Contracting” course, Professor Christopher Yukins discusses common patterns and strategies in fighting corruption in public procurement around the world.
• Video: Corporate Compliance (7:50) – in this video excerpted from GWU Law School’s “Foreign Government Contracting” course, Professor Christopher Yukins discusses corporate compliance requirements and strategies, from around the world.
• Christopher Yukins & Allen Green, International Trade Agreements and U.S. Procurement Law (2018). Chapter 9 to The Contractor’s Guide to International Procurement (ABA 2018) (Erin Loraine Felix & Marques Peterson, eds.), https://ssrn.com/abstract=3443244 
• Video: Protectionism – Part I (20:14): In this excerpt from GWU Law’s “Foreign Government Contracting” seminar, Professor Yukins discusses the core concepts in protectionism, U.S. barriers to foreign vendors and key international agreements to open procurement markets.
• Video: Protectionism – Part II (13:27): In this excerpt, also from GWU Law’s “Foreign Government Contracting” seminar, Professor Yukins discusses key issues in U.S. protectionism, from the “walled garden” of the Trade Agreements Act to reciprocity and the U.S.-Mexico-Canada-Agreement (USMCA).
• Video: Protectionism – Part III (6:21): In this final excerpt, Professor Yukins discusses special issues in protectionism and national security, such as the Reciprocal Defense Procurement Agreements between the U.S. and its allies, and the deference afforded national security interests under international trade agreements on procurement.

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Reading List

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George Washington University�Law School

Government Procurement Law Program

Established 1960

Classroom and distance learning in public procurement law and policy, for students in law and business

Procurement Law Centers: 2000

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Washington, D.C.

Nottingham.

Procurement Law Centers Today

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Washington, D.C.

Beijing

Nottingham.

Paris

Munich

Aix-en-Provence

Turin

Stellenbosch

Stockholm

Copenhagen

Galicia

Rome

Vilnius

Moscow

Poland

Northern China

�What is Procurement: �Principles, Pathologies and Processes�

Principles: The Desiderata (Steven Schooner, 2002)

• Transparency
• Integrity
• Competition
• Uniformity
• Risk Avoidance
• Wealth Distribution -- Socioeconomic
• Best value
• Efficiency (administrative)
• Customer Satisfaction

See Reading

List

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Principal-Agent Model

Principal

Agent 1

CO

Purchase

MONITORING

BONDING (PUNISHING)

Agent 2

Contractor

See Reading

List

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Processes

Planning

Cost Reimb.

Competition - Methods

Qualification

Responsiveness

Rules

Contract

Provisions

The United States . . .

. . . Has Separate Procurement Systems

Federal Procurement

State

Local

U.S. Domestic Harmonization

• Model Law?
• Through Federal Grants?
• Cooperative Purchasing?

.. . . Has over $700 billion in annual federal procurement

. . . Procurement is a High-Profile Political Issue

. . . Is Dominated by Defense

. . . Procurement Remains Political

Question: If President Trump did interfere with this procurement for his personal benefit, would this be:

• Petty corruption
• Grand corruption
• State capture?

. . . But Not Driven by Individual Politicians

Top 10 Congressional Districts for Federal Contracts, FY07

. . . Accessible

FY07 Contracts - Defense

. . . Is Transparent at Opportunity and Award

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. . . With exceptions to transparency

More Non-Transparency

See Next Page

. . . Prone to Scandal

Darleen Druyun

• Previously highest-ranking civilian official in Air Force procurement systems
• Convicted of improper job negotiations with Boeing during tanker procurement
• Admitted favoring Boeing in hundreds of millions of dollars in procurement
• Sentenced to prison
• $650M Boeing settlement

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More

Scandal

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Duke Cunningham��David Safavian

Ex-Aide To Bush Found Guilty

Safavian Lied in Abramoff Scandal

Washington Post,

Wednesday, June 21, 2006; Page A01

Congressman resigns after bribery plea

California Republican admits selling influence for $2.4 million

Monday, November 28, 2005

(CNN) -- Rep. Randy "Duke" Cunningham

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1984

. . . Has a Uniform Set of Regulations

. . . a Unified Regulatory System

. . . A Uniform Set of Regulations

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Defense Authorization Act = Annual vehicle for reform

Major methods of competition

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Historical Progression

Competitive Negotiations�(EU: “Competitive Dialogue” or “Competitive Procedures with Negotiations”)

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Competitive Negotiations:�Multiple Vendors, for Best Value

Contractor

Contractor

Contractor

Competitive Negotiations

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Frameworks emerged in the United States and elsewhere along parallel paths

Supplier Lists

Frameworks

Frameworks: Sample

Problems in U.S. Frameworks: 1990s

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Scandals

EU uses same methods – but in a different historical progression

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Do the EU Directives Impose Additional Principles?

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Author: Abby Semple

Source: Abby Semple, www.procurementanalysis.eu/

Patterns in U.S. Procurement

www.usaspending.gov

Defense Department Procurement – FY 2019

Top Defense

France Defense Budget:

US$42 billion

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Access for Foreign Firms to Unitary Federal Procurement Market, Civilian and Defense

DoD Acquisition Workforce

The size of DoD’s civilian acquisition workforce has grown by some 20,000 employees over the past five years and now numbers about 135,000 personnel members, according to Stephanie Barna, acting assistant secretary of Defense for Readiness and Force Management.

Civilians make up 90 percent of the department’s total acquisition workforce. The military component of the acquisition workforce also ticked up by about 2,500 employees, reaching more than 16,000 employees, Barna said.

Typical Progress

Protectionism and the �Trump and Biden Administrations

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See Reading

List

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KEY CONCEPTS

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• “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. . . . If a foreign country can supply  us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.
• Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776)

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What Is Goal of Protectionism?

• Protect Jobs
• Industrial policy
• Ensure security of supply

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Prewar Protectionism

• United States’ suggested charter for predecessor to World Trade Organization (1946)

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U.S. Trade Agreements Act: �A “Walled Garden”

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U.S. Domestic Preference Law: Supplies

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RECIPROCAL DEFENSE PROCUREMENT AGREEMENTS

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Defense – Memoranda of Understanding

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Authority for the defense MOUs rests in the “public interest” exception to the BAA. The agreements serve as a national security benefit, enhance alliance-wide security objectives, and serve as an underpinning for armaments cooperation. – Text § 2:21

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TRUMP ADMINISTRATION

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February 2017

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THE RECIPROCITY CONCEPT

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U.S. – Mexico – Canada Agreement (USMCA):

Procurement Chapter

End

Biden Administration

• President Joe Biden
• Nominated USTR Katherine Tai: “Trade as a Force of Good”
• “Made in America” policy
• Challenges
• “Huawei Ban” – Section 889 Interim Rule
• Cybersecurity Maturity Model Certification (CMMC)
• European Commission “White Paper” -- Foreign Government Subsidies
• Addressing global warming -- FAR 23.103, GSA 2010 report
• Regulatory Cooperation – what process and standards?

Regulatory Cooperation Strategies

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From: Correia de Brito, A., C. Kauffmann & J. Pelkmans, The Contribution of Mutual Recognition to International Regulatory Co-operation (OECD 2016), http://dx.doi.org/10.1787/5jm56fqsfxmx-en (citing OECD, International Regulatory Co-operation – Addressing Global Challenges (2013), http://dx.doi.org/10.1787/97892642004663-en).

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“Buy American” Provisions in Infrastructure Legislation

Infrastructure Investment and Jobs Act

Public Law 117-58 (Nov. 15, 2021)

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Infrastructure Legislation, Title IX:�“Build America, Buy America” Act (BABA)

• Part I: Infrastructure supported by federal financial assistance:
• All iron and steel products and construction materials must be produced in the United States (i.e., “all manufacturing processes” in U.S.)
• Manufactured products must be manufactured in U.S. and at least 55 % of component costs from U.S.
• Waivers (published for comment) available if preference (1) inconsistent with public interest, (2) iron, steel, manufactured products or construction materials not produced in U.S. in sufficient and reasonably available quantity or satisfactory quality, or (3) inclusion of domestic products or materials will increase overall project cost by 25 percent
• OMB guidance to grantees (2 CFR) may be amended re: Buy America
• To be applied consistently with international trade agreements
• Part II: “Make It In America” provisions (echo Biden Executive Order 14005)
• New “Made in America Office” in OMB, with more rigorous standards for Buy American Act (BAA) waivers
• Sense of Congress: 75% BAA domestic content requirement
• International trade agreements to be respected, but reviewed for impact; reciprocal defense procurement agreements to be assessed for “equal and proportionate” access by U.S. suppliers
• Exceptions for trade agreements, least-developed nations and reciprocal defense procurement agreements made explicit

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Context: International Procurement

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“At the EU level, it is estimated that import penetration in the private sector is about 10% higher than in the public sector. . . . There is no consistent indication of a domestic bias in public purchasing despite . . . the fact that overall import penetration in private purchasing is significantly higher than for the public sector. Higher import penetration in private sector purchasing appears to a large extent to be explained by the significant differences in the composition of purchases between the two groups.”

“ . . . the direct cross-border share in the number of awards remained under 5% in the majority of EU28 Member States.”

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U.S. has largest shares of indirect cross-border awards in the European Union

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European Commission’s �“Foreign Subsidies” Regulation and �Public Procurement�Nov. 2022

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European Commission – �“Foreign Subsidies” Regulation

• Regulation – finally approved 28 Nov 2022
• Module 1 imposes a general market scrutiny instrument to capture all possible market situations in which foreign subsidies are provided to beneficiaries in the EU and may cause distortions in the Single Market.
• Module 2 is intended to specifically address distortions caused by foreign subsidies facilitating acquisition of EU companies.
• Module 3 addresses the harmful effect of foreign subsidies on EU public procurement procedures.
• Finally, the regulation calls for review foreign subsidies in the case of applications for EU financial support.

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Commission’s core assertions – White Paper

• In today’s intertwined global economy, foreign subsidies can however distort the EU internal market and undermine the level playing field. There is an increasing number of incidences in which foreign subsidies appear to have facilitated the acquisition of EU undertakings, influenced other investment decisions or have distorted the market behaviour of their beneficiaries. Within the EU, the single market and its rule book ensure a level playing field for all Member States, economic operators and consumers so they can benefit from the scale and opportunities of the EU economy.
• The single market rule book also includes rules on public procurement in order to ensure that undertakings benefit from fair access to public contracts, and that contracting authorities benefit from fair competition.

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Commission’s core goal: �Impose EU “State Aid” Rules on Foreign Firms

“EU State aid rules help to preserve a level playing field in the internal market among undertakings with regard to subsidies provided by EU Member States. However, there are no such rules for subsidies that non-EU authorities grant to undertakings operating in the internal market.”

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Commission’s Goal -- Procurement

• The EU procurement markets are largely open to third country bidders. EU-wide publication of tenders ensures transparency and creates market opportunities for EU and non-EU companies alike. However, EU companies do not always compete on an equal footing with companies benefiting from foreign subsidies. Subsidised companies may be able to make more advantageous offers, thus either discouraging non-subsidised companies from participating in the first place or winning contracts to the detriment of non-subsidised more efficient companies. It is therefore important to ensure that recipients of foreign subsidies bidding for public contracts in the EU compete on an equal footing.

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Commission concedes procuring entities’ posture

• White Paper: “In practice public buyers do not have the information necessary to investigate whether bidders benefit from foreign subsidies or to assess to what extent the subsidies have the effect of causing distortions in procurement markets. Public buyers may also have a short-term economic incentive to award contracts to such bidders, even if the low prices offered result from the existence of foreign subsidies.”

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Public Procurement: �The Current Situation

• A patchwork of measures that are neither coherent nor frequently used
• See Guidance on the participation of third country bidders and goods in the EU procurement market

https://ec.europa.eu/growth/content/new-guidance-participation-third- country-bidders-eu-procurement-market_en

• Core examples
• Utilities Sector: Article 85 of Directive 2014/25/EU provides for (i) exclusion of tenders in which more than 50% of the proposed products would come from “third countries” defined as those with no relevant multilateral or bilateral agreement with the EU and (ii) price preference for EU bids against third country bids where the prices are less than 3% apart
• Abnormally Low Tenders: under all EU regimes purchasers are required to consider rejection of bids that are abnormally low

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Regulation (Nov. 2022)�- When a Subsidy Triggers Action�

• “For the purpose of this Regulation, a foreign subsidy shall be deemed to exist where a third country provides a financial contribution which confers a benefit to an undertaking engaging in an economic activity in the internal market and which is limited, in law or in fact, to an individual undertaking or industry or to several undertakings or industries.”
• A distortion on the internal market shall be deemed to exist where a foreign subsidy is liable to improve the competitive position of the undertaking concerned in the internal market and where, in doing so, it actually or potentially negatively affects competition on the internal market. Whether there is a distortion on the internal market shall be determined on the basis of indicators, which may include the following: (a) the amount of the subsidy; (b) the nature of the subsidy; (c) the situation of the undertaking and the markets concerned; (d) the level of economic activity of the undertaking concerned on the internal market; (e) the purpose and conditions attached to the foreign subsidy as well as its use on the internal market.
• (2) A foreign subsidy is unlikely to distort the internal market if its total amount is below EUR 5 million over any consecutive period of three fiscal years

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Source

Regulation (Nov 2022)�- Balancing (Art. 6)�

• The Commission may, on the basis of information received, balance the negative effects of a foreign subsidy in terms of distortion in the internal market, according to Articles 4 and 5 against the positive effects on the development of the relevant subsidised economic activity on the internal market, while considering other positive effects of the foreign subsidy such as the broader positive effects in relation to the relevant policy objectives, in particular those of the Union.

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Regulation (November 2022)�- Assessing “Unduly Advantageous”�

Public Procurement

Article 27

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Foreign subsidies that cause or risk causing a distortion in a public procurement procedure shall be understood as foreign subsidies that enable an economic operator to submit a tender that is unduly advantageous in relation to the works, supplies or services concerned. The assessment pursuant to Article 4 of whether there is a distortion in the internal market and whether a tender is unduly advantageous in relation to the works, supplies or services concerned shall be limited to the public procurement procedure in question. Only foreign subsidies granted during the three years prior to the notification shall be taken into account in the assessment.

Recital (53)

The opportunity should be given to economic operators to justify that the tender is not unduly advantageous, including by adducing the elements referred to in Article 69(2) of Directive 2014/24/EU . . . regulating abnormally low tenders.

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Article 28 – Notification Needed

• When submitting a tender or a request to participate in a public procurement procedure, undertakings shall either notify to the contracting authority or the contracting entity all foreign financial contributions received in the three years preceding that notification or confirm in a declaration that they did not receive any foreign financial contributions in the last three years. Undertakings which do not submit such information or declaration shall not be awarded the contract.

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How Notification Handled

• “The contracting authority or the contracting entity shall transfer the notification to the Commission without delay.”
• “. . . Where the undertaking . . . fail[s] to notify a foreign financial contribution, or where such a notification is not transferred to the Commission, the Commission may initiate a review.”
• “. . . Where the Commission suspects that an undertaking may have benefitted from foreign subsidies in the three years prior ... it may request the notification of the foreign financial contributions received by that undertaking … any time before the award of the contract. Once the Commission has requested the notification of such a financial contribution, it is deemed to be a notifiable foreign financial contribution in a public procurement procedure

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Investigation by the Commission

2. The Commission shall carry out a preliminary review no later than 20 working days after it receives a complete notification. In duly justified cases, the Commission may extend this time limit by 10 working days once.

3. The Commission shall decide whether to initiate an in-depth investigation within the time limit for completing the preliminary review and inform the economic operator concerned and the contracting authority or the contracting entity without delay. . . .

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5. The Commission may adopt a decision closing the in-depth investigation no later than 110 working days after it has received the complete notification. This period may be extended once by 20 working days, after consultation with the contracting authority or contracting entity, in duly justified exceptional cases including the investigations referred to in paragraph 6 or in cases referred to in Article 16(1), points (a) and (b).

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If Subsidy Found – Contract Award Barred (Regulation Article 31 (Nov. 2022))

Where the economic operator concerned does not offer commitments or where the Commission considers that the commitments . . . are neither appropriate nor sufficient to fully and effectively remedy the distortion, the Commission shall adopt an implementing act in the form of a decision prohibiting the award of the contract to the economic operator concerned (‘decision prohibiting the award of the contract’). That implementing act shall be adopted in accordance with the advisory procedure referred to in Article 48(2). Following that decision, the contracting authority or contracting entity shall reject the tender

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Fines and Penalties�Regulation Art. 33 (Nov. 2022)

The Commission may impose fines and periodic penalty payments as set out in Article 17 [5-10% of annual turnover].

The Commission may, by decision, also impose fines upon the economic operators concerned that do not exceed 1 % of their aggregate turnover in the preceding financial year, where those economic operators intentionally or negligently supply incorrect or misleading information in a notification or declaration pursuant to Article 29 or in a supplement thereto.

. . . The Commission may, by decision, impose fines upon the economic operators concerned that do not exceed 10 % of their aggregate turnover in the preceding financial year where those economic operators, intentionally or negligently: (a) fail to notify foreign financial contributions in accordance with Article 29 during the public procurement procedure; (b) circumvent or attempt to circumvent the notification requirements, as referred to in Article 39(1).

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Regulation on Foreign Subsidies – Nov. 2022 - Summary

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Observations on the White Paper - Procurement

• Dangers
• Trade friction
• Derailing EU procurement regulation
• Disrupting member state procurements

• Possible pathway forward – United States
• Include abnormally low tenders in U.S. regulatory discussions
• Note that U.S. procurement (unlike EU) treats commercial markets as a resource, not a responsibility
• Coordinate on grounds and procedures for exclusion, working with procurement authorities

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Electronic Marketplaces

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MAJ Abraham Young, USA

The Players

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MAJ Abraham Young, USA

The Problems

Vendor data – bid challenges – transparency –

competition -- socioeconomic goals (including Buy American) – no- standards security review -- fee to GSA – Most Favored Customer pricing

Current Status

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“According to GSA’s data, between August 2020 and July 2021, the participating agencies made nearly 24,000 purchases valued at $5.9 million through the commercial platforms.”

GSA 2019: “With a potential $6 billion addressable market for the e-commerce channel . . . “

Where GSA Commercial Platforms Initiative Stands

Convergence: Procurement Regulation

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CONVERGENCE

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EU 2014/24/EU: Self-Cleaning

Art. 57

6.   Any economic operator that is in one of the situations referred to in paragraphs 1 and 4 may provide evidence to the effect that measures taken by the economic operator are sufficient to demonstrate its reliability despite the existence of a relevant ground for exclusion. If such evidence is considered as sufficient, the economic operator concerned shall not be excluded from the procurement procedure.

For this purpose, the economic operator shall prove that it has paid or undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct, clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities and taken concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct.

The measures taken by the economic operators shall be evaluated taking into account the gravity and particular circumstances of the criminal offence or misconduct. Where the measures are considered to be insufficient, the economic operator shall receive a statement of the reasons for that decision.

An economic operator which has been excluded by final judgment from participating in procurement or concession award procedures shall not be entitled to make use of the possibility provided for under this paragraph during the period of exclusion resulting from that judgment in the Member States where the judgment is effective.

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Victim Compensation?

Conclusion

Christopher Yukins

cyukins@law.gwu.edu