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The Recommended Micro-Purchase Threshold Increase - An Opportunity!

For this week’s post, Mark Lee, Assistant Commissioner of the FAS Office of Policy and Compliance, discusses the Administration’s legislative proposal to increase the micro-purchase threshold (MPT) to $25,000 for buys made through an authorized commercial e-commerce portal.

 

Both in my role at FAS and as a part of the executive team for the commercial e-commerce portal initiative, I am happy to share our thinking and engage in this important dialogue.

 

The recommended MPT increase to $25,000 for purchases through commercial e-commerce portals continues to be of interest, with some seeing the glass half empty, while others view the glass as half full.

 

Meaningful change always comes with challenges, but in this case we see much more upside benefit than downside risk. Equally important, we believe there are a variety of reasonable ways to manage risk.

 

Let’s start off by covering a few basic facts about the proposal – and how we are building in risk management controls from the start:

  • The increased MPT would only apply to purchases through GSA-approved, commercial e-commerce portals; other open market purchases will continue to be capped at the current statutory levels.
  • Competition will be used to select multiple portal providers to help maximize seller access to purchase card holders.
  • Spending categories must be approved for the program by GSA, taking into account factors such as whether sufficient protections are in place to ensure the appropriate safeguarding against supply chain risks (e.g., cyber threats, and counterfeit items). GSA is working with agencies to identify the product categories that should be included in the proof of concept. GSA will enter into a contract with portal providers using terms and conditions (T&C) which will contain appropriate safeguards.  
  • GSA will establish ordering procedures to ensure purchase card holders are conducting smart comparative shopping.

So, what specific opportunities are envisioned by the legislative proposal that GSA and OMB put forward to increase the MPT to $25,000 through commercial e-commerce portals?

 

Reducing cost, gaining speed and achieving efficiency

Today, buyers are authorized to make purchases in the open market up to $25,000 after soliciting three sources (see FAR 13.104(b)). Some in the procurement community forget about this simplified acquisition method, but it has existed for decades. In implementing Section 846, GSA and OMB see an opportunity to transform this existing streamlining tool by combining the powers of the purchase card and the competition that could be facilitated with the assistance of the modern technology within commercial e-commercial portals. This would allow purchase card holders (program officials) to make simple product buys more easily and quickly and at a reduced administrative cost, freeing up scarce contracting workforce resources to execute complex high dollar value procurements.

 

We recognize that the “three phone calls” authority is vested in warranted contracting officers and are committed to developing simple, but effective, ordering procedures to make sure purchase card holders are engaged in smart comparative shopping when purchasing through the portals. In the modern day of disruptive technology, where nobody goes online and just picks an item to purchase, we think purchase card holders will be able to adapt to common-sense business practices and consider multiple sources through approved portals before they execute a purchase.

 

Leveraging competition in an e-commerce world

New technology means it’s time to “think different” about competition.

 

The dynamic marketplace created by e-commerce means buyers today can search multiple offerings, make comparisons, and execute a best value competitive purchase in a matter of minutes – something that could not have been imagined when the Competition in Contracting Act was enacted in 1984. Although many of us associate this efficiency with our personal shopping experience, it is also becoming common practice with business-to-business (B2B) e-commerce, which reached $889 billion in 2017 and is expected to grow to $1.2 trillion in 2021[1].  Not surprisingly, the Section 809 panel is championing the idea of redefining competition within the context of the tools available today with modern technology[2].  

 

Increasing transparency and the ability to make smarter buying decisions

Today, the government has little visibility into micro-purchases. The Section 846 statutory requirement for portal providers to provide transactional data back to GSA will bring several important benefits. It gives GSA (and other government managers) a new ability to proactively manage spend that is currently not seen. Armed with additional purchasing data, agencies will be able to use open market buying as a strategic complement to purchasing off of existing contract vehicles. GSA’s receipt of data from purchases made through the program should also translate into improved management of compliance risks in areas including: socio-economic purchasing, supply chain security and demand management.

 

Promoting commercial buying and bringing in new entrants in a balanced way

The minimal number of compliance requirements imposed by the MPT makes it even easier for the government to align to commercial practice. Equally important, fewer government-unique burdens makes the Federal marketplace more attractive to both new and established companies that haven’t previously done business with the government. This is especially needed as the number of small business participating in the Federal market is down 25 percent since 2010.[3] In addition, we believe increasing the threshold to $25,000 reflects a balance. Any higher and we start hitting requirements such as the Trade Agreements Act. Any lower and we risk not providing strong incentives both for agencies and portal providers to participate in the program.

 

Testing impact to set the stage for the future

If our acquisition system is to keep up with the times, we need to be able to test new and better ways of doing business, evaluate actual data, see how it meets government needs, and adjust as appropriate based on what we learn. Because the MPT involves a limited number of government-unique requirements, a MPT increase enables GSA to roll out a meaningful initial proof of concept more quickly, allowing us to scale the program in a more informed manner.

 

Some would argue this unnecessarily creates a “parallel universe,” where some contractors enjoy the relief of the test while others selling the same items must continue to meet the old rules. This is a reality of how tests are conducted, and for good reason. Having a control group and starting small allows the tester to evaluate impact and make course corrections before making decisions of a more permanent nature. Without the ability to test out new acquisition methods, we might have been much slower to adopt, or experienced costly missteps in making, critical systemic acquisition reforms such as the movement from imprest funds to the purchase card, the rise in the use of contract vehicles, and the shift from paper catalogs to the first government online purchasing tools.

 

We also think this type of testing is consistent with the market research and deep dive work called for in the phased implementation of Section 846. If beneficial, these test results will not only inform the final shape of the program but can also support (with Congressional direction and input where necessary) potential expansion beyond the program, enabling our rules to be shaped more around the nature of what we are buying rather than a particular dollar amount or particular program authority.

 

In short, the evolution of technology and the ability to apply that directly to small dollar purchasing creates a significant opportunity going forward. We have the potential to reduce cost, achieve speed and efficiency, define and enhance competition based upon modern technology, gain insight into purchasing data that has previously been unavailable to reduce risk and improve outcomes, align more with commercial practice, create a user experience that is on par with our own personal experience, and allow mission-critical work to become the focus.

 

I’m excited to participate in this tremendous opportunity and encouraged by the transparent and open feedback that we are receiving on how we best move this effort forward. I look forward to our continued collaboration and ongoing dialogue.

 

Mark J. Lee

Assistant Commissioner

Office of Policy and Compliance

Federal Acquisition Service

 


 

[1] https://www.bigcommerce.com/blog/b2b-ecommerce-trends/

[2] Section 809 Panel Report: Volume 1

[3]https://federalnewsradio.com/reporters-notebook-jason-miller/2017/10/num...

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