On July 31, 2015, the General Services Administration (“GSA”) issued a memorandum to its acquisition workforce that side steps long-standing Federal Acquisition Regulation (“FAR”) rules aimed at recognizing the standard terms and conditions under which commercially oriented companies sell their products and services. The memorandum formalizes a GSA Class Deviation from FAR Part 12 and implements new GSA clauses to be used when commercial supplier agreements are made a part of any contract with GSA. Eventually, the Class Deviation will be incorporated into GSA’s acquisition regulation supplement to the FAR (the “GSAR”).
The federal government, and especially GSA, has been struggling with standard commercial terms for some time. The class deviation follows a Request for Information (“RFI”) published by GSA in the Federal Register in March, as well as Office of Management and Budget (“OMB”) and Department of Justice (“DOJ”) memoranda on commercial terms of service agreements dated April 4, 2013 and March 27, 2012, respectively. GSA’s class deviation identifies 15 areas of concern where standard commercial terms are deemed by GSA to conflict with federal law. The class deviation explains GSA’s intention to “protect GSA and contractors by uniformly addressing common unacceptable terms, immediately reducing risk, reducing administrative costs, and further streamlining the acquisition process for commercial-item(s).”
To be sure, GSA’s concern with respect to standard commercial terms is not entirely unwarranted. Commercial sellers frequently use standard terms and conditions that can conflict with federal acquisition rules and fail to comport with federal government customer expectations. As a result, leveraging standard commercial terms gives rise to important concerns that warrant negotiation and clarification by government contracting officers. GSA’s class deviation goes beyond addressing this particular problem, however. It not only addresses the 15 specific concerns identified by GSA, but also ensures that virtually no commercial supplier agreement term will apply if it conflicts with any GSA solicitation/contract provision. This result arises from a new approach GSA has taken to the order of precedence clause in GSA contracts, and represents a significant departure not only from GSA policy but also more generally from the commercial item acquisition principles reflected in the FAR and the federal acquisition laws underlying them.
In the mid-1990s, the federal government recognized that onerous government contract terms and conditions and a complicated acquisition process were impeding participation in government procurement by commercially oriented companies. The federal government was paying a premium to gain access to technology and products and services readily available in the commercial marketplace. Congress passed two major legislative reforms referred to as the Federal Acquisition Streamlining Act of 1994 (“FASA”) and the Federal Acquisition Reform Act of 1995 (“FARA”), as part of a larger effort to reinvent government. Generally, and in part, FASA and FARA liberalized the manner in which government agencies could procure commercial items by allowing the use of simple terms and a streamlined acquisition process.
These reforms were implemented in FAR Part 12. A single contract clause at FAR 52.212-4 provided an abbreviated set of terms and conditions to be used by contracting officers when purchasing commercial products and services. Pursuant to the clause and its implementing regulations, agencies were encouraged to leverage standard commercial terms and to negotiate terms just as commercial buyers and sellers do. Only a few paragraphs within FAR 52.212-4 were identified as not subject to negotiation or alteration; paragraphs dealing with Assignments, Disputes, Payments, Invoice, Other Compliances, Compliance with Laws Unique to Government Contracts, and Unauthorized Obligations. Under these reforms, Contractors providing commercial items have been allowed to propose commercial terms for two decades and the order of precedence clause in FAR 52.212-4(s) gave commercial terms incorporated into a federal government contract as an addendum with significant precedence over other government clauses.
GSA’s class deviation goes a step too far to address GSA’s legitimate concerns discussed above. Rather than simply addressing GSA’s 15 areas of concern, the class deviation removes any assurance to contractors that their proposed standard commercial terms will have precedence over any other conflicting terms included in a GSA solicitation/contract. Under the class deviation, only (i) the standard award document, (ii) other documents, exhibits and attachments, and (iii) the specification of a solicitation/contract will be afforded lower precedence than a commercial supplier agreement incorporated as an addendum. Other previously non-essential paragraphs of FAR 52.212-4 and all other solicitation provisions will be afforded higher precedence in the event of a conflict. Given the sheer volume of government-specific clauses included in GSA’s solicitations – most of which are customarily incorporated into the resultant contract – it seems a near certainty that some government clause will preempt nearly any commercial term in a standard commercial agreement. The current GSA Schedule 70 Solicitation, for example, exceeds 200 pages of government terms and conditions most of which were never contemplated by FAR Part 12, and which now will clearly take precedence over any conflicting commercial supplier agreement terms.
GSA contracts will now provide preference to most of the onerous government contract terms that FASA and FAR reforms sought to minimize. Ironically, the federal agency primarily charged with purchasing commercial products and services may now be the agency least friendly to commercially oriented contractors accustomed to using FAR Part 12 and negotiating their standard commercial terms. GSA’s approach essentially subsumes the purpose of FARA and FASA as implemented in FAR Part 12 by shifting risk more squarely on contractors. The intent of these reforms, however, was to honor commercial supplier agreement terms unless they conflict with only a few specifically identified government terms deemed essential to government procurement. FARA and FASA sought to reduce risk to commercially oriented companies who might not otherwise choose to participate in the federal market.
GSA’s approach is inexplicable for several reasons. First, GSA is the government agency chiefly responsible for purchasing commercial items, and therefore should be the agency most focused on attracting and working with commercially oriented contractors. However, the class deviation shifts significant burdens and risks relating to contract integration, interpretation and negotiation to commercially oriented contractors who normally rely on their standard terms and conditions as a baseline for their business practices. Second, it is unclear why GSA chose to pursue a class deviation rather than identifying its concerns and pushing for government-wide changes to the FAR via the normal regulatory rule making process. Presumably, if GSA’s concerns are legitimate, all government agencies face the same challenges and the more rigorous regulatory rule making process associated with FAR changes would best ensure a full and open discussion by all government and industry participants affected rather than unilaterally deviating from the acquisition rules applicable to all other agencies. Finally, and perhaps most importantly, there was an easier way to address GSA’s 15 areas of concern. Instead of changing the order of precedence, GSA could have simply incorporated its concerns within one of the existing non-negotiable paragraphs of FAR 52.212-4, such as the Other Compliances, Compliance with Laws Unique to Government Contracts, and Unauthorized Obligations paragraphs. Arguably, the non-negotiable paragraphs of FAR 52.212-4 already addressed many of GSA’s concerns, and the non-negotiable paragraphs of the clause provided a natural place to address the concerns without changing the order of precedence as to other solicitation or contract terms and the other negotiable paragraphs.
Contractors that transact business with GSA and rely on their standard commercial terms and conditions or license agreements to protect their interests and the interests of their suppliers would be well advised to reassess how they transact business with GSA. References to commercial terms, use of click-wrap licenses, and even incorporation of standard commercial agreements as an addendum may not effectively integrate important terms and conditions into GSA contracts, and these changes could impact subcontracts and supply agreements.