Government procurement in the United States
In the United States, there
the processes of government procurement enable federal, state and local government bodies in the country to acquire goods, services, and interests in real property. Contracting with the federal government or with state and local public bodies enables interested businesses to become suppliers in these markets.
In fiscal year 2019, the US Federal Government spent $597bn on contracts. The market for state, local, and education contracts is thought to be worth $1.5 trillion. Supplies are purchased from both domestic and overseas suppliers. Contracts for federal government procurement usually involve appropriated funds spent on supplies, services, and interests in real property by and for the use of the Federal Government through purchase or lease, whether the supplies, services, or interests are already in existence or must be created, developed, demonstrated, and evaluated. Federal Government contracting has the same legal elements as contracting between private parties: a lawful purpose, competent contracting parties, an offer, an acceptance that complies with the terms of the offer, mutuality of obligation, and consideration. However, federal procurement is much more heavily regulated, subject to volumes of statutes dealing with federal contracts and the federal contracting process, mostly in Titles 10, 31, 40, and 41 within the United States Code.
Value of government procurement
In fiscal year 2019, the US Federal Government spent $597bn on contracts. The Obama administration measured spend at over $500bn in 2008, double the spend level of 2001. Other estimates suggest spend was $442bn in fiscal year 2015 and $461bn in 2016. Federal Procurement Reports provide contract data which may be used for geographical, market, and socio-economic analysis, as well as for measuring and assessing the impact of acquisition policy and management improvements.In fiscal year 2010, the top five departments by dollars obligated were:
- Department of Defense
- Department of Energy
- Health and Human Services
- General Services Administration
- NASA.
In the same period, small business contracts totalled $153.9 billion.
Law
The Federal Government's authority to enter into contracts derives from the U.S. Constitution, which defines its powers. The Federal Government acts through legislation, treaties, implementing regulations, and the exercise of those authorities. The Federal Government's power to contract is not set forth expressly and specifically in the U.S. Constitution, but Article 6 appears to assume the continued vitality of "Engagements" entered into under the preceding Articles of Confederation. Moreover, the power to contract was and is regarded at law as necessarily incidental to the Federal Government's execution of its other powers. An early Supreme Court case, the United States v. Thomas Tingey, recognized that the United States Government has a right to enter into a contract. It is an incident to the general right of sovereignty, and the United States may, within the sphere of the constitutional powers confided to it and through the instrumentality of the proper department to which those powers are confided, enter into contracts not prohibited by law and appropriate to the just exercise of those powers. Scores of statutes now also expressly authorize departments and agencies to enter into contracts. The U.S. Congress passes legislation that defines the process and additional legislation that provides the funds.State laws on procurement also operate, governing the procedures to be followed within each state.
Contract law
Private parties entering into a contract with one another have more freedom to establish a broad range of contract terms by mutual consent compared to a private party entering into a contract with the Federal Government. Each private party represents its own interests and can obligate itself in any lawful manner. Federal Government contracts allow for the creation of contract terms by mutual consent of the parties, but many areas addressed by mutual consent in commercial contracts are controlled by law in federal contracting and legally require use of prescribed provisions and clauses. In commercial contracting, where one or both parties may be represented by agents whose authority is controlled by the law of agency, the agent is usually allowed to form a contract only with reference to accepted notions of commercial reasonableness and perhaps a few unique statutes which apply. In federal government contracting, the specific regulatory authority is required for the Government's agent to enter into the contract, and that agent's bargaining authority is strictly controlled by statutes and regulations reflecting national policy choices and prudential limitations on the right of federal employees to obligate federal funds. By contrast, in commercial contracting, the law allows each side to rely on the other's authority to make a binding contract on mutually agreeable terms. Executive branch agencies enter into the contracts and expend the funds to achieve their Congressionally defined missions. When disputes arise, administrative processes within the agencies may resolve them, or the contractor can appeal to the courts.The procurement process for executive branch agencies is governed primarily by the Armed Services Procurement Act and the Federal Property and Administrative Services Act. To address the many rules imposed by Congress and the courts, a body of administrative law has been developed through the Federal Acquisition Regulation. This 53-part regulation defines the procurement process, including special preference programs, and includes the specific language of many clauses mandated for inclusion within Government contracts. Most agencies also have supplemental regulatory coverage contained in what are known as FAR Supplements. These supplements appear within the Code of Federal Regulations volumes of the respective agencies. For example, the Department of Defense FAR Supplement can be found at 10 CFR.
Government contracts are governed by federal common law, a body of law which is separate and distinct from the bodies of law applying to most businesses—the Uniform Commercial Code and the general law of contracts. The UCC applies to contracts for the purchase and sale of goods, and to contracts granting a security interest in property other than land. The UCC is a body of law passed by the U.S. state legislatures and is generally uniform among the states. The general law of contracts, which applies when the UCC does not, is mostly common law, and is also similar across the states, whose courts look to each other's decisions when there is no in-state precedent.
Contracts directly between the Government and its contractors are governed by federal common law. Contracts between the prime contractor and its subcontractors are governed by the contract law of the respective states. Differences between those legal frameworks can put pressure on a prime contractor.
United States Constitution
The authority to purchase is not one of the explicitly enumerated powers given to the Federal Government by Section 8 of Article One of the United States Constitution, but courts found that power implicit in the constitutional power to make laws that are necessary and proper for executing its specifically granted powers, such as the powers to establish post offices, post roads, banks, an army, a navy, or militias.Statutes
Behind any federal government acquisition is legislation that permits it and provided money for it. These are normally covered in authorization and appropriation legislation. Generally, this legislation does not affect the acquisition process itself, although the appropriation process has been used to amend procurement laws, notably with the Federal Acquisition Reform Act and the Federal Acquisitions Streamlining Act. Other relevant laws include the Federal Property and Administrative Services Act of 1949, the Armed Services Procurement Act and the Antideficiency Act.Antideficiency Act
U.S. Federal fiscal law is about Congressional oversight of the Executive Branch, not principally toward getting the mission accomplished nor getting a good deal for the Government. Fiscal law frequently prevents government agencies from signing agreements that commercial entities would sign. Therefore, fiscal law can constrain a federal agency from the quickest, easiest, or cheapest way to accomplish its mission. This constitutionally mandated oversight of the use of public funds is associated with the principle of checks and balances. A good working relationship and robust communication between the Executive and Legislative branches is the key to avoiding problems in this area.The power within fiscal law comes from the Antideficiency Act, which provides that no one can obligate the Government to make payments for which money has not already been appropriated. The ADA also prohibits the Government from receiving gratuitous services without explicit statutory authority. In particular, an ADA violation occurs when a Federal agency uses appropriated funds for a different purpose than is specified in the appropriations act which provided the funds to the agency. The ADA is directly connected to several other fiscal laws, namely the Purpose Act and the Bona Fide Needs Rule.
Money appropriated for one purpose cannot be used for a different purpose, according to the Purpose Act. The annual DoD appropriations acts include approximately 100 different appropriations, and by this rule operations and maintenance funds may not be used to buy weapons. Even an expenditure within the apparent scope of one appropriation may not be permissible if there is a more specific appropriation or the agency has made a previous funds election contrary to the proposed use of funds. For example, O&M fund can be used for purchasing repair parts, but if the parts are required to effect a major service life extension that is no longer repair but replacement – procurement funds must be used if the total cost is more than $250,000 or another procurement appropriation is available such as the armored vehicle or weapons appropriation.
An Antideficiency Act violation can also occur when a contract uses funds in a period that falls outside of the time period the funds are authorized for use under what is known as the Bona Fide Needs rule, which provides: "The balance of a fixed-term appropriation is available only for payment of expenses properly incurred during the period of availability or to complete contracts properly made within that period."
The Bona Fide Need Rule is a fundamental principle of appropriations law addressing the availability as to the time of an agency's appropriation. 73 Comp. Gen. 77, 79 ; 64 Comp. Gen. 410, 414-15. The rule establishes that an appropriation is available for obligation only to fulfill a genuine or bona fide need of the period of availability for which it was made. 73 Comp. Gen. 77, 79. It applies to all Federal Government activities carried out with appropriated funds, including contract, grant, and cooperative agreement transactions. 73 Comp. Gen. 77, 78-79. An agency's compliance with the bona fide need rule is measured at the time the agency incurs an obligation and depends on the purpose of the transaction and the nature of the obligation being entered into. 61 Comp. Gen. 184, 186 . In the grant context, the obligation occurs at the time of the award. 31 Comp. Gen. 608. See also 31 U.S.C. Sec. 1501. Simply put, this rule states that the Executive Branch may only use current funds for current needs – they cannot buy items that benefit future year appropriation periods without a specific exemption. The net result of this rule is funds expire after the end date for which Congress has specified their availability. For example, a single-year fund expires on 1 October of the year following their appropriation.
For example, operations and maintenance funds generally cannot be used to purchase supplies after 30 September of the year they are appropriated within with several exceptions – 1) the severable services exemption under 10 USC 2410 and Office of Management and Budget Authorized stockage level exceptions and 3) long lead time exception. The Government Accounting Office Principles of Federal Appropriations Law has a detailed discussion of these fiscal law rules which directly impact on the ability of a Federal agency to contract with the private sector.