US Government Procurement Compared to Commercial Procurement

Procurement management follows a logical order similar to that of a project management plan. According to the PMBOK (2013), the process includes the contract management and control processes necessary to acquire products or services as authorized by project team members. The process involves mutually binding agreements that require the seller to deliver the specified services or products and compels the buyer to meet the monetary compensation. A procurement contract includes terms and conditions as well as any other item consistent with the buyers’ specifications. More specifically, the Project Procurement Management process includes the plan procurement management, the conduct procurements, the control procurements, and the close procurements. According to and in light of the Project Procurement Management processes, we compare and contrast the U.S. Government Procurement and Commercial Procurement process.

Definitions

The United States government procurement involves the process of acquiring products and services for the government entities or the public. As O’Connor (2009) highlights, the Federal Acquisition Regulation governs the process. The FAR provides directions on the items that need to be procured, the appropriate behavior of the government, the applicable clauses, dispute procedures, and recommendations on the way the government should carry out the contract. The government updates the regulations regularly and relies on the industry to make the right updates. The contractor’s input is also considered when developing the FAR, but it is interpreted and designed to protect the interests of the government. However, as compared to the government procurement, the commercial procurement is between two or more business entities. The companies are free to choose their business partners in any manner they wish. Notably, as O’Connor further notes, the commercial entities are governed by the Uniform Commercial Code and is designed to protect the interests of the buyer and seller respectively.

U.S. Government Procurement and Commercial Procurement Similarities

As mentioned previously, there are several differences and similarities between the U.S. government procurement and the commercial procurement process. Doing business in the private sector is similar to the U.S. government procurement process in several ways. More specifically, both the procurement processes follow the same procedure as outlined in the Project Procurement Management section of the PMBOK. The Project Procurement Management includes processes that direct the purchase and acquisition of products and services. The processes are organized into the following, plan procurement management, conduct procurements, control procurements, and close procurements. In light of this, and to understand the similarities present in U.S. government procurement and commercial procurement contracts, we first explore the processes contained in the Project Procurement Management.

Plan Procurement Management

The Plan Procurement Management involves documenting the procurement needs including the sellers, the approach to be used, and any other decisions likely to affect the procurement process. The process is important in that it helps determine if it is necessary to get support from outside and if that is the case, how much is needed, what, how, and when to acquire it (PMBOK, 2013, p. 357). In particular, the plan procurement management helps identify the needs that can be met by sourcing for products or services from outside the organization and the needs that can be met by the project team. It also contains the procedures used to solicit bids or proposals and the decision-making criteria. Potential sellers are identified and contacted. Consequently, it is important to note that the information is usually contained under three classifications; the inputs, tools and techniques, and outputs.

Virtually, under the inputs category, there is a wide range of sub-sections. The Project Management Plan describes the needs, the requirements, the justification, and the boundaries for the project. The section contains the project scope statement, the work breakdown structure, and the Work Breakdown Structure dictionary. The other section included under the PMP is the requirements documentation, which outlines important information regarding the project requirements. The risk register provides the list of risks alongside the results of the risk analysis and planning. The activity resource requirements contain information about specific needs of the procurement process. The project schedule contains the information regarding the project timelines and the deliverable dates. Other subsections under this category include the activity cost estimates, the stakeholder register, and the enterprise environmental factors. Along with that is the organizational process asset, which contains the formal procurement policies, procedures, and guidelines. It is also important to note that all legal procurement contracts fall under two broad categories; fixed price or cost reimbursable. Fixed-price contracts are contracts with a fixed total price and may have some financial incentives for achieving project objectives. Sellers under such contracts are expected to legally complete the contracts or suffer financial damages in case they do not comply with the terms of the contract. On the other hand, cost-reimbursable contracts compensate the seller for the incurred costs for the completed work plus a fee for the seller’s profit. The contract may also contain financial incentives in case the seller exceeds or does not meet the project objectives.

Under the tools and techniques, the make-or-buy analysis is used to determine the way the particular type of work can be accomplished and whether it is necessary to contract from outside. The expert purchasing judgment is also involved in this process to evaluate the seller proposals and the unique procurement issuers, terms, and conditions. It is also at this point that the market research is carried out to examine the capabilities of the vendor and refine specific procurement objectives. Additionally, potential bidders meet and discuss the specific information to help formulate a procurement strategy.

The last subsection is the Plan Procurement Management outputs. Under this subsection, the product and services acquisition is described including the way the process will be managed all through the development stage to contract closure. The procurement of the statement of work is also acquired at this point as well as the procurement documents to solicit proposals from prospective bidders. The make-or-buy decision is also made in this section as well as the change requests in case the process requires a change request.

Conduct Procurements

After the project, needs have been identified and the procedures determined, the second step is to conduct procurements, which involves obtaining the response of the seller, selecting the most appropriate seller and awarding the contract. The process is necessary for that it provides both the external and internal stakeholders the chance to align their expectations with the agreement. Notably, the overall process of inputs is repeated as outlined in the Plan Procurement Management.

Under the tools and techniques, the bidder conferences between the buyer and seller are used to outline the procurement requirements and ensure all sellers understand what is required. The proposal evaluation techniques are also carried out, as well as the independent estimates, and expert judgment. In some cases, both with the commercial and government procurements, advertisement is placed to communicate solicitations to the vendor community consistent with government jurisdictions and requirements. Similarly, to examine the readiness of the vendor, the buyer uses analytical techniques to determine the expected costs to support budgeting and avoid incurring losses. The last step under tools and techniques is the procurement negotiations and is used to clarify structure, requirements, as well as other terms necessary for the finalization of the agreement.

The conduct procurements are then finalized with selecting the sellers who are selected through a competitive range. The procurement agreement is drawn to include the terms and conditions as other specifications as per the buyers and sellers specific needs. Later the resource calendars, change requests, plan and document updates follow.

Control Procurements

The second process that the procurement process follows is the control procurements, which involves managing relationships, monitoring the performance of the contract, and adjusting where necessary. The process is essential because it ensures that both the buyer’s and the seller’s performance meet the requirements of the procurement as per the terms of the agreement. The project manager must review the agreements, the progress, and the work performance to ensure that work is going on as scheduled and to ensure the contractors meet their budget and the commitments.

Close Procurements

The last process is close procurements, which is the process of completing the procurement. The importance of the process is that it outlines agreements and related documentation and stores them for future references. Under this process, the auditors audit the procurement process to identify successes or failures that may require looking into to ensure the success of the project procurement. It is also at this stage where the final equitable settlement of all claims, disputes, and any other outstanding issue is addressed.  

Differences between U.S. Government Procurement and Commercial Procurement

When two businesses come to an agreement and work together in the procurement of goods or services, they enter into a contract. Commercial contracts are usually the basis for the majority of the interactions in the private sector. The contracts are drawn up based on a standardized system of stages as documented in the project Procurement Management section of the PMBOK. Commercial contracts are government by the law of contracts, which governs the sale of goods. According to Frey (2014), the law is also coded and was designed to harmonize the statutes, case law, and custom in an integrated statutory. Currently, commercial procurement is now governed by the Uniform Commercial code that was developed by the National Conference of Commissioners on Uniform State laws and the American Law Institute. On the other hand, although government contracting has some similarities with commercial procurement, there are also some unique aspects. Unlike the commercial contracts that are governed by state laws and the Uniform Commercial Code, the Federations Acquisitions Regulation System governs government procurement. Virtually, according to Federal Acquisition Regulations System – Volume 1 (2005), the FAR was established for the codification and publication of uniform policies and procedures for the acquisition of Federal products and services. Among other things, the FAR seeks to satisfy the terms of cost, quality, and timeliness of product or service delivery. In order to achieve this, the FAR seeks to maximize the use of commercial products and services, use contractors who have a track record of successful performance or demonstrates the ability to perform, and seeks to promote competition. The FAR also seeks to reduce the administrative operating costs, conduct business with fairness, and fulfill public policy goals. Notably, the contracts are designed when a private entity seeks to do business with the Federal government.

The Department of Treasury conducts the government procurement business through authorized agents referred to as Contracting Officers. Ideally, the work of the contracting officer is to enter into, administer, or terminate contracts when necessary. The officers are required to have valid warrants to be allowed to enter the binding agreement. It is also important to note that, the contracting officer authority is also limited from the authorizing officer (General Services Administration, Department of Defense, & National Aeronautics and Space Administration, 2005, p. 37). Along with that, the contracting officer must ensure that all legal requirements, executive orders, regulations, and any other applicable procedures are met. The officer is responsible for ensuring that the necessary actions are complied with and safeguard the interests of the United States. On the other hand, the commercial procurements do not need a contracting officer to negotiate on behalf of the companies. At the very least, the companies often choose a representative to represent the company. The representative is usually a trusted member of the company such as a manager or a project manager and must do everything while considering the best interests of the company.

The other difference lies in the fact that the government focuses on two perspectives when awarding contracts. The first one is to ensure that tax payers money is protected and uses strict guidelines to keep competition and ensure they secure the best contractor.  In fact, as O’Connor notes, the government punishes contractors who are suspected of using their connections with the officers to secure the procurement. The second perspective is that the government awards the contracts while trying to meet the socio-economic objectives. To accomplish this, the government sets aside programs designed to award to small businesses as an opportunity to compete at the federal level for business. Contrary to the government procurement, a commercial company can award contracts to any member they choose, and in any manner they choose.

The Treasury Department is granted work surveillance rights and audit of government contracts. In fact, as compared to a commercial company, the federal government has the right to peruse and audit all the parts of a contract including the pricing, costing, and invoicing documents. When bidding for a government contract, the contractor is mandated to give comprehensive details on the costs for direct, overhead, general, and even administrative costs as well as the profits they will get from the contract. Notably, the contractor is allowed to keep some contract records and to submit for audit on demand. In case the audit fails to meet the requirements, the contractor is likely to suffer penalties or changes in the contract price. In a commercial company procurement contract, only the items and the total costs are provided. Additionally, government contracts are usually closely monitored, and the contractor is also expected to monitor the project to ensure they strictly meet the requirement of the contract. In case they wish to change anything, the contractor is supposed to obtain approval from the Contracting Officer who is the only person who can bind the government. Although commercial contracts often maintain the same level of monitoring, changes can be made easily as compared to the government procurement.

Challenges associated with U.S. Government and Commercial Procurement

Virtually, there are various challenges associated with U.S. government procurement as well as commercial procurement. For instance, in commercial procurement, although the Uniform Commercial Code acts as a guideline to the procurement process, it leaves some gaps concerning dispute resolution and venue to common law. Another shortcoming in the UCC is in the “transaction of goods.” Unfortunately, the word transaction is not completely defined in the code. Law to specify and give a detailed description of contract pricing, costing, and profits do apply to the commercial contracts, which means the contractor may exaggerate the costs and the buyer may not be aware.

On the hand, some of the challenges involved in government procurement include things such as. The Treasury under certain conditions is allowed to revise their contracts, and although the contractor should get equitable adjustments from the revision, the Treasury expects the contract to be fulfilled as adjusted (U.S. Department of Treasury, 2010). The Department of Treasury holds the right to terminate part or the entire contract based on the convenience of the government or the contractor’s underperformance. When terminating the contract, the contracting officer may negotiate with the contractor for as long as the undeliverable balance of the contract is less than $5,000 (General Services Administration et al., p. 1173). However, the contracting officer can also settle for a no-cost settlement if they deem appropriate. Although the settlement has benefits to the contractor and the government, the contractor can incur liabilities from the sub-contractors and supplies (Kelleher & Abernathy, 2010, p. 421). The Treasury also expects contractors to cooperate and comply with various programs as may be required to achieve the goal of the contract. Ideally, as outlined by the U.S. Department of Treasury, the procurement programs seek to attain several national, social, and economic goals. Thus, the contractor may be expected to comply with all these programs if they are to be awarded the contract, which can be a long and tiring process. Additionally, there are certain contracts that dictate the amount of profit and costs a contractor may recover. Such contracts are known as the firm-fixed-price contracts, and as Piper (2018) notes, the vendor cannot get paid more even if they determine the contract will incur more than paid.

Overall, the U.S. government procurement and the commercial procurements are both contract agreements designed to enable the purchase of goods and services. The two forms of contracts usually follow the planned procurement management processes to enhance the procurement of goods and services. Nonetheless, while the two contract forms share several features, there are also various significant distinctions to consider. Notably, the Uniform Commercial Code governs commercial procurement, while the Federal Acquisition Regulation governs the U.S. government procurement. There are several other outstanding differences such as the fact that the government procurement uses a contracting officer to design and execute the contract. On the other hand, it was clear that the rules in commercial procurement contracts a more relaxed and often the standardized system of the Plan Procurement Management contained in the PMBOK. Alongside the differences, the two types of contracts also have several challenges. For instance, in the commercial procurement contract, the UCC is not clear on dispute settlement. Consequently, the government procurement has various challenges based on the strict guidelines provided by the FAR.

References

Frey, M. A. (2014). Essentials of Contract Law 2nd edition. Boston: Cengage Learning. 

General Services Administration, Department of Defense, & National Aeronautics and Space Administration. (2005). Federal Acquisition Regulations System – Volume 1. Retrieved from: https://www.acquisition.gov/sites/default/files/current/far/pdf/FAR.pdf

Kelleher, T. J., & Abernathy, T. E. (2010). Smith, Currie & Hancock’s Federal government construction contracts: A practical guide for the industry professional. Hoboken, N.J: John Wiley & Sons.

O’Connor, T. M. (2009). Federal contracting answer book. San Francisco: Berrett-Koehler.

Piper, C. E. (2018). Contract and procurement fraud investigation guidebook. New York: Routledge.

Project Management Institute (2013). A guide to the project management body of knowledge (PMBOK Guide) (6th ed.). Newtown Square, PA: PMI.

U.S. Department of Treasury. (2010). Major differences between commercial and government practices. Retrieved from: https://www.treasury.gov/about/organizational-structure/offices/Mgt/Pages/dcfo-osdbu-how-to-part1-04-majordiff.aspx