FUNDAMENTALS OF FEDERAL CONTRACTING: Simplified Procedures By Barry L. McVay You make literally thousands of purchases each year, most of them rather mundane and unremarkable: light bulbs, laundry detergent, candy bars, a cup of coffee, gasoline, electricity, and on and on, every day of the week. Once in awhile you may buy a new car or a house, but those purchases are extraordinary and require a lot of thought and effort. When you go to the grocery store and put a loaf of bread into the shopping cart, you don't give it a lot of thought. Whether or not that particular loaf of bread is the cheapest in town is not your primary concern. You want a reasonably priced loaf of bread so you can have toast in the morning. The U.S. Government operates in much the same way. It resorts to formal and elaborate procedures when purchasing buildings, battleships, and other significant items, but it uses simplified procedures when acquiring most of the day-to-day supplies and services needed to function. Basically, all Federal purchases under $25,000 can be made using simplified procedures, and 97% of all Federal contracts are under $25,000. The reason the Federal Government has picked $25,000 as the simplified procedures limit is that the formal procedures (which will be discussed later in this series) don't save much money on these "small purchases". The additional administrative expense, and time spent going through the formal procedures for purchases under $25,000 more than offset whatever savings might have been realized. That is the main reason for the use of simplified procedures. Another very important reason is that the Government recognizes that small businesses usually have limited resources, and using simplified procedures on these "smaller" contracts permits more small businesses to take part in the Federal procurement process. $25,000 is a substantial contract for just about any home buisness, and being able to contract with the Federal Government for this kind of money without becoming a procurement expert is certainly worth investigating! Not all procurements under $25,000 can be bought through the use of simplified procedures. For example, classified contracts require that the contractor have security clearances, secure rooms and containers, extensive handling procedures, and other safeguards to ensure that the classified information is not inadvertently disclosed. Simplified procedures are supposed to be simple; they are not designed for that much complication. There are a few other situations where simplified procedures are not appropriate, but these are relatively rare and shouldn't concern the home business person. All you need to know it that most Federal contracts under $25,000 are made through simplified procedures. I want to pass along one other piece of information that is important to the home business person: each purchase that is under $10,000 is reserved exclusively for small businesses if the Government's contracting officer can obtain two or more competitive offers from small businesses. This is another reason it is important for the home businessperson to identify contracting offices that purchase his or her product and to get on those offices' bidders lists (the bidders list, how it is used, and how to get on it were discussed in the previous edition of Home Business News). When using simplified procedures to make a small purchase, the contracting officer will obtain the names of potential suppliers from the bidders list for that particular supply or service. He will usually restrict the suppliers to those in the local area and, if the purchase is expected to be under $10,000, he will make sure that the potential suppliers are all small businesses. The contracting officer then calls those suppliers and orally solicits them. He describes the item or service (providing part numbers if available); the quantity needed; packaging requirements; the required delivery date; the place of delivery; and asks if any discounts apply for quantity, prompt payment, etc. The supplier quotes a price if he can provide the supply or service by the required delivery date or declines to quote if he cannot meet any of the requirements. After the contracting officer has obtained all the quotations, he issues a purchase order to the supplier providing the lowest price. Usually the contracting officer obtains three competitive quotations. He generally solicits the winner of the last small purchase for that particular supply or service and two others on the appropriate bidders list. These additional two names are selected on a rotating basis so that everyone on the bidders list eventually gets a chance to be solicited. However, if the purchase is not expected to exceed $1,000, the contracting officer will only solicit one supplier from the bidders list (since only one reasonable quotation is required for a purchase of this size, a supplier other than the one who last furnished the supply or service will be solicited). If the quoted price is reasonable, the contracting officer will issue a purchase order without any competition. Again, the reason for this is that the administrative expense of obtaining competition usually offsets whatever savings might have been realized on a contract this size. After all, the contracting officer can check the price history to see if the quoted price is reasonable or not. If it isn't, the contracting officer can always solicit other suppliers until he obtains what he considers to be a reasonable price. In a few instances, the contracting officer may want to send a written Request for Quotation to selected suppliers. He would want to do this when (1) the suppliers are located outside the local area; (2) a large number of items are being purchased in a single procurement; (3) special specifications are involved; or (4) if he decides that obtaining oral quotations would not be efficient. If you receive a Request for Quotation, look it over and then send the contracting officer a written response: either a quotation or a note stating that you are unable to furnish a quotation at present but that you wish to be kept on the bidders list. (As stated in the previous issue of Home Business News, the contracting officer may remove you from the bidders list if you don't respond to one solicitation, and he must remove you if you fail to respond to two solicitations. So if you can't supply a quotation, drop the contracting officer a card and let him know). Once the contracting officer has received all the quotations (the Request For Quotations specifies a deadline for responses), he will issue a purchase order to the supplier furnishing the lowest quotation. A supplier who receives a purchase order is not required to sign it. Because of this, the purchase order is not a binding document. In effect, the purchase order is an offer by the Government to pay the supplier the amount he quoted if he performs in accordance with the purchase order's terms and conditions. If the supplier cannot perform the purchase order for some reason, all he needs to do is notify the contracting officer and he will rescind the original purchase order and issue a replacement purchase order to the next lowest supplier. The reason for this lackadaisical attitude is that the Government recognizes that small suppliers usually have limited inventories that might have been depleted between the time the supplier furnished a quotation and the time the contracting officer issued a purchase order. The same is true of services: a painter might have obtained other work and is no longer available since he furnished a quotation for the painting of some barracks on a military post. That is why the supplier does not sign the purchase order under simplified procedures -- so he can back out with a minimum of fuss. Such is not the case with purchases over $25,000. The supplier is required to sign those contracts executed under the formal procedures, and he cannot just walk away without incurring serious penalties. I mentioned that a purchase order is not a binding contract on the supplier receiving the order because he did not sign it. However, it does become binding on the Government as soon as the supplier begins work. This is because the purchase order is an offer by the Government to pay the quoted price if the supplier performs the order. Once the supplier begins performing, the Government is bound to honor the order. If the Government wants to back out of the order for any reason, it must pay the supplier for the work he has performed. This doesn't happen too often though, so I wouldn't worry about it. I just want to make you aware of the possibilities so that you aren't surprised if the one-in-a-hundred occurrence happens. Purchases made under simplified procedures are an ideal way for a home businessperson to ease into Government contracting. And the size of the contracts awarded under simplified procedures is ideal for the home businessperson. However, since the names of sources to be solicited are obtained from the bidders list on a rotating basis, it may be a long time between telephone calls from the contracting officer. If you don't want to wait for the contracting officer to call you or you want to expand your business through larger Government contracts, you are going to have to get involved in contracts that exceed $25,000, and that means dealing with the various formal solicitation procedures. This series on Federal contracting is adapted from Barry L. McVay's book GETTING STARTED IN FEDERAL CONTRACTING. It can be obtained from Panoptic Enterprises, P.O. Box 1099, Woodbridge, VA 22193 for $21.95.