On November 28, 2016, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) proposed a rule to amend Section 1.102-2 (a)(4) of the Federal Acquisition Regulation (FAR), adding a provision to clarify that government acquisition personnel are “permitted and encouraged” to engage in “responsible and constructive exchanges with industry as part of market research,” citing FAR § 10.002, so long as those exchanges “are consistent with existing laws and regulations and promote a fair competitive environment.” Comments on the proposed rule are due on or before January 30, 2017, in order to be considered in the formation of the final rule.

Why This Proposed Rule?

This proposed FAR rule seeks to implement Section 887 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2016. Section 887 requires the FAR Council to prescribe a regulation “making clear that agency acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry, if the exchanges are consistent with existing laws and regulations and do not promote an unfair competitive advantage to particular firms.”

The proposed rule appears to be part of a recent campaign by the Office of Federal Procurement Policy (OFPP) to encourage early, frequent, and constructive engagement with industry to achieve better acquisition outcomes, including through its issuance of memoranda in February 2011 and May 2012, addressing misconceptions held by federal agencies and industry concerning communications with one another, available here and here. However, the recent campaign for engagement with industry is not a new concept in the FAR nor is it unique to today’s acquisition policy.

Pre-existing Guidance for Encouraging Communication with Industry

While the proposed rule seeks to amend FAR § 1.102-2 (a)(4), “Performance Standards,” this FAR section already mandates that the government “must not hesitate to communicate with the commercial sector as early as possible in the acquisition cycle,” so that it can better determine the capabilities available in the commercial marketplace. The amendment merely adds a clarifying sentence “permitting and encouraging” engagement with industry “as part of market research.” FAR § 15.102 similarly already encourages exchanges of information among all interested parties “from the earliest identification of a requirement through receipt of proposals” and concerning future acquisitions “to improve the understanding of government requirements and industry capabilities.” FAR § 15.102 further specifies examples of techniques to promote the early exchanges of information, including market research, as described in Part 10, in addition to others, such as industry or small business conferences, public hearings, one-on-one meetings with potential offerors, presolicitation notices, draft RFPs, RFIs, presolicitation or preproposal conferences, and site visits.

The current campaign for early industry communication further reflects a pendulum in the industry that shifts back and forth between encouraging early and open engagement with industry and raising concerns with the propriety of such communications. The pendulum’s movements have been impacted as much by other events as by law and regulation. For example, after Operation Ill Wind and the 1988 passage of the Procurement Integrity Act, we saw concerns with early industry engagement, but the pendulum swung with the passage of the Federal Acquisition Streamlining Act (FASA) of 1994, adding a specific requirement for agencies to conduct market research prior to developing new procurement specifications and prior to soliciting bids or proposals. See 10 U.S.C. § 2377(c) and 41 U.S.C. § 3307(d). The DoD similarly adopted an open engagement with industry policy since issuing a policy memorandum in November 2008. The memorandum encouraged government officials “to communicate with industry or to hold or attend meetings necessary to the conduct of official business,” by implementing a DoD Vendor Communication Plan as a “commitment to promote increased dialogue with the vendor community prior to awarding contracts,” and most recently, reflected by issuing the DFARS final rule on November 4, 2016, implementing the Better Buying Power (BBP) 3.0 initiative by requiring contractors to engage in technical interchanges with DoD before IR&D costs are generated to improve the effectiveness of IR&D investments by the defense industrial base. See prior advisory here.

With the longstanding and pre-existing guidance in the FAR and DFARS and official memoranda encouraging early, frequent, and open engagement with industry, it begs the question – is this proposed amendment necessary? Will the issuance of a rule clarifying a pre-existing policy create a culture that facilitates open engagement? How will such a principle of “permission” and “encouragement” of engagement be enforced?

Limitations of the Proposed Rule

The proposed rule may also pose some interpretation and application issues. As noted above, the proposed FAR rule appears to limit the “permitting and encouraging” of engaging in exchanges with industry to “as part of market research,” citing FAR § 10.002. This language potentially limits the effectiveness of the proposed rule by limiting its application to market research, leaving other constructive exchanges throughout the various phases of the acquisition process untouched. Furthermore, NDAA Section 887, which this proposed FAR rule seeks to implement, is not limited to market research and appears to speak about broader communication with industry. In fact, the words “market research” do not appear in the NDAA Section. As a result, the proposed final rule should seek to clarify the FAR in a broader manner.

In short, market research is important and “responsible and constructive exchanges with industry as part of market research” should be supported, but the FAR should not ignore the benefit of “responsible and constructive exchanges with industry” in the broader context, which includes the understanding of customers’ expected needs and plans. With such information, industry is better prepared to effectively plan its strategic investments and to better understand and meet the government’s requirements.

For more information regarding this rule, please contact Kendall Enyard at +1 202 429 6489, Michael Mutek at +1 202 429 1376, or Raquel Parker at + 1 202 429 3018 in our Washington office.