One of the most-watched provisions of this year’s NDAA (H.R. 2810) survived the final conference version of the bill and passed the House of Representatives with an expected Senate vote after Thanksgiving. Section 846 of the final bill directs the General Services Administration (GSA) to “establish a program to procure commercial products through commercial e-commerce portals” and to make the program available for government-wide use. However, the bill expressly calls for a series of studies and development of further recommendations to support implementation, which is likely to stretch out for years. Nevertheless, this provision has substantial implications for companies that sell commercial items to the government, who should closely monitor implementation of Section 846. It also sets up a potential clash between more traditional contractors and large e-commerce platforms.

The provision, and its implications for government contractors and e-commerce sites, is perhaps best understood through its evolution over the past six months. On May 18, 2017 House Armed Services Committee Chairman Mac Thornberry introduced the concept in Section 101 of the “Defense Acquisition Streamlining and Transparency Act.” Section 101 directed the Department of Defense (“DoD”) to contract with “online marketplace providers” for the purchase of commercial goods via established online marketplaces. There were several salient features of the approach that caused a number of observers to conclude that the goal was to facilitate and ultimately require DoD’s use of online marketplaces like Amazon, and perhaps Amazon specifically.

Among other things, Section 101 vested DoD with the authority to establish the program and enter contracts with online marketplace providers. Section 101 specified that DoD could contract with only one such provider if it chose, that it could do so without full and open competition, and that any resulting contract would be subject to the “standard terms and conditions” of the online marketplace, not standard government procurement terms and conditions.

Section 101 also specified a number of qualifying characteristics for the marketplace, including that it must be “widely used in the private sector”, provide “dynamic” selection and pricing of products, and enable offers from multiple suppliers of the same or similar products. In addition, Section 101 provided that marketplaces that were run by the government or primarily set up for government purchasing, would not qualify. This presumably included GSA’s Federal Supply Schedules (FSS) and DoD’s EMALL (now FedMall).

At one level, the online marketplace provision addressed the growing call for a return to commerciality; however, it also highlighted the difficulties in doing so. For example, companies who already sell to the government through traditional procurement contracts and who must maintain the numerous government-imposed compliance requirements applicable even to commercial product suppliers were put at a disadvantage. These existing contractors found no relief in Section 101, and instead would be required to compete with the online marketplace provider who did not bear the added burden of these compliance costs. In that sense, Section 101 did not fix the underlying problems faced by current suppliers of commercial items who were forced to absorb more than 100 additional regulatory requirements between 2008 and 2016.

Amid a substantial amount of public interest, Section 101 was included in the House version of the NDAA which passed in July, as “Section 801.” Section 801 placed responsibility for the program with GSA, not DOD. Section 801 directed GSA to enter into “more than one” such contract and to make the program available government-wide. DoD’s use of the marketplace remained mandatory. Section 801 preserved the online marketplace required characteristics and the requirement that GSA adopt the standard terms and conditions of the provider.

Like its predecessor, Section 101, Section 801 was silent as to the application of procurement laws as to the contract with the online marketplace itself, but identified certain federal laws that would apply to the suppliers of products through the on-line marketplace. These included barring suspended or debarred suppliers, making provisions of the “Berry Amendment” (a domestic sourcing requirement) applicable, and procuring items from the blind and severely disabled (“Ability One” products), where applicable. Section 801 went on to add three additional requirements including the Buy American Act, waivers under the Trade Agreements Act, and a requirement to identify “small business” suppliers.

The provision emerged from conference as Section 846, but with a number of important changes. Section 846 expressly authorizes GSA to create a program to procure commercial products through commercial “e-commerce portals.” It also relaxed the original requirement that DoD procure commercial products through online marketplaces —the bill now provides that all agencies “may” procure commercial products through the online marketplaces as appropriate. The new statutory language also makes clear that GSA must enter “multiple” contracts with “multiple” commercial e-commerce portal providers, thereby allaying fears that the bill could lead to a monopolistic online marketplace provider capturing a substantial portion of the government’s needs. Finally, Section 846 makes clear that “[a]ll laws”, including federal procurement restrictions, apply to the online marketplace program. GSA therefore will have to enter contracts with commercial e-commerce portals through full and open competition.

Perhaps most important, the conference bill kicks the can down the road through future study and delayed implementation, which is set to occur in phases. Among other things, Section 846 dropped many of the specific requirements and characteristics for the e-commerce provider, deferring the definition of these pending further study. Each phase requires distinct action items and submissions.

  • Phase I requires the Office of Management and Budget (“OMB”), in consultation with GSA, to create an implementation plan and schedule for carrying out the online marketplace program
  • Phase II requires OMB and GSA to prepare recommendations for any changes to — or exemptions from — laws necessary for effective implementation of the program within one year of submitting the implementation plan and schedule contemplated under Phase I
  • Phase III requires OMB and GSA to create guidance for the program within two years of submitting the implementation plan and schedule contemplated under Phase I

Given the phased implementation of Section 846, it is unlikely that the provision will have an immediate, tangible impact on federal contractors. This is amplified by the fact that Section 846 gives GSA a large degree of discretion in implementing the online marketplace program and it will undoubtedly take time to develop the regulations and guidance necessary to implement the program. However, once implemented, Section 846 could significantly impact the federal procurement marketplace.

Federal contractors who sell commercial items to the government should closely monitor developments regarding Section 846’s implementation and participate in that process. We will provide updates as events warrant.