Living at the threshold
Happy Second Quarter! It's great to be back in the saddle, writing again. If there are topics you'd like me to write about in "the new year," let me know! As always, appreciate you reading it.
One common practice of government procurement is the use of "thresholds" to decide how to buy. For example, take the "micro-purchase threshold" of $10,000, below which the government can engage in remarkably frictionless acquisition. If something costs $6,000, then the government purchaser can say "aha, this is a micro-purchase" and ignore a bunch of the rules. But if something costs $14,000, those rules are now triggered.
An advantage of this practice is that it's highly "legible"—it's predictable how the government will behave and relatively easy to observe. A drawback, however, is that things get kind of silly at the margins. If something requires a bunch of paperwork at $10,100 but no paperwork at $9,900, you can imagine folks trying to find ways to cut corners to shave $200 off the top.
Another drawback is that you might not want to apply the same rules all the time. So, the rules often contain specific exceptions to thresholds. For example, in emergency situations, the micro-purchase threshold is set higher ($20,000 for domestic purchases). This helps address certain policy edge cases, but it also increases complexity.
On balance, though, these thresholds are a fact of life in government contracting, and sometimes, they create funkiness. Here's an illustration from a recent GAO decision.
On August 29, 2024—just over one month before the end of the fiscal year—a VA contracting officer (CO) "received a procurement request...for peat moss to be used at the Santa Fe National Cemetery in New Mexico," which the government estimated would cost $24,678.[1] Realizing that time was short, the CO did the necessary paperwork, found 20 potential suppliers, and ultimately called three Service Disabled Veteran Owned Small Businesses to get quotes. The CO got one quote back for $38,583, and made an award on September 17, 2024.
Two things to emphasize here.
- Number one, the contracting officer literally called for quotes. This is what's known as an "oral solicitation," and it's allowed under FAR Part 13 for quotes under the simplified acquisition threshold ($250,000) where it is “more efficient than soliciting through available electronic commerce alternatives” and where notice is not otherwise required. With oral solicitations, you simply call up companies, get quotes, and make awards. You don’t need to write and post a solicitation. Pretty neat!
- Number two, the rules really only practically allow for oral solicitations under $25,000. Typically, under FAR 5, the FAR requires publishing a solicitation on SAM.gov for requirements above $25,000. This makes sense: if you sell peat moss, you’d probably want to see a peat-moss solicitation so you can submit a quote. But if you aren’t called as part of an oral solicitation, you have no chance to bid.
That's exactly where Phoenix Environmental Design, Inc. (PED) found itself. As an SDVOSB, PED never had a chance to bid on the $38,000 peat-moss opportunity because the contracting officer never called them. So, PED protested to the GAO, arguing that the VA shouldn’t have used an oral solicitation at all and should have posted the requirement on SAM.gov because the final cost was above the posting threshold.
To resolve the protest, the GAO had to examine whether the VA’s independent government cost estimate was reasonable. According to the GAO, the VA relied on historical purchasing data and reasonably concluded the cost would not exceed $25,000. Because the cost estimate was below $25,000, an oral solicitation was permissible. Protest denied. Them’s the breaks.
You might be sympathetic to PED here—after all, they never had a chance to bid. But the alternative, in which the government must restart the procurement if it misjudges the threshold, is also pretty untenable. Again, a drawback with thresholds is that at the margins, things get tricky. If a $15,000 cost estimate were to go 50% over, no one would complain about the threshold. But because the cost estimate was so close to $25,000, it created the protest risk.
And that’s just the way things go in the world of government procurement: you live by the threshold, you die by the threshold.
[1] Typically, the government has internal "cutoff" deadlines where contracting officers won't take on new requirements. As you can guess by now, these cutoffs have thresholds for what requirements are allowed and which are not allowed. I have no inside information here, but my guess is that the program office either missed the deadline or was damn close to missing the deadline and therefore had an independent incentive to keep the dollar amount below $25,000.