Market research can be the basis for vigorous competition in Army acquisition.
by Dennis P. Longo
This is the first in a new series, On Contracting. The author developed the Competition in Army Contracting course for the Office of the Deputy Assistant Secretary of the Army for Procurement to introduce Army acquisition personnel to the competition requirements prescribed in the Federal Acquisition Regulation (FAR), Defense FAR Supplement and the Army FAR Supplement. This article is based on the content of the market research lesson in that course.
Competition drives efficiency and stimulates innovation. For Army acquisition, market research can serve as a powerful driver. While the connection between market research and competition might not be immediately obvious, market research helps the Army identify industry talent and capability. Knowing who potential competitors might be—all of them—is what good market research shows.
For example, let’s assume that helicopters don’t exist today; they haven’t been invented. Someone decides we need a “vertical lift capability” for missions down range and you’ve been assigned to research the market. Your market research consists of contacting aircraft manufacturers Cessna and Piper Cub for white papers on the feasibility of a vertical lift capability. Maybe you also contact a maker of blimps or dirigibles, because that’s the current technology that does vertical lift. The manufacturers’ responses conclude they have no such capability. Fixed wing won’t do vertical and dirigibles don’t have the maneuverability needed. So you conclude that vertical lift is a non-starter.
Pushing aside thoughts that whoever came up with the idea is a lunatic, you decide to limit competition for the development effort to Cessna and Piper Cub.
To your amazement, protests to the U.S. Government Accountability Office (GAO) soon follow from Hughes Aircraft, Sikorsky, Bell and several others stating they’ve invented what they call “helicopters.” You quickly realize that you can’t make conclusions based on what you don’t know.
FINDING OUT WHAT YOU DON’T KNOW
Thorough and objective market research will identify commercial capabilities, including the capabilities of small businesses, as well as provide for a good acquisition strategy.
In this regard, defense acquisition uses market research to identify and enhance opportunities for full and open competition. Market research, unlike the helicopter debacle discussed earlier, will expand insight into the commercial marketplace, determine how quickly technology is advancing, and obtain data on products, services, capabilities and business practices. Market research contributes toward selection of an appropriate contract type. Award of a fixed-price type contract, for example, may be more appropriate to a contractor that has designed and successfully tested a vertical lift capability, as opposed to a contractor that is just entering that market. A more focused or in-depth approach to market research may reveal that other defense agencies have awarded contracts for the same capability, affording you the opportunity to share current technology. Finally, market research techniques such as exchanges with industry and communicating with other defense agencies may result in refining requirements in terms of form, fit or function, performance and physical characteristics to align with your agency’s needs.
CASE STUDIES: MARKET RESEARCH AND COMPETITION
Your twin daughters have both decided to attend the same college in North Dakota—a long way from home. One daughter concludes that a 2019 Corvette will get her to the college and home again for the next four years. You’re thinking that, of all the vehicles available on the market, she decides on one of the most expensive and least fuel efficient, not to mention one that lacks sufficient space for all her clothing. A new vehicle may be expensive, but a ‘Vette, in the snow? Your other daughter concludes that the 1981 Volkswagen Rabbit she saw on the internet will satisfy her transportation requirements. You wonder if she really understands what it’s going to take to drive to North Dakota and how in the world she found a 1981 Volkswagen on the internet. Obviously, the twins’ market research was subjective and limited.
Conducting effective market research for personal requirements is unlike that for Army requirements. The basics may be similar: determining capability, availability, reliability; but Army requirements must not include convenience, personal preferences or motives. The quantities of items being procured and their military application place Army market research at a more focused intensity.
The results of market research should determine if sources are “capable.” This may appear logical on its face, but at least three factors should be considered to determine if sources are capable:
1. To determine if sources are capable, you must know your requirement.
Just as a 1981 Volkswagen may not endure the North Dakota winters, a single airplane manufacturer may not have the capability to understand a novel military vision of a vertical lift capability. The team conducting market research needs to understand the requirement in order to focus its efforts effectively.
For example, GAO sustained the protest by Triad Isotopes Inc. (B-411360) in July 2015 because the agency’s market research could not have reasonably identified sources capable of responding to the requirement because it was too broad and didn’t align with the requirement.
The agency’s stated objective in its market research was to award a contract to a contractor that can provide radioisotopes. That research included online searches for the North American Industry Classification System (NAICS) code 325412 (companies that perform pharmaceutical preparation manufacturing of “in-vivo diagnostic substances and pharmaceutical preparations”), which located 676 concerns. That number of apparently capable businesses led the agency to conclude that it was likely to receive viable quotations from at least two responsible small businesses.
Triad Isotopes protested the decision by the agency to issue a request for quotations for the acquisition of radiopharmaceuticals as a small business set aside. Triad argued that the agency’s market research was flawed because the NAICS code includes a large array of pharmaceuticals, including cold medicines and lip balms. In short, Triad asserted that the agency had not demonstrated that there was “even one small business that both meet the requirement and meet the delivery requirements” in the request for quotations.
GAO agreed and the protest was sustained.
The market research unnecessarily restricted its scope of capable offerors because it didn’t align properly to the requirement and effective competition was unachievable.
2. To determine if sources are capable, you must know your market.
Just as it’s important to know your requirement, an understanding of what’s out there to satisfy your requirement is essential for obtaining the most efficient and cost-effective solution.
In a case involving Red River Waste Solutions LP (B-411760.2), GAO sustained a protest because the Army’s market research focused on Army contract history rather than customary commercial practices. In short, the market research failed to support its conclusion that its pricing terms were consistent with customary commercial practice.
The Army’s solicitation required the contractor to collect and dispose of solid waste in designated areas in and around Fort Polk, Louisiana, requiring price proposals to be submitted on a per-ton basis. Red River protested that the commercial practice for refuse collection contracts was to price such contracts on a monthly or per-container basis, not on a per-ton basis.
The Army explained that its market research supporting the pricing determination was customary commercial practice because other Army contracts were priced on a per-ton basis and responses solicited from industry and a local refuse company both indicated that this was customary commercial practice.
In January 2016, GAO rejected the Army’s claim and sustained the protest. It found that the Army’s conclusions about pricing drawn from its market research restricted competition because commercial sources were unwilling to engage in a practice that was not customary in that particular commercial market. Since the agency didn’t understand the market, the solicitation’s estimated quantities for the various contract line item numbers were overstated.
3. The results of market research should determine if sources are capable, not “technically acceptable.”
Market research should determine if there is a reasonable expectation of receiving acceptably priced offers that are capable of performing the contract.
In 2016, the U.S. Air Force evaluated responses to its request for information (RFI) and industry day discussions and concluded that two of the small businesses that responded were capable of performing the agency’s requirements as prime contractors. The Air Force limited competition to two small businesses under a justification and approval (J&A).
Analytical Graphics Inc. (AGI) (B-413385) protested, arguing that only one firm could meet nine of the 10 salient characteristics described in the Air Force’s RFI, and a small business set-aside was improper.
GAO ruled in October 2016 that neither the FAR nor GAO decisions require an agency to request, or a prospective small business offeror to provide, a complete technically acceptable approach in response to market research. Agencies need only make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small businesses that are capable of performing the contract.
Making a de-facto source selection decision based solely on the results of market research limits the number of qualified sources and restricts competition by eliminating the government’s opportunities to leverage commercial solutions.
Triad—Make sure the focus of market research aligns with the requirement.
Red River—It is not reasonable to rely on other government contracts to establish what a customary commercial practice is.
AGI—The contracting officer must make an informed business judgment to show sources are capable of performing the work.
Market research is an enabler that will expand insight into the commercial marketplace, determine how quickly technology is advancing, and obtain data on products, services, capabilities and business practices.
The impact of hasty or superficial market research may restrict competition to sources that cannot offer the best and brightest resources toward the requirement. Knowing your requirement, knowing the market, and understanding commercial capabilities will avert the lunacy of awarding a sole source helicopter development contract to a single airplane manufacturer and avoid wasting years of inexperienced resources and millions of dollars.
THE MARKET RESEARCH TEAM APPROACH
We need experts in the field to obtain the best results in market research—as a team. A contracting officer may not be qualified to conduct market research for biological dysesthesia dysfunction (the effects of radiofrequency electromagnetic fields—cell phones, for example—on biological systems) studies. Similarly, a team of 12 personnel to research the commercial market for ventilation filters may be excessive.
The requiring activity (the organization with the need) should craft the capability information (the description of what is needed) to be submitted by industry; identify form, fit and function descriptions; review industry capability statements; revise government performance work statements or statements of work based on industry responses; and determine applicability of commercial items and modifications to commercial items to meet the agency’s need.
The contracting officer should issue pre-solicitation notices—requests for information and sources sought, and draft requests for proposals—to promote early exchanges of information; host pre-solicitation conferences to involve potential offerors early in the acquisition process; and conduct other means of stimulating industry involvement. All of the tools just mentioned are pre-solicitation notices, and there is no particular order in which they should be done—market research is conducted appropriate to the circumstances, so any number of the notice techniques may be used.
Experts, such as industrial specialists and intellectual property attorneys, should be part of the acquisition team as required.
In market research, we want to gather all of the pertinent information on whatever the capability is, whether it’s simple trash collection services or biological dysesthesia dysfunction studies or helicopters. The intent is to identify the availability and capability of commercial products or services that meet the Army’s requirements and mission needs.
CASE STUDIES: CHALLENGES TO MARKET RESEARCH
The extent, or scope, of market research should be adequate to identify the capabilities that are available in the marketplace for meeting agency requirements. Two examples below consider both the scope and adequacy of market research and how they inform competition.
Court of Federal Claims Palantir v. U.S. (No. 16-784C)
Issue: Was the scope of the Army’s market research adequate to determine whether there were commercial items that could meet its requirements?
In 2015, the Army issued a solicitation seeking a single contractor to be the system data architect, developer and integrator of the Army’s Distributed Common Ground System – Army Increment 2, the Army’s primary system for processing and disseminating multisensor intelligence and weather information to the warfighter.
Three requests for information preceded the solicitation, and Palantir, responding to those requests, explained that it had a commercial alternative to the development effort and, therefore, development was unnecessary.
After responding, Palantir continued to try to express to the Army its views and frustration with the direction of the developmental procurement choice by the Army, and with the Army’s apparent lack of interest in considering commercially available alternatives. Nonetheless, the Army issued the solicitation.
Palantir submitted a protest to the Court of Federal Claims, contending the Army acted arbitrarily and capriciously because Palantir claimed it had identified to the Army a commercially available technology that Palantir believed satisfied the Army’s requirements.
Palantir stated, “The most cost-effective and lowest-risk procurement approach is the acquisition of an open architecture data fusion platform through open competition for an existing software solution at a firm-fixed price (FFP). FFP vehicles shift performance risk to the contractor, reduce the risk of cost overruns to the government, and shorten delivery schedules.”
The Court of Federal Claims agreed, and concluded that the Army neglected to fully investigate possible commercially available alternatives to meet its requirements.
Lesson learned: Here, the scope of the Army’s market research was unreasonably limited and therefore inadequate because it focused on development efforts rather than commercial alternatives. Effectively, the results of the Army’s market research made it impossible for another source to offer a commercial item to satisfy its requirements.
Information Ventures Inc. (B-294267)
Issue: Was the agency’s limited search of the potential small business market reasonable?
Despite interest by six small businesses resulting from a pre-solicitation notice, an RFP was not set aside for small businesses, but instead was issued unrestricted as the result of market research. From that, the contracting officer determined that there was no reasonable expectation that two or more small businesses could perform the work.
The record indicates that the contracting officer failed to take into account known information indicating the interest of capable small businesses in this procurement.
Lesson learned: In a ruling issued in October 2004, GAO held that the contracting officer did not reasonably consider a small business set-aside and failed to take into account information from the market research report that indicated interest from small businesses.
The role of market research is to help the government identify companies that have the potential to meet government’s requirements. That research is flawed when we neglect to fully investigate possible commercially available alternatives to meet Army requirements. The lack of knowledge of the requirement, the commercial market and industry’s capability impact decisions related to full and open competition.
When we think we know what we want, or may have formed a predetermined conclusion on the product, service or vendor, we risk obtaining the full value of expertise and innovation that may be available in the commercial market—as well as the risk of being thought of as a lunatic.
For more information on market research and its impact on competition in contracting, go to https://spcs3.kc.army.mil/asaalt/procurement/SitePages/NewTraining.aspx. A common access card is needed to access the site.
DENNIS P. LONGO is advocate for competition, task and delivery order ombudsman, and senior procurement analyst at the Army Contracting Command at Aberdeen Proving Ground, Maryland. A member of the Army Acquisition Corps, he holds a bachelor’s degree from University of Baltimore, and is Level III certified in contracting and acquisition. His assignments include acquisition specialist at the Program Manager for Chemical Demilitarization within the U.S. Army Chemical Materials Activity and procurement analyst at the U.S. Army Legal Services Agency. He served in the Army from 1971 to 1973 at the Southern European Task Force, Italy, and was deployed to Iraq as a civilian in 2003. He authored the Defense Acquisition University Continuous Learning DOD Purchase Card Tutorial in 2003, and has been teaching courses on competition in contracting since 2004.
This article is published in the Winter 2020 issue of Army AL&T magazine.
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