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Are E-commerce and Federal Acquisition Regulations Compatible?


Alan C. Gaudette
Alan C. Gaudette, Manager, Contract Administration, Link Simulation & Training Div., Mesa, AZ 85212, 480-988-9337,
Ernest Gabbard, CPM, CPCM
Ernest Gabbard, CPM, CPCM, Director, Corporate Procurement, Allegheny Teledyne, Inc., Pittsburgh, PA 15222, 412-394-2968,
Charles E. Rumbaugh
Charles E. Rumbaugh, Attorney at Law, ADR Office, Rolling Hills, CA 90274, 310-373-1981,
Jim Southerland
Jim Southerland, President, Contract Advisory Services, Inc., San Diego, CA 92083, 619-224-2042,

86th Annual International Conference Proceedings - 2001 

Abstract. This panel discussion, moderated by Alan Gaudette, covers at least the following: 1) Electronic signatures, can you issue them and accept them? 2) Can Electronic subcontracting be used under U S Government Prime contracts? 3) Ethics: should bid auctioning be allowed? 4) Late breaking news on E-commerce and FAR. It is our intention to make this panel discussion interactive and we will be soliciting audience participation.

Substance. (1 above) The discussion will address what the new law covers and respond to the question: does it impact you? The commercial business world has been wrestling with the efficacy of the electronic transactions because of the legal requirement for a "writing" and for a "signature". These are imposed by the "statute of frauds", which is incorporated into most state's version of Uniform Commercial Code (UCC). Federal Acquisition Regulations (FAR), however, now includes at FAR 2.101, that "in writing or written ... includes electronically written and stored information." It further provides that "signatures, or signed, means any verifiable symbol ... including electronic signatures." In this respect, the FAR has been ahead of the proposed revisions of commercial law.

(2 above) Some of this relates to subject matter from 1 above. Is it or should it be restricted to commercial items or to NSN parts which have many approved suppliers. Probably restricted to items with performance specifications and small drawing packages. Bidding could be separated from RFP package after initial qualifying of suppliers. The aforementioned FAR definitions of a "writing" and a "signature" could arguably be applied in the subcontract environment, and could certainly be referenced in a subcontract. However, the subcontracting environment is inherently a commercial contracting environment, as opposed to the prime contract, which is strictly a federally regulated environment. Therefore, one must look to the respective state's version of the UCC. As noted above, the UCC requirement for a "writing" and for "signatures" are not clearly satisfied by electronic "bits and bytes". We must therefore ensure that any subcontract, like a commercial contract, satisfies these UCC requirements. This may be accomplished by a separately executed "E-Commerce Agreement", until state laws are updated. There is considerable legislative relief on the horizon, but it is not universally available as of this writing.

(3 above) One must answer, does it achieve the lowest possible cost, can it be used in conjunction with "Best Value" contracting, and does it limit the verification of bids and the verification of the responsive, responsible bidder. The commercial business/contracting environment has experienced considerable success with this procurement format. Notwithstanding the FAR recognition of electronic contract formation cited above, the FAR does not specifically recognize electronic reverse auctions. While there may be no express prohibition of this procurement method in FAR, I would propose that even the liberal procurement/contracting requirements of FAR Part 12 would require scrutiny to support the reverse auctions being utilized by commercial firms. Has the USG successfully utilized the same methods as commercial firms, or are they limiting themselves to a hybrid USG format?

(4 above) Changes in the News — At the prime contract level, the FAR seems to be clearly moving toward an electronic environment. As noted above, the subcontracting environment still does not consistently provide for recognition of electronic transactions. However, several legislative initiatives are currently addressing this issue:

  1. The Uniform Computer Information Transactions Act (UCITA) has been recommended for adoption into state commercial codes. This proposed revision of UCC provides for recognition of electronic records as a "writing," and electronic authentication as a "signature."

  2. Not all commercial transactions are governed by the UCC; e.g: services contracts. Therefore, the Uniform Electronic Transactions Act (UETA) was developed to provide the same recognition of electronic transactions for the purpose of contract formation. It is not yet consistently adopted by state legislatures.

  3. The Federal Government has also responded with the Electronic Signatures in Global and National Commerce Act (PL 106-661), which applies to all forms of electronic "transactions." It is not applicable where a state has adopted UETA into their commercial code. Interestingly, while this is Federal legislation, the term "governmental transactions" is NOT included. Will it therefore apply to USG/FAR transactions?

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