from the statutory method of purchasing. Tabulation of bids and making of award to the lowest responsible bidder for the entire quantity of a single item constitute formal procedure. Direct negotiation usually comprises securing quotations from selected sources by telephone or telegram, regular mail or airmail. Suppliers whose quotations satisfy quantity and delivery requirements are negotiated with for best price and conditions.

Sellers, procurement officers, and other interested parties frequently intimate that procurement through negotiation excludes competition. In actuality competition may be stimulated. By obtaining quotations and information as to deliveries by telephone, telegraph, letter or personal conference, Government buyers usually secure active and competitive cooperation of firms to a greater extent than under advertising and award procedure, Negotiation, in a sense, gives the procurement officer a free hand in fostering competition and directing it constructively. This reserves to him a greater measure of control over his activities. He may seek out desirable suppliers and encourage them to make offers; he may invoke criteria other than low prices; and he may compare various sources of supply in point of management, cooperativeness, or competence, to redeem delivery and quality promises.

Purchase by negotiation entails administrative safeguards, scrupulous review, proper administrative approval for such transactions, and postreview of all contracts for renegotiation where deemed advisable. The primary consideration, however, and the one which inspired the First War Powers Act, was the necessity for direct action to meet delivery requirements.

Negotiation is a process. In form the contract resulting from negotiation between Government and business often is identical with that awarded after formal advertising of requirements. Moreover, negotiation does not necessarily exclude advertising of requirements and examination of bids. Negotiation merely implies that the Government will select the best suppliers, bargain for prices, and eliminate sources of supply that have been found, either by experience or by analysis, to be unsatisfactory. Accomplishment in terms of timely delivery of quality goods for furtherance of the war program, while governing, is not unrelated to such special considerations as maintenance of labor standards, protection of consumer interests, and balancing of the national economic structure.

Though having broad implications for business and Government, negotiation differs from private business transactions in many respects. Negotiation represents a type of transaction for which procurement officers had not been specifically trained. As a result, businessmen found it necessary to revise their conception of business dealings.

In 1917 and 1918, negotiation in large measure replaced the conventional method of procurement. Considerable investigation, criticism, and litigation followed in the postwar period. Among the weightier indictments of this purchasing process were charges of excess profits reaped by contractors, favoritism in placing of orders, and failure to accomplish the main objective of negotiation, namely, speed of delivery. Precautions have been taken to forestall these abuses in the current buying program.

A significant outcome of the better understanding of the formal, or fixed, method of Government procurement and the informal, or flexible, process of negotiation has been recognition of the fact that the two methods of purchasing are fundamentally comparable. The focal point of controversy is competition. Does the system of advertising bids assure competition? Does negotiation preclude it? Advertising does not actually guarantee competition. As shortage of productive facilities becomes acute or demand rapidly approaches or exceeds capacity of an industry to produce, the formal method of purchasing frequently proves unsatisfactory to both buyers and sellers. Sellers sometimes are reluctant or unable to bid on advertised terms because of daily fluctuations in costs, or necessity to substitute for materials specified. Bids received from suppliers may be reasonably considered unacceptable to buyers, prices may be unusually high. In any of these situations readvertising cannot guarantee desired results.

A functional flow chart follows outlining the exact steps taken in formal Government purchases and Lend-Lease negotiated purchases. In the informal process, purchases are negotiated thus: "

5

1. Receipt and recording of requisition and concurrent review
by Deputy Director.

2. Purchase negotiated by Commodity Purchase Group.
3. Preparation of documents.

4. Approval of purchase.

The chart graphically demonstrates how the process can be completed even before invitations are issued under the formal method.

Negotiation permits the procurement officer to collaborate actively with potential suppliers in analyzing production, cost, and specification problems, restoring to him a dignity which the role of passive recipient of bids forwarded in response to advertisements denies. Purchase under the Lend-Lease program is not a simple matter, for locating a supplier whose advance production is not restricted by prior orders or allocations is a problem in itself. The procurement officer, however, does have the authority quickly and informally to exhaust all proper methods of dealing with the supplier in attempting to dispel basic purchasing perplexities.

For detailed procedure, see Director's Order No. 174 in Appendix III.

CENTRALIZED PURCHASING

Centralized purchasing, of which purchasing under the Lend-Lease program is a typical example, is perhaps one of the most roundly discussed subjects in the field of procurement. In purchasing for departments in Washington, D. C., and in the field, many considerations of a special nature arise. Emergency purchases and variance in functions of Government agencies notwithstanding, a common need for most of the major commodities representing money volume in pur chasing exists. Unprecedented increase in requirements attributable to the intensity of the defense and war programs demonstrated the expedience of coordinating nonmilitary purchases.

Consolidated purchases by the War and Navy Departments, and the United States Maritime Commission, for example, represent concentrated procurement effort for ordnance and ordnance stores, aircraft and aeronautical materials, tanks and other vehicles, vessels and other watercraft, and miscellaneous military equipment. Purchasing of major industrial commodities was centralized in the Procurement Division.

In conjunction with the Division of Purchases, War Production Board, the Procurement Division studied critically the plan of consolidating purchases of major items of supply. Objectives featured

were:

1. Avoiding competition among the various nonmilitary agencies of the Government for supplies and equipment, and between these agencies as a class and the military branches of the Government.

2. Spreading the business where possible in order to secure timely deliveries and to prevent undue drain on various sources of supply.

3. Effecting economies accruing to the Government through greater purchasing power.

Circular Letter No. 535, December 30, 1941, addressed by the Director of Procurement to the heads of all departments and independent establishments of the Government, established the policy:

In order to coordinate the procurement of items of supply of a commercial nature and avoid competition between Government agencies securing their requirements for supplies, material, and equipment that are becoming increasingly difficult to obtain, the following policy has been established in conjunction with the Division of Purchases, Office of Production Management, pursuant to the provisions of Executive Order No. 6166, dated June 10, 1933, and the Regulations Governing the Operation of the Branch of Supply, Procurement Division, Treasury Department, approved by the President, April 12, 1935.

1. All Government agencies shall furnish forecasts of needs for the balance of the fiscal year for selected major items to be designated.

2. Purchases of such major items of supply will be consolidated either in the Procurement Division or in one or more executive departments, due consideration being given to any statutes authorizing a specific agency to procure the particular commodity and the availability of special facility for the purchase

of the commodity, such consolidation to be effected as conditions surrounding these items warrant.

3. The procurement of such requirements will be coordinated with the Division of Purchases, Office of Production Management, so that there may be adopted the best means to provide Government agencies with their essential needs of the designated articles in the light of the availability of such articles.

A prerequisite of centralized Government purchasing is centralization of information relating to these purchases. What is bought, price paid, specifications used, and similar data must be collected in order to determine whether a specific commodity shall be handled as a consolidated purchase, be included with the General Schedule of Supplies as an indefinite quantity purchase, or continue to be purchased on the open market.

Although the Procurement Division had been seriously considering consolidated purchasing for a long time, it was not until January 11, 1941, that the Director of Procurement gave testimony before the Subcommittee of the Committee on Appropriations, House of Representatives, Seventy-seventh Congress, first session, on the Treasury Department Appropriation Bill for 1942. An additional appropriation of $153,277 ($121,900 for personal services, $31,377 for rental of equipment) was requested for the establishment of a purchase classification section. It was pointed out that the Procurement Division in consolidating purchases of certain items for the Public Buildings Administration for use in defense housing projects had saved approximately $1,000,000 on a total of about $6,000,000. In approving this new section, the Chairman of the House Committee on Appropriations submitted the following report (No. 60) to accompany H. R. 3205, which is quoted in part to show the need and purpose of a datagathering unit in the Government service:

The Procurement Division under existing law has authority to make procurements of materials, supplies, and equipment that may be needed by other departments of the Government and for which they have funds. The purpose of the centralized purchase is to secure the economies and benefits which come from considering as much of the Government needs of similar purchases on the basis of one contract instead of a number of different contracts represented by the different Federal agencies concerned. On the basis of data for the fiscal year 1939 the actual expenditures by all Government agencies for supplies and equipment totaled $424,000,000, of which $71,000,000 was expended through contracts made by the Procurement Division. This $71,000,000 represented $11,000,000 expended through definite quantity contracts and $60,000,000 expended through long-term or indefinite quantity contracts. As to the remaining $353,000,000 expended for these purposes, neither in the Procurement Division nor in any other agency of the government is there a centralized record to show what was bought, where it was bought, who bought it, what prices were paid, or where the material was used. The purpose of the new unit is to make an analysis of this large volume of Government purchases in order to determine what part of it can advantageously be obtained through central contracts, either definite or indefinite as to quantity, and what saving or benefit would accrue to the Government as the