Defense bill would enable federal government to go shopping for bargains at Amazon and Home Depot

New legislation working its way through Congress could significantly alter the way commercial companies sell everyday products and services to the U.S. military and federal agencies, opening the door for online retailers to reach a massive new customer.

The defense bill passed by the House of Representatives earlier this year contains language that would allow the Pentagon and other government agencies to buy directly from commercially run online marketplaces, bypassing a highly regulated purchasing process managed by the General Services Administration.

High-tech weaponry such as jets, guns and missiles would still be developed and sold through traditional government contracts. But the effort would allow companies like Amazon.com, OfficeMax and Home Depot to set up marketplaces for agencies to buy basic supplies.

Currently, agencies buy commercial goods through GSA schedules - essentially pre-negotiated agreements to provide products and services to the government at volume discount pricing.

The bill's supporters see commercially run marketplaces as a way to reduce bureaucracy and drive down prices for the government. House Armed Services Committee Chairman Mac Thornberry, R-Texas, initiated the effort as a stand-alone bill called the Defense Acquisition Streamlining and Transparency Act, which was later merged into the House-passed defense spending bill. The Senate is slated to take up the legislation when it returns from recess.

"Everybody understands what a difference Amazon has made," Thornberry said. "We're trying to help DoD keep up with the changes in business practices with the goal of getting items faster, cheaper and keeping up with the changes in technology."

The federal government has been taking steps to bring its procurement process into the digital age. The GSA already manages an online purchasing service called GSA Advantage. The Defense Logistics Agency operates a service called FedMall. But Thornberry's bill would essentially leave operation of marketplaces up to the private sector.

"The system has become so sluggish that we're not able to keep up with the threat, the changes in the marketplace," he said. "We've got to move with greater agility."

The idea has drawn mixed views from industry. Opening the government up to e-commerce companies could increase competition by bringing in new players, but established firms might be worried about how the shift will play out.

"A lot of companies that are primarily commercial - your software companies, your IT companies, the Amazons of the world - would probably welcome an environment like this," said Franklin Turner, a government contracting attorney with the law firm McCarter and English. "But companies that have traditionally exclusively been government contractors are going to have a hard time adjusting to a completely different system."

The legislative push comes as retailing giants such as Amazon, Grainger, OfficeMax and Home Depot move to establish their own online sales channels targeting institutional and government customers. Amazon's business-to-business platform, for instance, already offers sales to local, state and federal agencies, according to its website. The company declined to comment on whether it would bid to run a federal-facing marketplace.

Some are worried the marketplaces will introduce new costs into the process. The original version of the bill would have allowed a single contract to be awarded to a single operator, awarded without competition. After criticism from business groups, the bill was amended to explicitly call for more than one marketplace contract.

"There will be several marketplaces to choose from, and there will be competition within each marketplace, so there's competition built in at two different levels," Thornberry argued.

But some worry that the legislation allows the government to select marketplaces "without the use of full and open competition" and provides few details on how those agreements should be structured.

"They lose me when lawmakers want to allow each provider to be picked without full and open competition," said Steve Ellis, vice president of advocacy group Taxpayers for Common Sense. "That is a well-known recipe for waste."

Others worry the bill will make procurement more opaque even as it seeks to remake the process in the name of transparency.

Under current law, payments on contracts above a certain size are published openly in online government databases so that private citizens and interest groups can keep tabs on government spending. The next bill requires such information to be entered into government data systems, but industry groups say it is unclear whether the information will be publicly available.

"This would be outside the federal procurement process altogether, so all of the spending that we would normally track in (online government databases) we would lose visibility on," said Alan Chvotkin, executive vice president and counsel for the Professional Services Council, a business association for government contractors. "The government will get that information over time, but whether that will be public or not remains to be seen."