ECIA: Legislation Advances on Online Buying of COTS Parts

Electronics component distributors and online aggregators could get a bigger piece of the sourcing pie for commercial off-the-shelf (COTS) parts if they meet the government’s criteria for online marketplaces. COTS components have been available for decades as a way to reduce costs in military and aerospace applications and shrink the sourcing cycle time. Now the government is calling for the General Services Administration (GSA) to buy the commercial parts through online marketplaces to further expedite purchasing and reduce pricing.

Legislation under the National Defense Authorization Act of 2018 (NDAA) H.R. 2811 requires the GSA to “establish a program to procure commercial products through online marketplaces for purposes of expediting procurement and ensuring reasonable pricing of commercial products.”

The legislation directs the GSA administrator to contract with one or more commercial online marketplace providers for Federal government-wide use in the purchase of COTS products, and for the Secretary of Defense to use the marketplaces to purchase commercial products as appropriate, said Robin Gray, COO and general counsel for ECIA.

The legislation defines online marketplace providers as “a commercial, non-Government entity providing an online portal for the purchase of commercial products aggregated, distributed, sold or manufactured by such entity.”

It also allows the government to use online commercial sites like Amazon, Staples, or Grainger just as businesses do, said Gray.

The challenge for distributors, parts aggregators and online commercial sites is meeting the criteria required by the legislation, which sets the requirements for selection of the online marketplace providers. These include:

Be widely used in the private sector, including B2B e-commerce
Provide dynamic selection and pricing
Provide offers from multiple suppliers on the same or similar products that can be filtered by price, delivery date and reviews
Not prioritize or feature a product based on compensation paid to the marketplace by the seller
Provide procurement oversight controls, including spending limits, order approval and order tracking
Provide consolidated invoicing, payment and customer service on behalf of all sellers
Meet requirements for supplier and product screening

ECIA believes electronics component distributors and part aggregator sites may meet the criteria for becoming an online marketplace provider, but there will be competition from commercial online marketplaces like Amazon.

“Whether it is a big deal for anyone depends on how much business that they do with the federal government,” said Gray.

He believes it will most likely impact distributors that qualify for small and disadvantaged business set-asides but they will face challenges. “It may be difficult for those distributors that obtain business as a result of small business set-asides, since they may not have the resources to meet all of the selection criteria,” Gray added.

He expects it will be relatively easy for global distributors, including catalog distributors, to meet the criteria, but will have to make some changes to their processes. “These global distributors may have to make adjustments to provide the government with procurement oversight controls and consolidated invoicing, payment, and customer service."

As for online parts aggregators, they “may have a bigger hurdle, since they will no longer be able to prioritize products based on advertising and placement,” said Gray. “In addition, they will have to distinguish between authorized and unauthorized components."

The proposed legislation specifies that the marketplace provide “the ability to search suppliers and products and identify such suppliers and products as authorized or not authorized.”

“Distinguishing between authorized and unauthorized is to combat counterfeiting,” Gray said. “It takes a lot of effort and may prove to be a big challenge for unauthorized sellers, online aggregators and other online shopping sites.”

Another noteworthy provision is that the marketplaces selected “agree not to sell or otherwise make available to any third party any of the information” regarding the DoD purchase, said Gray.

“The not-selling-information about the buyer has implications for online aggregators and shopping sites,” he added. “It may also affect distributor POS reporting.”

“ECIA will continue to monitor the progress of this legislation through Congress and keep ECIA members informed of its status,” said Gray.