FAR and Beyond Blog

A Call for MAS Pricing Reform

November 18th, 2011

Is it time to “reset” negotiation of MAS contract prices? Increasingly, GSA MAS contracting officers appear to be ignoring the General Services Acquisition Regulation (GSAR) guidance regarding the negotiation of price.The GSAR requires the MAS contracting officer to consider when the government and an offeror’s commercial customers are similarly situated when negotiating price. MAS contracting officers are required to compare the terms and conditions of the GSA schedule to the terms and conditions of the offeror’s commercial agreements when establishing negotiation objectives.See GSAR 538.270(c).

A recent U.S. Court of Federal Claims (the Court) bid protest decision calls into question the insistence of many GSA MAS contracting officers that offerors agree to the following: (1) an MAS contract price that is equal to or better than the commercial most favored customer (MFC) price; and (2) “all commercial customers” serve as basis of award customer for purposes of triggering the price reduction clause (PRC). In essence, GSA MAS contracting officers are requiring contractors to warrant, on a continuing basis throughout the period of performance, that the price paid under their MAS contract is guaranteed to be equal to or lower than the price paid by any of their commercial customers. The Court, in sustaining a bid protest against the Defense Logistics Agency (DLA), found such an approach irrational. Interestingly, the Court cited, as part of its rationale in sustaining the protest, GSA’s stated MFC policies that take into account whether an offeror’s commercial customers and the government are “similarly situated.”

In U.S. Foodservice v. United States, Fed. Cl. No. 11-376C, October 12, 2011, the Court struck down an MFC clause in a DLA solicitation that required “[f]or all items, the contractor warrants, on a continuing basis throughout the period of performance, that its delivered price under this contract is equal to or lower than its delivered price to its commercial customer accounts.” The protester objected to the MFC clause arguing that it was unreasonable and overstated the Government’s needs.The Court cited a number of considerations in finding the MFC clause irrational. The Court observed in part that for food distributors, the MFC provision could require the contractor to price products delivered under the contract at a loss! The Court further stated that the “[t]he practical implications of the MFC clause entail more than a risk for the offerors; it is a provision that requires an unqualified representation that carries the potential for fraud prosecutions.”Id. at 37.

DLA’s MFC clause did not account for whether the offeror’s commercial customers were similarly situated to the DLA (e.g. same geographic regional deliveries and purchase qualities). In defending its MFC clause DLA cited GSA’s MAS pricing policies regarding MFC and the PRC as support for its approach. The Court rejected DLA’s argument concluding that:

It is also problematic that DLA Troop Support does not even grasp the extent of the MFC clause it included. Contrary to what defendant argues, any comparison with the MFC clause used by GSA is misguided. As noted by USF [the protester], the GSA clause includes the requirements that the Government only receives the lowest price received by similarly situated customers. . . .The lack of the “similarly situated constraint” on what is required of offerors under the Solicitation is further evidence that DLA Troop Support has departed from acceptable models practiced byother government agencies. Therefore, defendant [DLA] has not offered a“reasoned chronicle” for inclusion of the MFC clause, and plaintiffs [theprotester] have shown that the MFC provision of the solicitation is irrational. Id.

To the extent GSA contracting officers are requiring a Basis of Award that includes all commercial customers, the U.S. Court of Claims has found such an approach unreasonable—and cited GSA’s stated MFC pricing policies in reaching its conclusion! The Court got it right. Its decision demonstrates the importance of considering and comparing commercial terms and conditions with the schedule terms and conditions in the context of GSA’s MAS MFC policy. A Basis of Award that includes all commercial customers is fundamentally unfair to the contractor. It is inconsistent with GSA policy. It increases compliance costs. It increases risk of fraud prosecutions. It is anti-competitive because it distorts the commercial market place by limiting the ability of MAS contractors (large, medium and small businesses) to compete for commercial work.

The decision can be viewed here. I encourage all Friday Flash readers to view it. None of this ignores the need for fair and reasonable pricing in the MAS program as a key component of a competitive framework that delivers opportunities for business that result in best value for customer agencies and the taxpayers.

It is time to “reset” negotiation of MAS contract prices back to the basics of GSA’s MAS MFC Policy.

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