GSA Schedule Pricing – Too High or Too Low?
Surprisingly the answer is in the Federal Acquisition Regulations (FAR). By placing an order in accordance with FAR 8.4, the ordering agency achieves best value at the lowest overall cost alternative to meet the government’s need. Or in plain English, the system works – pricing is good – when you use it like you are supposed to, in accordance with FAR.
Some government officials rail that prices under GSA’s Multiple Award Schedule program are too high. GSA Schedule contractors on the other hand lament how difficult it is to negotiate an agreement and complain that the government’s price demands are overly aggressive; some would even say arbitrary. The dichotomy in the positions makes you wonder if these parties are all talking about the same program. So what explains the difference?
The fact is that you cannot evaluate the validity of GSA Schedule pricing by looking exclusively at the award price. The program was designed with a two-step process in mind. The first objective is to negotiate a standard set of terms and conditions that satisfy various government –wide needs. GSA negotiates a get a good upfront price under circumstances where requirements, customers and quantity are unknown; this is the initial GSA contract price. The second objective is to get a better deal at the point in time when a federal agency can further leverage the price downward with information about specific customers, volume and commitments to purchase. These additional price concessions occur at the task order stage.
The GSA Schedules program is structured to create competition and capture discounts at the task order stage. Specifically,
- Schedule contractors can voluntarily offer spot reductions to federal customers
- FAR directs agencies to ask for price reductions on specific orders
- Agencies that wish to strategically source their requirements using the GSA Schedule can solicit for Blanket Purchase Agreements that further leverage their volume and terms
- GSA’s on-line catalog and buying systems (GSA Advantage! and GSA ebuy) provide visibility to service and product availability
- Schedule contractors must extend price reductions to federal customers under certain circumstances when they reduce prices to commercial customers.
GSA officials sometimes cringe when the media reports that an agency has negotiated a 20 or 30% discount from the GSA Schedule, feeling that somehow, they left money on the table. In actuality, GSA should take credit for the system working as intended. Customer agencies received deeper discounts as anticipated by contract provisions and federal regulations. Moreover, because GSA has pre-existing contracts, customer agencies have a streamlined process for negotiating their technical requirements and associated pricing.
Perhaps the great misconception of the GSA schedule is that GSA contracting officers must negotiate a contractor’s best price. GSA’s stated objective is negotiate the same pricing that a contractor gives to its most favored commercial customer, taking into consideration any differences in the terms and conditions under which the customers buy. The term “most favored customer” no longer serves the government well. The public discourse tends to focus on the hyperbole of the objective as opposed to the reality that the government buys in a very different manner than many commercial customers. The government is indeed potentially a high volume customer. Not many commercial customers, however, insist upon a provider’s best price without known requirements or any commitments to purchase. When the government buys like a commercial customer it gets discounts equal to or better than those customers.
A discussion of MAS pricing without consideration of acquisition overall cost would be inadequate. Repetitive contracting imposes a high cost on government and industry. People, systems, time and money are all resources consumed when agencies go into the market to buy. Established government contract vehicles allow agencies to acquire items needed to satisfy critical government needs, at significantly lesser administrative costs and with dramatically reduced lead times. It simply costs less and takes less time to order from an existing contract than to establish a new contract. The GSA Schedules program has the distinction of offering so many commercially available professional services, high tech products, and commonly used supplies readily available for ordering by federal agencies.
Are GSA Schedule prices too high? I say no. Nineteen thousand contracts, millions of products, and $50 billion in annual sales, all on non-mandatory contracts. Something is working; agencies would not use the program to that extent if it were not. When we analyze the validity of pricing, I’d suggest that the analysis is not complete until we consider not only initial contract prices but also task order pricing, the overall cost of acquisition to the government, and the value proposition associated with being able to quickly satisfy the needs of government with high quality commercial solutions.
Contracting programs must be dynamic; both government and industry should look for ways to continuously improve the process. The best opportunity to improve GSA Schedule pricing requires a laser focus on use of best commercial practices, to the extent possible and communication of well-developed requirements. Developing and communicating sound requirements empowers contractors to deliver best value solutions and lower cost outcomes for the American taxpayer. The GSA Schedule program allows customer agencies and contractors to focus on requirements through streamlined task order competitions built on the foundation of the schedule contracts and GSA’s e-systems.
President, Roger Waldron
Executive Vice President & General Counsel, Carolyn Alston
The Future of Multiple Award Contracting
We invite you to learn more about the future of one of the largest segments of the Federal Market at the Future of Multiple Award Contracting forum, as government and industry experts share the latest information about program development. Registration opens at 7:00 a.m. and the program will be from 7:30 a.m. to 11 a.m. The forum will feature three panels:
Market, Statutory & Regulatory Panel:
- Moderator: David Drabkin, Director, Acquisition Policy, Northrop Grumman
- Jon Etherton, President, Etherton and Associates
- Brian Friel, Federal Business Analyst, Bloomberg Government (Read his latest article on MAC Pricing Checks!)
- Tom Sisti, Director and Chief Legislative Counsel, SAP
Acquisition Leadership Panels:
Panel 1: GWAC Strategies
- Moderator: Mike Pullen, Program Manager, Deloitte Services LP
- Robert Coen, Deputy Program Director, NIH Information Technology Acquisition and Assessment Center (NITAAC) GWAC Program, NIH
- Casey Kelly, Director, FAS Enterprise Government Acquisition Contract (GWAC) Center, GSA
- Joanne Woytek, Program Manager/CoTR, NASA SEWP
Panel 2: MAC & Enterprise Strategies
- Moderator: Roger Waldron, President, The Coalition for Government Procurement
- Jeff Koses, Director, Office of Acquisition Operations, GSA FAS
- Mike Smith, Director, Strategic Sourcing Program Office, DHS, EAGLE
- Elliott Branch, Deputy Assistant Secretary, Navy (Acquisition and Procurement) in the Office of the Assistant Secretary of the Navy (Research, Development and Acquisition), US Navy, SeaPort-e
The Future of Multiple Award Contracting forum will provide key business intelligence about these multi-billion dollar programs that is crucial for strategic business planning in the ever-changing fiscal climate. Join us at the Tower Club in Tysons Corner, VA on July 18, 2012, 7:00 a.m. – 11 a.m. Register now!
Federal Agencies Increase Telework
According to a recent report by the Office of Personnel Management (OPM), telework continues to increase for Federal employees. Of 87 agencies that participated in the annual OPM survey, all 87 reported implementing telework policies within their organization. A primary driver of the movement is the Telework Enhancement Act of 2010 which requires agencies to notify employees of their eligibility for the program and establish policies and procedures that support telework.
Government-wide, 32% of Federal workers (684,589 employees) are eligible to telework. This is a 10% increase compared to 2009. However, only about a quarter of these employees telework 3 or more days a week. Federal agencies with the largest percentage of teleworkers are the US Patent and Trademark Office (82%), General Services Administration (59%), Department of Treasury (48%) and the Department of Health and Human Services (42%).
While telework has increased, OPM acknowledges that barriers still exist for many agencies. The top three are resistance from key stakeholders (e.g. managers), technology, and data security concerns.
In terms of the supporting technology, OPM reported that Federal agencies are more likely to pay for the equipment Federal employees need to work from home versus the services, such as an internet connection. Of 81 agency respondents, 20 provided telework equipment, 26 shared equipment costs with employees, and 15 required employees to foot the bill. In contrast, only 7 agencies paid for telework support services (e.g., internet) and 50 relied on employees to pay.
According to OPM Director John Berry, “the use of telework is expanding and improving in the Federal Government. Ensuring its effective use will save energy and expense, boost accountability and resilience, and bring our Federal workforce the responsiveness and flexibility that is expected in the 21st century.”
Alternative Workplace Strategies in the Government
With downward pressure on the Federal budget, agencies are adopting innovative means of reducing their property footprint and the workplace itself for many government employees. Learn more about this trend at the upcoming Alternative Workplace Strategies forum on July 24th hosted by the Federal Buildings Committee.
Alternative Workplace Strategies Forum
July 24th, 10 a.m. – 12 p.m.
Mayer Brown
1999 K Street, NW, Washington, DC
The event, which is open to all members, will feature a public/private sector dialogue on alternative workplace requirements and trends in the Federal market. Commercial best practices will also be presented as a model for Federal agencies as they transition to a more flexible mobile workplace and achieve their missions in the current budget environment.
Government Speakers:
• Larry Melton, Assistant Commissioner for Facilities Management, GSA Public Buildings Service (PBS)
• Donald Bathurst, Chief Administrative Officer, Department of Homeland Security
• Bart Bush, Assistant Commissioner, Portfolio, PBS [Invited]
• Brian MacDonald, Senior Program Officer, Office of Facilities Management & Policy, Department of Health and Human Services
Industry Speakers:
• Chris Hood, Managing Director, Workplace Innovation, CBRE
• Jim Reidy, Director, Capital and Real Estate Transformations, Deloitte
If you would like to attend the Alternative Workplace Strategies forum, please RSVP to Roy Dicharry at rdicharry@thecgp.org.
GAT Board Reports Progress and New Leadership
As part of the continuing effort to increase federal transparency, the Government Accountability and Transparency (GAT) Board released a progress update last month, along with the Presidential appointment of Richard Ginman as the board’s new chairman. The GAT board was created in June 2011 to improve the collection, tracking and oversight of Federal spending data. The Board’s objective is to provide guidance on the organization and display of spending data to ensure government efficiency and accountability to taxpayers. The June update detailed progress made on three initial goals identified at the launch of the board:
- Expanding use of new tools and technology to prevent fraud, waste and abuse
- Eliminating redundancies and reducing burdens by consolidating data collection and display
- Implementing an uniform ID system for all Federal awards
To help the board meet these goals, President Obama announced the appointment of Richard Ginman, the director of Defense Procurement and Acquisition Policy (DPAP), as the GAT Board’s new chairman.
Congress and Administration Act on Sequestration
As the threat of sequestration approaches, both government and industry are beginning to prepare for the possible consequences of automatic government-wide budget cuts, while pressure mounts in Congress to address the issue. To date, Congress has introduced a number of bills requiring the Administration to report on the impact of sequestrations on Federal agencies. In addition, a group of Senators, led by Sen. John McCain (R- Ariz.) and Joseph Lieberman (D-Conn.), submitted a letter to top defense contracting companies asking them to share the impact sequestration will have on the defense industry. These Senators are asking industry about the impact on contracts, spending, employee termination and any current or foreseeable changes in contract trends and strategic plans.
While Congress is focusing on learning more about the impact of sequestration on defense and non-defense government operations, the Administration is urging Congress to take a different approach. In a recent Politico article, OMB Director Jeffrey Zients encouraged Members of Congress to focus on an agreement to avoid sequestration, rather than trying to figure out what will happen if the automatic cuts take place. Zients is emphasizing that sequestration was not intended to be implemented, but that the cuts were designed as a threat to ensure that Congress would agree on a deficit reduction plan. If sequestration does take effect, Zients warns that national security will be threatened and that vital domestic programs will be harmed. While OMB is waiting for Congress to act, they have begun planning for sequestration and responding to Congress’ questions about the impacts of the reductions on Federal agency operations.
SBA Releases 2011 Agency Scorecards
This week, Small Business Administration (SBA) released its annual Small Business Procurement Scorecards that grade government agencies on their progress towards meeting small business contracting goals. The scorecards are a tool that provide accurate reporting data and hold agencies accountable to the 23% government goal. Agencies are graded on a letter scale based on the percentage of yearly goals met. Grades range from an F (70% or less) to an A+ (exceeds 120%). The government-wide scorecard is a “B” for fulfilling 96.16% of goals set for 2011. The government scored lower than 2010 levels and was short of goals for 2011 in both Prime Contracting and Subcontracting Achievements. However, GSA exceeded small business contracting goals and received an “A+” score from the SBA. In a blog post, GSA stated that the agency is continuing to utilize more small business resources and work to meet their goals, especially in the Service-Disabled Veteran-Owned category.
Treasury Department Launches Internet Payment Platform:
The US Treasury Department announced in the Federal Register on July 9 that it intends to begin utilizing a new internet payment platform by the end of September. This final rule follows publication of a February 23, 2012, notice of proposed rulemaking. All new payment requests in FY2013 will be processed in the centralized electronic invoicing and payment information system. The program has been implemented in order to eliminate paper filings and streamline research for government employees. The system will be a secure web-based system that processes vendor payment information electronically and automates the routing and approval workflow within an agency, reports Federal Computer Week. After consideration of the public comments, Treasury is adopting the proposed rulemaking without change. The effective date is August 8, 2012.
GSA Schedule Option Extensions – A Time of Risk and Opportunity
Guest Bloggers: Bill Bressette & Jeff Clayton, Baker Tilly
Many contractors don’t fully understand the disclosures that form the basis for the negotiated prices on their GSA Schedule contracts, but a company’s failure to keep those disclosures current may expose it to audit risk and financial liability when the Office of Inspector General (OIG) comes knocking. This is of critical importance at the time of option extension, when a contractor may be more likely to receive a pre-award audit of its Schedule contract. Let’s begin with a quick overview of the option extension process.
In September of 2011, GSA introduced the Option Process Ensuring iNtegrity (OPEN) for Federal Supply Schedule (FSS) contracts with the hope of streamlining the process and meeting Commisssioner Kempf’s goal of exercising options 60 days prior to contract expiration. In a nutshell, it refocuses the extension process on what it was originally intended to be—a unilateral modification that extends the contract with the same terms and conditions for another five years. It also translates into a much earlier notification letter for contractors, with notification approximately 210 days prior to option expiration and often a 45 day turnaround on the option package.
Two things are of critical importance here, 1) as a responsible GSA Schedule contractor, you will need to thoroughly review your historical pricing practices and ensure that your pricing disclosures are current, accurate, and complete, and 2) if you do find that you need to make changes to the terms and conditions of your contract you will need to accomplish those changes outside of the option exercise modification itself. For example, if a contractor wishes to add or delete products or services, request an economic price adjustment, or offer lower prices, the contractor will likely be required to do this independent of the option exercise. This means that what was previously a best practice recommendation is now a pragmatic and necessary step—contractors must start the review of their Schedules at least 12 months prior to option expiration and they should attempt to make any bilateral contract modifications prior to when they receive their notification letter.
Perform a Broad GSA Schedule Compliance Assessment
This is an ideal time for contractors to revisit all key areas of GSA Schedule compliance, particularly in the areas of PRC and Quarterly Sales/IFF administration. They should take the time to test the preventive and detective controls established within their systems to ensure they are working as planned. Preventive controls are typically system controls designed to ensure a company follows an established policy or procedure. One such control might consist of a required field in the order entry system that ensures sales personnel include GSA Schedule Contract information at the time of order placement. This helps to identify a GSA sale up front and gives the contractor some level of confidence in the GSA sales numbers (and consequently the IFF remittance) that are reported on a quarterly basis. Detective controls may, for example, include a periodic review of sales data to identify PRC triggering deals which may not have been reported. Detective controls are designed to ensure that the preventive controls, including policies, procedures and training, are functioning as intended.
Policies and processes should also be reviewed to make certain that they adequately address the compliance concerns within the context of a contractor’s current organizational structure and previous contract disclosures. Changes in business unit structure/operations, sales or marketing practices, and certainly changes driven by mergers and acquisitions can often render an existing policy or process ineffective. For example, a contractor may have an adequate process in place for tracking all GSA Contract sales in its current system; however, through acquisition, the company acquires a business unit with different systems that will not be integrated or migrated for some period of time. If this unit will make use of your GSA Schedule, it’s likely that your current process for identifying sales in your system may not be capturing GSA sales made through the newly acquired unit. Finally, contractors should review the efficacy their training programs and periodic internal reviews. An annual compliance review is a good way to test your policies, procedures, and training. Personnel subject to periodic training on document retention, for example, should be expected to have maintained the appropriate sales files required by your GSA Schedule contract. During an annual compliance review, validating that the policies surrounding document retention are actually achieving the desired result will do two things: 1) It will identify the gaps between policy and practice; and 2) In so doing, it will identify any weaknesses in your training program.
Conduct a Historical Pricing Review and Update GSA Pricing Disclosures
A detailed review of a company’s pricing practices during the preceding 12 months will frequently reveal that discounting policies and practices have changed, particularly if they have not been closely monitored during the contract term. We recommend that contractors not only update their Commercial Sales Practice Format (CSP-1), but that they also draft a detailed narrative carefully describing all of their standard practices as defined in written policies/procedures and the non-standard practices as revealed by the historical pricing analysis. The CSP-1 Format is a standard form in every GSA solicitation.
While the CSP-1 requires you to explain all deviations from your “standard” practices, contractors often provide just enough text to answer the question. We often recommend that a comprehensive narrative be developed and attached to the CSP-1 as a material part of the pricing disclosures. This is the place to eliminate all ambiguity surrounding what you do and don’t do when it comes to your commercial customers. We have also used the pricing narrative to eliminate any potential misinterpretation surrounding what the contractor understands the price/discount relationship to be and how the PRC compliance will be handled. This allows the contractor to disclose all pertinent information to the GSA CO and removes ambiguities that might otherwise be interpreted in a disadvantageous way in the future.
Although the compliance review and historical pricing analysis can be time consuming, the effort pales in comparison to management’s distraction and the potential financial impact of an adverse audit report from the GSA Office of Inspector General (OIG). For large contractors who are more likely to be subjected to pre-award audits, the data and analysis produced during such an internal review will help expedite the performance of the onsite portion of the audit.
Conclusion
As we have seen in several recent high profile matters brought on by the GSA OIG and Department of Justice, the cost of non-compliance with GSA Schedule contract terms and conditions can be severe. Among the more highly publicized of these is the one in which Oracle Corporation settled False Claims Act allegations by agreeing to a $199.5 million dollar settlement. All contractors, regardless of size, should be prepared for the eventuality of an audit. When the time comes to exercise the option to extend a contractor’s GSA Schedule contract, they should take the opportunity to confirm that their practices are properly disclosed and that they have an effective compliance program in place. Although the additional disclosures that result may raise questions and complicate things in the near term, it will go a long way to ensuring long term GSA Schedule contracting success.
Baker Tilly provides a wide range of government contract consulting services, including GSA Schedule proposal preparation, contract administration, compliance and audit support. For additional information contact: Bill Bressette at 703 923 8624 or bill.bressette@bakertilly.com or Jeff Clayton at 703 923 8568 or jeff.clayton@bakertilly.com.
President Orders Agencies to Pay-Up Quicker:
In the next year, government agencies will be required to expedite payments to prime contractors so that subcontractors can receive payments sooner. According to an OMB memo from Jeff Zients, the accelerated payments will be for one year, as a temporary, transitional policy that provides for immediate assistance to small businesses, while affording agencies and prime contractors time to insert contract clauses… or take other appropriate steps, to ensure that prime contractors provide prompt payment to their small business subcontractors. This memo comes as an expansion to the “QuickPay” policy announced by President Obama in 2011. The goal is to provide businesses relief in a harsh economic climate. The memo reports that the “acceleration [of payments] helps to improve cash flow for small businesses, increases liquidity, unlocks capital for the purposes of investment and growth, and increases small business participation in Federal contracting.” While the one year policy is in effect the government will encourage prime contractors to do the following:
- Accelerate payments to their small business subcontractors.
- Consider modifying their existing contracts with small business subcontractors without consideration or fees to include a clause providing that the prime contractor will pay the small business subcontractor along an accelerated timetable to the maximum extent practicable.
- Insert a similar clause in their future contracts with small businesses subcontractors.
GAO Report on Cloud Computing:
A recently released report from the Government Accountability Office (GAO) entitled, Information Technology Reform: Progress Made but Future Cloud Computing Efforts Should be Better Planned, commented on the cloud computing strategies of seven different agencies, including the departments of Agriculture, Health and Human Services, Homeland Security, State and Treasury; the General Services Administration and the Small Business Administration. The purpose of the study was to (1) assess the progress selected agencies have made in implementing this policy and (2) identify challenges they are facing in implementing the policy. The report found that each agency had incorporated cloud requirements into their policies and procedures, and made progress implementing the Office of Management and Budget’s (OMB) “Cloud First” policy. The “Cloud First” policy requires federal agencies to implement cloud-based solutions whenever a secure, reliable, and cost-effective cloud option exists and to migrate three technology services to a cloud solution by June 2012. Additionally, GAO officials reviewed documentation and interviewed agency and OMB officials to identify, assess and categorize common challenges to cloud computing, including the following:
- Meeting federal security requirements
- Acquiring knowledge and expertise
- Certifying and accrediting vendors
- Ensuring data portability and interoperability
- Procuring services on a consumption basis
GAO is making recommendations to the seven agencies to develop key planning information, such as such as estimated costs and legacy IT systems’ retirement plans for existing and planned services.