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President Obama, ODCs and the PRC!

President Obama recently received a briefing from GSA’s Federal Acquisition Service (FAS) on category management and the Common Acquisition Platform (CAP).  The briefing is a very significant symbol of GSA’s important role in government management.  It highlights GSA’s central role in providing procurement services and programs that support customer agency missions across the federal enterprise.  As a former GSA employee it was great to see the White House focus on the important, unsung work GSA does day and day out on behalf of the American people.

Strategically, category management and the CAP have the potential to improve GSA’s delivery of best value commercial products, services and solutions to customer agencies.   As you know, FAS has reorganized around market sectors or industry categories to better focus on market trends and customer requirements.  Category management has the potential to improve FAS’s management of its contracting programs through increased understanding of customer mission requirements and commercial market trends.  The CAP has the potential to provide the federal enterprise with transparent, competitive information regarding already existing contracting programs, best procurement practices and market trends.  The CAP can address contract duplication and provide federal market information that can further assist customer agencies in making sound, best value procurement decisions.

Make no mistake; category management and the CAP are important management initiatives for FAS.  However, the success of these management initiatives is dependent on the effectiveness of the contracting vehicles that FAS manages. In particular, the efficiency and effectiveness of GSA’s $38 billion Federal Supply Schedules (FSS) program is the foundation for any success FAS hopes to achieve through category management and/or the CAP.   The FSS program accounts for roughly 75% of the dollar volume of all purchases made through FAS.  Historically, the FSS program has provided customer agencies with access to millions of commercial products and services—essentially creating a federal marketplace where commercial firms and government contracting activities come together to conduct streamlined procurement transactions/competitions to support agency mission requirements.

However, the full potential of the FSS program remains untapped. Key contracting reforms that would bring the program into the 21st century have not been made.  Aside from the Professional Services Schedule Consolidation effort, FSS contractors have seen little or no progress in addressing outdated, unbalanced FSS contract terms, conditions and structures.  At the same time, FSS contractors have seen the implementation of new burdensome data reporting, performance and compliance requirements across the program.

Data is not a free good.  The increased data reporting requirements being implemented across the FSS program increase contractor costs and create additional barriers to entry.  Infrastructure costs associated with date reporting are inevitably passed on to customer agencies through higher prices and reduced access to best value solutions.  GSA should take a step back from its data reporting regime and engage in a Myth-Busters dialogue with its industry partners regarding the goals, best practices and impacts.  Such a dialogue would be consistent with the Office of Federal Procurement Policy’s (OFPP’s) December 4, 2014 Memorandum “Transforming the Marketplace: Simplifying Federal Procurement to Improve Performance, Drive Innovation, and Increasing Savings.”   OFPP’s December 4th memorandum sends a strong, thoughtful and common sense message regarding the need to simplify acquisition policy, procedures and regulations. So in the spirit of OFPP’s memorandum, once again, here are two key reforms that would increase competition, enhance best value, and provide greater access to commercial innovation and total solutions via the FSS program.

  1. Incorporate “Other Direct Costs (ODCs)” capability in FSS contracts

Authorizing the acquisition of ODCs/materials at cost under FSS contracts would enhance access to best value commercial solutions for customer agencies.  Moreover, ODCs can reduce costly contract duplication.  Currently, customer agencies cannot acquire the total solutions they seek through the FSS program due to the lack of ODCs.  As a result these customers create duplicative contract vehicles for the same or similar commercial products and services.  The irony here is that for over six years the Federal Acquisition Regulation (FAR) has included a commercial item clause that authorizes ODCs and materials under commercial item contracts like the FSS program.

Interestingly, many, if not all, FSS contracts already include the necessary commercial item FAR clause for implementing ODCs.  Yet customer agencies are still prohibited from accessing a standard FAR contracting capability when using the FSS program.  This issue is amongst the highest priorities for FSS service contractors as it would improve efficiency and effectiveness in competing for and providing total solutions to meet customer agency mission requirements.  Over three years ago the Coalition provided FAS with a white paper recommending a methodology for implementing ODCs/materials.  Yet, to date, the only overt step taken by GSA was a 2013 Federal Register notice seeking input from the public regarding implementation of ODCs on FSS contracts—a Federal Register notice that ignored the fact that the applicable FAR commercial item clause has already gone through public comment and rule making!!!

  1. Reform the FSS pricing policies and procedures—eliminate the Price Reduction Clause (PRC)

The PRC is a burdensome oversight pricing mechanism that increases costs/prices for contractors and customers.  Compliance with the PRC collectively costs FSS contractors, tens, if not hundreds, of millions of dollars annually.  Compliance costs come in the form of training for employees, business systems and personnel to track, manage and report pricing for purposes of the clause.  Over time these compliance costs far exceed any government return on PRC enforcement.  The PRC also increases costs and negatively impacts jobs by restricting the ability of an FSS contractor to compete independently in the commercial market place. Compliance risk associated with the PRC also limits innovation and best value solutions.  Due to pricing variability and associated risk under the PRC, commercial firms will not offer their latest technologies and solutions via the FSS program (e.g., cloud services and solutions).

The PRC is unnecessary.  It reflects a 1980’s FSS contract structure that  is fundamentally different than today’s FSS market place.  The 1980’s FSS included a much smaller contract base numbering in the hundreds of contractors and contracts.  Today, the FSS includes over 18,000 contracts and tens of millions of items.  The 1980’s FSS was a mandatory source—government was required to use it.  Today the FSS is a non-mandatory source.  The 1980’s FSS had a limited open season for submission of offers.  Today, the FSS essentially has a continuous open season allowing for the submission of commercial offers every business day of the year.  The 1980’s FSS did not have electronic tools like GSA Advantage and eBuy for market research and posting competitive requirements.

Finally, and most importantly, the 1980’s FSS did not require competition at the order level. Today, pursuant to statute and regulation, some enhanced competition essentially is required for all orders exceeding the micro-purchase threshold.  For FSS orders exceeding the simplified acquisition threshold ($150,000), a contracting officer is required to provide notice and an opportunity to compete to all FSS contractors capable of meeting the requirement.   As such, price and value under the FSS program are driven by competition at the task order level not the PRC.  GSA Advantage and eBuy enhance that competition providing a platform for market research and solicitation of competitive quotes. The competitive FSS market included thousands of contractors and millions of products and services.  It is time for the PRC to go!

Already we have seen at least two major commercial firms leave the FSS program due to the burdensome contract paperwork and compliance requirements.  If nothing is done to streamline and reduce overregulation, more are sure to follow.   Here’s hoping that the next time FAS briefs the White House, it can talk about the implementation of acquisition reforms that ensure the FSS program of the 21st century provides a dynamic, robust commercial market place for customer agencies and contractors.  After all, category management and CAP will only be as successful as their underlying contracts.

P.S.:  I never thought I would be writing an article that includes references to President Obama, ODCs and the PRC!


Roger Waldron


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