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The PRC – Opportunity Continues to Knock

On May 28, the General Services Administration (GSA) published a notice in the Federal Register seeking input from industry regarding the extension of General Services Administration Acquisition Regulation (GSAR) clauses 552.216-75, “Transactional Data Reporting,” and 552.238-80, “Industrial Funding Fee and Sales Reporting, Alternate I.” Readers will recall that GSA already is engaged in an ongoing Federal Marketplace Initiative, which involves the consolidation of all Multiple Award Schedules (MAS) into a single Schedule.[1] So too, recently enacted law affords agency heads with the discretion not to include price or cost as an evaluation criterion when awarding contracts for services that are acquired at an hourly rate. Coalition members see this notice, coupled with these other reform measures, as an opportunity to continue streamlining processes and increasing the efficiency and effectiveness of the MAS program by eliminating the anachronistic Price Reduction Clause (PRC).

As has been recognized by this blog in the past, the PRC represents a significant compliance burden for contractors, with questionable, if any, benefit to the Government. It is incorporated into approximately 16,000 MAS contracts, with nearly 14,000 contractors (many MAS contractors have multiple contracts under the program). Under these circumstances, contractors are obligated to establish effective systems and designate responsible personnel to maintain compliance with the PRC throughout the life of the contract. This designation of systems and human resources does not occur in isolation. Rather, it occurs against a backdrop of other activities, like offer and negotiation over the mechanics for triggering price reduction; oversight and review activities during performance to validate compliance; and the training of employees and senior executives responsible for contract compliance on the key compliance and reporting requirements of the PRC.

When the PRC was developed decades ago, these administrative compliance activities may have made sense. Recall that, at that time, Schedules were mandatory and closed, and competition was not required at the order lever. Thus, some mechanism was needed to assure that the Government was receiving fair and reasonable prices. The world, however, has changed. We have Schedules that resemble an actual marketplace, and fair and reasonable pricing is being driven by competition at the order level, not by a PRC dissociated from the specific requirements of the government at the transaction level.

More than program efficiency is at play here. The implementation of the PRC actually presents harm to commercial market activity. By relying on a bureaucratic, process-intensive pricing oversight clause, rather than the forces of competition associated with the requirements of a given task order, the Government is influencing how contractors approach business in the commercial market. Faced with an ever-present risk of triggering a price reduction, they alter their behavior, delaying or avoiding innovative business deals. The deleterious effects here cannot be overstated. Avoiding innovative solutions influences the level of business activity, which influences labor activity. Moreover, the compliance regime associated with the PRC inhibits Government market participation by the very innovative commerce firms that the Government seeks to attract into this space. The end result is clear: the PRC represents not only bad procurement policy, but also bad economic policy.

By removing the PRC, the Government opens itself to innovations that are driving the commercial space, innovations like the enhancement and improvement of cloud offerings for Schedules. In an environment with rapidly changing technology, eliminating the PRC offers the Government the opportunity to focus on solutions-based Schedule purchases, which aligns with the current effort to consolidate the Schedules. Removal of the PRC also allows the Government to focus resources where they would be most effective: at the task order competition level. So too, it allows the Government to free-up contracting resources to align with other complex procurement work.

GSA’s Federal Marketplace Initiative and its associated activities, like Schedules consolidation and the review of various reporting requirements, represent a logical point to reflect on the utility of contracting compliance mechanisms, like the PRC, developed for a different time and market. Coalition members believe GSA should seize the opportunity to remove this anti-competitive, relic of the past, rely on the forces of the market, and widen a channel for agency buyers to access innovation and value.

[1] Earlier this month, GSA issued a Request for Information (RFI) seeking feedback regarding draft terms and conditions for the consolidated Schedules solicitation, which will be released later this year.

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