This the first in a series of blogs focusing the policy and program value of TDR.
As the Biden Administration focuses on strategies to support small businesses, including small-disadvantaged businesses, implementing TDR across the entire Multiple Award Schedule (MAS) will play a profound, strategic role in reducing barriers to entry, increasing access to the commercial market, and expanding opportunities for small businesses.
The MAS program serves as the central, governmentwide entry point for small businesses seeking to enter the Federal market. Over the years, the success of the program in supporting small business has been impressive. Small businesses, for close to two decades, have represented well over 30 percent of total annual purchases under the MAS program, far exceeding the governmentwide goal of 23 percent. Just last fiscal year, small businesses accounted for $14.1 billion in MAS purchases out of a total spend of $40 billion.
In the Federal market, an MAS contract is considered the “Good Housekeeping Seal of Approval” that lends confidence to government contracting officers when conducting market research and identifying small businesses for potential opportunities, whether through the MAS program or through the open market. Many state and local governments “piggyback” on GSA’s MAS program, establishing their own schedule programs, further providing opportunities for small businesses across the nation.
Expanding TDR across the entire MAS portfolio further streamlines the contracting process by eliminating the unnecessary, burdensome compliance costs associated with the outdated Commercial Sales Practices (CSP) and Price Reduction Clause (PRC). In particular, the terms of the PRC are highly complex. For example, the PRC requires MAS contractors to track pricing for independent private, commercial transactions, and if the PRC is triggered, the lower tracking customer price becomes the MAS contract price. MAS contractors invest in costly compliance programs, personnel, training, and systems to comply with the PRC. These overhead compliance costs divert critical funding towards unproductive management operations at the expense of direct investment to support customer agency needs.
In this regard, small businesses are most vulnerable to the imposition of these unnecessary, burdensome compliance costs. Small businesses margins are narrower than large businesses, and their resources more limited. The costs of building a PRC compliance regime presents a significant drag on performance, productivity, and profit. The unintended consequence is to hamstring the ability of small business to meet customer needs.
Together, the CSP and PRC serve as a barrier to entry, keeping businesses from seeking MAS contracts, and, as a consequence, they limit government access to innovative commercial products, services, and solutions. Along the same lines, the PRC restricts the ability of MAS contractors, including small businesses, from competing fully and fairly in the private sector, as those firms will fear triggering impacts in the public space. The result, then, is higher prices and lower growth in the commercial market. As this blog has noted previously, in effect, the PRC serves as a “restraint of trade” that penalizes small business when they offer competitive pricing to meet private, commercial customer needs.
Finally, the irony is that, despite all the funding dedicated by the government and industry on PRC compliance, the PRC tracking feature does not drive pricing for the MAS program. In 2015, GSA noted that a review of schedule modifications issued in FY2014 indicated that only about 3 percent of price reductions under the PRC were tied to the tracking customer.
In contrast, TDR takes a more focused, relevant, and streamlined approach to reporting market pricing. TDR requires MAS contractors to report their individual task and delivery order transactions under their MAS contracts. The reported information is highly relevant to program operations, as it includes products/services purchases, quantities, and associated pricing. GSA’s implementation of TDR is a recognition that value and pricing under the MAS program are driven by competition at the task and delivery order level. The data collected via TDR will support a host of government priorities, including fair and reasonable price objectives, cyber security, small business utilization, and best value.
Just as impactful, TDR streamlines reporting compliance for MAS small businesses. No longer will small businesses have to build, fund, and maintain a compliance infrastructure for the PRC. As a result, the reduction in overhead compliance costs will allow small businesses to dedicate additional funding towards direct operational support of customer agencies. Indeed, GSA has already reported that small businesses participating in the TDR pilot have generated much stronger sales growth than small businesses under the CSP and PRC.
Expansion of TDR and its elimination of barriers to entry aligns with the Administration’s goals for increasing procurement spending with small businesses, including small-disadvantaged businesses. It is especially timely given the increasing focus on the shrinking industrial base serving the Federal government, especially among small businesses. For example, according to the SBA, the number of small business prime contractors decreased by 6%, from 69,400 in 2020, to 65,428 in 2021. Further, there is data from GAO and others indicating that, from FY2011 to FY2020, the number of small businesses receiving DoD contract awards decreased by 43% (dropping from 42,723 to 24,296). During that same period, GDP grew by 34% from 2011 ($15.6 T) to 2020 ($20.9 T), and the total number of businesses in the U.S. economy also grew, increasing 7% from 2010 to 2019 (U.S. Census Bureau, 2021).
In sum, TDR makes sense for federal customers, GSA, and contractors, especially small businesses. The Coalition looks forward to working with all stakeholders on the roll out of TDR across the MAS program.