The General Services Acquisition Regulation (GSAR) and the Federal Acquisition Regulation (FAR) set forth the policies and procedures for the evaluation and negotiation of “fair and reasonable” contract level pricing under the Federal Supply Schedule (FSS) program. The GSAR addresses the negotiation of FSS pricing based on submission of an offeror’s Commercial Sales Practices (CSP) and, alternatively, offerors that have opted in to Transactional Data Reporting (TDR) where no CSP is required. The GSAR guidance includes specific references to, and incorporation of, the FAR’s guidance on the factors to be considered when analyzing and determining “fair and reasonable” pricing for FSS contracts. Both the GSAR and FAR were subject to the transparent rule making process whereby the public was provided an opportunity to review and submit comments on proposed rules.
Sometime in 2021, the Federal Acquisition Service (FAS) issued FAS Policy and Procedure (PAP) 2021-05, Evaluation of FSS Program Pricing. The specific date the PAP was issued is unclear as the PAP was not subject to the transparent rule making process. The PAP essentially “supplements” the GSAR and FAR by providing FSS contracting officers with additional guidance regarding the analysis and negotiation of contract level pricing. The PAP includes a host of new directives, including establishing new policy for pricing data requests and adding new responsibilities for FSS contracting officers negotiating contract level pricing. In some cases, these directives are inconsistent with the FAR and/or GSAR guidance. In other cases, they go well beyond the FAR/GSAR and impose new requirements that have not been vetted through the public rule making process.
For example, the PAP’s leading directive tells FSS contracting officers to “leverage the collective buying power of the federal government” when negotiating contract level pricing. The PAP, however, does not define or instruct contracting officers on what leveraging the collective buying power means. Moreover, the terminology “leverage the collective buying power of the federal government” does not appear in the GSAR or the FAR. Leveraging collective buying power to obtain lower prices is fundamentally dependent on the terms and conditions of the proposed contract (e.g. volume commitments, mandatory use, and limited pool of contracts). Below is a table that sets forth (1) the key contractual characteristics necessary to leverage collective buying; and (2) the key features of the FSS program.
| Key Characteristics of “Leveraging Collective Buying Power”: | Key Features of the FSS Program: |
| Mandatory Source of Supply. Contracts include terms that promise the buyer will purchase from the contractor for all items within the scope of the contract. | The Federal Supply Schedule is not a mandatory source of supplies. See FAR 8.001. Agencies can use any number of pre-existing contract vehicles other than the FSS or they can create their own contracts. |
| Limited number of contracts (e.g. single contract source of supply) creating a closed market that limits choice for the buying organizations. | There are 13,000 Active Contracts, collectively containing millions of commercial products and services. The FSS program has continuous open seasons for receipt of new offers and negotiation of contracts. There are hundreds, even thousands of contractors that offer the same or similar products and services mirroring the commercial marketplace, thereby providing competition and choice for customer agencies. |
| Significant volume commitments based on collective requirements (e.g. 100,000 widgets, $250,000 guaranteed minimum). | $2,500 guaranteed minimum over a contract’s potential 20-year lifespan with an opportunity to compete for task and delivery orders in accordance with the FAR and agency supplemental regulations. |
| Business operating rules that prioritize or drive purchases through the mandatory contract(s). | FAR 8.4 competitive ordering procedures for task and delivery orders and Blanket Purchase Agreements (BPAs) among the 13,000 contractors. |
| Business IT systems that limit and/or prohibit purchases from non-mandatory sources. IT systems connected to the sole source supplier. | GSA E-Systems (e-buy, GSA Advantage, Catalog Platform) facilitate competition at the order level consistent with FAR 8.4. |
| Price protections- most favored nations clauses. | The Price Reduction Clause (PRC) is in contracts where prices are negotiated based on CSP. The PRC conflicts with the FAR 8.4 competitive ordering procedures while also restricting competition in the commercial market. |
The FSS program is not designed to “leverage the collective buying power of the federal government” at the contract level. Rather, the FSS program is designed to provide customer agencies with transparent, efficient access to the commercial market, thereby enhancing competition, choice, and innovation at the order level. Most significantly, the ordering procedures and E-Systems empower customer agencies to leverage and compete their specific requirements at the order level. Of note, Congress mandated the order level competition requirements consistent with the understanding that order level competition for agency specific requirements is what drives price and value. In sum, the key features of the FSS program reflect the time, talent, and treasure that GSA has invested in developing a strategic, commercial marketplace that promotes price, value, and quality competition at the order level. The FSS program’s success is the direct result of these investments.
As the chart demonstrates, the PAP’s directive regarding “leverage” is fundamentally inconsistent with the structure of the FSS program and is inconsistent with the FAR. As a result, FSS contracting officers and offerors/contractors are in an untenable position. How do contracting officers leverage what is not there? How do offerors provide pricing in response to FAS demands when there are no leveraged requirements at the contract level? GSA and its contracting officers do not have the authority to craft FSS policy and contract terms consistent with the key characteristics of leveraging collective buying power.
In the interests of transparency and regulatory/policy consistency, FAS should rescind the PAP, meet with all stakeholders to discuss the key features of the negotiation process, and, to the extent necessary, develop draft pricing guidance and provide the public with the opportunity for review and comment. A place to start this process would be for FAS to review and respond to the feedback Coalition members have already provided.