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