Guest Blogger: Phil Seckman, Partner, McKenna Long & Aldridge LLP
A March 2, 2012, final rule requiring competition for certain orders placed under Federal Supply Schedule (“FSS”) contracts increases the burdens on agencies before schedule orders can be placed. The trend toward increased complexity is eroding GSA’s ability to legitimately tout the MAS program as a simplified acquisition process. These developments may not all be bad for contractors, however. With increased competition, the basis for the Price Reduction Clause (PRC) is arguably similarly eroding.
The final rule implements Section 863 of the NDAA for 2009 (Pub. L. 110-417) as well as a March 4, 2009, memorandum issued by President Barack Obama, and makes changes that are reminiscent of the DOD specific changes required by the 2002 NDAA (Pub. L. 107-107 § 803). While these changes reflect the government’s commitment to the fundamental procurement policy that views competition as the best means of ensuring the government is paying fair and reasonable prices and achieving best value outcomes for each tax-payer dollar, the changes ignore that in the MAS context schedule contracts are awarded with prices that have already been found fair and reasonable, based upon the contractor’s disclosure of its commercial sales practices, and orders placed against those contracts were already considered competitive.
Under the new rule (with limited exceptions), the government must publicize each intended purchase under a multiple-award contract that will exceed the simplified acquisition threshold (including a work description and bases for selection) on e-Buy or FedBizOpps.gov. The notice must be provided either to every contractor under the multiple-award contract offering the supplies or services, or to at least “as many contractors as practicable.” See § 8.405-1(d); 16.505(b)(2)(ii)(D). If fewer than all contractors are notified, no purchase can be made unless three qualified contractors submit offers or the contracting officer determines that no additional qualified contractors can be identified. Additionally, all contractors responding to the notice must be afforded a fair opportunity to make an offer and have that offer considered by the purchaser. Id. Such consideration must be documented as part of the award decision. See § 8.405-1(f)-(g).
These FAR changes are applicable to task and delivery orders placed against multiple-award contracts–including FSS contracts and Blanket Purchase Agreements (“BPAs”) awarded under FSS contracts pursuant to FAR subpart 8.4. The changes are also applicable to indefinite-delivery/indefinite-quantity contracts awarded pursuant to subpart 16.5. They do not, however, apply to BPAs awarded pursuant to FAR part 13.
Agencies traditionally have used the schedules to expedite acquisition, free of many of the requirements of a typical procurement action (i.e., developing the statement of work, publication, competition, etc.). In response to concerns raised by the GAO in November 2000, and in recognition of the shift in federal procurement from supplies to services, a number of changes were made to FAR subpart 8.4 to establish additional procedures when the government acquired services that necessitated the development of a statement of work. See 69 Fed. Reg. 34231 (Jun. 18, 2004). These changes ensured that the MAS program’s simplified acquisition procedures for supplies and many definite scope services would be reasonably balanced against the need for additional protections for services acquisitions where a fixed price or clear scope T&M arrangement was not yet available.
In fact, the great success of the MAS program that began in the late 1990s and that has resulted in the very significant growth in procurement dollars flowing through the schedules is, in large part, a product of the ease with which acquisition outcomes could be achieved while still ensuring the government was receiving a fair and reasonable price. The March 2, 2012, final rule, however, further erodes purchaser flexibility, could prompt agencies to reassess the value proposition of using the schedules, and is very likely to increase bid protests and disputes. These outcomes are antithetical to a simplified acquisition process.
On the other hand, there is a potentially positive development from the Final Rule. The shift toward increased competition for all schedule orders over the simplified acquisition threshold gives new viability to the long-running effort to remove the Price Reduction Clause from schedule contracts.
As noted in the response to comments in the Final Rule, one of arguments advanced was that the old FAR subpart 8.4 ordering procedures and the PRC reflected the balance between competition and price reductions for orders above the maximum order threshold (MOT). Specifically, the PRC recognizes that price reduction remedies are not necessary above the MOT because competition and requests for price reductions were required by the old FAR subpart 8.4. Importantly, the new FAR subpart 8.4 ordering procedures have replaced the MOT with the simplified acquisition threshold and, as such, the PRC should be revised and, indeed, largely eliminated. Thus, Contractors and industry organizations could have a viable new basis to push for regulatory change.
In light of the Final Rule, schedule holders will be well served by carefully assessing how these new notice and competition requirements present new risks but also new opportunities to secure agency orders. The notice requirements could have significant impacts on relationships that schedule vendors have established over many years of successful contract performance. On the other hand, vendors that have traditionally not enjoyed significant market share would be wise to carefully consider how to best leverage this new opportunity to compete for agency requirements that are fulfilled through the MAS program.