Michael F. Mason, Partner, Hogan Lovells
Joy E. Sturm, Partner, Hogan Lovells
David W. Burgett, Partner, Hogan Lovells
Allison D. Pugsley, Counsel, Hogan Lovells
Stacy M. Hadeka, Associate, Hogan Lovells *Admitted only in Virginia. Practice limited to federal government procurement matters
On June 23, 2016, GSA published a much anticipated final rule that amends the General Services Administration Acquisition Regulation (GSAR) to implement new transactional data reporting requirements in certain GSA contracts. 81 Fed. Reg. 41104 (June 23, 2016), available here. In addition, the rule eliminates the Price Reduction Clause (PRC) reporting and Commercial Sales Practices (CSP) disclosure requirements for Federal Supply Schedule (FSS) contracts that are subject to the new reporting requirements. The rule currently is limited to GSA contracts and does not extend to Department of Veterans Affairs (VA) FSS contracts. This final rule becomes effective on June 23, 2016. [1]
Highlights
The transactional data reporting rule represents the most significant change in the GSA FSS program since the mid-1990s. Desiring to improve competition, lower prices, and increase transparency, the rule requires vendors to submit monthly reports containing specific transactional data [2] from orders placed against certain GSA FSS contracts, Governmentwide Acquisition Contracts (GWACs), and Governmentwide Indefinite-Delivery, Indefinite-Quantity (IDIQ) contracts. The new reporting requirements are aligned with the Office of Federal Procurement Policy’s governmentwide “category management” initiative, which, among other things, seeks to improve government data collection efforts and analysis to drive down Government spend in various acquisition categories It also marks GSA’s pivot to a horizontal pricing model for establishing price reasonableness on FSS contracts that are subject to the rule. That is, rather than relying on a contractor’s historical prices offered to its commercial customers, GSA intends to place far greater weight on the competitiveness of a contractor’s government transactional prices relative to current pricing offered by other vendors.
According to GSA, this fundamental change in approach to purchasing, along with changes in market dynamics, has rendered the PRC and CSP requirements unnecessary. This should be welcome news for FSS contract holders. The PRC and CSP requirements are two of the most complicated and burdensome requirements in federal government contracting. Neither requirement is well defined, and contractors often find themselves unable to understand the compliance requirements that they sign up to under these clauses. In recent years the GSA Office of Inspector General (OIG) has found most CSP disclosures it has reviewed to be defective. Moreover, the complexity and lack of common understanding regarding these requirements has contributed to substantial liability for FSS contractors under the False Claims Act (FCA). Over the past decade alone the Government has recovered well over US$500 million from FSS contractors based on alleged violations of the CSP and/or PRC requirements.
The rule does not apply to VA FSS contracts. Accordingly, VA FSS contract holders for medical items, including drugs, devices, and medical equipment, continue to be subject to the PRC and CSP requirements and will not be subject to the new monthly reporting regime.
GSA Schedules and Special Item Numbers Impacted by Final Rule
GSA initially will implement the new reporting requirements and the elimination of PRC and CSP compliance obligations as part of a pilot program. The new Transactional Data Reporting clause, GSAR 552.238-74, Industrial Funding Fee and Sales Reporting (Alternate I), will be introduced in phases through a pilot program that will begin not less than 60 days after June 23, 2016, but no sooner than July 1, 2016. The pilot will involve the following eight (8) GSA Schedules and SINs:
- Schedule 03FAC, Facilities Maintenance and Management: All SINs.
- Schedule 51 V, Hardware Superstore: All SINs.
- Schedule 58 I, Professional Audio/Video, Telemetry/Tracking, Recording/Reproducing and Signal Data Solutions: All SINs.
- Schedule 72, Furnishing and Floor Coverings: All SINs.
- Schedule 73, Food Service, Hospitality, Cleaning Equipment and Supplies, Chemicals and Services: All SINs.
- Schedule 75, Office Products: All SINs.
- Schedule 00CORP, The Professional Services Schedule: Professional Engineering Services (PES) SINs.
- Schedule 70, General Purpose Information Technology Equipment, Software, and Services: SINs 132 8 (Purchase of New Equipment); 132 32, 132 33, and 132 34 (Software); and 132 54 and 132 55 (Commercial Satellite Communications (COMSATCOM)).
Contractors with FSS contracts that include at least one of the affected SINs will be required to include transactional data in their reports for all SINs under that contract, even if those SINs are not part of the pilot program.
The reporting requirements will be applied to newly-awarded contracts for the applicable Schedules/SINs. Contractors that already hold a Schedule contract that includes any one of the covered Schedules/SINs, may participate voluntarily by executing a bilateral modification to the contract, but are not required to do so.
Other GSA Contracts Covered by Final Rule
The new reporting requirements will also apply to GSA GWACS and Governmentwide IDIQ contracts. The rule instructs GSA to insert GSAR clause 552.216-75, Transactional Data Reporting, [3] in all new GSA GWACs and Governmentwide IDIQ contracts. [4] The clause may also be included in existing GSA GWACS and IDIQ contracts that do not contain other transactional data requirements. Existing contract programs containing other transactional data requirements have the option of incorporating the new clause through bilateral contract modifications.
Transactional Data Elements
The new clauses require contractors to electronically report 11 transactional data points to GSA on a monthly basis. Contractors will also be able to “fill in” additional data elements, which must be approved by GSA’s Senior Procurement Executive. Reporting instructions will be posted on a Vendor Support Center website. To facilitate the reporting, GSA is launching a new portal. Transactional data collected through the portal will only be accessible by authorized users and protected in accordance with GSA’s information technical security policies. The 11 transactional data elements include:
- Contract/BPA Number
- Delivery/Task Order Number/Procurement Instrument Identifier (PIID)
- Non-federal Entity
- Description of Deliverable
- Manufacturer Name
- Manufacturer Part Number (MPN)
- Unit Measure
- Quantity of Item
- Universal Product Code (UPC)
- Price Paid Per Unit
- Total Price
Many within industry have voiced opposition to the reporting requirements, asserting that they create a new and onerous administrative burden for contractors, and that the Government, as the buyer in these transactions, should already have this data in its possession. According to GSA, however, collection from contractors is necessary because GSA currently has no way of accessing the data on the “buy” side across the many federal agencies that use the affected contracts.
Government Use of Transactional Data
GSA has stated that it plans to make the reported data available to category managers, FSS contracting officers, and agency ordering officers. GSA further indicates that training relating to the new rule will emphasize that price is only one information point that must be considered
in combination with other relevant information (e.g., warranty, quality, performance, etc.) relating to offers. GSA has implemented a number of tools that will facilitate the comparison of pricing for similar products and services across contracts and orders. These tools include the Formatted Product Tool that is part of GSA’s Competitive Pricing Initiative, and the Contract Awarded Labor Category Tool that enables comparison across 48,000 labor categories from more than 5,000 FSS contracts under the Professional Services Schedule. Contracting officers will be encouraged to discuss with the contractor perceived variances between offered prices, transactional data, and existing level prices in order to evaluate whether higher prices are justified.
Looking Ahead
The final rule constitutes a very significant change for FSS and other contractors that hold covered contracts. Although the rule provides a good amount of detail, many important issues either are not addressed or require clarification. For example:
- The manner in which GSA contracting officers negotiate the baseline contract prices where CSPs are no longer required currently is unclear. Contracting officers are not precluded from requesting data other than certified cost and pricing data, including historical pricing information. Also, it is not certain whether contracting officers will continue to request cost buildup information from service providers for labor categories that have little to no sales in the commercial market.
- The rule does not address the manner in which service providers are to report transactional data for professional services provided on a fixed-price basis.
- The GSA OIG’s role in supporting price negotiations and conducting pre-award audits is now unclear. A primary objective of GSA OIG pre-award audits is to assess whether a contractor’s CSP disclosure is current, accurate and complete. That purpose is rendered null once the CSP disclosure requirements have been eliminated.
- Additionally, GSA’s estimate regarding the compliance burden for industry associated with the new reporting requirements seems quite low, at US$15 million/year. Considering the processes and resources that will be required to ensure compliance, and one-time modifications to IT systems to enable compliance, the reporting requirements will be costly for many contractors. Consequently, it seems hard to reconcile GSA’s estimate with the costs likely to be incurred.
Conclusion
The final rule reflects a fundamental change in how GSA approaches pricing within the FSS program. The elimination of the PRC and CSP requirements should be welcome news for contractors that are subject to the transactional data reporting requirements. The transactional data reporting requirements, however, pose their own risks. A failure to provide accurate transactional data that impacts a government customer’s buy decision might result in liability under theories similar to those used against contractors relating to violations of the PRC and CSP requirements. Accordingly, while many contractors will view the rule favorably, due to the administrative burden of complying with the monthly reporting requirements and the risk inherent therein, some may decline, at least initially, to opt in to the rule’s requirements.
For additional information about this final GSA rule, please contact the authors of this posting or the Hogan Lovells attorney with whom you work.
- See our previous analysis of the proposed rule here.
- Transactional data refers to specified information generated when the Government purchases goods or services from a vendor, and includes, among other things, product/labor category descriptions, part numbers, quantities, and prices paid. 48 C.F.R. § 552.216-75.
- 48 C.F.R. § 552.216-75.
- Those contract vehicles with solicitations issued on or after June 23, 2016.
