New fee structure takes shape at GSA

A final rule published by the General Services Administration will gives the agency's Federal Supply Service the right to change the of the Industrial Funding Fee, but FSS cannot change the rate more than once a year. The rule was published July 11 in the Federal Register.

The fee is included in contractor's prices for goods and services purchased by federal agencies through FSS multiple-award schedule contracts. Contractors pay the fee to GSA, which uses the money to run the FSS program.

GSA intends to lower the fee to 0.75 percent of sales, down from 1 percent. Future changes will be made after consultation with the Office of Management and Budget.

The rule change will go into effect Jan. 1, 2004. However, GSA will allow contractors to collect the 1 percent fee but only remit 0.75 percent to GSA from Oct. 1 to Dec. 31, 2003. Keeping the difference will allow contractors to recoup their costs associated with implementing the fee change. GSA expects contractors' costs will include updating published prices and modifying accounting systems, according to GSA's statement in the Federal Register.

The Information Technology Association of America, an Arlington, Va., trade group, had proposed that contractors be allowed to continue charging the 1 percent fee for contracts awarded before Jan. 1, and be allowed to retain the difference for not just one quarter, but until those orders expire, typically within a year. Many contractors expected the costs of altering accounting systems, training and price lists would exceed 0.25 percent of the fee, according to an association adviser.

GSA addressed the association's concerns in a separate provision of the rule, said Michael Mason, a Washington attorney with Hogan & Hartson LLP. Mason advises ITAA.

For orders placed before Jan. 1, contractors can continue to charge the 1 percent fee, rather than modifying the existing orders. Leases made before Jan. 1 will not have to be modified either, Mason said.

"They've established a bright line test that wasn't there before," he said. If existing orders had to be changed to reflect the 0.75 percent charge, both agencies and contractors would have to modify each order, a huge administrative burden, he said.

"It's really a win-win, because if agencies would have to process all these changes, it would be a huge burden," he said. *