Panel pushes market approach for services

But critics say price reduction clause is a powerful tool

The Multiple Award Schedule (MAS) Advisory Panel, which is reviewing parts of the MAS
program, approved seven recommendations at its meetings Sept. 19 and 22. The recommendations
focus on professional services. At meetings this month, the panel will discuss
products. The panel's recommendations will be sent to the General Services
Administration's administrator in November. Recommendation so far are:

  • Eliminate the price reduction clause
    for MAS program schedule services contracts
    and adopts stricter competition
    standards for orders above the simplified
    acquisition threshold for agencies using
    the schedules.
  • Establish, with consent and participation
    of ordering agencies, a process for
    agencies to collect and report on their
    purchasing experiences, including quantity
    and quality considerations and price.
  • Disclose the basis of contracting officers'
    determinations that pricing is fair
    and reasonable.
  • Periodically evaluate Special Item
    Number descriptions to determine that
    they are consistent with customer needs
    and markets and that the labor categories
    are also consistent with their
    descriptions.
  • Consult with agencies and industry to
    periodically review the schedules to
    determine their relevance in the market
    and ability to meet the government's
    needs.
  • Set the goal of GSA schedules to
    obtain fair and reasonable prices at the
    time of contract formation by pursuing
    the lowest overall cost option. GSA's
    administrator should issue clear and consistent
    guidance for implementing that
    price objective.
  • Improve how GSA announces terms
    and conditions to agencies to ensure
    they place orders that are consistent with
    the schedule contracts.

Source: Multiple Award Schedule Advisory Panel

The price reduction clause
shouldn't apply to professional
services work under the General
Services Administration's schedules
program, according to the Multiple
Award Schedule Advisory Panel.

Instead, government buyers should
rely on market forces and competition to
ensure fair prices for services.
The clause requires contractors to give
the government discounts that are at
least as good as those they offer their
commercial customers. If the contractor
later lowers its prices for commercial customers,
the government must get the
same markdown.

But the panel said the system does not
work well with professional services
because the wide variety of services being
acquired makes it difficult to make
meaningful comparisons.

"The definition of a good deal is a variable
issue," said Elliott Branch, the
panel's chairman.

Although panel members said their
decision would likely rankle lawmakers
and auditors, they have decided to recommend
that GSA eliminate the clause
for professional services orders.

LET MARKET RULES APPLY

Several representatives of agencies that
buy from the schedules contracts said the
price listed on a GSA schedule doesn't
matter to them because they know that
market forces will lower it.

"GSA's price does for an ordering
agency what Wikipedia does for a scholar,"
said Branch, executive director of
contracts at the Naval Sea Systems
Command. If an agency seeks competition
among vendors, the market will dictate
a fair and reasonable value, as regulation
requires, he added.

Likewise, panelist Thomas Sharpe,
senior procurement executive at the
Treasury Department, said GSA needs
to get out of the pricing business. "I
don't see the value of the price at the schedule level," he added.

When GSA and a vendor negotiate a
schedule contract, they agree on which of
the vendor's commercial customers
receive the best terms on the product or
service that the contractor wants to sell to
the government. That client is deemed
the most favored customer and becomes
the benchmark by which the government
measures its deal.

But for professional services, such as
assisting with acquisition planning, task
orders aren't the same. Services that
seem similar can be
considerably different
because of a host of
variable factors.

In the end, the
panel's recommendation
to GSA states:
"Eliminate the price
reduction clause for MAS program
schedule services contracts and adopt an
803-like approach to compete orders
above the simplified acquisition threshold
for all agencies using schedule
contracts."

The term 803-like refers to Section
803 of the fiscal 2002 National Defense
Authorization Act. That section requires
the Defense Department to solicit proposals
from all eligible contractors or
receive at least three bids to achieve a
meaningful competition. It's a stricter
standard of competition than the one
civilian agencies use. The panel said
imposing such a requirement on civilian
agencies would minimize the risk of
agencies awarding work to preferred
firms with minimal or no competition.

But, the panel said, requiring civilian
agencies to adhere to standards similar to
Section 803 would demand statutory
changes ? something the panelists consider
unlikely.

TOUGH SELL ON THE HILL

Several inspectors general and members
of Congress have said the price reduction
clause is necessary to protect agencies
from contractors who otherwise would
charge the government exorbitant
amounts of money.

Some members of Congress have
already expressed skepticism about the
panel and its value. Rep. Henry Waxman
(D-Calif.), chairman of the House
Oversight and Government Reform
Committee, questioned the panel's value
and defended the clause.

"The requirement is a powerful tool
that helps government agencies,"
Waxman wrote in an April 18 letter to
former GSA Administrator Lurita Doan.
Representatives from IG offices have
testified before the panel, saying the
clause protects agencies from abuses
while allowing the government to make
the most of its buying power.

However, acquisition experts say much
has changed since GSA established the
clause. Services were not available
through the schedules then, but they now
make up the majority of schedules business,
said David Drabkin, a panel member
and deputy chief acquisition officer at
GSA.

This is not the first time experts have
suggested eliminating the clause. In
January 2007, the Acquisition Advisory
Panel recommended that the Office of
Federal Procurement Policy authorize
GSA to establish a new information technology
schedule contract for professional
services under which prices for each
order are established by competition and
not based on posted rates, according to
the panel's report.

The Acquisition Advisory Panel found
that GSA and contractors spend a lot of
time and money negotiating prices that
aren't relevant in a competitive marketplace.
OFPP did not act on the proposal.

Nevertheless, if GSA were to drop the
price reduction clause, many people on
the MAS Advisory Panel said the government
should offer another method for
agencies to ensure fair and reasonable
prices.

The panel passed two recommendations
that would require GSA and agencies
to report on their purchases. Under
the first recommendation, GSA would
create a process to collect information
from agencies about their orders,
including the price, quantity and quality
of the services. Agencies could use that
information as a reference
when they
seek proposals from
contractors.

Judith Nelson, a
panelist and an
industry specialist at
GSA's Office of
Acquisition Management, said GSA
would depend on other agencies to collect
that information.

"We don't have access to that information
without agency participation," she
said.

With that in mind, the panel will also
recommend that GSA's contracting officers
be required to provide federal buyers
with a short summary of their reasons for
deciding a particular schedule contract
price was fair and reasonable.

The recommendation concerning the
price reduction clause applies only to
services. When the panel meets this
month, it will consider the value of the
clause in buying commodities.

The panel intends to submit a report to
GSA's administrator in November.
Branch said that if GSA agrees to the recommendations,
the next president and
his chosen GSA administrator will be the
ones to implement them.

"When briefing books are prepared for
the next administration, we want this [to
be] part of that book," he said.

Matthew Weigelt (mweigelt@1105govinfo.com)
is acquisition editor at Federal Computer
Week.

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