Multiple-Award Schedule Contracts: The Good, the Bad, the Ugly

Guest Opinion Jonathan Aronie

June and July saw several changes in the Multiple Award Schedule program. The General Services Administration expanded its schedule offerings, the GSA Board of Contract Appeals issued an important decision, and the General Accounting Office resolved a question that has confused contractors and agencies alike for years.

While the outcome of these changes is unknown, there most likely will be mixed results: some good, some bad and some ugly. All, however, will be important.
Some time ago, GSA announced plans to develop a Multiple Award Schedule for engineering and technical support services called the Professional Engineering Services Schedule. This will supplement the four service schedules offered through the MAS Program: Management Services, Financial Services, Organizational Services and Travel and Transportation Services.

Recently, GSA took a major step forward to turn this idea into reality by issuing a draft solicitation for engineering and professional services. Like the IT schedule, the Professional Engineering Services Schedule promises substantial financial rewards to participating vendors.

GSA modestly predicts that its customers will issue more than $100 million in orders under this schedule in the first year alone. And if the attendance at a GSA bidder's conference in May was any indication (more than 250 companies participated), industry already is sold on the idea.

While the potential rewards of participation may be great, the potential risks are great as well, and, like every other schedule administered by GSA, the Professional Engineering Services Schedule harbors traps.

For example, notwithstanding industry's frequent protestations, the new schedule maintains the Price Reduction Clause, the Examination of Records Clause, and the Price Adjustment Clause. Likewise, the penalties for non-compliance are as draconian as ever, ranging from administrative penalties, termination, suspension or debarment to civil claims under the False Claims Act and possible criminal prosecution. The last thing a MAS contractor needs is a visit by inspector general auditors or, even worse, by badge-carrying federal agents.

The addition of engineering services to the MAS program is a positive step. Contractors simply should not let the potential rewards blind them to the potential risks. Read the solicitation thoroughly, understand its terms and conditions completely and seek professional advice if you do not understand anything.

In other good GSA news, the Federal Supply Service recently announced an amendment to its IT schedule. As of July 23, the IT solicitation now includes "telecommunication transmission services for cellular/PCS and paging services." These services previously were excluded.
On July 6, the GSA Board of Contract Appeals resolved a claim between GSA and Photon Technology, a contractor that provided fluorescence spectrometers under a schedule contract. The claim grew out of a post-award audit conducted by the GSA Office of Inspector General. As a result of this audit, GSA claimed that Photon had to repay about $13,000 in alleged overcharges for sales under the MAS program. Photon argued that the claimed amount was too high.

In its defense, Photon argued it was not required to grant schedule discounts to customers who failed to identify themselves as schedule purchasers. The board, however, was not persuaded and held that it is the vendor's responsibility to identify authorized schedule purchasers and provide appropriate discounts.

While contract administrators likely will not lose much sleep over this ruling, they will, or at least should, re-evaluate the training given to sales representatives. It is essential to ensure those individuals who sell to the federal government know how to identify a schedule purchaser.

A side note with respect to the board's decision in the Photon case: The board reduced the amount of the alleged overbillings because the inspector general had included non-schedule purchases in its analysis. According to the board, the government was entitled to a refund for overbillings only on those items included on the authorized price list.

While this holding is not surprising, it is encouraging in light of the government's penchant (at least until recently) for including open market items on schedule purchase orders. Sometimes called non-FSS items or non-schedule items, these open market items are commonplace in the world of MAS contracting. A schedule purchaser seeks to buy a schedule product, say a computer, and wants to add to her order a non-schedule component, say a second hard drive. As a matter of course, the purchaser simply asks the vendor of choice to include both products on the schedule invoice, thus avoiding the need to conduct a competitive procurement for the open market item.

GSA historically has permitted this practice with the General Accounting Office's blessing. On July 15, however, GAO changed all this.

While GSA has permitted open market purchases for years, its guidance to schedule purchasers and vendors has been anything but consistent. According to GSA, open market purchases were permitted under the MAS program so long as the value of the open market items was small or incidental compared to the value of the schedule items.

GSA's definition of small, however, was unclear. For a while, GSA said that "small" meant less than $2,500. Later, many GSA contracting officers were counseling their vendors that small meant less than 49 percent. As is often the case in the world of government contracting, contractors were left without guidance.

Then, in 1997, the U.S. Court of Federal Claims entered the fray. In a decision called ATA Defense Industries, the court declared there was no small or incidental exception to the legal requirement that agencies obtain full and open competition through the use of competitive procedures.

According to the court, unless a product can be classified as de minimis, or something clearly smaller than small or incidental, the U.S. code requires that the product be procured on a competitive basis.

Following ATA, GSA's contracting officers began counseling their vendors that the only limitation on open market items was that which was imposed upon them by the schedule purchaser's own internal regulations, a clear affront to the Court of Federal Claims.

GSA's guidance, or lack thereof, put MAS contractors in a difficult position. On one hand, they knew agencies were not supposed to order open market items without a competitive procurement.

On the other hand, they knew if they did not accept such orders, the agencies would just move their business elsewhere. Enter GAO.

GAO issued a decision July 15 in a protest case involving Pyxis Corp., agreeing with the Court of Federal Claims' decision in ATA. While GAO ultimately determined that the protester in Pyxis failed to pursue its protest in a timely fashion (and thus awarded the protester only the costs of preparing its product submission), GAO went on to discuss the issue of open market items because of the "significant issues" involved.

According to the comptroller general, "non-FSS items cannot be purchased from an FSS vendor unless applicable acquisition regulations have been followed." In other words, competition. Perhaps GSA will accept the GAO ruling more readily than it accepted the ruling of the Court of Federal Claims in ATA. Time will tell.

I have included this discussion under the "ugly" heading because, notwithstanding the clarity of GAO's decision, I suspect many schedule purchasers will not be dissuaded from attempting to add non-schedule items to a schedule sale. They will claim their open market purchases to be de minimis, argue that such purchases are authorized by their agencies, or threaten to take their business elsewhere.

Thus, MAS contractors once again will find themselves in a quandary: Comply with the law and risk losing business, or turn a blind eye to the transgressions of the customer and reap the potential rewards and possible negative consequences.

Jonathan Aronie is an attorney with the law firm Fried, Frank, Harris, Shriver & Jacobson in Washington. He counsels and represents government contractors in judicial, administrative and legislative forums.