ITAA: GSA schedule fee changes won't cover contractor costs

A proposed change to the fee agencies pay to use the General Services Administration's multiple-award schedules would result in substantial costs and administrative burdens on contractors and agencies, the Information Technology Association of America wrote in comments filed with the GSA April 17.

GSA has proposed to reduce the Industrial Funding Fee from 1 percent to 0.75 percent of a contract's value, effective Jan. 1, 2004.

Contractors essentially act as a collection agent for GSA, including the fee in the price of goods or services sold to their agency customers under the GSA schedules. At the end of each quarter, contractors report their schedule sales to GSA and give GSA 1 percent of that amount. If the fee change is approved, contractors would collect and pay GSA 0.75 percent of their total schedule sales.

To institute the change, contractors would have to alter their accounting systems, training and price lists, and both agencies and contractors would have to modify existing orders to change the fee amount owed by the agency, said Michael Mason, a Washington attorney with Hogan & Hartson LLP. Mason advises ITAA.

GSA has proposed to allow schedules contractors to keep the 0.25 percent difference between the current and the proposed fee amount for one quarter to compensate contractors for the administrative costs they will incur to implement the fee change.

But most contractors believe their costs will far exceed that 0.25 percent amount, Mason said.

"An agency may have thousands of orders that may have to be modified. It may seem that there is not much to it, but it will actually cost a significant amount of money to process the very high volume of orders," Mason said.

In its comments, ITAA proposed that schedule contractors be allowed to continue charging the 1 percent fee for contracts awarded before Jan. 1, and be allowed to retain the 0.25 percent fee difference for not just one quarter, but until those orders expire, typically within a year, Mason said.

"Otherwise, the contractor and the agency would have to process numerous changes, which would result in significant cost," he said.

The GSA took steps to lower the fee after a July 2002 General Accounting Office report found the schedules were bringing in far more money to the agency than was required to run the schedules program. The GSA schedules had a surplus of more than $56 million in 2001, and revenue exceeded costs by 53.8 percent. In fiscal 2002, agencies spent a record $22 billion on the schedules and GSA earned about $210 million in fees.

ITAA officials said they support the concept that agencies should not be charged more for their use of the schedules than is necessary to finance the program, but GSA's proposed compensation to contractors falls short.

"We do ask that GSA's final rule be crafted in a way that is less burdensome to implement," said ITAA Executive Vice President Olga Grkavac.