Panel to debate GSA price reduction clause

A new advisory panel will evaluate the relevance of a price reduction clause that requires companies on General Services Administration schedule contracts to offer the government their most deeply discounted prices.

The clause is likely to be at the center of debate for the panel, which is reviewing the schedules program, GSA's most lucrative venture. The panel's goal is to determine how the program can best adapt to changes in the market.

The clause requires contractors to give the government the same discount they would give to their most favored customer. However, recent trends in task-order competition, reverse auctions and a surge in agencies buying services might make the clause obsolete, some experts say. GSA is looking to the Multiple Award Schedules Advisory Panel for an independent assessment of the issue and an overall review of the schedules program. It created the panel in March.

The panel will ask what the phrase "obtain lowest overall cost alternative" means in the context of getting the best value, said David Drabkin, GSA's acting chief acquisition officer and a panel member.
Lurita Doan, GSA's administrator, said she expects initial recommendations in several months and final recommendations in early fiscal 2009.

As the policy review begins, Rep. Henry Waxman (D-Calif.), chairman of the Oversight and Government Reform Committee, said the committee will be watching closely. In an April 18 letter to Doan, Waxman said the pricing clause is a powerful tool to ensure the government gets the best prices.

"An initiative to eliminate or weaken the clause could significantly increase costs to the taxpayer," Waxman wrote. He requested more detailed information about the panel.

Bill Woods, director of acquisition and sourcing management at the Government Accountability Office, said the pricing clause merits review. It was established for commodities, but agencies are now buying more services than products. He also said the panel should examine roles and responsibilities in interagency agreements and procedures for getting accurate acquisition data.

Doan said she sees an opportunity to adapt GSA's largest program to today's market. She said the schedules program can be improved.

"We haven't taken a really hard look at the various clauses of the schedules, and this is that one chance for us to start that process and prepare for the next decade," Doan said.

In the past decade, the schedules have exploded in size, making them one of GSA's most important programs. In the mid-1990s, GSA had about 5,200 contracts on the schedules, but now, there are 17,297 contracts awarded to 16,842 different contractors. Schedule sales increased by 1.65 percent in the first quarter of fiscal 2008 compared with the first quarter of fiscal 2007, rising from $9.75 billion to $9.9 billion, according to GSA.

Agency and industry acquisition experts have debated the price reduction clause for several years, questioning its necessity. Some pricing policies date to the 1970s. The commercial world has changed since then, said Larry Allen, president of the Coalition for Government Procurement and a panel member.

"Perhaps the schedules program should be updated to keep pace," Allen said.

Contractors now compete with one another for task orders, which lowers prices. Agencies have set up reverse auctions and have new pricing negotiations. In addition, agencies are buying more services than commodities, and services have different pricing dynamics than products do.

Rep. Tom Davis (R-Va.), the Oversight and Government Reform Committee's ranking member, said the panel needs to consider the structure and use of pre- and post-award audits and pricing support for contract awards.

In part because of the pricing clause and audits, some major companies, including Sun Microsystems, Canon and E C, have left their schedules contracts in recent months. Doan said she is disturbed about growing frustration among schedule contract holders and worried about more companies leaving GSA schedules.

"I'm concerned that this level of frustration could turn into a growing reluctance of companies to list their products and services on a GSA schedule," Doan said.

Matthew Weigelt writes for Federal Computer Week, an 1105 Government Information Group publication.