Is Oracle's departure from GSA just the beginning?

Oracle’s decision to abandon the GSA schedules as a channel to sell its products might just be the tip of the iceberg of problems in the government market.

While Oracle and GSA officials are not commenting on a Federal News Radio report that Oracle will stop selling through GSA, including through resellers, sources also are telling me that other product companies are considering similar actions.

The crux of the issue is that for these commercial companies, the risks and hassles of working through GSA may no longer be worth it. As one person told me, “The government market might be big, but it doesn’t move the needle.”

Companies such as Oracle face audits, the risk of False Claims Act lawsuits and multi-million dollar settlements. Oracle has paid several fines including two that came with the acquisitions of PeopleSoft and Sun Microsystems. They aren’t alone. Just last September, Carahsoft and VMware paid $75.5 million to settle allegations that they overcharged the government.

The GSA schedules also have gained a reputation of being one of the most expensive to maintain. It can take months to place new products. There also are compliance requirements around the Price Reduction Clause and the Commercial Sales Practices. Violations of these regulations are what often lead to audits and inspector general investigations.

On the horizon is the Transaction Data Reporting system, which will require companies to report to GSA what they have sold and for how much. GSA wants to use the information to address the different pricing it sees across different buyers for the same or similar products.

The TDR is being phased in and hasn’t been applied to schedule 70 yet, but it is causing a lot of angst. From the government’s perspective, it will be a tool to get more standard pricing and better leverage government buying power.

GSA is offering a carrot to industry in that participation in the TDR means that vendors will not have to comply with the Price Reduction Clause and the Commercial Sales Practices requirements. But the risk of an IG investigation and a False Claims Act lawsuit remains.

As I said, Oracle is not talking, but apparently the company sees GSA asking for more information on pricing, and that will open the door to more risk of audits and IG investigations. At the same time, GSA isn’t offering any relief to the financial risks, and it isn’t doing anything to streamline its operations so companies can update their schedule offerings more quickly.

One source told me that GSA typically takes six to 9 months to approve an update to a company schedule. Often, they are arguing over what price to put on the catalogue. Meanwhile, over at NASA SEWP, it takes less than 24 hours.

Granted, while SEWP is huge with sales in the billions, it doesn’t have near the same scale as GSA schedules in terms of the volume of vendors and items being sold. But still, GSA should be able to make its operations more efficient.

As one person told me, the extra requirements of the Transactional Data Reporting system might be easier to swallow if there were parallel efforts to make life easier for contractors.

And it isn’t that GSA isn’t getting industry input on how to improve. Several people I talked to said that GSA is very open to meeting with industry and discussing issues, but there is little action that follows these conversations.

As one person told me, GSA is very focused on improving customer service from the agencies’ perspective, but not for how contractors are being impacted. Too many compliance requirements will only make it more expensive for government buyers, he said.

Many of these issues have been raised repeatedly over the years. Industry groups such as the Coalition for Government Procurement, the Professional Services Council and the IT Alliance for the Public Sector have raised these issues multiple times through meetings, white papers, surveys and recommendations to GSA.

For example, three years ago, the coalition sent a lengthy white paper to GSA outlining their concerns and offering several recommendations including eliminating the phrases “Most Favored Customer” and “Best Price” from GSA’s pricing policy. Another recommendation said that GSA should eliminate the price reduction clause, which the coalition argued was costly and unnecessary.

No one I spoke with was surprised that Oracle decided to make the move away from the GSA schedules. And several are convinced that others will follow suit. Perhaps this will spur GSA and Congress to take action. (Congress plays a role because some of the changes industry wants will require that laws are amended.)

One source cautioned me that we might not see as dramatic a departure as Oracle's. “A lot of vendors leave the schedule in a lot of different ways,” he said. “They can just stop using it. Or they can use resellers or they can stay on and drive customers to other contracts.”

But one person said that Oracle’s move might have a silver lining. In the past, opponents to reducing compliance requirements have asked, Name a company that’s left the market because of compliance issues. “Now, we have an example,” he said. “And this isn’t some fly by night operation.”