Panel pushes market approach for services

The price reduction clauseshouldn't apply to professionalservices work under the GeneralServices Administration's schedulesprogram, according to the MultipleAward Schedule Advisory Panel.Instead, government buyers shouldrely on market forces and competition toensure fair prices for services.The clause requires contractors to givethe government discounts that are atleast as good as those they offer theircommercial customers. If the contractorlater lowers its prices for commercial customers,the government must get thesame markdown.But the panel said the system does notwork well with professional servicesbecause the wide variety of services beingacquired makes it difficult to makemeaningful comparisons."The definition of a good deal is a variableissue," said Elliott Branch, thepanel's chairman.Although panel members said theirdecision would likely rankle lawmakersand auditors, they have decided to recommendthat GSA eliminate the clausefor professional services orders.Several representatives of agencies thatbuy from the schedules contracts said theprice listed on a GSA schedule doesn'tmatter to them because they know thatmarket forces will lower it."GSA's price does for an orderingagency what Wikipedia does for a scholar,"said Branch, executive director ofcontracts at the Naval Sea SystemsCommand. If an agency seeks competitionamong vendors, the market will dictatea fair and reasonable value, as regulationrequires, he added.Likewise, panelist Thomas Sharpe,senior procurement executive at theTreasury Department, said GSA needsto get out of the pricing business. "Idon't see the value of the price at the schedule level," he added.When GSA and a vendor negotiate aschedule contract, they agree on which ofthe vendor's commercial customersreceive the best terms on the product orservice that the contractor wants to sell tothe government. That client is deemedthe most favored customer and becomesthe benchmark by which the governmentmeasures its deal.But for professional services, such asassisting with acquisition planning, taskorders aren't the same. Services thatseem similar can beconsiderably differentbecause of a host ofvariable factors.In the end, thepanel's recommendationto GSA states:"Eliminate the pricereduction clause for MAS programschedule services contracts and adopt an803-like approach to compete ordersabove the simplified acquisition thresholdfor all agencies using schedulecontracts."The term 803-like refers to Section803 of the fiscal 2002 National DefenseAuthorization Act. That section requiresthe Defense Department to solicit proposalsfrom all eligible contractors orreceive at least three bids to achieve ameaningful competition. It's a stricterstandard of competition than the onecivilian agencies use. The panel saidimposing such a requirement on civilianagencies would minimize the risk ofagencies awarding work to preferredfirms with minimal or no competition.But, the panel said, requiring civilianagencies to adhere to standards similar toSection 803 would demand statutorychanges ? something the panelists considerunlikely.Several inspectors general and membersof Congress have said the price reductionclause is necessary to protect agenciesfrom contractors who otherwise wouldcharge the government exorbitantamounts of money.Some members of Congress havealready expressed skepticism about thepanel and its value. Rep. Henry Waxman(D-Calif.), chairman of the HouseOversight and Government ReformCommittee, questioned the panel's valueand defended the clause."The requirement is a powerful toolthat helps government agencies,"Waxman wrote in an April 18 letter toformer GSA Administrator Lurita Doan.Representatives from IG offices havetestified before the panel, saying theclause protects agencies from abuseswhile allowing the government to makethe most of its buying power.However, acquisition experts say muchhas changed since GSA established theclause. Services were not availablethrough the schedules then, but they nowmake up the majority of schedules business,said David Drabkin, a panel memberand deputy chief acquisition officer atGSA.This is not the first time experts havesuggested eliminating the clause. InJanuary 2007, the Acquisition AdvisoryPanel recommended that the Office ofFederal Procurement Policy authorizeGSA to establish a new information technologyschedule contract for professionalservices under which prices for eachorder are established by competition andnot based on posted rates, according tothe panel's report.The Acquisition Advisory Panel foundthat GSA and contractors spend a lot oftime and money negotiating prices thataren't relevant in a competitive marketplace.OFPP did not act on the proposal.Nevertheless, if GSA were to drop theprice reduction clause, many people onthe MAS Advisory Panel said the governmentshould offer another method foragencies to ensure fair and reasonableprices.The panel passed two recommendationsthat would require GSA and agenciesto report on their purchases. Underthe first recommendation, GSA wouldcreate a process to collect informationfrom agencies about their orders,including the price, quantity and qualityof the services. Agencies could use thatinformation as a referencewhen theyseek proposals fromcontractors.Judith Nelson, apanelist and anindustry specialist atGSA's Office ofAcquisition Management, said GSAwould depend on other agencies to collectthat information."We don't have access to that informationwithout agency participation," shesaid.With that in mind, the panel will alsorecommend that GSA's contracting officersbe required to provide federal buyerswith a short summary of their reasons fordeciding a particular schedule contractprice was fair and reasonable.The recommendation concerning theprice reduction clause applies only toservices. When the panel meets thismonth, it will consider the value of theclause in buying commodities.The panel intends to submit a report toGSA's administrator in November.Branch said that if GSA agrees to the recommendations,the next president andhis chosen GSA administrator will be theones to implement them."When briefing books are prepared forthe next administration, we want this [tobe] part of that book," he said.