Do your customers understand the hidden cost of enterprise agreements?

More and more federal agencies are turning to enterprise-wide agreements (EA) to procure goods and services because they believe it will simplify the acquisition process, but they may be overlooking one critical thing.

Let’s assume an agency has an EA for service on IT hardware. Most agencies assume that they do not need to worry about service pricing because the pre-existing EA takes care of that.

Here’s the catch: those EAs do not mean that service comes free. When an agency wants service from an EA, federal acquisition laws and regulations require the agency to pay for it. To combat this discrepancy in pricing evaluation, acquisition leaders and officials must ensure that contracting officers and program managers understand this requirement.

There’s no denying that buying IT is a complex process. A buyer needs to factor in not only the hardware and software, but also the service requirements. This includes the people who install the equipment and the patches and the people who provide on-call maintenance. Enterprise agreements streamline this overwhelming process by providing a one-stop shop for agencies since an EA covers a suite of services for pre-existing and potential future hardware purchases.

These agreements do have a cost, however. When an agency elects to leverage services from an EA, it must factor in the cost of that EA. Federal laws and regulations, namely the Competition in Contracting Act and the Federal Acquisition Regulation, require that pricing evaluations factor in the cost of goods or services provided under a separate EA. This means that a pricing evaluation for hardware must include the cost of service that an agency would obtain under a pre-existing EA for service; the agency cannot assume or represent that the service would be free.

It might seem like this would be a minor issue, but it has, in fact, been the subject of litigation in federal court. In a Court of Federal Claims case, Arch Chemicals v. United States, the Defense Logistics Agency (DLA) issued a solicitation for rocket fuel. Arch Chemicals was the incumbent. Arch had an agreement with DLA that said DLA must pay Arch $8.5 million in shutdown costs if Arch ever ceased being the fuel provider.

Arch argued that DLA’s price evaluation for a subsequent fuel provider should accurately reflect the costs of a new contract, namely that the government would pay the new provider for fuel and pay Arch’s shutdown costs. The court agreed and directed DLA to add $8.5 million to the price of all the proposals except for Arch.

While enterprise agreements for service have their strengths, they are not a free lunch. Agencies that are purchasing hardware should remember that they will most likely have to pay for service too, either through a new service agreement or through a pre-existing enterprise agreement.

It behooves them to factor that into their accounting.