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Return to Article: Two more IT vendors drop GSA schedule contracts

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  Jim,
  In theory, you're correct. But in practice, GSA is requiring the lowest price given to any customer as the basis for negotiation. And I don't know if you're a lawyer, consultant, or whatever, but the fact that you "have successfully represented a great many schedule holders in such negotiations"... I don't know if I should laugh or cry. Why would a firm need 3rd party representation in a negotiation that's based on a disclosure of commercial sales practices? (Don't worry, it's a rhetorical question :-))

  Former GSA CO Posted November 14, 2007 8:57 AM
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  It would be helpful if we could stop disseminated the false statement or suggestion that Schedule contractors "must" offer GSA their lowest prices. That simply is not true as is made clear by GSA's own Commercial Sales Practices (CSP) Disclosure form. Question 3 on that form specifically asks offeror's to state "yes" or "no" whether they are offering GSA their lowest price. If they say yes, then they must offer GSA their lowest price. But if they respond "no", then they have no such obligation. In that case, they must make a complete disclosure of their commercial sales practices to enable GSA to determine a "reasonable" price.

  In the case of Sun and the others, they have apparently declined to offer GSA their lowest price because they are rational business people. They recognize that the minimum sales order under many schedule contracts is as low as $100. The key to successful schedule negotiations is being able to work with GSA to establish a "reasonable" price point that reflects the uncertainties of the Government market. I have successfully represented a great many schedule holders in such negotiations. Apparently in the high profile case of Sun and the others, the IG's intervention precluded such a negotiation. This problem is only going to expand unless we return to the basic premise the CSP Disclosure is what it states - a disclosure statement. While vendors must disclose their lowest prices and explain the circumstances that resulted in those prices, they are not obligated to extend such prices to GSA and, in many if not most cases, compelling grounds exist for GSA to agree that the GSA price should not be the lowest price recognized by that vendor.

  Jim Phillips Posted November 13, 2007 2:48 PM
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  After reading Former GSA IG Auditor's comments, I had to go make sure the Price Reductions clause had not changed. It hasn't. It states:
  (d) There shall be no price reduction for sales -
  (1) To commercial customers under firm, fixed-price definite quantity contracts with specified
  delivery in excess of the maximum order threshold specified in this contract;
  (2) To Federal agencies;
  (3) Made to State and local government entities when the order is placed under this contract (and the State and local government entity is the agreed upon customer or category of customer that is the basis of award); or
  (4) Caused by an error in quotation or billing, provided adequate documentation is furnished by the Contractor to the Contracting Officer.

  I was at GSA when it became Industrially-funded (i.e., self-sustaining), and worked on some of the original service MAS contracts including MOBIS (which the FSS administrator referred to as "Mo' Biz"). The Price Reductions clause benefits not only the contractor but also GSA. The thought was that agencies would spend more money (and thus, GSA would get more IFF) if the agencies could get better discounts on a large order (widgets or services) on schedule versus going open market, so GSA would not make those orders subject to teh price reductions clause. But now, with firms dropping out and other firms not willing to give agencies like mine a deeper discount on a large order because GSA is mis-interpreting the Price Reduction clause by requiring the lowest price ever charged to any customer for any reason, GSA is losing out, not just other agencies and contractors.

  Former GSA CO Posted November 13, 2007 11:28 AM
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  The recent troubles by GSA show that things run "fast and easy" for both the Government and for Contractors. When contracting officers are pressed to provide more documentation and provide more competition, they and their agencies abandon the GSA schedules, and now when contractors are forced to show the basis for their pricing they also leave the schedules behind. So much for the negotiation of fair and reasonable pricing.

  Ben Frieze Posted November 13, 2007 8:29 AM
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  As a very small I.T. company who has attempted to go through the nonsense terms and conditions GSA imposed on a Schedule 70 in the past I was repulsed by the "shaft the Contractor" attitude of GSA in their contract clauses. It does not surprise me that government bureaucrats are quick enough to get their often excessive salaries, perks and benefits, yet are not willing to let a small company even obtain a liveable wage for its owners by restricting pricing. I suppose that if our firm decided to offer free or at a loss services in case of a wildfire or flood disaster, the IG and GSA would require us to give the same to them as lowest cost to another customer. Welcome to the world of government idiocy.

  Alan Korn Posted November 12, 2007 7:17 PM
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  As an auditor who has worked on a number of contract audits, investigation and reviews I can only tell you that we work very hard to maintain our indepedence from anyone, our management, or the vendor.

  In fact as a certified internal auditor that is one of the standards we hold dear to the point if our independence can not be developed, maintained and controlled we quit. The GAO yellow book talks of the same type of standard requirements as does all of the major agency IG guide books. In fact as part of the audit package before and after the audit I have to attest to my independence. A failure to have an auditor sign one of these is a major red flag for senior management and other auditors.

  As to the charge of being too mean that is nuts. As we scope out the audit the client is notified as to what is being audited we list what information we want, and then as the audit unfolds the additional scope or information is required. The findins are checked with management of both groups and the client is given an opportunity to respond in writting to the error of fact, findings and other errors. They are treated in accordance with the GAO yellow book, or green book.

  Sorry neither charge has a leg or as we say in the west, that dog does not hunt.

  John Morrell Posted November 12, 2007 12:13 PM
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  The comment from the GSA IG guy illustrates the problem. He thinks that the legitimate views of federal contractors are "sob stories" and that contractors can't be trusted. Is there any wonder now that contractors are fleeing the GSA schedule? This is the same group of people that think there is nothing wrong with preaward audit that takes over 5 years to complete, driving up legal and accounting costs so much that the only rational move is to take products and services off the GSA schedule. This guy just does'nt get it.

  Contractor Posted November 12, 2007 10:10 AM
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  In response to the "Former GSA CO, it sounds to me as if you have too much sympathy for the vendors. The rule is simple - if they can "afford" to sell the item at a much lower price to one customer they should be able to sell it to the largest buyer of goods and services, namely the Federal Government. If they made money on that sale, they will certainly break even and make a profit on the sales to the Federal Government. These vendors have been doing quite well. Just take a look at some of their financial statements to support my statement. The vendor who gave you the sob story was probably a salesperson who did not want the additional discount to reduce the profit that he would make. This is similar to the stories you hear when you buy a car. Don't fall for their stories. Go after the best deal you can based on the information that you have and save the taxpayers as much money as you can. That is your duty and obligation. They will give you the best deal if you persist. They do not want to lose the business to their competitors.

  Former GSA IG Auditor Posted November 10, 2007 10:52 AM
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  underwhelmed, I'm not a government employee, but I understand the basic over all policy governing the program. A Schedule Contract does not guarantee sales, it just streamlines the process once awarded. The government loses its leverage for MFC pricing because they cannot guarantee sales. They are to seek the best price, but they are in no way obligated to get that unless they start guaranteeing every contractor a minimum order size equal to what the contractor offers their MFC. If the IG wants a fun job, he should start looking at all of the contractors whose BOA is higher than their MFC. The system is not perfect, but the IG is hurting the situation for political gain, instead of trying to work with industry to refine the process.

  Is anybody going to write a story about the billions of dollars spent with contractors that were compliant or supported the warfighter or enabled a local government to respond to a disaster more effectively? Probably not, that would be telling the full story, not just one side.

  anonymous Posted November 9, 2007 5:37 PM
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  It seems like a pretty clear "viscious cycle". GSA requires firms to give the government MFC (most favored customer) pricing, and typically expects discounts off THAT price. Once on schedule, firms may offer discounts in excess of what they bid on schedule if the order is above the maximum-order amount in the schedule. But then, when it's time to renew the contract, GSA wants the lowest price that the firm has given to ANY customer as the new MFC pricing, and again, wants a discount off THAT price. I'm now at another agency, and had a firm tell me they can't afford to give us much more of a discount off of their schedule (we ordered millions in services above the schedule's maximum order threshhold) because then GSA will demand that they provide OUR price as their new MFC pricing, with, again, a discount off THAT price (and their option is coming due, so it will be soon). What firm can afford to keep going in that direction every few years?

  Former GSA CO Posted November 9, 2007 1:51 PM
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  This is a very big deal and it is probably the beginning of the end of the GSA Schedules. Companies simply do not want to waste so much money on legal and accounting struggles to get through an IG audit that lasts an average of 2-3 years. can you really blame them? These same companies spend time and money on branding and building their own reputations, only to see some idiotic Senator start blasting them for being cheats and crooks without any fair chance to respond. The real culprit here is an IG that seeks to criminalize any business disagreement, drags out negotiations (thereby increasing costs), and them peddles the "crime" to a a sympathetic Senator that does not want to take the time required to understand a procurement system he wishes to reform. Recipe for disaister. That's just what we have. Oh and one more thing, these vendors will still sell to the government but will now do it through 3rd parties and channel partners...after a mark up and pass through fee of around 15%. So, taxpayers are really going to pay for this stupidity....Give Doan some credit here, she tried to stop it and has been warning about this for months. government contractors do not want to avoid oversight or scrutiny. But when the process that the IG puts in place is so one sided, unfair, and expensive, they will voluntarily opt out. Anyone surprised at that?

  anon Posted November 9, 2007 12:33 PM
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  A couple previous comments are obviously from the misguided, know-it-all Federal Employee mentality. Please guys, before spouting off in critique of the article, give pause to think about what you are saying and make sure you're correct.

  1) Anonymous - While the FAR governs pricing methodology for public contracts('fair and reasonable'), GSA does in fact have an Agency-level policy that for Multiple Award Schedules, contractors are to offer GSA equal to or better than their Most Favored Customer. In practice, KO's are required to start negotiations at the rate equal to the contractor's lowest prices and try to obtain additional discounts accordingly, on behalf of buying power of the Federal Government. 2) Will - You obviously have no idea what GSA's IG is responsible for. The OIG has an Office of Audits which provides services to the acquisition centers, by conducting reviews of contractors' adherence to the contract terms and conditions, and pricing transparency. These audits are especially useful at the time of option renewal. If the auditors find discrepencies in contractor pricing information and commercial practices, it should play a huge part in negotiations to ensure the taxpayers are receiving discounts equal to or better than the contractors' lowest prices - not simply to continue to allow contractors to feast at the unending trough of the U.S. Treasury.

  underwhelmed Posted November 9, 2007 11:51 AM
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  Trust but verify. Former President Reagan cautioned: "Its still trust but verify. Its still play, but cut the cards. Its still watch closely. And, don't be afraid to see what you see." With the implementation of "evergreen" contracts, the "industrial funding fee" concept, the effort to build bridges of trust with industry, the liberalization of data requirements, GSA has not been "cutting the cards." Audits performed by GSA have significantly dropped over the last decade.

  If you build a house, local ordinances require a building inspector to make sure the contractor is following code regulations. Not too many "inspections" going on the contracts built by GSA and contractors. With such lax verification, no wonder folks in Congress, customers, and GSA staff are muttering: "Something is rotten in Denmark."

  Nick Economou Posted November 9, 2007 11:16 AM
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  You do in fact have to offer the GSA your lowest prices. You won't find "fair and reasonable" price as the standard anywhere. I realize that the government wastes a lot of money, but it's also run by a bunch of lawyers who know how to construct contracting rules in their favor. They'll require your lowest prices, but won't ever enforce the standard until they need to.

  Anonymous Posted November 9, 2007 10:45 AM
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  Agency's should not be allowed to buy products off schedule, that is if there is an equivalent scheduled product, then the government should not be allowed to buy open market. If a vendor is not willing to offer the government its best price, then the government should not be buying from that vendor. Its past time to stop vendors from profiteering at the expense of our taxes and to force those who have overcharged in the past to reimburse the govenment for all orvercharges and expenses the government engendered in recouping those overcharges.

  Kevin Blume Posted November 9, 2007 10:32 AM
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  Immix's comment would lead one to believe that since " they (contractors)never really took them (IG) seriously" that they (Immix) did not stress or speak loudly enough for these companies to take notice or really understand the severity of violations. These large companies need the uppermost managment to understand Multiple Award Schedules.

  Read between the lines Posted November 9, 2007 9:10 AM
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  "According to rules for multiple award schedules, contractors have to offer government their lowest prices." This shows your lack of knowledge of the MAS policy. No where does the FAR or any "rule" say this. I believe "fair and reasonable" is used though. If you're going to write on a topic, at least know the basics. Thanks for misinforming the public on the Multiple Award Schedule.

  anonymous Posted November 9, 2007 8:54 AM
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  I understand everything in this article except why the IG is doing audits. The IG normally looks at business practices. Audits should be performed by the auditing group. I can understand the IG doing some spot checks, but routine auditing of companies should be performed by GSA's in-house auditors. In other words, the purpose of the IG is to check the checkers, not to be the first line of defense for finding irregularities.

  Will Posted November 9, 2007 7:49 AM
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  Do these firms beleive they will escape scrutiny by dropping contracts? They've been collecting tax-payer dollars, I would hope we are still owed an investigation. We should also expect some statement from GSA Management. Its understandable that they won't return calls until they have a statement prepared, but could they really have been caught off guard with this announcement. If this did catch them off guard, they need to do a better job at keeping their eye on the ball.

  Don Posted November 9, 2007 7:36 AM