Sun narrowly escapes GSA delisting

Company gets reprieve after agreeing to lower some prices

The General Services Administration almost pulled Sun Microsystems' products from the popular GSA schedule contracts during the peak of the federal buying season because of a spat over prices.

GSA notified the 14 government technology GSA schedule resellers in late July that within 30 days they would no longer be authorized to offer Sun products to federal customers.

The agency granted Sun a reprieve Aug. 14 after the company agreed to drop some of its prices. A routine government audit had found that Sun offered better discounts to some commercial customers than to the government, according to sources close to the situation. GSA requires the private sector to offer discounts that equal or exceed those extended to a company's most favored commercial customer.

Sun's GSA schedule contract is under renegotiation as part of a review that occurs every five years when the time comes to consider extending the periodic option on companies' 20-year general schedule contracts.

Officials must determine the terms under which Sun would remain on the GSA schedule by Feb. 15, 2006, when a temporary extension of Sun's general schedule contract expires.

Mike Abramowitz, director of strategic programs for Sun's Federal division, said the company has granted some better discounts to private-sector organizations than to GSA. "But there's always a rationale to why certain companies get certain discounts," he said.

Despite the temporary reprieve, GSA is probably not satisfied with the discount it negotiated, said Julie Akers, a vice president of Federal Schedules, a consulting firm.

"GSA got pushback from industry and also perhaps from the government," Akers said. "We're at the end of a busy buying schedule."

GSA has been under pressure from its inspector general and the Government Accountability Office to be more aggressive about auditing vendors to ensure advantageous pricing for the government. A GAO report earlier this year shows that eight of the 10 information technology schedule contracts it had reviewed lacked enough documentation to ensure that the government receives the best price.

Some sources familiar with the negotiations between GSA and Sun said the company took a cavalier attitude toward GSA's pricing demands and threats to remove it from the general schedule. Others have said a power vacuum created by an ongoing reorganization of GSA's acquisition services has allowed the pricing disagreement to boil over at the worst moment possible, during the peak government buying season.

Abramowitz said the GSA contracting officer responsible for the Sun contract is acting professionally. "We're both seeking to get the best things for our constituency," he said.

GSA's price-reduction clause not universally loved

At the heart of the disagreement between Sun Microsystems and the General Services Administration is standard language that is part of every GSA general schedule contract, a provision called the price-reduction clause. In it, contractors pledge to give the government the same or greater discounts than they give to their most favored customer outside the government.

But the clause is far from popular. Many companies "feel that it controls how they do business, the discount structure that they grant," said Julie Akers, a vice president of Federal Schedules, a consulting firm.

And often companies don't coordinate discount prices between their commercial and government divisions, said Steve Charles, executive vice president of immixGroup, a consulting firm. Sometimes even when all sides of a company know the commercial side is getting a deeper discount, private-sector executives will argue that some companies deserve the better discounts, Charles said.

Other times, companies argue that an audit does not provide a fair comparison among product discounts. That is also because companies sometimes rebrand the same product by labeling parts with different numbers or bundle together separate products and try to call it something completely new, Charles said. "That's something that an auditor can see straight through once they get the data," he added.

— David Perera

About the Author

David Perera is a special contributor to Defense Systems.

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