Waldron: Restoring balance

GSA has an opportunity to fix problems created by a thorny price reductions clause

The General Services Administration should examine the contradiction between the competitive task-order process and the noncompetitive pricing terms and conditions inherent in multiple-award schedule (MAS) contracts.

GSA’s continued reliance on the price reductions clause in those contracts is not productive. It increases costs to industry, government and, ultimately, taxpayers. Reliace on the clause also ignores three factors that have increased competition for task orders: revised ordering procedures, the use of online ordering tools and the growth of services. 

The clause requires that GSA and each MAS contractor identify a category of commercial customer against which they will track price reductions. If the MAS contractor offers a price reduction to the commercial customer, the contractor must offer the government a corresponding price reduction. Failing to do so can lead to complications and penalties for the contractor, including false-claims liability.

The MAS program operates under a regulatory framework that fosters task-order competition. For example, the Defense Department, which accounts for about 60 percent of the dollar value of orders under the MAS program, has implemented competition requirements in Section 803 of the National Defense Authorization Act for Fiscal 2002. For all DOD schedule contract orders exceeding $100,000, the contracting officer must provide notice and opportunity to compete to all schedule contractors capable of meeting the requirements or as many as feasible to reasonably ensure the receipt of at least three offers.

Another example of how the MAS program fosters competition is e-Buy, GSA’s electronic system for requesting price quotes. This Web site allows agencies to post requirements and receive proposals from MAS contractors. During the past fiscal year, the number of agency notices exceeded 53,000. Agencies received an average of three quotations or proposals in response to each notice.

GSA’s goal when it launched e-Buy in 2002 was to ensure competition and transparency for service orders under the MAS program. Service orders have grown to account for nearly three-quarters of the dollar value of orders under the program. Their amount depends on the complexity of the work, the technical approach, the labor mix and the skills required.

The Acquisition Advisory Panel found that commercial firms rely on competition rather than audits of pricing data to ensure best value. Consistent with its findings, the panel made a series of recommendations for improving the MAS program. First, it recommended that Section 803 ordering procedures be extended governmentwide. Second, it recommended enhanced competition requirements for task orders exceeding $5 million for all types of multiple-award contracts, including MAS contracts. Finally, it recommended that GSA establish a new information technology services schedule that would rely on competition for task orders instead of audited labor rates.  

Timing is everything. GSA has a wonderful opportunity to address problems created by the price reductions clause. As the Federal Acquisition Regulatory Council moves to implement the panel’s recommendations to expand Section 803 governmentwide and enhance competition requirements for orders exceeding $5 million, GSA could restore balance to the MAS program by eliminating the price
reductions clause.

Waldron (rwaldron@mayerbrown.com) is an attorney at the Washington office of Mayer Brown.

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