Schedules panel examines ‘the clause’

The controversial price reduction clause is at the center of debate about competition in contracting

MAS advisory panel's origins

Lurita Doan, former administrator of General Services Administration, created the advisory panel that is examining the multiple-award schedule contracts program.

Doan said some companies have become frustrated and wary about doing business through GSA partly because of the auditing process and uncertainty about what could trigger the price reduction clause. Because of the price clause and other factors, Doan said, Congress and inspectors general have put the schedules program under a microscope.

In the past year, big-name schedule holders including Sun Microsystems, Canon and EMC have left the program.

The panel plans to hold its second meeting May 22.

— Michael Hardy

A 15-member advisory panel seeking to improve the General Services Administration’s multiple-award schedule contracts program began its initial meeting with a detailed discussion of the program’s price reduction clause. The controversial clause is a mechanism the GSA schedules program uses to ensure the government is getting at least as good a deal as a contractor’s private-sector clients.

At a May 5 meeting in Washington, the Multiple Award Schedules Advisory Panel heard testimony that the price reduction clause is cumbersome, often hard to apply to procurements that are not simple commodity buys and could, in many cases, be unnecessary.

The clause requires the GSA contracting officer and the company to agree on the category of customers to use as the basis for the award and the government’s price relative to the private sector. If the vendor changes pricing or offers discounts to that category of customer in the private sector, it constitutes a price reduction that must extend to the government, too.

However, competition serves to keep government prices low without the price reduction clause, said Christopher Pockney, a principal at Ernst and Young. After companies get on a GSA schedule, they still have to compete for business under it. “Where a task order is awarded with competition, why would the price reduction clause even apply?” he asked.

Pockney said the Truth In Negotiations Act also helps serve to keep prices low under schedule contracts.
He added that the price reduction clause is inconsistent with the principle of eliminating regulatory approaches that don’t protect the government’s interest.

Panel member David Drabkin, acting chief acquisition officer at GSA, disputed Pockney’s argument. He said agencies sometimes conduct a competition by soliciting bids from the contractor they want to use and others they know won’t respond, ensuring that the deal goes to the preferred vendor.

Pockney said that practice suggests some agency contracting officers need better training and oversight. However, he added, it’s difficult to gauge how often the scenario Drabkin described occurs. “We can throw anecdotes around all day. I think there’s a shortage of real data,” Pockney said.

Christopher Yukins, associate professor of government contract law at George Washington University, told the panel that  revising pricing policies should be only the first step toward broader reforms of the schedules program. “GSA’s schedule contracts represent roughly 10 percent of federal procurement, and it is absolutely imperative that the schedule contracts reflect new best practices and not old compromises,” he said.

Improving the transparency, competition and integrity of schedule contracting should be an imperative for the panel, Yukins added. For example, schedule contracting opportunities aren’t available through the Federal Business Opportunities Web site, the system that informs vendors of other contracting opportunities. They are available through another system, he said, but only to registered contractors.

Yukins agreed that the panel should take a close look at the price reduction clause, echoing many of Pockney’s points.

The clause “is very cumbersome and expensive” for vendors, Yukins said. “It means subjecting vendors to extensive auditing, and it drives away vendors that fear the costs and liability of compliance. Using [the clause] means employing a small army of auditors.”

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