5 pieces to the pricing puzzle
A panel of procurement experts has five key questions about the role of competition in GSA pricing
- By Matthew Weigelt
- Aug 29, 2008
At what point in the procurement process does competition occur?
After 40 hours of discussions, a panel of procurement experts believes it may have an answer to the question, which is nowhere near as simple as it might seem.
The Multiple Award Schedule Advisory Panel, created to explore possibilities for improving the General Services Administration’s Multiple Award Schedules program, has held six meetings since May.
Here are five questions for which the panel’s members have been seeking answers:
- Where does competition take place?
- If competition primarily takes place at the task-order level, is it important to set a fair and reasonable price at the contract level?
- If the consensus is that competition occurs at the task-order level, are the methods GSA uses to determine fair and reasonable prices adequate?
- If the current policy is not adequate, can the panel help to improve the policy GSA uses to establish fair and reasonable pricing and to maintain the same pricing as the contractors’ other customers?
- If fair and reasonable determination at the schedule contract level is not beneficial and price reasonableness is to be determined only at the task-order level, what is the best role for GSA?
In those meetings, the panel has heard from industry representatives, contractors and a handful of government officials about the price reduction clause and the “most favored customer” provision. Both of them are standard in GSA schedules contracts, and agency officials want to figure out if they are still relevant in today’s market.
The price reduction clause requires contractors to give the government the best discounts they give to their commercial customers.
The most favored customer provision gives GSA a mechanism to identify the companies that GSA contractors give the best discounts and track them to ensure the government gets at least as good a deal. It also applies to “basis of award” customers, those commercial customers that serve as GSA’s baseline for schedule pricing.
Are those provisions still serving a useful purpose? Opinions are sharply divided. People who have spoken before the panel and the panelists themselves have strong and sometimes conflicting views.
That is a question that the panelists agreed must be answered before they can offer acting GSA Administrator Jim Williams reasonable recommendations for improving the schedules program. And the answer to that question spawns a series of follow-ups, all of which need answers.
Based on the range of views expressed by experts meeting with the panel, it is safe to say that the answers are not obvious.
Tom Essig, chief procurement officer at the Homeland Security Department and a member of the panel, believes the prices set on the contracts are less important because the vendors will come down further when they fight for task orders.
By contrast, some government officials believe the price reduction clause is the key to competitive prices. They say some competition might take place at the task-order level, but because the competition is not required by regulation, there’s no guarantee that it will.
Without the price reduction clause, the government might not get fair and reasonable prices or discounts as good as the ones a contractor’s other customers receive, said Maureen Regan, counselor to the inspector general at the Veterans Affairs Department. The price reduction clause instead gives agencies an assurance that the price they will pay is reasonable, even if there is no further discount below the contract price, she said.
Under the schedule contract provisions, the fair and reasonable price has become a government list price, wrote Nicholas Economou, president of the FLS Government Contracts Center and a former GSA acquisition official, in a letter to the panel.
The contract price “is relegated to something of…a ‘sticker price,’” he wrote. Buyers expect to negotiate the price down from there, he added.
“With all due respect to my colleagues from the other agencies, [the] GSA schedules price is the price you try to beat, and it’s the price you use to measure by,” said David Drabkin, panelist and deputy chief acquisition officer at GSA.
Essig questioned whether the price is relevant because agencies are buying more services. The large majority of all the orders on schedules today are services, “and a focus on lowest price rather than on best value is a fundamental flaw,” he said.
Confidence in prices is the key to what the panel might recommend to the GSA administrator, officials say.
If the panel doesn’t answer the question about whether the schedules’ prices are lowest — or even fair and reasonable — the program’s future could be in doubt, said Jan Frye, a member of the panel and deputy assistant secretary in the Office of Acquisition and Logistics at VA.
Although the panel asked federal customers to speak about their experiences with the program, few came.
The panel also sought more figures about competition and pricing for the schedule , but none were offered in the depth the panelists wanted.
During one recent meeting, Elliott Branch, the panel’s chairman and executive director of contracts at the Naval Sea Systems Command, said, “So we are in a position to make very, very hard decisions with less data than we would like to.”
Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.