TheLectern

By Steve Kelman

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The Lectern: Report on BPA discounts a warning bell

Dan Gordon has just been confirmed as Office of Federal Procurement Policy Administrator, and clearly a high-priority assignment he has received is to look for places to generate contracting cost savings. As I have written many times earlier, I believe the contracting community ought enthusiastically to step up to this plate and show what we can contribute to a down payment on deficit reduction.
 
Gordon need look no further than a recent report issued by his own former agency, the Government Accountability Office, for an immediate priority for quick improvement. In a report entitled Contract Management:  Agencies are not maximizing opportunities for competition or savings under Blanket Purchase Agreements despite significant increase in usage (how's that for a catchy title -- no wondering contracting enjoys the reputation for sleep inducement it does!), GAO actually examined all the blanket purchase agreements awarded and ordered under during fiscal year 2007 at five civilian and three defense agencies.
 
Blanket purchase agreements (BPAs) under the GSA schedules are agreements between agencies and GSA schedule vendors whereby agencies make a certain vendor or vendors preferred suppliers of a product or service. They use the GSA contracts -- terms, conditions, and pricing -- as a baseline. But agencies have been encouraged since the late 1990's to trade preferred access to an agency customer for discounts off schedule pricing and betters contractual terms (previously discounts off schedule price had been prohibited unless provided to all customers). The idea of using GSA schedules as a basis for negotiating further discounts on a pre-negotiated governmentwide schedule was actually invented by Jim Williams -- now Commissioner of the Federal Acquisition Service -- when Williams was at the IRS.
 
The results of the GAO report, however, are disappointing. For 47 percent of BPAs awarded, agencies requested no discount off GSA schedule pricing. For contracts where there were discounts, there was extremely wide variation in the discounts received -- which may partly reflect differences in the commodities being purchased, but probably also reflects differences in aggressiveness in negotiating better deals. And less than 40 percent of BPAs were awarded to multiple awardees, a practice that allows a second-stage competition, such as by reverse auction, that keeps prices refreshed in real time.
 
OFPP should swing into action. Here are some obvious performance measures for the procurement system -- percentage of BPAs with discounts off GSA schedule prices, and average percentage discount off those prices. Since agencies can quickly re-negotiate BPAs, agencies could be given a goal to re-negotiate at least 25 percent of their BPAs with no discounts into better contracts for the government within the next 6 months.

Posted by Steve Kelman on Nov 25, 2009 at 12:08 PM


Reader comments

Tue, Dec 1, 2009 Steve Kelman

Ron, thanks for your comment. I am starting with the assumption that the GSA schedule price is not simply arbitrarily established by the supplier at whatever level they choose. (Obviously, if that were the case, suppliers could establish very high baseline prices and then provide artificial "discounts.") However, Schedule prices themselves need to be justified, albeit using a somewhat bizarre standard that is often essentially the lowest price a vendor makes available for a quantity of one. It is true that, as I understand it, some GSA contracting officers are using a stricter standard, producing lower initial schedule prices and thus making aggressive discounts harder. However, I think most government contracting people would agree that Schedule "list" prices are seldom if ever the best prices available if an agency is really willing to commit to buy significant quantities of a vendor's products, so I believe that tracking presence and amount of discounts is justified. The performance metric can't be used by itself, but allows further inquiry if an agency is infrequently getting good discounts.

Tue, Dec 1, 2009 Steve Kelman

Ron, thanks for your comment. I am starting with the assumption that the GSA schedule price is not simply arbitrarily established by the supplier at whatever level they choose. (Obviously, if that were the case, suppliers could establish very high baseline prices and then provide artificial "discounts.") However, Schedule prices themselves need to be justified, albeit using a somewhat bizarre standard that is often essentially the lowest price a vendor makes available for a quantity of one. It is true that, as I understand it, some GSA contracting officers are using a stricter standard, producing lower initial schedule prices and thus making aggressive discounts harder. However, I think most government contracting people would agree that Schedule "list" prices are seldom if ever the best prices available if an agency is really willing to commit to buy significant quantities of a vendor's products, so I believe that tracking presence and amount of discounts is justified. The performance metric can't be used by itself, but allows further inquiry if an agency is infrequently getting good discounts.

Tue, Dec 1, 2009 Ron Rheude Director of Pricing

Mr. Kelman, You don't get it either! The issue in Government savings is not the amount of discount from some commercially established price, but the actual value paid. Your logic is like stacking up all your wife's savings on Black Friday. Try to buy a cup of coffee with them. A contractor with a higher price for the same service can offer a larger discount for the same price as a contractor with a lower GSA price for the same service. It's the price paid, not the discount!

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