Final schedule rule draws industry fire

The General Services Administration last week released its final rule on schedule contracts to a less-than-appreciative industry audience retaining the government's ability to conduct post-award audits as well as a requirement that vendors offer the government the same discounts and price reductions they give to most commercial customers.

"I'm hard-pressed to find anything positive in the rule " said a representative from the Information Technology Association of America (ITAA). "I think it's fair to say that the industry is going to be disappointed."

A Much-Debated Issue

The rule issued in the Federal Register has been the subject of heated controversy over whether the government should be allowed to perform post-award audits of schedule vendors' pricing and billing data.Its opponents in industry said the requirement goes beyond accepted commercial practices and runs contrary to language in the Clinger-Cohen Act. Proponents however claim the government needs the ability to detect billing errors and to ensure that vendors offer the government pricing analogous to that offered to large private-sector customers.

Ida Ustad GSA's deputy associate administrator for acquisition policy said the final version of this rule was held up for months while the issue was hashed out between factions within the Clinton administration. "The Department of Justice and the inspector general community felt very vehemently that post-award audits should be maintained " she said. "Generally speaking people don't defy the Justice Department [officials] when they have very strong opinions."

The rule does reduce the scope of information the government may access when performing these audits which is less comprehensive than an "interim" version of the rule issued earlier this year. Ustad said the government may perform post-award audits only to check for billing errors and to make sure the vendor has applied appropriate price reductions and has submitted 1 percent of its schedules revenue to the government as a funding fee.

She said the government will be able to get access to information associated with pricing "in limited circumstances" in which post-award audit authority for pricing data was written into the contract. In those cases a contracting officer must prove the possibility of "significant harm to the government" if access to that data were denied.

"This should be the exception and not the rule " Ustad said. "The contracting officer would have to have a basis for making such a determination and would have to go up the chain of command for approval in advance."We are encouraging pre-award audits instead of post-award " she added.

Industry Still Skeptical

The decrease in the scope of the audits has done little to mitigate the concerns of industry. Larry Allen executive director of the Coalition for Government Procurement said the government has retained the most important aspects of its post-award audit authority: to find billing errors and problems in applying price reductions.

"We pretty much decided some time ago that we would push for elimination of the price-reduction clause regardless of what the final rule says " Allen said. "Fair pricing is the result of competition. And the condition of the market drives competition not whether the government has an arguably antiquated price-reduction clause."

Allen said the requirement to offer the same reductions to government as provided to commercial users burdens companies with keeping track of the deals offered to commercial customers. "In reality it trips up more honest companies than it catches those who are out to defraud the government especially in the IT market where prices fluctuate depending on the market the buyer and the volumes involved " he said.

Ken Salaets director of government affairs at the Information Technology Industries Council said the rule clearly circumvents congressional intent. "Basically you have an elected body of the government that is tasked with setting the rules now having its authority usurped " said Salaets a former congressional staff member. "I used to be against congressional micromanagement. But the longer I am away from the Hill the more I see the need for members of Congress to put things in blunt terms and ensure they are accepted into the government's policy."

The ITAA representative added that the requirement can be nearly impossible to apply in cases in which a vendor may offer a discount on an entire package of items. In such cases it can be extremely difficult to determine an exact price-reduction rate for each item included in the package.

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