Doan: There is no profit cap

The General Services Administration does not have an unwritten rule limiting profits

The General Services Administration’s inspector general doesn’t smoke, nor, to my knowledge, does he hang out in a smoke-filled back room. What I do know for certain is that the IG is not creating pricing policy — or any other policy — for GSA as Jonathan S. Aronie asserted in the July 31, 2006, issue of Federal Computer Week.

I also know that GSA does not have a new unwritten rule that limits services contract vendors on schedule contracts to a 10 percent profit margin, in violation of the Federal Acquisition Regulation (FAR).

Here are some facts about how GSA awards and administers schedule contracts for products and services in compliance with the FAR:

  • The GSA IG has not issued any policy establishing a profit ceiling on schedule contracts.
  • GSA negotiates schedule contracts in accordance with FAR Part 15. Additional, but consistent, instructions on negotiating schedule contracts are contained in GSA Acquisition Manual (GSAM) 515.4.
  • When schedule proposals are negotiated based on cost information, using cost analysis techniques, FAR 15.404-4 applies.
  • With cost proposals, GSA’s profit policy is established in the GSAM 515.404-4 and is consistent with FAR 15.404-4. The former applies to schedule proposals and cost-based proposals of other programs. The result of this analysis may be more or less than 10 percent.
  • If a statutory restriction in accordance with FAR 15.404-4(c)(4)(i) applies, it would be applicable to cost proposals under the schedule program. Aronie is correct in stating that schedule contracts are not cost-plus-fixed-fee contracts, and therefore, the 10 U.S. Code 2306(d) and 41 U.S.C. 254(b) profit limits do not apply.
  • If a cost proposal is evaluated for products offered under the schedule program, the same GSAM 515.404-4 guidelines would apply, although the results would probably be significantly different.
  • As the federal government’s pre-eminent procurement agency, GSA must make decisions on vendors’ eligibility for inclusion on schedule contracts and the rules that apply to them once they are selected — equitably, transparently and in compliance with the letter and the spirit of the FAR. This is what we do every day, without exception.

    GSA’s pricing policy for schedule contracts is consistent with FAR Part 15.4 for all GSA schedules — products and services. Where cost analysis is used, GSA follows the profit analysis procedures established in the FAR and the GSAM.

    GSA schedule contracts provide a level playing field that gives all eligible vendors the opportunity to participate in government contracting. And roughly 80 percent of those schedule contract holders are small businesses.

    From a customer perspective, GSA schedule contracts make available to federal agencies about 10 million high-quality commercial products and services at most-favored-customer prices. GSA provides value to its customers and cost savings to taxpayers.

    Before becoming GSA’s administrator, I was a small-business owner for 15 years and a GSA schedule contract holder for most of that time. Vendors and customers can believe me when I say that there are no illegal rules, written or otherwise, that are applied to any contractor on GSA schedules in violation of the FAR. Period.

    Doan is administrator of the General Services Administration.

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