Panel proposes new approach to pricing products

The panel reviewing the Multiple Award Schedules program has put together a set of recommendations that panelists say would provide a forward-looking approach to a program steeped in old regulations.

The MAS Advisory Panel’s key recommendations would eliminate a central pricing clause in the General Services Administration Acquisition Manual that requires a contractor to give the government the same discount that it offers its most-favored customer. The panel’s recommendation would replace the clause with more information on and insight into pricing.

Many panelists supported removing the price-reduction clause for products and services because they say it is outdated and doesn’t ensure that prices are fair.

“It’s an obsolete contract term,” said panelist Larry Allen, president of the Coalition for Government Procurement.

Officials from GSA and agencies that buy from the schedules contracts agreed.

The world has changed dramatically since GSA last updated the $35 billion MAS program. A decade ago, the government mainly bought products, but today, agencies chiefly buy services, said David Drabkin, a panelist and deputy chief acquisition officer at GSA.

For products, the clause worked well, but the experts say the rise in services orders has diminished its usefulness.

Because services vary and are hard to compare, the panelists agreed in September to recommend that GSA stop applying the price-reduction clause to services contracts. They reinforced fair and reasonable prices by requiring more information and competition.

The recommendation got a boost from the fiscal 2009 National Defense Authorization Act, which President Bush signed today. Among other things, the law expands the Defense Department’s strict requirements for contract competition to civilian agencies. Agencies must now submit requests for bids to all vendors or receive at least three bids for each contract.

At an Oct. 6 meeting, the panel decided to recommend that GSA should eliminate the price-reduction clause for products, too.

Specifically, the panel will recommend that GSA “remove the price-reduction clause from the products schedules in phases as the administrator implements recommendations for competition and price transparency at the schedule-contract level and order level.”

The panel will send its recommendations to GSA’s administrator for further action. Last week, GSA officials said they would consider the panel’s recommendations and incorporate those that fit the direction in which they want the program to go.

In contrast with the relatively smooth process for deciding to remove the price-reduction clause for services contracts in September, the panel’s discussion about removing the clause’s authority over product buys was heated.

Jan Frye, deputy assistant secretary for acquisition and logistics at the Veterans Affairs Department, said more stringent competition requirements wouldn’t bring the same pricing protections for products as the price-reduction clause does.

However, Tom Essig, chief procurement officer at the Homeland Security Department, said the clause gives agencies a false sense of security.

After much discussion, panel members agreed to recommend requiring that a GSA contracting officer determine that a contract’s negotiated price is reasonable based on other vendors selling the same product in the commercial marketplace.

Similarly, the panel will recommend that the GSA administrator develop a way to record what agencies pay for products under the schedules contracts and make that information available to contracting officers. The panel is proposing that officers use the information to determine fair and reasonable prices at the contract level and competition at the task-order level.

With such information, “I can drive the market because I have the empirical data to say to the companies, ‘Your price is garbage,’” Drabkin said.

Furthermore, the panel will recommend that GSA tell agencies why its contracting officers decided that a particular price was fair and reasonable.

Elliott Branch, the panel’s chairman and executive director for contracts at the Naval Sea Systems Command, said fair and reasonable prices could fluctuate depending on circumstances.

For example, weather can alter what a buyer believes is a reasonable price for a taxi ride to work, he said. “Was it a sunny day with a nice breeze or a torrential downpour?” he asked, adding that a downpour could make a $20 cab ride a bargain.

Nearly eight hours into the Oct. 6 debate, the panelists finally agreed to recommend ending the price-reduction clause for products. But they recognized that the recommendations on gathering price and ordering information wouldn’t happen immediately and specified that the administrator should do away with the clause as the other proposals are phased in.

“I don’t want to walk out of here today and say, ‘We just killed the clause and created a vacuum,’” Branch said.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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