By Steve Kelman

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GSA schedules: Are agencies paying too much?

In a column I wrote recently on a discussion of cost savings from procurement at the National Contract Management Association World Congress, I noted that one of the participants commented that many contracting professionals in government simply accept a price appearing for a product or service on the GSA Federal Supply Schedules, assuming, based on their interpretation of the policy of the GSA schedules, that it is the "best price" (or the price given to the "most-favored customer"). Some time ago I blogged about a GAO report about how agencies, in establishing blanket purchase agreements (BPAs) off the GSA schedules, frequently did not negotiate discounts off schedule prices, as stipulated in the Federal Acquisition Regulation for quantity purchases.

Because of the urgency of obtaining procurement savings given the federal deficit, I think it's time for a serious dialogue within government about how the government can obtain better value from the GSA schedules. The current situation is simply not, in my view, acceptable.

The most-favored customer concept is central to the legal justification for GSA  schedules in the first place, since the idea is that you don't need to do further competition in making schedule buys since the prices are already "the best." However, there appears to be massive misunderstanding among contracting officials about the sense in which GSA prices are those given to a most-favored customer.

To my knowledge, public GSA documents do not say this -- and in fact, to my knowledge, the approaches taken by different contracting officers in negotiating GSA schedule prices differ somewhat -- but, generally, GSA seeks prices from vendors that are equal to the best price a vendor gives "under similar terms and conditions." However, since the schedules guarantee no sales and constitute no buying commitment, this "best" price is generally the best price for a quantity of one -- essentially, the best retail price around. (The "similar terms and conditions" are when the customer makes no purchasing commitment, and therefore is buying a quantity of one.)

But, of course, anybody knows that if a customer is willing to commit to buying larger quantities of something, they can usually get significant discounts over buying retail. Hence the general impression among many experienced buyers that GSA schedule list prices are generally probably only a fraction lower than what an individual consumer could get by shopping around at retail outlets.

The GSA schedules are a great instrument. General terms and conditions (such as warranties) are pre-negotiated, saving significant contracting administrative costs. The changes made to the schedules in the 1990s, which facilitated the emergence of BPAs using the schedules where customers actually willing to make a buying commitment could negotiate significant discounts off schedule list prices, make the schedules a very attractive part of the government's procurement arsenal.

But the potential of this instrument is currently extremely underexploited. We need to figure out as a community how we can remedy this situation. Let me put out some ideas:

1. It is bizarre that we actually have little idea of how schedule prices actually stack up against the best retail prices available on the Internet. GSA should hire a bunch of high school students to take random samples of their products, Google them, and see how schedule list prices compare with the best prices on the Internet. I hope my impression of GSA schedule pricing is too pessimistic -- I would love to find out I'm wrong. However, without this kind of performance information, we are flying blind.

2. GSA needs visibly and repeatedly to make clear in what sense schedule list prices are "most-favored customer" prices, to counteract misconceptions that this label gives.

3. GSA needs to make the policy of negotiating discounts for quantity buys -- or using other techniques, such as reverse auctions, to obtain discounts off schedule retail prices -- a central part of its training and publicity about the schedules.

As it is now, my fear is that the schedules risk being more part of the problem we have in saving money on procurement -- while they can and should be an important part of the solution.

Posted by Steve Kelman on Jul 29, 2010 at 12:08 PM


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