DoD is Rethinking Fair and Reasonableness of GSA Schedule Pricing

June 12, 2014

DoD has decided that GSA Schedule prices may not be fair and reasonable and is instructing Contracting Officers to conduct their own pricing review on GSA task orders.

For those unfamiliar with FAR 8.404(d), its authority provides one of the primary values of the GSA Schedules program.  It states: “GSA has already determined the prices of supplies and fixed-price services, and rates for services offered at hourly rates, under schedule contracts to be fair and reasonable. Therefore, ordering activities are not required to make a separate determination of fair and reasonable pricing…”. By pre-determining that prices/rates for goods and services under schedule contracts are “fair and reasonable”, purchasing agencies have been relieved of performing the proposal analysis techniques described in FAR 15.404-1. Since they don’t have to duplicate the work already done by GSA COs in reviewing pricing, utilizing the Schedules program provides government buyers with a significant savings in time and effort. Well, not anymore for DoD buyers… 

In a letter dated March 13th, 2014, Richard Ginman, the Director of Defense Procurement and Acquisition Policy(DPAP), the Contracting Policy division for the Department of Defense, issued a class deviation to FAR 8.404(d). This Class Deviation states “GSA’s determination does not relieve the ordering activity contracting officer from the responsibility of making a determination of fair and reasonable pricing for individual orders, BPAs, and orders under BPAs, using the proposal analysis techniques at 15.404-1.” The implication being that Schedule pricing is NOT “fair and reasonable” and DoD buyers must conduct their own full pricing review utilizing FAR 15.404-1 to ensure that they get it.  Interestingly left out of the Deviation letter in describing FAR 8.404(d) is this section “ordering activities may seek additional discounts before placing an order” which is further empowered by 8.405-4 “Ordering activities may request a price reduction at any time before placing an order, establishing a BPA, or in conjunction with the annual BPA review….

In the time since the details of this deviation became news in early-April, DPAP and GSA have both weighed in on the purpose and expected effect of this change.  In an April 18th interview with Federal New Radio, Richard Ginman claimed that the deviation was triggered in part because Contracting Officers were not reading all of FAR 8.4 and missing or ignoring the sections addressing requesting discounts.  He contends that without this additional information, too many DoD COs are just accepting GSA pricing without seeking any additional discounts because of time constraints or the lack of a firm requirement to do so.  In concert with this issue, Mr. Ginman cited the variation in pricing for the same or similar items on a Schedule as the major concern driving the need for the deviation. The text of the Deviation notice places no boundaries on its application but during the interview he says that this change really targets sales for products under the $3000 micropurchase threshold. These statements mirror his comments at an Industry Event in early April.

While recognizing that it is vitally important that the Government get reasonable pricing, many in Industry have voiced concern that by removing one of the main benefits of the GSA Schedules, DoD buyers will just avoid them all together. If the goal is to correct a training issue: Contracting Officers missing or ignoring FAR sections that address requesting discounts and accepting GSA pricing without seeking any additional discounts because of time constraints or the lack of a firm requirement to do so, why not correct the issue in training? There is confusion on why DPAP would address what they define as a narrow issue— DoD buyers paying too much for products, purchased below the micropurchase threshold because of FAR clause ambiguity — with a vague and ill-defined deviation.  There is a broader concern that by not expressing any concern for impact on the program, GSA allows the impression that Schedule pricing is flawed to persist and this will hurt the program even with those non-DoD buyers not impacted by the requirements of the Deviation.  It would be a good time to remind all involved that the purpose of the Schedule program is to bring commercial (not government-only) goods and services to government buyers. The program is built on the foundation that the prices are “fair and reasonable” because the contractor has provided proof that their pricing has withstood the test of the commercial marketspace.

The long-term effect the deviation has on individual procurements and the Schedules program, as a whole, remains to be seen.  Despite DPAP’s contention that the Deviation should only apply to product sales below the micropurchase threshold, we’ve heard of instances where DoD is questioning the cost elements professional service prices on GSA task orders in excess of $1million. When the Contractor requested a clarification, the reason given: “DoD has imposed a requirement that DoD contracting officer’s independently determine the price fair and reasonable despite GSA’s determination that prices are fair and reasonable”. Sounds familiar. Seems like those training issues persist.

Link to the DPAP Deviation Letter

Link to the April 18th Richard Ginman interview with Federal New Radio

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