GSA Scheduling Conflict

GSA schedules are beneficial as intended, but are they a government nightmare in reality? The schedules offer pre-negotiated contracts to federal and state agencies looking to buy commercial goods and services. The prices, terms, and conditions are set, allowing a buying agency to find what it needs and place an order without the usual haggling and paper pushing.

This summer, however, some cracks have been appearing in the GSA schedule’s armor. The Justice Department has gone after two contractors, EMC and Oracle, for allegedly falsifying prices and not providing the government with discounts that they offered to other customers. Both suits were brought under the False Claims Act, and EMC has already settled with the government for $87.5 million. Another case (Ubl v IIF Data Solutions, Inc.), which DOJ has avoided (which is before the 4th Circuit), challenged the alleged fraud in setting schedule prices, as well as the authority for ordering agencies to alter pre-established terms and conditions on schedule contracts.

The same day that DOJ announced the suit against Oracle, a blog by Steve Kelman questioned the government’s ability to save money when using the schedules. Kelman wrote, “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.” Reviewing the posted comments and the follow-up piece, many people agree that the government isn’t doing a good job of negotiating lower prices with schedule contractors.

Brace, for it!

POGO agrees 100% with Kelman on this one. (Sorry to disappoint those who enjoy the POGO v. Kelman battle of the blogs.) As the creator of many acquisition reforms that reduced government access to contractor information and comprehensive oversight, POGO doesn’t generally agree with Mr. Kelman, but today is a new day.

In response to these concerns an expert panel of government and industry representatives was tasked with looking at the schedules. The Multiple Award Schedule (MAS) Advisory Panel studied the schedules system for over a year and concluded that MAS schedules were not ensuring reasonable prices. That finding is spot on, but POGO was hoping that the Panel would recommend that contractor price data had to be more forthcoming so that the government could be positioned to negotiate lower prices. The problem, however, is that the Panel also recommended that many of the negotiating and oversight tools (the “Price Reduction Clause” and “most favored customer” pricing) that ensure lower prices should be scrapped. The Panel recommended that with increased competition at the delivery or task order level and additional transparency, the MAS program will ensure better deals for agencies and the taxpayer.

But as we have seen, contractors are failing to be forthcoming with their best offers, and the government does an inadequate job at leveraging its buying power and pursuing the best deal possible. That sounds crazy, but there may be a simple explanation. Contractors want to drive prices higher and so does the government. Yes, so does the government. The reason is the Industrial Funding Fee (IFF). The GSA MAS program is funded by a fee paid each quarter by the participating contractors based on gross sales for the period. The IFF was initially 1% until Congress petitioned GSA and had the fee reduced to .75% because GSA was making more from it than the cost to operate the program.

The IFF has been the subject of much criticism and POGO believes that Congress should appropriate money to agencies to end their reliance on it because it creates a perverse incentive to keep costs or prices high. In other words, agencies might not be seeking the best prices because program revenue would be lost.

I’m all for improving the GSA schedule system, but I’m not certain that the government is moving in the right direction. Competition and transparency are decent steps forward, but more has to be done to ensure that the government is taking advantage of the best deals and contractors are truly acting like the business partners they claim to be.