On June 23, 2016, the General Services Administration (GSA) announced a major change in its approach to buying in-bulk products and services, called Schedules, from its contractors. GSA removed a sales disclosure requirement and contract clause from its acquisition policy that would track contractors’ sales to its commercial customers and require them to offer those same prices to the GSA. The agency replaced them with a clause that would track similar prices paid by other federal buyers. The removal of the protections puts the government at risk of paying higher prices for the same services than its private-sector counterparts. This change demonstrates how the government is willing to gamble taxpayers’ money by dropping established and proven protections based on promised but unproven new reporting methods.
The price protections that were dropped were Commercial Sales Practices (CSP) and the Price Reductions Clause (PRC); they were replaced with the Transactional Data Reporting Clause. Under CSP, contractors were obligated to “include a broad disclosure of discounts vendors offer to commercial customers for similar products and services.” PRC had a “tracking customer” provision requiring contractors “to monitor their pricing over the life of the contract and provide the government with the same price reductions that they gave to the class of the contractor’s commercial customers.” PRC also guaranteed that vendors “voluntarily reduce prices” and that government could request “a price reduction at any time during the contract period.” The new Transactional Data Reporting Clause requires vendors to report details on transactions, like “descriptions of goods or services acquired, part numbers, quantities, and prices paid.” This new information provided by the clause will help improve buying practices within different government agencies because of increased “market intelligence,” but at the expense of dropping important protections. This rule is significant considering that in Fiscal Year 2015 GSA’s federal supply contracts accounted for approximately $33 billion in sales, which is more than 7 percent of all federal contract spending.
GSA’s rationale for eliminating the provisions was that the Transactional Data Reporting Clause’s own reporting burdens combined with CSP and PRC reporting would be too burdensome for contractors; therefore something had to go. GSA calculated that dropping these protections along with the addition of the new Transactional Data Reporting Clause would save contractors around $29 million in burden reduction, and $3 million for the government. In its ruling, the GSA questioned the necessity for PRC after it found that only 3 percent of total contractual price reductions resulted from the clause’s “tracking customer” feature. This contrasts greatly to the 78 percent of reductions that were “voluntary, resulting from commercial pricelist adjustments and market rate changes.”
The Administration also justified dropping the provisions because of the growth of resellers with no commercial sales to negotiate; the prevalence of commercial items for which the government is not a market driver; and the irrelevance of single-sale items to the government, which mainly buys in high-volume purchases.
The Project On Government Oversight agrees that the data collection under the new Transactional Data Reporting Clause will give the government better insight on price variations within the public sector. This change would be significant, considering prices have varied around 300 percent for similar services among agencies, according to the GSA. However, adding this clause does not rationalize removing the key commercial price protections. Although there is some credibility to GSA’s justifications for removing them, their replacement will not result in good buying practices. CSP and PRC were common-sense approaches that helped the government protect itself from contractors that would overcharge for the same goods or services.
The GSA Office of Inspector General (OIG) commented on the rule, stating its concern for, among other issues, the removal of PRC. In its dissenting letter, the OIG argued against GSA’s many claims justifying dropping the clause. In response to GSA’s claims that the data collection under PRC was too burdensome, OIG found that the survey it conducted was not a representative sample because it included less than 1 percent of GSA’s 19,000 contractors.
Additionally, OIG found that the 78 percent of contractors’ “voluntary” reductions were not “voluntary” at all, but in fact a means of complying with PRC. The OIG even challenged the credibility of GSA’s claims against PRC, citing a 2010 GAO report that found that GSA did not sufficiently research the amount of price reductions resulting from PRC to properly determine its effectiveness. Rather than get rid of the clause altogether, OIG recommended more analysis on the monetary savings that PRC provides to accurately establish its performance.
Besides questioning GSA’s quick conclusions based on faulty and lacking data, OIG and POGO both disagree with the general premise of GSA’s rule. It is simply nonsensical for best buying practices to only collect data on other similar government buyers, and to disregard price variations in the commercial marketplace. The OIG believes that without pricing data from the commercial marketplace, the “transactional data will become the Schedule price resulting in a cyclical process.” In other words, the new “market intelligence” granted by the Transactional Data Reporting Clause will be limited to only government sales, and exclude a whole other market with alternative pricing variations that is driven by real market forces. Contractors could potentially begin to offer unfair prices within the federal marketplace, which could become institutionalized and recycled to all agencies without the proper oversight or perspective that commercial-price tracking would provide.
Ultimately, GSA’s ruling is concerning because contractors will be able to keep government in the dark on their commercial prices, and will not be contractually required to lower that price upon government request. This ruling makes it easier for contractors to overcharge taxpayers, and history indicates that they will. The following cases are just a few of many examples of companies settling false claims allegations that they violated PRC by overcharging the GSA.
- In 2016, Deloitte had to pay $11.38 million.
- In 2015, VMware and Carahsoft had to pay $75.5 million
- In 2014, Iron Mountain had to pay $44.5 million.
- In 2013, SAIC had to pay $5.75 million.
- In 2011, Oracle had to pay $199.5 million.
- In 2010, EMC Corporation had to pay $87.5 million.
There is a clear pattern of GSA contractors violating PRC and overcharging the government, even when CSP and PRC obligated them to report their commercial pricing. Bad deals will likely skyrocket now that the PRC has been eliminated. Additionally, a 2015 GAO report found that the a large number of GSA staff were not aware of the available opportunities for discounts and cost savings on Schedule orders, only compounding our concerns that the government will not pursue discounts that are available.
The government should be empowering its employees with every tool available—including commercial pricing data—to seek discounts, not taking them away. GSA should reconsider this rule, and create an acquisition policy that balances the priorities of all parties and that will ensure the government isn’t paying above market prices.