The effort to make buying cloud services easier for agencies and more in line with industry standards continues with yet another acquisition workaround.

The General Services Administration issued its second acquisition letter in just over two years, giving its contracting officers permission to move closer to buying cloud services “by the drink,” or through a consumption based model.

Jeff Koses, GSA’s senior procurement executive, wrote that contracting officers, under certain conditions, can use upfront payments to buy software-as-a-service and it doesn’t violate federal procurement law that prohibits advanced payments.

“In the context of software licenses delivered or accessed via SaaS, payment is often made ‘upfront,’ meaning that payment is made contemporaneously with receipt of the software license and the beginning of the license service term. GSA contracting officers have been asked whether such upfront payment is considered an advance payment. It is not,” Koses wrote. “The central distinction is the contemporaneous access.”

Koses wrote advance payment is a specific type of contract financing method where payments are made prior to delivery or completion of the product or a service. It is not allowed under the Anti-Deficiency.

Technical workaround needed

Rich Beutel, founder of Cyrrus Analytics and a federal procurement expert, said GSA is leaning on a technical workaround given the lack of attention this topic has received from Congress.

“The acquisition letter skirts the Anti-Deficiency Act prohibition by highlighting the requirement for contemporaneous delivery of the software, thus there is no advance procurement delivered without an applicable preexisting appropriation,” he said.

Koses said there are six criteria for the acquisition to meet for contracting officers not to have to worry about the advanced payment rule:

• Access to the software is granted contemporaneously with payment (i.e., delivery of the license is made contemporaneously with payment);
• The license is acquired on a fixed-price or fixed-price with economic price adjustment basis even if other portions of the task order or contract are not fixed price;
• The license is priced at a single seat, multi-seat, unit or subscription price covering a fixed term, defined as “a limited period of time;”
• The license’s pricing/billing model allows for no utilization or consumption metric other than quantity to affect the costs incurred over the negotiated term;
• The license does not require any upfront payment other than the fixed seat, unit, or subscription cost as a prerequisite for access or a pricing discount;
• Within end user or other license agreements, the license service is continuous and uninterrupted for the negotiated term of access to the license.

Larry Allen, president of Allen Federal Business Partners and a procurement expert, praised GSA’s changes.

“I think that this is a win for enhanced competition, especially for small businesses that may have had to previously finance software acquisitions and have to offer higher prices as a result,” he said. “This move should increase competition and drive better pricing. This is a win for common sense in government acquisition.”

GSA recognized the problem

Beutel, who praised GSA’s 2021 acquisition letter that created new ordering procedures to allow the procurement of cloud offerings using a consumption-based pricing formula, said Congress still must amend the Anti-Deficiency Act to allow for industry to bill in arrears for cloud services on a consumption basis.

“Politically, the appropriations committees would likely be very skeptical of such a proposal, despite its clear economic value,” he said. “Over the last several years, we have addressed the need for government to have the legal authority to adopt true consumption based pricing, so as to be able to buy IT capacity instantly as the need arises. This could be achieved through the use of working capital funds and other technical workarounds, as GSA has adopted in the context of certain schedule based cloud procurements.”

This specific issue is causing agencies to have to pay as much as 25% more for cloud services and caused the limited use of the Defense Enterprise Office Solutions (DEOS) contract from the Defense Information Systems Agency.

GSA recognized this problem and asked for industry feedback last July. It issued a request for information asking for industry feedback on SaaS pricing best practices and what are its options better align the schedules with industry practices for pricing and invoicing term-based software.

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