Two more centralization, cost savings initiatives from GSA

Two new initiatives are accelerating General Services Administration progress toward centralizing the procurement of common goods and services, simplifying acquisition processes and saving money.

GSA is taking initial steps to set up an Office of Centralized Acquisition Services by recruiting contracting officers to potentially join the new organization.

At the same time, GSA is digging into the value-added reseller (VAR) model to better understand the role of such companies and what it would take for original equipment manufacturers (OEMs) to sell directly to the government.

Combined, these two efforts are another signal of the notable changes on the horizon for federal contractors focused on direct sales and coordinated buying.

“We hope companies take it in the spirit of what we are trying to do: save money while transforming the procurement system to make it easier to work with OEMs more consistently, as well as helping agencies focus on their missions and not about buying common goods and services,” said a GSA official, who requested anonymity because they didn’t have permission to speak to the press. “What you are seeing with the OneGov announcements is that we want companies to make direct deals where possible. These companies need to understand our goal to engage more directly with OEMs and work through GSA.”

The four enterprise software license deals GSA signed with Microsoft, Google, Salesforce and Adobe are one step in its plan to contract directly with companies.

The May 28 letter GSA sent to 10 VARs or similar companies is another piece to this effort. The agency gave the VARs a deadline of June 11 to respond with data and details about their model. Federal News Network has learned that GSA is extending the deadline for at least two companies at their request.

The 10 companies are:

• Carahsoft Technology Corporation
• CDW Corporation
• Dell Technologies Inc.
• FCN Inc.
• Four Points Technology
• NANA Regional Corporation,
• OEP VIII GP (Mythics, LLC)
• TD Synnex Corporation
• Thundercat Technology
• V3Gate LLC

“The letter doesn’t say this, but the tone is more like, the middleman isn’t necessary,” said one industry consultant, who requested anonymity because several of their clients work with GSA. “The thing I think about with these large resellers, there are a number of services they provide, especially for smaller and innovative companies, that keep the barriers to entry low. I could see why a lot of resellers would feel like this puts them in a difficult spot. I think the large ones are maybe even hurt by their own successes. Agencies are comfortable with name of the reseller and what their role is in transactions of connecting industry with the government to meet the agency’s mission.”

These companies won more than $9.5 billion in combined revenue from the government in fiscal 2024, according to federal procurement data analyzed by market research firm Deltek.

GSA said reviewing VARs, moving toward a more direct relationship with OEMs and acting as one unified federal wallet are all parts of the OneGov strategy. According to GSA, the government must move away from bespoke solutions, sourcing more commercial off-the-shelf products and services while also building trust in internal agency capabilities, which means decreasing dependency on outside vendors.

To that end, the Federal Acquisition Service is asking contracting officers if they are interested in joining the new Office of Centralized Acquisition Services. FAS sent out a survey to their employees asking a basic set of questions about contracting officers’ backgrounds and the certifications they hold to gauge interest in current 1102s, the federal job series classification for such roles.

“OCAS will act as the central hub for acquisition execution, supporting agencies as they transition designated contracts to GSA,” Christina Kingsland, acting assistant commissioner of the Office of Travel, Transportation and Logistics, wrote in an email obtained by Federal News Network. “OCAS will operate under a streamlined, standardized model in which GSA provides contracting officers and contract specialists to manage procurement actions. Agencies will retain responsibility for mission requirements, oversight and performance management through their contracting officer representatives and acquisition career managers. With an increasing number of agencies expected to transition concurrently following OMB approval, GSA is proactively planning for the operational demands of implementation.”

Kingsland said in the email the possible reassignment may be “especially relevant if you live more than 50 miles from an approved FAS office location. If you are selected for reassignment to OCAS, FAS will assign you to an office within 50 miles of your home. Specific buildings or timelines cannot be guaranteed.”

VARs on the hot seat

The creation of OCAS and the focus on VARs stem from President Donald Trump’s April executive order putting GSA in charge of buying all products and services that make up the 10 areas of category management.

These efforts also coincide with the overhaul of the Federal Acquisition Regulations that GSA is leading as well as the pressure it’s putting on consulting contractors to move toward outcome-based contracts and reduce costs and reliance on non-OEM companies.

While most industry experts are generally supportive of reevaluating consulting contracts and revamping the FAR, there seems to be concern around the focus on the VAR model.

FAS Commissioner Josh Gruenbaum’s letter reiterates some of the same requests that he positioned to consultants, but also introduces the idea of spending caps.

“We are therefore requesting a detailed breakdown on all open contracts that includes OEM costs, VAR mark-ups and any additional fees for transparency. We intend to explore using this input as a scorecard to potentially establish a mark-up cap or other spend controls on OEM or vendor costs moving forward,” Gruenbaum wrote in the letter, obtained by Federal News Network. “Evaluate whether the offered pricing is appropriate given best commercial industry comparables. In addition, identify opportunities to reduce mark-ups or product costs to align with the administration’s cost cutting goals on open contracts through consolidated buys or other mechanics.”

GSA says the price mark-ups VARs charge are costing the government too much.

“Simplifying historically complex procurement processes, reviewing value-added resellers and their mark-ups, which often amount to a 5% to 7% tax on the American people for very little benefit, and making outcomes-based contracting the default will allow us to deliver on the administration’s acute focus on efficiency and waste reduction, as well as return to commonsense procurement practices,” Gruenbaum said in a statement to Federal News Network.

But experts say VARs provide a much-needed service to OEMs and systems integrators as well as the government, and generally work on a profit margin of 1% to 2%, not 5% to 7% as Gruenbaum alleged.

“People miss the reason why these VARs are very needed. They buy and sell in bulk, like Costco, but these make very thin margins. That’s why these aggregators do well because they can offer infrastructure at a reasonable price,” said Aileen Black, a former executive with Google, VMWare and other federal contractors. “Too many companies would not be able to compete in federal marketplace without VARs. Do you get bad prices because you go to Costco? The answer, of course, is no. And the government isn’t getting bad prices from VARs.”

Agencies spending with VARs has increased over the last four years to $39.1 billion, according to Deltek.

The VAR model developed over the course of the last 20 years as a growing market of vendors, especially those that provide technology, wanted access to the government — but they didn’t want to, or couldn’t, set up the infrastructure to meet extensive federal compliance requirements.

An industry executive from one of the companies who received the letter, but requested anonymity for fear of retribution, said the fact is OEMs are not set up structurally or operationally to sell directly to the government.

And even if that’s what GSA wants, it would take several months and cost tens of thousands of dollars — at least — to get them ready to do so.

“The channel has evolved over time to provide maximum value for customers and OEMs: for the customers by providing independent and objective advice, and for the OEMs by serving as an unpaid sales and marketing team that only gets paid when a deal closes,” the industry executive said. “The government is supposed to buy as much as possible using commercial best practices. OEMs in the commercial world prefer this channel. Those that want to go direct can and will go direct. But the government should not force them to hire thousands of sales engineers to do what VARs already do today for free. That will drive up cost of sales and eventually prices for the taxpayers.”

A lack of understanding?

An executive from Blue Fox Federal, an IT consulting company that works with VARs and systems integrators, said the OEMs and SIs prefer this approach because they get paid more quickly and it lowers their risk.

“Each OEM has their own program, their own criteria for volume of sales and they also require each reseller be certified to deliver said product onsite, install and integrate in a data center or wherever,” the executive said. “These VARs invest in resources, including people to do this work because the SIs and OEMs don’t want to do this. The resellers carry the bench of overhead for these resources because OEMs and SIs won’t. Resellers show up with clearances and are able to install one day and be done. That’s hard for an SI and OEMs.”

Both executives and other federal acquisition experts say GSA is lacking an understanding of the entire VAR market.

“This is not consistent with commercial item contracting. There are limits to what can be audited and the use of price analysis and competition. There is an exemption for commercial item contracting for price audits,” said one industry observer, who also requested anonymity for fear of retribution. “It’s a commercial best practice to use integrators and VARs. At end of the day, the public and private can’t afford not to.”

The observer also said commercial companies are spending billions of dollars with VARs and working through these channels and it’s unclear what GSA is trying to do with this latest effort to collect information and review efforts.

“Why are commercial companies going to want to work with the government when basically GSA is seeking all these concessions and all they appear to be offering are threats?” the observer said. “So far, they are not offering any competitive pricing incentive, and they have not yet reduced regulations or streamlined anything. If GSA thinks somehow the government is getting ripped off, why are there all kinds of competition across the system that is required? Are they even looking at these things?”

The company executive who received the letter made a similar point about competition among VARs selling the same or similar products as the best way to drive down prices. GSA’s actions actually are increasing the risk of inflating prices because the OEMs have no incentive to introduce new and innovative companies, but VARs do.

“GSA has made it clear that they see VARs as ‘pass through’ or ‘unnecessary middlemen’ or ‘drop shippers.’ They want to use them less or not at all. They also state they want to cap margin or gross profit. Looking at a sales spreadsheet alone completely ignores all the things that happen before and after the deal to earn that margin. It is not the letter per se. It is the assumptions that we are useless and the real purpose to eliminate us long-term that are most concerning,” the executive said. “What VARs do isn’t a mark up. It is a discount down. The OEM lowers the price to the VAR depending on what we did and how long and how much we did it. The taxpayers aren’t paying more. They pay the same. The margin comes from the OEM profit by them taking less, not the VAR charging the customers more.”

At the same time, few disagree that reviewing and analyzing potential opportunities to improve the process and save money isn’t necessary.

The VAR model has come under scrutiny recently. For instance, the FBI raided Carahsoft in October for reasons still unclear. But that law enforcement action left some OEMs questioning their approach to the federal market and the supply chain risks that most vendors and agencies generally glossed over until that raid.

The GSA official said the letter was step one in a much broader conversation. The official said they hope the VARs come to the table with data and details that will help shape a discussion aimed at reducing federal spending and improving efficiencies. The official added that like the consulting firms, the VARs may face some tough decisions in this new reality, including possibly lower revenue and a smaller workforce.

“There has to be a shared understanding that we all own the debt and deficit. What this administration feels like is they want to know, what is a fair markup? We do not want to put anyone out of business and fully understand the need for companies to generate revenue. But this is a point in time that we expect a certain understanding — the government needs to reduce spending and are looking for partners in industry that can align with that goal and propose realistic savings in what they charge,” the source said. “We understand VARs do help agencies with meeting socioeconomic goals and with certain complex procurements. But we are not tied to saying, ‘this is just the way we’ve always done acquisition.’ There is an outside perspective that the government has made it so hard that companies don’t want to sell to us directly and why is it so hard? We want to change that.”

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