GSA proposed rule raises ‘significant concerns’ over competition

A system that seeks to drive down pricing through constant comparison of individual transactions leads to a downward or death spiral in pricing that is inconsis...

Commentary by Roger Waldron President, The Coalition for Government Procurement

This column was originally published on The Coalition for Government Procurement’s website and was republished here with permission from the author.

On March 4, 2015, the General Services Administration (GSA) issued a proposed rule, GSAR Case 2013-G504, Transactional Data Reporting. The proposed rule would establish a new requirement for GSA contractors, (IT GWAC contractors, Federal Supply Schedule (FSS) Schedule contractors and other GSA contract programs, as applicable) to report transactional data at the order and Blanket Purchase Agreement (BPA) level to GSA. Note the VA Schedules are exempted.

The transactional data to be reported includes the following:

  1. Contract or BPA Number;
  2. Order Number/Procurement Instrument Identifier (PIID);
  3. Non Federal Entity, if applicable;Description of Deliverable;
  4. Manufacturer Name;
  5. Manufacturer Part Number;
  6. Unit Measure (each, hour, case, lot);
  7. Quantity of Item Sold;
  8. Universal Product Code (UPC), if applicable;
  9. Price Paid per Unit; and
  10. Total Price.

The proposed rule retains the Price Reduction Clause (PRC) but deletes the requirement to monitor a tracking customer for price reductions for FSS Schedule contractors required to report transaction data. The remainder of the PRC remains in effect. FSS Schedule contractors will still be required to submit Commercial Sales Practices (CSP) information — with the ongoing requirement to provide updates throughout the life of the contract. In addition the rule makes clear that GSA can ask for FSS Schedule contract price reductions at any time. Price reduction requests will likely be based on review of transactional data.

To GSA’s credit, it is seeking a public dialogue on the proposed rule — with a public meeting scheduled for April 17.

The Coalition supports a transparent, open public dialogue and we have already registered to attend and speak on April 17.

The proposed rule includes a number of troubling statements, assumptions and rationale regarding implementation of transactional reporting. The rule raises many questions regarding operational burdens and administrative savings, cost assumptions, and understanding and interpretations of statute and regulation. The rule also raises significant concerns regarding potential negative impact on small business, competition and limiting innovation across the FSS program.

At its core, the rule makes clear that transactional data reporting will support horizontal price comparison to drive down pricing. It is telling that the statutory and regulatory requirements for competition at the task order level are never mentioned or referenced in the rule. Rather, the use of transactional data and horizontal price comparisons establishes a framework for Wage and Price Controls in governmentwide contracting.

Those of a certain age remember Nixonian “wage and price controls” and the negative impact it ultimately had on the U.S. economy. Here the combination of transactional data reporting and horizontal pricing will serve to control wages and prices through a constant drive to lower prices regardless.

We are already seeing this phenomenon in the FSS program. FAS contracting officers are routinely demanding ever-lower prices on FSS contracts based on comparisons to other horizontal pricing regardless of the context or underlying terms of those horizontal pricing. The proposed rule will essentially institutionalize a management framework that will control wages and prices by constantly driving down FSS contract prices for commercial products, services and solutions.

Many might say “the government is getting lower prices” — why is that a bad thing? It is not a bad thing when reduced costs and/or greater value are achieved through competition/streamlining for agency-specific requirements.

However, a system that seeks to drive down pricing through constant comparison of individual transactions leads to a downward or death spiral in pricing that is inconsistent with the dynamics of the commercial marketplace.

The wage and price controls underpinning the proposed rule’s goals will:

  • Suppress wages of those who work for commercial firms; contradictory to the administration’s policy goals.
  • Suppress salaries of those providing professional and IT services, thereby limiting the government’s access to the best and brightest via commercial service firms — another current priority of the administration.
  • Limit growth and opportunity for small business concerns whose margins are always slim and who will not have resources to invest in additional systems to monitor and report transactional data.
  • Drive away innovative companies both small and large who rely on and make investments in expertise and technology to deliver cutting edge solutions to protect the health and security of our nation.
  • Reduce competition across the FSS program as wage and price controls limit the ability of firms to compete on both value and price/cost
  • Undercut best value acquisitions at the task order level as companies respond to the drive to ever lower prices and rates
  • Implement a low price regardless model.

These long-term impacts are not in the interests of customer agencies or the American people. We look forward to the dialogue on April 17 to find ways to reduce government spend and increase value in all acquisition transactions.

Roger Waldron brings 25 years of high-profile government contracting experience to his role as president of the Coalition for Government Procurement. Before joining the Coalition, he was counsel at Mayer Brown LLP. Waldron is also the host of the Off the Shelf radio show, airing Tuesdays at 10 a.m. on Federal News Radio.

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