ODCs: The nexus between requirements and execution

Adding Other Direct Costs to the Professional Services Schedule would increase opportunities for agencies to achieve comprehensive services solutions.

The Coalition for Government Procurement has long advocated for the inclusion of “Other Direct Costs” (ODCs) otherwise known as “Order Level Materials” (OLMs) on MAS service contracts and task orders. If included on the Professional Services Schedule (PSS), this “low hanging fruit” reform would increase opportunities for customer agencies to acquire, and industry partners to provide, best value, comprehensive services solutions. Today’s FAR & Beyond blog will examine the value of ODCs, the relevant regulatory history behind them, and where GSA should go from here.

The value of ODCs to the MAS Program

Currently, challenges associated with balancing budgets have created an interesting dynamic in the federal marketplace. As agencies are being asked to accomplish additional mission requirements using fewer resources than they have previously enjoyed, the stakes for the procurement system have never been higher. Consequently, agencies want comprehensive solutions that efficiently and effectively meet their requirements. Solutions based on commercial services offered via General Services Administration’s MAS Program can be the best value option in meeting customer agency needs. In fact, agencies want to use the GSA MAS program for service solutions, and MAS contractors want to offer, compete for and deliver solutions.

To the best of the Coalition’s knowledge, the MAS program remains the only commercial item contracting program that has not fully incorporated the use of ODCs, and thus, the program places its own contracts at a competitive disadvantage relative to other contracting options. Service requirements, by their very nature, typically include ODCs, such as materials, travel, etc., associated with providing a solution. Without an ODC mechanism in place, agencies are forced to look to alternative contracting vehicles that are not as transparent or competitive as the MAS program. Perhaps more seriously, the lack of an ODC mechanism incentivizes agencies to create their own service contracts, resulting in duplicative contract vehicles that unnecessarily increase contract transactional and administration costs for government and industry.

Regulatory history

FAR clause 52.212-4, Alternate I, already authorizes a contract mechanism for competing, acquiring, and reimbursing contractors, at the order level, for ODCs, materials and indirect clauses. This clause went through the ruling making process over nine years ago! Thus, today, there already exists a clause that can serve customer agencies by increasing competition through the MAS program for best-value commercial solutions.

In addition to existing regulation, in September 2016, GSA published a proposed rule that would add to the Schedules program the capability to utilize OLMs. Specifically, the proposed rule would create a new GSAR clause to govern the acquisition of OLMs/ODCs at the task and delivery order level. Pursuant to the proposed rule, OLMs/ODCs would be defined to include supplies and/or services acquired in direct support of an individual task or delivery order placed against a MAS contract or BPA. In essence, identified OLMs/ODCs would be included and priced at the order level, not separately identified and priced at the MAS contract level, using a new, separate Special Item Number, thereby enhancing MAS flexibility in meeting customer agency requirements.

Further, the proposed rule would limit the total value of OLMs/ODCs to 33 percent of the overall order value. Consequently, ordering agency contracting officers would be required to make a fair and reasonable price determination for all order-level materials. In turn, for the purpose of supporting the fair and reasonable price determination, MAS contractors would be required to submit at least three quotes obtained for each OLM/ODCs above the micro-purchase threshold or provide a rationale why they could not obtain three quotes.

Where GSA should go from here

By increasing the number of tools in the contracting toolbox, incorporating OLMs/ODCs functionality into the MAS program will enhance the overall efficiency and effectiveness of the MAS program. Customer agencies and MAS contractors will have greater flexibility to seek, compete, award and perform commercial-based solutions to meet agency mission requirements. The result will serve as a channel for competition and allow the government to access innovation from the commercial marketplace through the MAS program. So too, it will reduce the need for the contract duplication that may have been motivated by the absence of OLMs/ODCs on MAS contracts.

Moving forward, the Coalition recommends that GSA immediately issue the final GSAR rule, but with the following changes incorporated:

  • Remove requirement for contractors to submit three quotes for price reasonableness. This requirement represents a burdensome, non-commercial practice, and it is not clear how it would contribute to reducing Total Acquisition Costs (TACs).
  • Remove requirements for contractors to report OLM’s through a separate Special Item Number (“SIN”). This process simply adds administrative burden and cost without a clear indication that this classification of data would yield value.
  • Empower agencies with the discretionary authority to allow for indirect costs at the order level.
  • Authorize OLM’s to exceed 33 percent of the value of the order, as it is not clear why this limit exists.

Through this proactive, customer agency approach, GSA would enhance the quality of the MAS program. OLMs/ODCs are the nexus between requirements and execution, enabling customers to procure total solutions in the least burdensome manner. Enabling this capability, then, empowers vendors to deliver better value solutions that meet customer requirements more effectively and at lower costs than they can otherwise. In turn, these savings can be reflected in lower prices paid by Federal customers, and ultimately, the American taxpayer. From the Coalition’s perspective, including OLMs/ODCs in the MAS program is a simple, yet elegant, change that GSA can undertake on its own to yield benefits government-wide. GSA needs only to act.

Roger Waldron is the president of the Coalition for Government Procurement, and host of Off the Shelf on Federal News Radio.

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