Eliminating the Price Reduction Clause is an opportunity to increase competition

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

Last week’s far-reaching Executive Order on Promoting Competition in the American Economy included language that carried implications for government procurement generally, including direction that could facilitate the creation of opportunities for small businesses. Indeed, the Biden administration’s focus here on increasing competition and removing barriers to entry in the federal marketplace once again prompts us to discuss a competition issue: Streamlining the Federal Supply Schedules (FSS) program through the elimination of the Price Reduction Clause (PRC).

We are heartened to see that the Schedules Program is on General Services Administration Administrator Robin Carnahan’s radar. During her confirmation hearing before the Senate Homeland Security and Government Affairs Committee, she spoke to the Schedules noting that, “I’ve talked to businesses that have tried to get on GSA Schedules … [T]hey’ve told me about how difficult that process is, and I’m interested in learning more about how we can streamline that.” Carnahan need look no further than the elimination of the PRC as the catalyst for streamlining the FSS program, reducing barriers to entry, and increasing competition in the federal marketplace.

The rationale for elimination of the PRC reduces to one simple, but fundamental, point: The costs of the PRC far outweigh the benefits. Consider the following:

• With roots extending back into pricing policies from the 1980s, the PRC conflicts with fundamental, competitive changes in federal procurement and the government and commercial marketplaces over the last four decades. The evolution of technology, the entrance and exit of market participants, and the use of innovative purchasing practices all have worked to make the utility of the PRC obsolete.
• The PRC is a barrier to entry for new vendors from the commercial marketplace. This barrier unnecessarily limits competition and access to new, cutting-edge commercial solutions and technologies.
• Against the backdrop of the evolution of the market, the PRC represents the most significant compliance burden in governmentwide contracting, collectively costing small, medium, and large FSS contractors hundreds of millions of dollars annually.
• The PRC brings little or no value to the federal government. GSA’s own review of modifications implementing contract price reductions found that approximately 3% of total price reductions were triggered by price reductions associated with the “tracking customer.”
• FSS Program competition at the order level is mandated by statute, and for a very good reason. As Congress recognized, efficient price and value are driven by competition at the task order because, at the task order level, customer agency requirements actually are definitized in real time in the market. They simply are not driven by pre-determined contract-level pricing or by bureaucratic, process-driven pricing oversight mechanisms like the PRC, negotiated against hypothetical requirements at a time in the past.
• The compliance costs of the PRC negatively impact and restrict business of all sizes, but disproportionately impact small businesses that must invest scarce resources to address the PRC’s complex compliance regime.
• PRC costs include, but are not limited to, offer preparation and negotiation of the mechanics for triggering a price reduction; dedication of systems and personnel for oversight and review of commercial operations to validate compliance, and training of employees and senior executives responsible for compliance. In addition, let us not forget the legal and audit costs associated with the management of a PRC compliance program.
• The PRC is an anticompetitive restraint on trade. It is the only governmentwide contract term that, as condition of obtaining a government contract, restricts the discretion of the contractor to compete fully and fairly in the commercial market. Thus, this deleterious economic policy of the PRC reduces economic growth and job creation.

The foregoing case for eliminating the PRC provides GSA with a compelling opportunity to yield a win-win-win for customer agencies, FSS contractors, and for GSA itself. By reducing barriers to entry, the elimination of the PRC will enhance competition and improve agency access to commercial solutions. It will ensure that price and value is driven by task order level competition for agency specific requirements. It will allow contractors, especially small business contractors, to focus resources on competing for and performing work for the government customer. The time is now to provide the government the benefits of competition available to its industry partners. The time is now to eliminate the anti-competitive PRC and this change is within the GSA administrator’s authority.

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