The tyranny of low price and other challenges

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.

As the Biden administration implements the President’s Management Agenda (PMA), the federal acquisition system will play a critical role in supporting the federal workforce, delivering excellent federal services and improved customer experience, and managing the business of government to Build Back Better.  For example, the PMA notes that improvements in the federal acquisition system can strengthen domestic manufacturing, advance sustainable climate solutions, support American workers, and foster opportunities for underserved communities.

The tyranny of low price (TLP), that is, the obsessive focus on the price over the solution delivered, is a direct threat to the PMA’s goals. TLP ignores the value of delivering to the government solutions that are responsive and enhance mission performance and overall capabilities. By so doing, it limits access to the spectrum of commercial innovation from the private sector. This aspect of procurement dysfunction is especially challenging as America continues to emerge/recover from the pandemic while facing growing competition from near-peer adversaries. In addition, TLP serves as a barrier to entry for small businesses by imposing pricing rules unaligned with their stage of business development, thereby undermining the administration’s focus on improving opportunities for small-disadvantaged businesses. Finally, TLP ignores economic reality, asking contractors to do more (e.g., cyber security, sustainability, domestic sourcing) at a time when, every day, we see reports of new challenges affecting the cost of doing business.

Almost a year since Federal News Network focused on “bullying tactics” by General Services Administration regarding price negotiations under the the agency’s Multiple Award Schedule (MAS), TLP remains alive and well. Its deleterious effects are manifested in different tactics leveraged by contracting officers negotiating with MAS contractors and/or offerors. In some cases, GSA demands that MAS contractors lower contract prices to match competitive task order pricing offered in response to firm customer agency requirements. In other cases, GSA seeks price or rate reductions of 10, 20, and even 30 to 40% off prices that have been determined fair and reasonable.

These tactics raise the following significant policy and business issues:

• FAR 15.404-1(b) directs contracting officers to adjust prior prices paid to account for differing terms and conditions, quantities, and economic factors. There is a fundamental difference between a contract price based on a guaranteed minimum of $2,500 with the opportunity to compete for future work and a competitive task order price based on a firm customer agency commitment to buy. Yet, for years, and in multiple contexts, GSA has ignored this reality, effectively dismissing the plain language of the FAR.
• GSA is penalizing MAS contractors for competing for agency requirements. FAR 8.405 sets forth the competitive ordering procedures, including statutory competition requirements, for MAS task and delivery orders. Notwithstanding the fact that the regulations provide for a dynamic, competitive marketplace, GSA limits the ability of MAS contractors to compete by driving contract pricing levels that create significant business risk. GSA’s negotiation approach harkens back to a long-repudiated 1980’s MAS regulatory framework that limited competition and value under the program. (More on this issue in a future blog.)
• GSA is ignoring economic reality. Costs are rising, especially labor costs, as the nation emerges from the pandemic. Inflation and supply chain challenges are impacting businesses across the private sector. Yet, GSA is seeking significant price or rate reductions as a condition of exercising the MAS contract option. It makes no sense.

GSA is ignoring the fundamental dynamic of labor costs/salaries. It makes perfect sense that labor rates rise over time, especially when the nation faces the effects of devalued currency caused by the drivers of inflation. By way of example, consider that Congress has approved a 3.6% salary increase for the federal workforce in the coming year. For the PMA to succeed and to Build Procurement Back Better, government and industry must engage in a frank dialog about the real-world economic drivers that underpin participation in the marketplace. Addressing TLP certainly is critical, but it is only a first step. With regard to the MAS program, GSA should focus on providing business training to the acquisition workforce that includes an explication on markets, reverse industry days, and business and process planning from the perspective of the firms with which it seeks to work. For instance, it is our understanding that, currently, GSA does not have an in-person class focusing on price analysis, especially the unique aspects of MAS pricing. That knowledge deficit needs to be filled.

In addition, there is no viable mechanism for contractors/offerors to raise issues/questions regarding the conduct of negotiations. On negotiation issues, contracting officers effectively are judges, juries, and executioners. There needs to be an appropriate role for GSA management in the process at impasse points, and to understand this point, think about the relationship in reverse: Were GSA contracting officials, dedicated to helping agencies meet their missions, confronting mistaken vendors representatives, the government certainly would want to approach the management chains of those representatives, especially if needed innovation were involved.

Finally, GSA needs to address its consistency of operations. FAS contracting operations/workforce activities function as stovepipes within stovepipes, where acquisition centers take different approaches to pricing, and even within acquisition centers, contracting officers take fundamentally different approaches to pricing. Coalition members do not oppose appropriate management stovepipes. Rather, we believe that FAS needs to break down the inappropriate stovepipes of practices that create inconsistency in business operations. By so doing, FAS can address its organizational structure and bring consistency and predictability to business practices and thereby improve the efficiency of contracting overall. Consolidation of the MAS program provides the foundation for addressing these stovepipes.

The acquisition system provides the GSA administrator a channel to promote the administration’s PMA through positive systemic change. This change can be achieved through engagement with stakeholders, particularly those vendors with whom it contracts. The Coalition, representing an expansive number of those vendors providing commercial services and products in support of agencies, welcomes the opportunity to assist in this effort.

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