Multiple award schedule pricing paradoxes

“Fair and reasonable” multiple award schedule (MAS) contract level pricing is impacted by a host of factors. These include federal and commercial market conditions, government versus commercial contract terms and conditions, the Federal Acquisition Regulation (FAR), the General Services Acquisition Regulation (GSAR), and Federal Acquisition Service (FAS) policy, procedures and training. Contracting officers must assess, analyze and apply these factors when reviewing an offeror’s proposal and negotiating fair and reasonable pricing.

Currently, paradoxes in the MAS contract negotiation process and procedures are creating significant, contradictory and unnecessary hurdles for contracting officers seeking to negotiate “fair and reasonable” pricing. In turn, contractors, including small business contractors, are seeing impacts regarding their access to the federal market and opportunities to compete for customer agency requirements. Here are just some of the paradoxes currently in play:

When “the collective buying power” of the federal government is not leveraged

FAS contracting officers are directed to “leverage the collective buying power of the federal government to obtain competitive, market-based pricing.” This policy directive is laudable and would make sense if the government was promising to buy all its requirements via the program, but, in reality, the goal is illusory. MAS contracts are not requirements contracts. The basic MAS IDIQ terms and conditions provide for a guaranteed minimum of $2,500 over a potential 20-year contract period with the opportunity to compete for task and delivery orders in accordance with FAR 8.4. In an economy where opportunities exist that provide definitized business commitments exceeding what is offered under the schedules, rational firms will choose to engage in those alternative business opportunities. Under the circumstances, MAS contracts terms and the commitment they represent simply do not create an environment where contracting officers can leverage the collective buying power of the federal government. For more on this, read my recent column on this topic.

When “fair and reasonable” is not “fair and reasonable”

Until very recently, the MAS solicitation provided that “offerors propos[ing] most favored customer pricing that is not highly competitive will not be determined fair and reasonable and will not be accepted.” Contracting officers were applying this “highly competitive” language with a broad brush to all types of offerors to determine whether proposed prices were fair and reasonable. GSA, to its credit, deleted this language from its solicitation, but the impact of this language on contract negotiation still is rippling through the system. To ensure that this needed policy change takes hold, the language should be deleted from all policy guidance, and contracting officer training should be updated to address the change in the context of determining a “fair and reasonable” price.

See my previous columns regarding the “highly competitive” standard and Most Favored Customer pricing for more details.

When a MAS contract is not a MAS contract

Currently, contracting officers are treating each fair and reasonable pricing determination as independent from prior determinations for the same or similar items. The practical procedural impact of this approach has resulted in proposed modifications to MAS contracts triggering new fair and reasonable price determination requirements for the entire contract, including unrelated items pricing that already has been determined fair and reasonable. Under the circumstances, proposed modifications essentially trigger an entirely new contract negotiation for an existing MAS contract, which, given the commercial nature of MAS contracts, presents a market anachronism that mitigates the attractiveness of the program.

When the tracking category “all commercial customers” leads to higher, not lower, prices for all

Contracting officers are strongly encouraged to identify the tracking customer for price reduction clause (PRC) monitoring and compliance as “all commercial customers.” Although, on its face, this approach seems like it will yield a great deal for the government, it has grave business, economic and competitive impacts across the commercial and federal markets. As a threshold matter, it puts businesses/contractors, especially small businesses, under a significant, market-wide restriction on offering lower prices to commercial customers. It essentially threatens the viability of a business in the commercial market by restricting its ability to compete in that market. Although GSA essentially is a reseller through the MAS program, it is ironic that parts of the federal government, GSA’s customers, take a dim view of similar anti-competitive restrictions imposed by commercial resellers.  Finally, as subcontracts under federal prime contracts are considered a commercial transaction for purposes of the PRC, through its actions, GSA is unintentionally driving higher prices on other federal contracts.

When invoices overwhelm CSP pricing

Increasingly, contracting officers are asking contractors to provide invoices for all items being proposed to further validate pricing, whether the items involve standard catalog pricing or discounted pricing. Indeed, invoice requests are being made even though the submission of the offer, including the commercial sales practices (CSP) format and current catalog pricing, is a certification as to the accuracy of the information. These ad hoc requests overwhelm the negotiation process, especially when the requests cover thousands of items, cause significant delays in the process, and, ultimately, serve to undermine the entire purpose of the CSP.

An unintended consequence of current FAS pricing policies is to drive MAS contract level pricing to low price regardless of context (LPRC). MAS contract pricing must be fair and reasonable, taking into consideration the MAS contract terms and conditions. It is at the task and/or delivery order where agencies leverage their specific government requirements (e.g. volume) to achieve better pricing (i.e. below the MAS contract price) and best value outcomes to meet mission needs. In this way, the MAS program mirrors the commercial market, driving lower total acquisition cost (TAC) for customer agencies.

At a high level, the unintended consequences discussed above seem to be directed toward an effort to preserve outdated processes and procedures, like the CSPs and the PRC. The time is right for GSA to look to modernizing its processes to align with the market environment where it competes with other resellers seeking to bring goods and services to government buyers. The adoption of transactional data reporting (TDR) across the entire MAS program is just such a step towards modernization.

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