Thoughts on what is fair and reasonable?

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.

Federal Acquisition Policy and Procedure (PAP) 2021-05, Evaluation of FSS Program Pricing, sets forth “comprehensive guidance regarding the evaluation of pricing throughout the life of a Federal Supply Schedule (FSS) program contract.” This “internal” guidance outlines a host of evaluation and negotiation directives, standards, and considerations for FSS contracting officers. It also prescribes and/or recommends additional data collection requests for FSS contractors. The PAP was not subject to public comment or rulemaking prior to its issuance in March of 2021.

The PAP is an effort to support FSS contracting officers in determining what is a fair and reasonable price for offered products and services under an FSS program contract. In defining what is fair and reasonable, the PAP cites the Defense Contract Pricing Guide, Volume 1- Price Analysis (Section I.2.1 Pay a Fair and Reasonable Price). Specifically, the PAP states that “[t]he term “fair and reasonable” is generally considered to mean a price that is fair to both parties in a transaction, not higher than what the competitive market would bear or a price that a prudent and competent buyer would pay for a product or service under competitive market conditions.” (Emphasis added.) See Section 2. Background, of PAP 2021-05.

While the PAP’s Background section cites this definition of what is “fair and reasonable,” the PAP’s “guidance” sets standards and directives that raises questions whether, when read as a whole, it provides guidance that will result in a price and terms that are fair to both parties in a transaction.

For example, the PAP directs FSS contracting officers to “leverage the collective buying power of the government to obtain competitive, market-based pricing.” Yet, FSS contracts are not requirements contracts. They do not require the government to purchase all its requirements from FSS program contracts. Rather, FSS contracts include a $2500 guaranteed minimum over 20 years with the opportunity to compete for task and delivery orders. And remember, competing for orders requires consistent, long-term investment by FSS contractors above standard contract administration costs. As such it is contrary to what is fair and reasonable to impose this directive on both FSS contracting officers and FSS contractors. In sum, FSS contract terms and conditions and order level competitive market conditions are fundamentally at odds with “leveraging the collective buying power of the government” at the FSS contract level.

“Competitive market conditions” under the FSS program are driven at the task and/or delivery order level. Order level competition is mandated by statute and regulation. It is where customer agencies and FSS contractors transact business. Customer agencies articulate and request quotes for their mission requirements. FSS contractors respond with competitive price and performance quotes. Ultimately, the FSS’s competitive task and delivery order marketplace drives price, value, and performance in meeting customer agency mission needs. Significantly, FSS Blanket Purchase Agreements (BPAs), which leverage individual agency requirements, now account for over 53% of the dollar value of orders under the program.

The PAP includes other directives and guidance that raise questions regarding equity and balance in the evaluation and negotiation of FSS pricing terms. The use of “all commercial customers” as the tracking customer for Price Reduction Clause compliance and the guidance around submission of invoices to validate pricing are just two additional examples that raise questions regarding what is fair and reasonable for FSS contracting officers, contractors, and customer agencies. Regarding the impact on FSS contractors (especially small business contractors), the PAP appears to be at odds with GSA’s efforts to streamline the processing of Economic Price Adjustments (EPA), leading to continued delays in processing price increase modifications where inflation has driven commercial pricing higher. Increasingly, the question for FSS contracting officers is which controls: PAP 2021-05 or the EPA deviations currently in effect?

To its credit, FAS is working to update/revise PAP 2021-05. Importantly, this process should be transparent, providing all stakeholders, including the public, the opportunity to provide feedback on any proposed revisions. With that in mind, Coalition members look forward to the opportunity to work with FAS on addressing what is fair and reasonable.

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