The General Services Administration is turning up the enforcement mechanisms and ridding the supply schedules of products and services that have outlived their usefulness for the government.
Steve Kempf, commissioner of GSA’s Federal Acquisition Service, said both of these actions are part of how they are revamping its supply schedules for the first time in 20 years.
“[T]he multiple award schedule program is perpetually open to qualified new offers, and while vibrant markets exist in some of the schedules, we have reached the point of saturation in others,” Kempf said during a hearing of the House Small Business subcommittee on Contracting and Workforce Thursday. “In some instances, over 60 percent of the contract holders receive little to no business,” he said. “In these cases, the sheer volume of contract holders prevents agencies from sifting the wheat from the chaff to find the right offer at the right price. Moreover, when the volume reaches the point of saturation, there is simply not enough spend to support the volume of vendors. When schedules reach this point, it is a disservice to our customer agencies and costly for the vendors, including small businesses, who have expended resources to prepare and submit offers under the impression that they will be able to compete for and earn business.”
GSA announced at the hearing it would implement a new Demand Based Model, which will let the agency focus on the products and services agency customers want the most, closing down the underused schedules to new companies.
“We’ve looked at some schedules where we know we really don’t need any more competitors,” Kempf said. “And when we’ve looked at that, we’ve looked at areas where there is substantially no innovation going on. We’ve looked at areas in many of these cases where we have 400 or 500 contractors on the schedule already. One of the things we are hoping to do is at least preserve the market for those who are already on.”
One example is the special item number (SIN) for typewriters or photographic equipment.
“We expect if we implement this as we are planning right now, we would only be impacting about 25 percent of the schedule sales,” Kempf said. “For 75 percent of the schedules and 75 percent sales, and by the way the growing part of those sales, it will be open. Another benefit to industry, it identifies the dead ends and the opportunities. It has value for industry, helping them understand where the government is not buying and where it would be a waste of their time and money to go into the program. We are not doing that right now. We are taking all comers.” But Rep. Mick Mulvaney (R-S.C.), chairman of the subcommittee, questioned what GSA planned to eliminate. Mulvaney said GSA’s plans to close specific SINs represented more than $8 billion in sales and 16 percent of all schedules sales.
Kempf said the decision is to end two entire schedules and close parts of 14 others, including Schedule 78 for promotions and awards.
“We’ve selected those SINs based on where we’ve seen sales go down, where we know there is no innovation and in many of these areas we’ve seen what the number of schedule holders with low or no volume sales are,” he said. “In most of these areas, it’s upwards of 40 percent, and in many of them upwards of 60 percent or 80 percent.”
Kempf said GSA estimated it could save about $6 million a year by reducing the number of schedules and SINs it’s managing. Mulvaney said GSA initially predicted savings of more than $20 million and he wanted to know why that estimate changed.
“When we first started this, we were looking at closing a lot more SINs,” Kempf said. “After talking to stakeholders, OFPP [Office of Federal Procurement Policy] and others, we pulled that number back to a smaller number of SINs being closed.”
Concerns over the new approach
Industry experts expressed concern over the new approach.
Larry Allen, president of Allen Federal Business Partners, told the subcommittee the Demand Based Model could have a huge impact on small businesses.
Anticipated benefits of the Demand Based Model
For Federal Agencies
Brings new technologies to market faster
Clearer indication of growth areas and new opportunities
Greater focus on helping Federal agencies save
Frees GSA resources to help agencies use MAS better
Faster processing of offers and modifications
Better use of resources
Makes it easier to find best solutions
Increased success rate
Improves Supplier Relationship Management
Greater focus on price
Focuses Industry on underserved markets
Controls expenses and reduces waste/duplication
Help meet socioeconomic goals
Aligns to other small business initiatives
Increases small business access to market share
Source: Statement of Steve Kempf before Subcommittee on Contracting and Workforce, Committee on Small Business, House of Representatives, June 7, 2012
“While some tweaking of the SIN structure may or may not take place, GSA’s primary motivating factor behind the proposal to close parts of the program is that the agency is confronting a serious staffing shortage of qualified contracting professionals,” Allen said. “At least one GSA Schedule office has publicly said that new offers may wait 12 months or more before an award could be considered. Other offices can take nearly as long to process new offers, or even modifications from existing contract holders.”
Allen said periodic closing should be the last option, not the first one, officials consider when trying to address challenges.
As part of the Demand Based Model, GSA also will increase enforcement of the rule requiring vendors to have at least $25,000 in sales a year off the schedule.
Kempf said GSA has more than 19,000 contractors on the schedules, and the number of companies seeking schedule contracts has doubled over the last several years. Along with those increases, the number of contract modifications where vendors want to add products or services has tripled.
“When you consider the average schedule order is $67,000, so what we are asking them to do is get less than half of an average order in two years and continue that for three years,” Kempf said.
$20 million to manage unused schedules
GSA estimated it costs the agency $20 million a year to manage vendors’ schedules with low or no sales. Kempf said GSA regularly terminates schedules of contractors who have done no sales over the five-year life of the initial schedule contract.
Allen said there are reasons beyond selling to the federal government to get a schedule.
“In the case of state contracts, small businesses, especially, have been advised by officials in several states to obtain a GSA schedule contract in order to be on the fast track for a state award,” he said. “Companies will, therefore, get a GSA contract with little or no intention of ever selling to the federal government. This provides a benefit to the small businesses, but poses a challenge to GSA.”
Kempf said GSA gives vendors an opportunity to explain their situation or request an extension before their schedule is terminated.
“GSA’s plan for moving to a Demand Based Model is built around careful analysis before any action is taken and continually monitoring customer demand,” Kempf said. “The plan will include a review of the major part of each schedule and determination of whether it represents an opportunity for continued innovation and program growth, or if it is an area no longer in need of additional contractors. Those areas identified as high demand or likely to be affected by innovation will remain open to new offers. The over-saturated areas will be closed to new offers for 12 months. At the end of this period, the schedule will be reviewed to determine if the demand or innovation requires additional contractors.”