The General Services Administration’s schedules program brings in more than $38 billion in revenue each year. It’s one of the most well-known acquisition programs in the country with a reach across more than 100 agencies, state and local governments and the private sector companies. If a company wants to play in the federal market, usually their first step is to get on the schedule.
This is why recent actions by some GSA contracting officers trying to drive down prices, particularly for services, that some say to an unreasonable level is causing so much concern and eliciting words like “bullying” and “holding hostage” from those vendors facing this pressure that has re-emerged over the last four to six months.
Multiple vendors as well as consultants, lawyers and a major GSA-focused trade association representing hundreds of schedule holders say the pendulum has swung too far in how the Federal Acquisition Service is requiring vendors to renegotiate prices, with some being reduced by as much as 40%.
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“We are getting our next five years on the schedule and [were] just finishing our 10 year[s] in total. In our entire time on the schedule, we’ve never gotten an economic price adjustment so we have not increased our rates since 2009 or 2010. GSA deemed our rates fair and reasonable at the time,” said one vendor executive, who requested anonymity for fear of reprisal. “When we recently went to modify our schedule contract, the GSA contracting officer said our prices were no longer fair and reasonable and asked us to reduce five of our rates. That just shocked us. We have multiple blanket purchase agreements and other contracts against these rates so for us to back track was unthinkable.”
The vendor said after a lot of back-and-forth, they eliminated one labor category and were forced to reduce the rates of two others.
The vendor’s experience is turning out not to be an aberration. Consultants and lawyers say they know more than just a few companies, mostly in the services market as well as in the IT sector, who say GSA contracting officers have been put them in the unenviable position of reducing their rates or losing their schedule contracts.
Jennifer Aubel, a principal consultant at Aronson, said she has three clients who did more than $115 million in total revenue through the schedule contracts last year and were forced to drop their rates in order to add new capabilities or renew their schedule contracts.
“GSA sent one a notice that said their current pricing is not fair and reasonable and they are expected to lower the rates of about 60% of their labor categories, including some that would decrease by as much as 33%,” Aubel said in an interview. “This is not normally how it goes during an option period, especially to say current pricing is not fair and reasonable, which GSA approved.”
Aubel said GSA asked another client to drop 80% of their rates — by as much as 40%.
“It’s really frustrating. The prices awarded were all of sudden no longer reasonable. GSA is not sharing data so there is no way to tell if it’s a legitimate comparison,” she said. “What was striking about the negotiations was GSA was unwilling to negotiate. We provided comparisons with direct competitors and GSA said we were cherry picking and can’t use the data.”
Jonathon Aronie, a procurement attorney with Shepperd Mullin, was less forgiving than Aubel when describing the negotiations with GSA.
“I’ve seen multiple clients accept wholly unfair pricing demands just because GSA is holding their schedule hostage as a big solicitation is coming down. GSA will say sorry we will not add these labor categories until you accept this pricing. This is not what you’d expect of a good partner,” Aronie said. “Most companies just succumb to the bullying. It scares them to push back. Contracting officers just threaten with no renewals, and the idea of fighting with an important customer doesn’t work with some people.”
Mark Lee, the assistant commissioner in the Office of Policy and Compliance in GSA’s Federal Acquisition Service, said in an email that contracting officers use a variety of analysis techniques to determine fair and reasonable pricing.
“FAS is committed to continuous improvement and has updated guidance to ensure thorough documentation of use of these techniques in the contract,” he wrote. “GSA continues to provide contracting officers with better tools to focus on obtaining best value for customer agencies and the taxpayer, and where improvements in our pricing practices have been needed, we have made them.”
He said contracting officers establish negotiation objectives and determinate fair and reasonable pricing based upon a variety of pricing analysis techniques including:
But Aubel, Aronie and others said the reason why contracting officers are playing such hardball on prices is directly tied to getting slapped on the wrist by the inspector general.
In December 2019, the IG found FAS’ pricing determination tools were not sufficient and resulted in flawed price determinations. Auditors said this led to invalid price analyses and price reasonableness determinations that failed to leverage the government’s buying power in negotiations.
In April, the IG released an annual review of pre-award audits of 130 new or renewed schedule contracts and again found problems with price reasonableness determinations.
The experts said these and other reports created an environment of fear, thus pushing the pendulum too far in the wrong direction.
“This is reaction to the IG. This is a result of when the IG runs the program and not agency management,” said one industry source, who requested anonymity.
Larry Allen, a GSA expert and the president of Allen Federal Business Partners, said this isn’t the first time he’s seen a push for lower prices, but because it’s seems to be an across-the-board effort, there is something more going on.
“The IG has a role to play, but its role isn’t to be co-program manager,” he said. “The IG gets to advise and consent, but they are not warranted contracting officers and they should leave the decision on what’s fair and reasonable to contracting officers. FAS leadership should be able to stand up to IG that contracting officers do get fair and reasonable pricing. It’s not like contracting officers are pulled out of checkout stand at Walmart or something. They go through extensive training.”
Two studies in 2018 found pricing on GSA Advantage was lower or equal to commercial pricing, thus creating more frustrations among industry.
Lee said while GSA does not comment on individual negotiations, senior leadership, acquisition managers, the acquisition workforce and the Office of Inspector General actively work together to ensure integrity and fairness in our acquisition process.
“GSA’s acquisition workforce and OIG contract auditors are well trained professionals and adhere to these standards,” he said. “This past year, GSA achieved an all-time high on vendor and customer satisfaction rates which reflects the outstanding work the GSA acquisition workforce does with customer agencies and industry partners to obtain best value for the taxpayer.”
A GSA spokesperson added in fiscal 2020, the customer loyalty survey and supplier relationship management survey reached all-time highs.
The FAS supplier satisfaction increased from 3.7 in 2019 to 3.8 in 2020 (on a 5-point scale). The 2020 FAS supplier satisfaction score is an all-time high for GSA, which it began tracking in 2013.
Lee also highlighted the extensive training contracting officers receive in order to negotiate with vendors.
“GSA has added a number of agency unique training requirements to ensure it maintains a well-qualified, well-equipped acquisition workforce,” he said. “To obtain a senior level warrant, GSA contracting officers must possess a 4-year degree, have 24 or more semester hours in business and complete 592 hours of training. To maintain the warrant, they must take a minimum of 80 hours of training every two years. Market research, price analysis and negotiations are key areas of that training.”
Shepherd Mullen’s Aronie and others say it’s true not every contracting officer is “bullying” or “holding schedules hostage,” but it’s happening enough to be a concern for more than a few companies.
Aronie and others say contracting officers also are telling them that FAS released updated guidance or pricing handbook that directs them to take a harder line on pricing.
Lee would neither confirm nor deny the existence of a new or updated policy, just saying in an email that “GSA continues to provide contracting officers with better tools to focus on obtaining best value for customer agencies and the taxpayer, and where improvements in our pricing practices have been needed, we have made them.”
Whether or not there is a new policy or updated handbook, expert say the issue of pricing comes down to two things: FAS’ communications with its industry partners, and what are the outcomes FAS is trying to achieve through the schedules program.
Roger Waldron, the president of the Coalition for Government Procurement, said the return of the hardline price negotiations is disappointing.
“This is counter-productive. We are at a time where we need best and brightest capabilities to support agencies across the board and the drive to low price will drive commercial firms to provide the B, C or even D teams and not the A teams at a time when we are dealing with pandemic and return of near peer competition and to drive a brain drain in schedules program is a long term mistake,” Waldron said. “It’s short sighted and goes against ensuring the best mission capabilities to meet agency needs because it’s driving to lowest price. That will undermine mission capabilities and companies will be forced to provide less capabilities while they focus greater resources on what’s best value for them.”
Waldron pointed out that GSA, like most organizations, are paying more for people. He said over the last 20 years the average pay of a contracting officers increased to $108,000 per year from $54,000 a year.
“The cost of people and to maintain their capabilities doesn’t go down,” he said. “If you want great capabilities to support customer needs, you have to find right balance for best value and that is what they should be focusing on.”
Waldron said he would hope GSA brings in industry to discuss the challenges with pricing and the future of the schedules.
“If they want to be responsive to customer agency needs and be a bridge between the commercial market and the customer they need to understand how the commercial market works and seeking arbitrary price reductions is not understanding the value of people,” he said. “GSA put itself in a position to accelerate the market through schedules consolidation, eliminating stovepipes and making it more dynamic marketplace. But it remains inefficient and counter-productive if the barriers to entry are using this arcane approach and are based on the tyranny of low price, when we are really talking about best value. In some cases, it will be based on low price, but in the services arena, you have to be creating conditions where commercial firms are willing and interested in bringing their capabilities to the federal customer and part of that is reducing risk for all parties and focusing on value. Focusing on low price is not focusing on value.”