GSA proposes change to acquisition regulation vendors loathe

A proposed rule issued today would change the Price Reduction Clause that most contractors dislike and causes most of the False Claims Act lawsuits. Vendors hav...

The General Services Administration once again is trying to change one of the acquisition rules that industry despises the most — the Price Reduction Clause.

A proposed rule released Wednesday would modernize the way vendors list their prices on the schedule contracts run by GSA.

The rule would do several things, including requiring vendors to report transactional data back to GSA, including data elements such as unit measure, quantity of items sold, universal product code, if applicable, prices paid per unit, and total price.

The proposal would implement a pilot first with non-schedule contracts and then in phases on schedule contracts.

Under the plan, GSA would no longer track vendor pricing like it does now, but instead would establish price and quality metrics and identify commercial benchmarks prior to the launch of the pilot so that GSA could perform these analyses and measure the results and impact of the pilot.

“If the results of the pilot confirm that using transactional data is an effective pricing model, its use would be broadened using the authorities provided by this rule,” GSA stated in the proposal.. “If the results of the pilot reveal that using transactional data is not an effective pricing model, contracts would be modified to revert back to using the tracking customer provisions of the price reductions clause.”

Anne Rung, the administrator in the Office of Federal Procurement Policy, said the price reduction clause proposal is part of a broader effort to improve the federal acquisition system. But she said she knows the PRC has been a thorn in vendors’ side for some time.

“The time is right for a discussion. The proposed rule is going to be a pilot and it’s designed to help streamline the regulation,” said Rung after she spoke at the Acquisition Excellence conference in Washington Tuesday. “It’s also going to be paired with a prices paid rule so we look forward to getting comments.”

GSA plans to hold an industry day April 17 to solicit feedback on the proposal, which will be open for comments until May 4.

Fueling False Claims Act lawsuits

Rung said industry has made it clear that the price reduction clause is problematic and needs updating.

The price reduction clause is included in every GSA schedules contract. Every vendor must abide by the rule that requires the government to get the vendors’ best price no matter what. So that means if the vendor sells one widget for $1 to agency X, and then sells the same widget to a commercial company for 75 cents, they have to tell agency X and reduce their costs.

If they don’t do that, or don’t know that they offered a lower price to another organization, then a whistleblower, an agency inspector general and/or the Justice Department can file a False Claims Act lawsuit against them. Federal contractors have faced an increased amount of False Claims Act cases from DoJ over the last decade. In fiscal 2014, Justice reported recovering $5.7 billion in civil cases and $22.7 billion since 2009. In all, DoJ won settlements of more than $24 billion for criminal and civil False Claims Act cases last year.

The problem for many vendors is they have gotten so large that knowing every price it gives to every organization it sells to is not an easy task. Additionally, vendor associations say even the idea of determining the price at the contract level and not the task order level is outdated.

In fact, the Multiple Awards Schedules Advisory (MAS) panel recommended GSA address this regulation as soon as possible by removing it and ensuring competition at the task order level where prices really are debated.

Over the last almost eight years, GSA has talked about the price reduction clause and recognized the need to fix it, but never seriously acted to change it.

But now as OFPP looks more closely at pricing and data analytics, Rung said changing the Price Reduction Clause makes sense.

“What we heard from industry in our last national dialogue was the Price Reduction Clause was a big pain point. So this very much ties into responding to industry on how we can streamline and reflect better commercial practices,” she said. “Also the prices paid piece is critical to our category management so if we are going to share this information we need to start collecting this data.”

Typically a proposed rule can take 12-to-18 months to become final. Rung said that’s a good thing so vendors have plenty of time to comment on it.

Reaction is tepid to proposal

And contractors will have strong opinions about the proposed rule.

Larry Allen, the CEO of Allen Federal Partners and a long-time GSA observer, said the proposal is an important first step, but some big potholes exist that GSA needs to be aware of.

Allen said tracking and reporting transactional data imposes significant costs on businesses. He said GSA got away from the requirement to provide transactional data at the schedule contract offer stage because they knew it was costly and time- consuming.

He said this proposal takes vendors back to the pre-mid-1990s era when GSA used Discount Schedule and Marketing Data (DSMD) Sheets to collect contractor pricing information.

“Removing the tracking customer requirement from the Price Reductions Clause is a nice step, it falls short of eliminating the entire clause as the MAS Panel recommended,” he said. “As such, it’s a pretty small carrot to dangle for the collective stick of the other requirements. Why not go ahead and eliminate the entire PRC?”

Roger Waldron, the president of the Coalition for Government Procurement, said the fact GSA is having a public meeting is positive because it’s important to give vendors and others an opportunity to talk about the changes.

Waldron said he does have some concerns, specifically about the use of the transactional data.

“What potentially will that data would be used for? If it’s only to drive down prices no matter the terms and conditions, then the question is whether the whole goal is just to get to a low price regardless,” he said.

Waldron also said the proposal has some potentially good aspects too, and it’s important for GSA to start this dialogue.

“I think GSA needs to go slow here,” Allen said. “Without more fully explaining what, other than lower prices, it’s really after, the agency runs the risk of losing quality firms who simply can’t or won’t put up with added costs and the disclosure of sensitive pricing data. I can see commercial companies moving to the sidelines and either having specialized, government-only resellers offer their items or just rely on the strength of their brand name and purchase card capabilities to maintain decent government business with fewer over all costs. This has already started to happen, though it’s tough to say if GSA leadership understands that.”


DoJ collects record $24B in criminal, civil cases

MAS Panel finalizes recommendations for GSA

GSA’s new contracting policy tackles IG’s concerns about management interference

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