Race to the Bottom GSA s New Pricing Policies for the Schedules Program

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2 Race to the Bottom GSA s New Pricing Policies for the Schedules Program Breakout Session #B09 Jennifer Aubel, Principal Consultant, Fed Nexus Law Jim Phillips, Executive Vice President, Fed Nexus Law July 28, :30 3:45pm

3 Presentation Overview The State of the GSA Schedules GSA s Price Variability Problem Changes to GSA Schedule Price Negotiation Techniques and Goals XSB Price Point Labor Category Standardization Prices Paid Tools 2

4 Presentation Overview Impact on Contractors Federal Strategic Sourcing Initiatives Best Practices for Pricing Negotiations 3

5 The State of the GSA Schedules Budget pressures and sequestration take a toll on Schedules Program sales Billions $40.00 $39.00 Total GSA Schedule Sales, FY09-FY13 $38.00 $37.00 $36.00 $35.00 $34.00 Total Schedule Sales FY09 FY10 FY11 FY12 FY13 4

6 The State of the GSA Schedules Almost all the top Schedules have seen a decline in sales over the past five years Top 10 GSA Schedules by Sales, Five-Year Total $80,000,000, % $60,000,000, % $40,000,000, % $20,000,000, % $ V CORP % $(20,000,000,000.00) % $(40,000,000,000.00) % Five-Year Sales Five-Year % Change 5

7 The State of the GSA Schedules Only seven Schedules have grown over the past five years Top 10 GSA Schedules by Growth, Five Year % $25,000,000, % $20,000,000, % $15,000,000, % $10,000,000, % $5,000,000, % 03FAC V X 738 II CORP $ % $(5,000,000,000.00) Five-Year Sales Five-Year % Change 6

8 GSA s Price Variability Problem 7

9 GSA s Price Variability Problem Natural result of vertical price analysis in which contractors compete only against themselves Especially troublesome for purchases below the micro-purchase threshold FAR (b) allows agency to purchase from any vendor that can meet the agency s needs 8

10 GSA s Price Variability Problem DOD issues class deviation to FAR 8.404(d) on March 13, 2014 Requires DOD contracting officers to make fair and reasonable pricing determination on all Schedule orders Determination should be made using the price analysis techniques under FAR

11 GSA Pricing Negotiations Then GSA's pricing goal: Obtain equal to or better than the Most Favored Customer (MFC) pricing with the same or similar terms and conditions. The GAO specifically recommends that "the price analysis GSA does to establish the Government's MAS negotiation objective should start with the best discount given to any of the vendor's customers. GSA seeks to obtain the offeror's best price based on its evaluation of discounts, terms, conditions, and concessions offered to commercial customers. 10

12 GSA Pricing Negotiations Now To determine fair and reasonable pricing, the GSA Contracting Officer may consider many factors, including pricing on competitor contracts, historical pricing, and currently available pricing in other venues. Offers which provide Most Favored Customer pricing, but which are not highly competitive will not be found fair and reasonable and will not be accepted. 11

13 Why is this distinction important? Fair and reasonable pricing determinations are no longer based solely on a contractor s commercial practices and Most Favored Customer (MFC) Contractors are being pressured to meet or beat the best available price, regardless of trade-offs or other best value considerations Contracting Officers can now take pricing in the commercial market and on other government contract vehicles into consideration 12

14 XSB Price Point Pricing database that can compare prices on over 100 million different products Pricing data comes from GSA Advantage!, SEWP, DOD emall, DLA EBS, and commercial manufacturer and distributor websites Pricing data only updated quarterly, so real-time information is not available Does not factor in trade-offs, terms and conditions, or compliance costs 13

15 XSB Price Point in Action GSA ran a pilot program with XSB on one SIN from Schedule 78 Of the prices that the system determined to be out of bounds : 90% of contractors ended up removing the items from the contract Only 1% of flagged prices were ultimately determined to be fair and reasonable 14

16 Sample Page from XSB Report 15

17 XSB and Part Number Standardization XSB s database compares pricing using manufacturer s name and part number Use of contractor part number may cause the price analysis to fail GSA will issue mandatory modification #A382 in late August which requires Current Advantage! files for all contractors Strict use of manufacturer part numbers 16

18 What about service providers? While some tools exist that allow GSA to try to compare prices for labor categories, there is no Price Point analog on the services side GSA s recently-awarded OASIS contract vehicle used a standard labor category structure Categories were based on OMB s Standard Occupational Classifications (SOC) Acceptable rate range was based on Bureau of Labor Statistics national pay surveys by SOC 17

19 What about service providers? Management within GSA s professional service Schedule portfolios are planning significant changes over the next two years Standardization of labor categories on the Schedules is one option on the table Industry associations strongly oppose this 18

20 Prices Paid Tools GSA currently has little transparency into what agencies are actually paying on Schedule orders Strategic sourcing vehicles require contractors to report significant transactional pricing data as often as monthly Level 3 pricing pilot program in place on the Hardware Superstore Schedule (51V) 19

21 Prices Paid Tools OFPP and GSA are in the process of betatesting a prices paid portal Where will all the data come from? Contractor s PR nightmare Spot discounting practices may lead to lowered contract ceiling prices 20

22 How will this affect Schedule holders? Contracting officers may disregard negotiated pricing and discounting terms if those discounts don t fall in the competitive range Contractors must be able to identify and document dissimilar commercial terms and conditions to prevent unfair pricing comparisons Pricing at the Schedule level is a ceiling; agencies expect additional discounts at the task order level, which further erodes margins 21

23 How will this affect Schedule holders? Smaller businesses may struggle to compete with large distributor and manufacturer s pricing Niche and high-end providers will have to aggressively defend their rates in comparison to less expensive counterparts Sources for products and services may ultimately be limited to those willing to go cheap (like a reverse auction) 22

24 Federal Strategic Sourcing Initiatives (FSSI) Strategic Sourcing is generating huge buzz at GSA right now GSA has committed to OMB to create 10 new FSSI vehicles during FY13-FY14 Many FSSI contracts are issued as BPAs on top of existing GSA Schedules Of special note is that, unlike its predecessor, OS3 is being procured on the open market 23

25 Federal Strategic Sourcing Initiatives (FSSI) Not winning an FSSI BPA can make a company s Schedule worthless, so price competition has been brutal JanSan FSSI recently conducted its third reverse auction round Office Supplies Schedule and some SINs on Hardware Superstore have been closed to new offers due to FSSI 24

26 Current GSA Federal Strategic Sourcing Initiatives (FSSI) Awarded Award Pending Pre-Solicitation OASIS (Integrated professional services) Maintenance, Repair, and Operations (MRO) SmartBUY (COTS software) Wireless Services PrintWise Domestic Delivery Janitorial and Sanitation (JanSan) Office Supplies (OS3) Human Resources Services and Training Building Maintenance and Operations (BMO) Furniture 25

27 Best Practices for Pricing Negotiations Do your homework before submitting an offer or request to add products or increase prices Do other companies already sell this items on Schedule? If yes, how does your price compare? Understand the role of terms and conditions play in price and value Prepare supporting pricing documentation that looks beyond your own practices 26

28 Best Practices for Pricing Negotiations Understand how XSB Price Point works and use that to your advantage Request that the contracting officer send a copy of any price comparisons used to you Pricing in XSB is only updated quarterly, make sure that the report s information isn t outdated Many contractors do not list quantity and unit information correctly in Advantage!; make sure GSA isn t comparing a carton to a case 27

29 Best Practices for Pricing Negotiations Know the rules of the road and the games GSA plays Beware the arbitrary pricing edicts Point out disparate treatment if they will not accept your offer, GSA should also remove items awarded at equal or higher prices than yours If you cannot reach a reasonable agreement, do not withdraw, make GSA document its position in a rejection letter 28

30 Best Practices for Pricing Negotiations Use creative work-arounds when necessary Contractor Teaming Arrangements or Participating Dealer Agreements can help fill in gaps in Schedule offerings Identify alternatives to manufacturers that have already saturated the Schedules Point out disparate treatment force GSA to remove items at equal or higher prices if they will not accept yours 29

31 Questions Jennifer N. Aubel x243 James S. Phillips, Esq x223 30