In 2008, the General Services Administration (“GSA”) Administrator established the Multiple Award Schedule (“MAS”) Advisory Panel (“the Panel”), composed of experts in both government and private industry. The purpose of the Panel is to review the relevancy and effectiveness of the MAS program, and the Price Reductions Clause in particular. The Price Reductions Clause applies to government contractors that provide products, services, and solutions to government agencies utilizing GSA schedules. It requires contractors to reduce the prices they charge to MAS customers if they reduce the prices they charge to specific “basis of award” customers, which usually is a class or category of commercial customers. This development should be of interest to companies that sell commercial items to federal government agencies, as the work of the Panel could lead to changes in, or termination of, the use of the Price Reductions Clause.

The GSA utilizes the MAS program to establish long-term, government-wide contracts with private firms to provide federal, state, and local government customers with access to a wide variety of commercial products, services, and solutions. The GSA Administrator requested that the Panel produce a set of recommendations upon the conclusion of its review, considering a wide variety of opinions about the current system, and include suggestions for improvements. Since May 2008, this panel has met 14 times, and has received considerable written and oral testimony from many stakeholders in the industry, both in the public and private sector. The Panel most recently convened May 1, 2009, and is close to finalizing its report for the GSA Administrator. Reed Smith obtained a draft version of the report, and the Panel’s findings and recommendations are summarized below:

The Panel’s Findings Concerning the Price Reductions Clause

Many stakeholders who spoke before the Panel questioned the value of the Price Reductions Clause. For example, representatives of schedule contractors repeatedly cited inconsistency within the GSA regarding how the Basis of Award and Most Favored Customer determinations are made, and how the Price Reductions Clause is applied. Representatives from the GSA questioned the usefulness of the Price Reductions Clause, as sales to other federal customers and one-time discounts do not trigger its use. Those representatives also pointed out that most schedule prices are established in ways that do not implicate the Price Reductions Clause.

Representatives from the GSA’s Office of Inspector General stated that their office does not employ a sufficient number personnel to provide the amount of oversight required to effectively oversee the implementation of the Price Reductions Clause. Others expressed that it is unrealistic to maintain a determination that a particular method pricing is fair and reasonable for any schedule contract item for five years. Overall, few comments regarding the value and effectiveness of the Price Reductions Clause were positive in nature.

The Panel’s Recommendations Concerning the Price Reductions Clause

  • For sales of services: Eliminate the Price Reductions Clause from services contracts and adopt an approach similar to section 803 of the National Defense Authorization Act of 2002, which requires the Department of Defense, on all task and delivery orders above $100,000, to: (1) solicit all contractors offering services under the MAS contract; (2) receive offers or quotes from at least three qualified contractors; or (3) prepare a justification that explains why maximum practicable competition was not obtained if the agency fails to comply with (1) or (2).
  • For sales of products: Remove the Price Reductions Clause from contracts for products in phases as the GSA Administrator develops strategies to encourage competition and price transparency at the contract level and task order level. During its discussions, the Panel repeatedly emphasized encouraging competition at the task order level.
  • For sales of solutions: The Panel believes that the Price Reductions Clause cannot and should not apply to contracts for solutions. Rather, as with services and products, procurements for solutions should be subject to competition at the task order level. The Panel recommended that the GSA Administrator update the MAS program guidance to clarify that prices for solutions must be determined to be fair and reasonable at the task order level. Orders for solutions under the schedules program should be firm-fixed-price and performance-based.
  • The GSA Administrator should use whatever data is available to regularly review and refresh prices on schedule contracts to reflect current market prices, consistent with each market segment. In doing so, the GSA Administrator should capture pricing and establish competition at the task order level (making such information available to the contracting officers at both the schedule and task order level), and determine fair and reasonable pricing at the contract level.  
  • The GSA should disclose the basis upon which contracting officers determine that MAS program contract prices are fair and reasonable.  

Conclusion  

If adopted by the GSA Administrator and Congress, the Panel’s recommendations will dramatically transform the landscape of government contracting by creating significant changes in the government’s acquisition and procurement policies. Government contractors offering services, products, and solutions to the government using the MAS program should expect to compete at the task order level in the near future. Attorneys at Reed Smith can help government contractors assess how these impending changes might affect their operations, and help prepare for acquisition and procurement without the utilization of the Price Reductions Clause.