Over the past few weeks the General Services Administration (GSA) has published two Federal Register notices to implement an expansion of the pilot program for “Transactional Data Reporting.” On June 23, 2016, GSA published its final “Transactional Data Reporting” rule, amending GSA’s acquisition regulation (GSAR) to provide for electronic reporting of transactional data on government orders placed against certain Federal Supply Schedule (FSS) contracts and other GSA government-wide contracts, including certain categories of Information Technology (Schedule 70) and Professional Services (Schedule 00CORP). Then, on July 7, 2016, GSA issued a notice seeking comments on its proposal to publicly release most of the transactional data, including the total price paid and exempting from public disclosure only two elements: quantities sold and unit pricing. The final rule represents a significant improvement over an earlier, proposed version published by GSA on March 4, 2015, most notably because it takes the burden of tracking commercial sales practices off FSS contractors who participate in transactional reporting, but questions remain.
Why Is This Final Rule Important?
The rule represents a fundamental change in how GSA will assess competitive pricing for products and services made available under the applicable GSA contracts. Contractors will be subject to new disclosure obligations, requiring the reporting of specific “transactional data elements” of government orders for products and services offered for sale under the contracts. Contractors will be required to report 11 standard data points, including a description of the goods or services sold, the unit of measure, quantity, price paid per unit, and the total price. The announcement explains that GSA will use this data, along with other pricing information, as part of a more dynamic, market-driven pricing model to ensure a vendor’s offered price remains competitive relative to other vendors selling the same or similar items or services.
Recognizing the burden associated with the new reporting requirements, GSA also announced that participating FSS vendors will no longer be subject to the existing tracking and disclosure requirements under the Commercial Sales Practices (CSPs) form and the Price Reductions Clause (PRC). Those requirements have been the source of heavy criticism from industry and add significant compliance risks for contractors because they impose complex and often ill-defined disclosure obligations on offerors and contractors. Despite decades of criticism, GSA had been reluctant to let go of those requirements – until now.
GSA appropriately observes that this rule represents “the most significant change to the Schedules program in the past two decades.” In fact, the new rule reflects a pivot for the FSS program, shifting its focus from offerors’ “commercial sales practices” to their pricing and sales practices in the government marketplace.
What Is This Final Rule’s Purpose?
The preamble explains that the purpose of the Transactional Data Reporting rule is to “transform” price disclosure and related policies in order to improve the value taxpayers receive when purchases are made. The rule contains new clauses implementing the process for the electronic submission of the transactional data for covered contracts. See GSAR 552.216-75, 552.238-74.
In its announcement, GSA noted that it has experimented with collecting transactional data through some of its contracts and found such data instrumental for improving competition, lowering pricing, and increasing transparency. GSA will now test these principles on a broader base of its contracting programs.
In describing the benefits of this data, GSA explains that it currently uses a “vertical” approach under which a vendor’s Schedule pricing must be “fair and reasonable” in comparison to the same vendor’s commercial sales, as disclosed in the Commercial Sales Practices form. By collecting transactional data, GSA will shift to a “horizontal” model under which it will compare a vendor’s Schedule pricing with prices charged by other vendors for similar items. In effect, GSA will be looking at what is “fair and reasonable” for the government to pay, rather than what is “fair and reasonable” for the vendor to charge.
Under the current regime, however, the government can already employ a “horizontal” approach at the order-level, where contracting officers for GSA’s customer agencies compare the pricing offered by FSS vendors for the same or similar items. Although GSA negotiates a “fair and reasonable” price (a baseline price in the absence of an actual sale) for making available the goods or services on a Schedule contract, the FAR provides for ordering activities to consider seeking additional discounts before placing an order or conducting order-level competitions. Some industry commentators have expressed concern that the rule will be used to add another set of price points to continuously ratchet down contractors’ GSA pricing. Under GSA’s rule, those sales (based on actual agency requirements) may be used to evaluate the price competitiveness of the Schedule price, in effect creating a new baseline GSA price for future orders. In response to those concerns, GSA states that the transactional data will be viewed in the context of each procurement, taking into account desired terms and conditions, performance levels, past customer satisfaction, and other relevant information. In practice, such non-price elements are not the type of data that can be easily captured in a reporting mechanism and the value placed on such terms is often subjective. As a result, it remains to be seen how GSA will implement and use the new transactional data.
GSA also explains that the collection of this data supports category management, allowing the government to centrally analyze what it buys and how much it pays and identifying the most efficient solutions, channels, and sources to meet its needs. In this regard, the new rule may address a “PR problem” for the Schedules program. Several federal agencies have complained that publicly available pricing on GSA Advantage! is not competitive with pricing achieved by those agencies using other contractual vehicles. According to the GSA’s notice, “the absence of good pricing information contributes to negative perceptions of the program, and as result, contract duplication.” GSA therefore hopes that this transactional data will encourage agencies to use GSA contracts instead of creating new vehicles. If successful, this could help companies by reducing the administrative burden of maintaining their goods and services on competing contract vehicles.
The Transactional Data Reporting Clause
The final rule’s Transactional Data Reporting clause (GSAR 552.238-74) is being implemented under the Schedules program on a pilot basis, to begin not less than 60 days after the publication date of the rule. This pilot will involve eight Schedules, including certain SINs under the information technology Schedule 70 and the Professional Services Schedule (Schedule 00CORP), and will reach approximately 30 percent of GSA’s FSS contracts, which account for more than 40 percent of GSA the FSS sales volume. (The rule will not apply to FSS contracts managed by the Department of Veterans Affairs.)
The clause will be mandatory for new Schedule contracts (and contract extensions) under the eight pilot Schedules. Participation will be voluntary for existing Schedule contract holders, who may incorporate the new clause through bilateral modifications. The incentive to do so will be that existing Schedule holders who elect to participate and comply with the Transactional Data Reporting requirements will not be required to provide CSPs or be subject to the PRC’s basis of award tracking customer provision.
Other GSA Contracts
GSA also created a Transactional Data Reporting clause (GSAR 552.216-75) for all new government-wide Acquisition Contracts (GWACs) and government-wide IDIQ contracts awarded by GSA. The new clause will be applied to solicitations issued on or after the effective date of the rule. GSA also may apply the clause to any existing contracts in this class that do not contain other transactional data requirements.
Impact on FSS Contractors
Because transactional data involve actual government orders, it is unclear how GSA contracting officers will negotiate pricing for new offerors or existing contractors seeking to add products or services to FSS contacts. GSA explains that it will provide guidance to its contracting officers to place “greater emphasis on price analysis when negotiating prices with Schedule vendors.” This price analysis will specifically consider, in order of preference: (i) offered prices on FSS contracts or government-wide contracts for the same or similar items or services, (ii) prices paid, as they becomes available under this rule, and (iii) commercial data sources providing publicly available pricing information. GSA also advises that, to ensure that pricing is fair and reasonable, contracting officers will retain the right under the FAR to request additional pricing information, such as data other than certified cost or pricing data (e.g., a cost breakdown). This last category of data, however, may not typically be available in the commercial marketplace, which the FSS Schedules attempt to emulate.
The same FAR provisions also anticipate that a contracting officer may request an offeror to submit prices paid for the same or similar commercial items under comparable terms and conditions by commercial customers. FAR 15.403-1(c)(3). In other words, the obligation to disclose commercial sales may not be completely eliminated when introducing products or services to the Schedules program.
Once awarded, the Transactional Reporting Rule places the burden on contractors to capture each of the 11 data elements from government orders – GSA explains that the government lacks the capabilities to capture the data from the diverse set of government customers. Contractors will therefore need to assess whether their current sales tracking systems capture each of the required data points, which are more than currently required for quarterly IFF Reporting under FSS contracts. The impact on individual contactors may, of course, vary. A FSS vendor that already has sophisticated sales tracking systems and a diffuse sales team may find that the new system substantially reduces its reporting burdens. Other vendors who elect to participate in the transactional reporting may have to create new sales tracking systems to comply with the new requirements. Contractors should also consider whether and to what extent their data systems capture other elements of each sale that are not required by the rule but might be relevant to price negotiations (i.e., unique terms and conditions, extended warranties, expedited delivery, etc.).
All FSS vendors who participate in the program will likely benefit from a reduction in compliance risk insofar as they are no longer subject to the tracking and disclosure obligations associated with CSPs and the PRC and the associated risks of False Claims Act liability. Depending on the individual contractors, the Transactional Data Reporting involves a defined universe of customers, orders, and data points. Accordingly, existing Schedule holders may want to give serious consideration to seeking a bilateral modification to their FSS Schedule contracts and participating in the new transactional data reporting requirements (if available under the pilot). Nonetheless, the reporting of transactional data relevant to pricing is not without compliance risks – contractors will need to carefully consider how this new rule is implemented to ensure the accuracy of information provided to the government.
Finally, the import of the Price Reduction Clause may not be completely gone. GSA’s notice describes the new rule as supporting “dynamic pricing models, where prices are continually adjusted based on transactional data, resulting in less variation and lower prices.” As an example, it describes an existing product tool where GSA “identifies pricing outside a range determined to be acceptable for identical items” and provides the vendor an opportunity “to use this market intelligence” to lower the price or “to advise if they have a unique value proposition, such as speedier deliveries, guarantees, or quantity that warrants a higher price.” It is unclear what, if anything, GSA will do if a vendor does not take an action in response that GSA deems acceptable. GSA’s notice explains that “GSA does not intend to continually renegotiate all prices based on transactional data.” Nonetheless, contractors may want to consider taking some measures to review proposed government orders that would result in pricing below the GSA Schedule price and capture data relevant to future price negotiations with GSA over those transactions.
Release of Transactional Data
Addressing concerns that public release of the data may disclose proprietary and confidential business information normally protected from disclosure under the Freedom of Information Act (FOIA), GSA, in a July 7, 2016 Federal Register Notice, asked for feedback on the public availability of data gathered under this final rule. It plans to exempt from disclosure only two of 11 categories of data – excluding data on the quantities of items sold and the price paid per unit under a FOIA exemption for trade secrets and confidential commercial information. Otherwise, the GSA plans to make publicly available the other nine categories of data, which will promote transparency and competition while still respecting that some data should be exempt from disclosure, according to GSA. GSA is asking for feedback before August 29 on which data elements should be publicly available before establishing its final position.
Anticipate Agency Guidance on Use of Transactional Data
The Federal Register announcement notes that nonregulatory instructions for GSA category managers and FSS contracting officers are also being incorporated into the GSAM (General Services Administration Manual), including:
- Instructions for how category managers can use transactional data for category analysis;
- Approval requirements for adding data elements to the new Transactional Data Reporting clauses; and
- Instructions for how FSS contracting officers can use transactional data (as well as market research and, where necessary, “data other than certified cost or pricing data”) to evaluate offers, including consideration of FAR evaluation requirements (terms and conditions, quantity discounts, socio-economic considerations, etc.).
This last bullet represents a departure from existing practices. GSA’s current regulations – which were subject to mandatory public notice and comment – specifically address the process for negotiating price when awarding a Schedule contract based on CSPs.
Clearly, this GSA final rule is a significant development with major impact to the Schedules program and its vendors – even those not yet covered by the rule. The final rule reflects an effort by GSA to modernize and make more effective a system that has caused significant compliance burdens for Schedule contractors, including the long overdue elimination of requirements to disclose commercial sales practices and price reductions to basis of award customers. But, the rule imposes new monthly reporting obligations on GSA contractors to track and capture specific details about government orders, with little concrete guidance on how GSA contracting officers will use this new data. As a result, although this final rule may represent progress that should be welcomed by those participating in the Schedules program, there are issues to be addressed, including issues associated with public release of the data, which is the subject of the July 7 GSA notice, and its full impact on GSA contractors remains to be seen.