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Coming into the services age
When the price reduction clause was first adopted 26 years ago, the GSA dealt mostly with products. Now, most contracts are for services, which is why some are ...
By Dorothy Ramienski
Internet Editor
FederalNewsRadio
The price reduction clause is outdated and needs to be eliminated permanently.
That’s the thought of some officials, who are saying good riddance to the 26-year-old rule. This week, GSA’s Multiple Award Schedule Advisory Panel decided to recommend that the price reduction clause be killed.
The GSA schedule contracts are the most popular contract vehicle, representing almost $17 billion in fiscal 2007.
One of the most controversial provisions of the schedule contracts is the price reduction clause.
On Tuesday’s Daily Debrief, hosts Christopher Dorobek and Amy Morris spoke with Roger Waldron, a government contracts attorney with Mayer Brown, who explains what the price reduction clause is and why it needs to go.
The way GSA negotiates and awards the scheduled contracts is — GSA takes a look at a firm’s commercial pricing practices and policies and targets a goal of negotiating the most favored customer price. . . . At the same time, once it obtains that goal or identifies that category of customer upon which the schedule price is going to be based . . . that category customer becomes a tracking customer for purposes of the price reduction clause.
Therefore, Waldron says, if the private firm gives a lower discount to that tracking customer in a commercial transaction, that same lower price has to be offered to the federal government.
Waldron says it’s not a bad policy, per se, but it was written 26 years ago, and times have changed.
It’s a policy that was established and really based on product acquisition. The GSA schedules program has undergone a substantial revolution over the last ten to 15 years. . . . When I started at GSA in the late ’80’s and early ’90’s, products accounted for 75 percent of the dollar value under the schedule contracts. . . . Today, it’s flipped and almost 75 percent of the dollar value going through the program is services based.
That matters, Waldron notes, because it’s easy to put a concrete value on an object. It’s not so simple when it comes to pricing services.
Pricing for services — as the Acquisition Advisory Panel found — and I think as the MAS Panel here has found — is driven by competition for specific requirements. It’s not driven by an artificial pricing mechanism, such as a price reduction clause.
This is why the MAS Panel has adopted a recommendation made by the Acquisition Advisory Panel to have pricing for information technology professional services schedules based on specific requirements. The groups also recommended the elimination of the most-favored customer concept and the price reduction clause.
The MAS Panel also says it is in favor of the adoption of Section 803-enhanced competitive ordering procedures.
Currently, DoD has to comply with this, but Waldron says the MAS thinks it should be adopted government-wide.
I think there’s sort of a consensus among policymakers who actually, when they take a look at the schedules program and the growth of services, see that competition at the task order level for specific requirements drives the pricing and ensures best value for the customer agencies and the taxpayer, ultimately.
Waldron says he thinks this decision is not only good for contracting officers and agencies, but vendors, as well.
I think it’s going to open the marketplace to additional firms who . . . have not done business with the federal government, partly because of audit and oversight clauses, such as the price reduction clause, and bring them into the program. So I think it’s going to enhance competition in that manner. I think for both government and industry it’s going to reduce costs.
Waldron says, with the elimination of the price reduction clause, companies and agencies can focus on responding to requirements rather than audit and oversight costs.
This probably won’t be happening this year, however.
The MAS Panel still has to complete its recommendations. Those recommendations would then be turned over to the GSA, which likely won’t see them until the next administration takes office.
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