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GSA Contracts: Are You Giving Uncle Sam Your Lowest Price?

Written by Robert D. Grimm, CPCM

If the answer to the above question is "yes," you have undoubtedly left money ó and perhaps a lot of it ó on the table! The purpose of this article is to provide advice that many an unwitting federal contractor wishes it had known before entering into a Federal Supply Schedule contract with Uncle Sam.

Perhaps the biggest misconception about doing business with the government via Federal Supply Schedules (FSS) is that the government requires contractors to offer it their best price or it does not make an award. This could not be further from the truth. It is the governmentís negotiation objective to achieve the best price (i.e., the largest discounts from would-be contractors) ó but that is just the beginning of the "game." This is where knowing the rules can save your company big bucks!

Background
The Federal Supply Service is an organization within the General Services Administration. GSA sets the rules and the Federal Supply Service administers contracts ó or schedules ó organized by product type.

FSS contracts are established to simplify the procurement process for commercial off-the-shelf (COTS) products like computers, heavy equipment, office supplies and furniture, medical and diagnostic products, and professional services such as financial planning, engineering, business management improvement, logistics, and software development. The Department of Veterans Affairs (VA) manages most heath care schedules and contracting under a delegation of authority from GSA.

It would be difficult to name a product that the government does not cover under a Federal Supply Schedule. Regardless of the product or service, the terms and conditions or boilerplate of the FSS contracts are essentially the same. The intent is to define the way the government will conduct its business and to stipulate its expectations for contractor behavior. There are more than 100 schedules between GSA and the VA, covering thousands of products.

FSS Contracts = Ease of Use
A 1999 study conducted by independent consultants as part of a GSA project found that it took an average of 15 days for the government to place a purchase order when the contractor had a FSS contract vs. 268 days when the contractor didn't have a contract (Federal Contracts Report, Vol. 71, No. 7 [Feb. 15, 1999], p.221, Copyright 1999 by The Bureau of National Affairs Inc.)!

That amazing statistic translates to one thing: ease of use! "How can that be?" you ask yourself.

Think about this: The federal government has downsized significantly in recent years. The work hasnít gone away, but a lot of the people who used to do the work have. Hence, if there are fewer government employees to do the work, making it simple and easy for them (and you!) should be a priority, right?

FSS Is a Good Investment
FSS contracts are the preferred method of acquiring commercial products by government buyers. If you were the government buyer, wouldnít you prefer the FSS and its time- and labor-saving benefits?

It should be obvious that a company wishing to sell its products to the government is making a wise investment by obtaining a FSS contract. The time-consuming and labor-intensive open-market bidding procedures dictated by the regulations can keep a small army of personnel busy full-time just responding to nominally attractive business opportunities. Arguably, a salespersonís time is better spent selling rather than being bogged down responding to requests for bids or quotes.

FSS Program Popularity
The Nineties was a decade of significant changes in the Federal Acquisition Regulations (FAR), the body of rules governing how federal contracts are managed, particularly in the area of commercial products. Two notable pieces of legislation, the Federal Acquisition Streamlining Act (FASA) and the Clinger-Cohen Act, formerly known as the Federal Acquisition Reform Act, provided the impetus for the shift away from heavy reliance upon rigid rules to a more common sense commercial approach.

Essentially, these relaxed rules gave contracting officers (i.e., government buyers) greater latitude to apply business judgment to the specifics of a given transaction, provided there was no conflicting guidance in the FAR. As a result, the FSS program has flourished. Just a few years ago, FSS purchases accounted for about $5 billion of goods and services. Today, annual expenditures exceed $16 billion!

Be Careful Where You Step ó Uncle Sam has Rights!
Because the government, in its sovereign capacity, is charged with stewardship of our tax dollars, Congress has seen fit to require certain sharing of information with the government negotiator so as to put that negotiator on an equal footing with the contractor.

This process of information-sharing is called "disclosure." There is no counterpart to such a disclosure requirement in the private sector, but every FSS contract requires that disclosed information is current, complete, and accurate at or near the time of proposal (offer) submission to the government.

Further, to ensure that contractors comply with the disclosure requirement, each contract comes equipped with a handy tool (for government use only!) called the Examination of Records clause. This clause gives the government the right to audit your contract for up to three years after the final payment on that contract is received.

The greater your companyís sales, the more likely it is to be audited. The government uses the old "best-bang-for-the-buck" theory, believing that the more a company sells to the government, the greater potential of recovery for damages if the company did not make a complete disclosure. Do you know what constitutes "complete disclosure"? Are you willing to gamble that your company wonít enjoy significant sales? Itís doubtful! Otherwise, why go to the trouble of seeking a contract in the first place?

Commercial Sales Practices
One of the more significant regulatory changes of the Nineties was a change in the disclosure format to be used by contractors during the proposal phase of the FSS application process. The Commercial Sales Practice (CSP) format requires that the contractor disclose to the government all pricing that is better (i.e., lower than what the contractor is offering the government).

The key word here is offering. Identifying which products to disclose to the government and knowing how to present it is where most companies fail, yet this is the crux of the entire offer! There is a recipe for success in knowing what the government wants and how to present it to them.

Letís look at an example: Assume your company has several customers who enjoy pricing below what you are willing to offer the government. In reality, this is a very common occurrence. Failure to detail these situations accurately, completely and in real time is a common source of contractor error.

The reason is that the directions included in the CSP are terrible ó really terrible! No reasonable person would provide the data the government wants in the correct format or level of detail, despite his or her best efforts.

Furthermore, the government is always going to gravitate immediately toward the lowest price you offer any customer. The governmentís negotiators reason that the government is the largest purveyor of goods and services in the world, hence, they feel they are entitled to your best price.

Unless you know the rules of the game, contractors beware! Many a contractor who is simply trying to be cooperative with the contracting officer has been duped into extending discounts far larger than the government deserves because they donít know any better and they donít want to get the relationship off on the wrong foot. In the long run, this can be a very costly mistake, and one that is completely avoidable when a knowledgeable player conducts the analysis and prepares the proposal.

Conclusion
Notwithstanding the foregoing caveats, the Federal Supply program boasts participation of between 5,000 and 6,000 contractors with more than 7,000 contracts, and most of these contractors enjoy a streamlined method of selling commercial products and services to the government.

To be sure, there are many potentially costly pitfalls for the naive participant. If your company is committed to obtaining a FSS contract, be sure you have an equally strong commitment to do it correctly. The benefits are many and the value is great for the contractor who understands the rules and adheres to them scrupulously.

This article appeared in the May 2001 issue of Contract Management magazine, published by the National Contract Management Association.

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