04.30.10

Risk and Reward - GSA Schedule Contracts

by Sajeev Malaveetil

General Services Administration (GSA) Schedule contracts are great vehicles for companies looking to enter into or expand their existing presence within the Federal marketplace. Obtaining a GSA Schedule contract provides companies with exposure to a vast array of Federal buyers including Executive agencies, sub-agencies, and, in some cases, even State and Local governments and other prime contractors. While the potential rewards of a GSA Schedule contract can be high, there are some risks associated with this type of procurement vehicle. A company looking to obtain a GSA Schedule contract should carefully consider these risks in light of the potential advantages prior to delving into the world of GSA Schedule contracting. If a company chooses to pursue a GSA Schedule contract it should be cognizant of pertinent regulatory requirements and strive to comply with these requirements to mitigate the risk of non-compliance.

Overview of the Program

Since 1949, the GSA has administered the Federal Supply Schedule (FSS) program, also known as Multiple Awards Schedule (MAS) or GSA Schedule contracting. The program has experienced significant growth over the past decade and in FY 2009 accounted for over $37 billion in sales to Federal agencies. Currently, there are 41 distinct schedules with each schedule containing different products and/or services. Combined, the 41 schedules account for more than 11 million types of commercial products and services offered to Federal buyers by over 15,000 vendors.

Advantages of GSA Schedules

There are several advantages to the GSA Schedule program. These advantages include a more streamlined acquisition process and lower bid and proposal costs when compared to traditional Government procurements. Also, because the GSA Schedule program is intended for commercial supplies and services, there are fewer systems requirements which mean fewer Government audits.

However, the biggest advantage of a GSA Schedule contract is the expanded exposure to the Federal marketplace. Once a Schedule contract is negotiated with and awarded by the GSA, the Schedule contract prices are deemed fair and reasonable by the Government. Therefore, a buying agency looking to procure those types of products or services need not issue its own contract solicitation. Instead, it may simply procure those items off of an existing Schedule contract. This simplified acquisition process has made the GSA Federal Supply Schedule program a preferred source for many Government buyers.

Finally, the Evergreen contracting provisions of GSA Schedules, which provide for one five-year basic contract period and up to three five-year option periods, provide advantages to both contractors and Government buyers by allowing for the planning of long-term sourcing requirements.

The GSA Schedule Proposal Process

Each company should approach the GSA Schedule proposal process with an open mind regarding expectations of a resulting contract. Many times companies will start the process with the mindset that its current pricing practices are effective and that the rates currently being offered to commercial customers are sufficient to offer to Government buyers. The reality is that GSA Schedule contracts may result in revisiting commercial practices. This results from the Government attempts to seek discounts better than the best discounts offered to commercial customers.

Many times, the process of preparing a GSA schedule proposal provides companies with a better understanding of the nuances and intricacies of its existing pricing practices. In addition, the proposal preparation process can provide an organization with valuable insight into its internal controls related to pricing, discounting, reporting and record retention. Companies may find that additional improvements to systems and processes are required prior to pursuing a GSA Schedule contract.

The decision to pursue a GSA Schedule contract should not be made in a vacuum. To successfully propose, obtain and administer a GSA Schedule contract it is essential that input from various departments be included throughout the contract lifecycle include. Therefore, as part of the proposal preparation process, is important to establish an integrated project team consisting of personnel from various departments throughout the company including management, contracts, accounting, pricing, sales and program operations.

If a company has a dedicated or otherwise segregated commercial sales force it is especially important to have personnel from the commercial sales group involved as part of the proposal team. This is critical because responding to a GSA Schedule solicitation involves understanding and disclosing commercial sales practices to the commercial customers. In addition, once a Schedule contract is awarded, the Price Reduction requirements within the contract could significantly impact commercial sales practices and decisions going forward.

Pre-requisites for Obtaining a Schedule

Prior to receiving a GSA schedule contract, a company must:

• have obtained a Data Universal Numbering Systems (DUNS) Number from Dun and Bradstreet;
• be registered in the Central Contractor Registration (CCR) database and ensure that the CCR registration is up-to-date;
• have completed the Online Representations and Certifications Application (ORCA); and
• otherwise, be financially sound.

These pre-requisites are standard for most Government procurements.

Getting On Schedule

The level of effort required for obtaining a GSA Schedule can vary drastically among companies. The amount of time and money required to obtain a Schedule contract may be impacted by many factors including the size of the company, the number of products and services the company intends to offer to the Government, the company’s current commercial pricing practices, and the company’s ability to generate reliable and accurate sales data from its financial and accounting systems.

Selecting the Schedule. A company looking to obtain a GSA Schedule contract must first determine which schedule suits the services or products they hope to sell to the Government. This process can be facilitated by visiting GSA Advantage and researching the types of products and services sold under each schedule. It should be noted that products and services may suit multiple schedules. Nothing precludes a company from obtaining multiple GSA Schedule contracts. However, administering multiple schedules can prove to be complicated from a price reductions monitoring and sales reporting perspective.

Selecting the SINs. Each schedule is divided into Special Item Numbers (SINs) which establish subcategories of similar services or products. A company should determine which SINs it intends to propose on its contract, based on the products and services it intends to offer. A company can offer one or all of the SINs under a Schedule depending on its ability to provide the items within the SIN in accordance with the solicitation requirements.

Reading and Understanding the Solicitation. Once a company has selected the appropriate Schedule, it should obtain the appropriate solicitation [from FedBizOpps] and carefully read through the solicitation requirements to obtain an understanding of not only the requirements for completing a successful offer, but to also understand the requirements associated with administering the GSA Schedule contract. At this point the company [through its integrated project team] should give consideration to its ability to comply with the solicitation and contract requirements and revisit its dedication to pursue a Schedule contract.

Completing the Solicitation. Upon reading and understanding the solicitation, and making a final determination to pursue a GSA Schedule contract, a company should begin completing the solicitation required for the chosen schedule. The solicitation will provide additional requirements and information that must be completed and provided by the company when submitting the proposal. Examples of these items include a Subcontracting plan, Online Representations and Certification (ORCA) submission, commercial price lists, proposed Government price lists, a CSP-1, various Government forms and certifications and representations from the company.

Analyzing Commercial Sales Practices. Frequently, the most challenging step in the GSA Schedule proposal process will be evaluating and analyzing the company’s current commercial sales practices. Depending on the size and complexity of the company and its pricing practices, this step can be a substantial undertaking. However, it is a critical step in the process and it is essential that it be performed completely and accurately. The commercial sales practices analysis involves evaluating actual sales made by the company to its non-Government customer base over a certain time period of time, typically the most recent 12 months. The analysis can take an extensive amount of time if the company does not use a standardized commercial price list or does not otherwise have established price or discounting practices. The results of the analysis is intended to show the price offered to each customer or category of customers so that the company may disclose to the Government its various commercial sales practices and offer a Basis of Award customer or category of customer.

Preparing the CSP-1. The results of the commercial sales practices analysis are presented to the Government in the form of a Commercial Sales Practice Format (CSP-1) that is included in the proposal submission. The CSP-1 is one of the most critical elements of a successful GSA Schedule proposal. The data used to prepare the CSP-1 must be accurate, current and complete and is subject to audit by the GSA Office of Inspector General. The CSP-1 will be the primary source of data used by the Government in negotiating GSA Schedule prices and discounts. To facilitate negotiations, it is important that an offeror disclose all of its pricing and discounting practices and carefully notate concessions granted to various customers as well as exceptions to its standard pricing and discounting practices. To the extent that a customer [or category of customer] receives exceptional pricing because of unique terms and conditions, these should also be included in the CSP-1 through supporting narratives.

Selecting the Basis of Award. Based on the results of the pricing analysis, the company should select a Basis of Award (BOA) customer or customer group. Once negotiated with the Government, the BOA will serve as the tracking customer [or category of customers] for the life of the contract. The Government requires that the BOA serve as the basis for offering the Government discounted rates. At the time of award of a GSA Schedule contract, a price or discount relationship is established between the GSA rates (i.e., the rates that will be included on the GSA schedule) and those offered by the company to the BOA. Per the Price Reductions requirements of the GSA Schedule contract, this relationship must be maintained through the contract period.

Submitting the Proposal Package. Once the solicitation is completed it should be submitted to the Government with all requisite documents and data – including an offer to the Government of proposed schedule prices and discounts and the identification of the offered BOA. If the proposal is responsive to the solicitation requirements, the Government will review the offer and typically enter into negotiations with the company. The extent and length of negotiations will vary based on each offeror and may include discussions regarding the price-discount relationship, final prices offered, terms and conditions and the BOA. The pre-award negotiation may also involve an audit by the GSA Office of Inspector General to ensure that the proposal and CSP-1 are complete and accurate for purposes of contract negotiations. Upon completion of successful negotiations and contract award, the contractor is ready to offer its products and services to the Government.

Post Award Requirements and Mitigation Strategies

There are a few basic techniques that a Company can follow to help ensure that a GSA Schedule does not turn into an administrative and financial burden. By thoroughly contemplating potential risks prior to contract award and implementing the appropriate processes and controls, a Company will be able to manage and mitigate risks of future noncompliance.

• Preparing the CSP-1. The first step in successful administration of a GSA Schedule contract involves the preparation of a complete and accurate CSP-1. A complete and detailed CSP-1, which includes detailed description of pricing practices, concessions and exceptions not only serves as the basis for contract negotiation, but will also provide the contractor with a baseline by which to mitigate future audit risks associated with the Price Adjustments Clause. [GSAR 552.215-72]
• Select a narrow Basis of Award customer/customer group. Contractors should attempt to select/negotiate the fewest customers possible to be included in the Basis of Award. By doing this, the Company will reduce the likelihood of triggering a reportable event within the Price Reduction Clause (PRC) [GSAR 552.238-75] and will ease the administrative burden associated with monitoring compliance with clause. Success on narrowing the BOA can vary and will often depend on convincing the Government, during negotiations, that certain customers or categories of customers are either similar or dissimilar to the Government and its anticipated purchasing practices and volume.
• Monitor for Price Reductions. Whether a contractor successfully negotiates a narrow or broad BOA, it is imperative that companies conducting business under a GSA Schedule mitigate any possibility of violating the Price Reduction Clause. This can be accomplished by establishing and maintaining strict internal controls pertaining to the monitoring of Price Reductions (i.e., “triggering events”). Implementing and enforcing internal controls involving the monitoring of prices and discounts to the BOA as well as changes to overall commercial sales practices are critical to ensuring compliance with the PRC. These controls include: monitoring of BOA prices and discounts; monitoring and controlling concessions provided to the BOA; implementing a process to identify prices, discounts or concessions offered that could potentially disturb the GSA pricing relationship; identifying promotional offers to the BOA; and monitoring reductions to Commercial price lists. Preventative controls such as training and requiring pre-authorization of offers to the BOA that may disturb the Government pricing relationship can also serve to significantly reduce compliance risk. If the PRC is triggered, the Company is required to inform the Government and offer the same or better discount to GSA Schedule buyers in order to preserve the GSA pricing relationship.
• Track and report GSA Schedule sales. Contractors must remember that in order to maintain a GSA Schedule, the company must surpass $25,000 in annual sales resulting from the contract. This threshold is enforced because GSA is a self-funded agency with no funding provided by Congress. GSA is able to be self-sufficient because of the fee that is charged on schedule sales. The fee, known as the Industrial Funding Fee (IFF), is currently .75%. The IFF is factored in as part of the proposed rate or price negotiated with the Government when awarding the contract and is passed directly to the buyer. Per the IFF and Sales Reporting Clause [GSAR 552.238-74], a GSA Schedule contractor is required to report, on a quarterly basis, sales to the Government under each of its GSA Schedule contracts and remit payment of the IFF to the GSA. The sales reporting and IFF payment must take place within 30 days after the end of each Government Fiscal Quarter. Sales should be reported separately for each GSA contract and by SIN. Companies should ensure that they have adequate systems and processes to track and identify all GSA sales made. This would include sales made to the Government as well as any cooperative purchasing sales to State & Local Governments and sales to authorized buyers, when applicable. Companies with multiple GSA Schedule contracts should also be able to distinguish, within their systems, sales by individual contract.

Post Award Success

Obtaining a GSA Schedule does not ensure immediate success but a GSA Schedule contract does provide a company with access to thousands of potential buyers. After obtaining the contract, a Company should market the contract vehicle by including references to the contract on the company’s website, distributing its Schedule price list to potential buyers and seeking potential opportunities within FedBizOpps. A GSA Schedule will not guarantee immediate increases in Federal sales, but it does provide the potential for awards that may not be available to competitors who do not have a Schedule contract. The award of a GSA Schedule contract ensures prospective Buying agencies that a scheduleholder’s rates are fair and reasonable.

Summary

Depending on its size, a company may obtain a GSA Schedule for relatively little cost. Pursuit may require coordination of resources and an investment of some money on outside services, but normally the entire process can be completed in a few months. After the contract is awarded, a Company is able to begin pursuing future sales with greater efficiency and lower bid and proposal costs. For companies new to Federal contracting, with proper proposal preparation and the implementation of a few fundamental risk mitigation strategies and compliance procedures, GSA Schedule contracts provide ready access to the Government marketplace with reduced audit and compliance risk to the company.

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