May 06, 2020

The GSA OIG's Report to the GSA Administrator Likely Means a Challenging Environment for GSA Contractors

3 min

On April 22, the Office of Inspector General (OIG) Office of Audits issued a memorandum to the GSA administrator stating that the Federal Acquisition Service (FAS) has not been fully leveraging cost savings opportunities identified in the OIG's preaward audits, and ultimately forfeited opportunities to save taxpayers over $900 million.

Under the Federal Supply Schedule Program, the FAS establishes long‐term, government‐wide contracts (commonly referred to as Schedule contracts) with the goal of leveraging the government's buying power in an effort to provide customer agencies with competitive, market‐based pricing for commercial products and services. For orders and contracts under the Schedules Program to be competitive, the Competition in Contracting Act of 1984 (CICA) provides that they must result in the lowest overall cost alternative to meet the government's needs. To this end and pursuant to FAR clause 52.215‐21 Alternate IV and 52.212‐5(d)(1) Alternate II (GSAM 552.215‐70), the OIG conducts preaward audits to advise contracting officers and provide them with an evaluation of contractors' commercial customer pricing information. The recommended cost savings in the audits are based on sales data analyses that comprise detailed reviews of the contractor's sales and customer agreements and are to be used to aid contracting officers in their decisions and improve negotiation results to ensure maximum cost savings for the government and taxpayers.

During the 3‐year period from April 1, 2016 through March 31, 2019, the OIG issued 130 preaward audits, 84 of which included recommended price and discount adjustments that, if realized, would allow for $1.1 billion in cost savings. However, the FAS only sustained about 10 percent, or $113.6 million of the potential cost savings. In reviewing documents used by FAS contracting officers to make pricing determinations during the 3-year period, the OIG claims to have identified numerous instances where contracting officers relied on faulty pricing tools or unverified information, rather than preaward audit results, citing a specific example when a contracting officer negotiated based on an unsupported price analysis that resulted in $262 million in forfeited savings.

The OIG recommended in its memorandum that to ensure orders and contracts under the Schedules Program are competitive pursuant to the CICA, GSA should ensure that FAS contracting officers are effectively using preaward audit reports to negotiate competitive, market‐based pricing that leverages the buying power of the federal government.

Regardless of the accuracy of the GSA OIG's findings, as there are typically two sides to every coin, the GSA OIG's report to the administrator will surely turn heads. Couple this with the perceived abuse of the CARES Act and COVID-19-related stimulus; the season is ripe for the GSA OIG to flex its muscles and expand the number and scope of audits in a manner not previously seen. Furthermore, GSA contracting officers will likely be under intense scrutiny and pressure to accept OIG recommendations, whether reasonable and well-founded or not. Given this, contractors should be mindful of their GSA Schedule contract pricing. Performing a health check is always a good idea, followed by swift and complete disclosures to correct any mistakes, errors, or omissions. Being proactive is always the best medicine, and now more than ever, it may be needed.

*A special thank you to Anna Kaye for her contribution to this article.