Under the Competition in Contracting Act of 1984 (CICA), awarding a contract under the U.S. General Services Administration's (GSA) Multiple Award Schedule (MAS) is a competitive procedure—so long as the MAS program is producing the "lowest overall cost alternative." While GSA has attempted to modernize its approach to achieving this requirement (e.g., the Transactional Data Reporting, or TDR, program), GSA's Office of the Inspector General (OIG) stands by a decades-old approach that contractors say creates risk and administrative costs that are ultimately borne by the taxpayer—negotiating Most Favored Customer pricing and strictly enforcing the famous (or infamous) Price Reductions Clause.
This difference of opinion between GSA and its OIG has been simmering for years, but Congress finally appears ready to resolve the matter in favor of GSA. If adopted, the change could have significant implications for the MAS program. Read on to learn more.
What is the MAS program?
Formerly called the Federal Supply Schedule (FSS), GSA's MAS program allows government agencies (and other authorized entities) a streamlined process for purchasing commercial products and services from pre-approved vendors. The MAS program provides a significant benefit to ordering agencies because they generally do not need to run a traditional competition to procure commercial products or services. Rather, they can rely on GSA to have already determined whether the approved vendors' pricing is fair and reasonable. See Federal Acquisition Regulation (FAR) 8.404(a), (d).
What is Most Favored Customer (MFC) pricing, and what does it have to do with CICA?
Throughout most of the MAS program's history, GSA has sought to negotiate pricing at least as low as that received by each MAS contractor's MFC, so that the agencies ordering off the Schedule do not need to seek competition or assess whether the prices they are paying are too high.
The reason for this is CICA. CICA generally requires federal contracts to be awarded using "competitive procedures," but then defines "competitive procedures" to include "the procedures established by" GSA for its MAS program "if—(A) participation in the program has been open to all responsible sources; and (B) orders and contracts under those procedures result in the lowest overall cost alternative to meet the needs of the Federal Government." 41 U.S.C. § 152(3) (emphasis added).
GSA has usually sought to obtain the "lowest overall cost alternative" by requiring prospective MAS contractors to disclose information on their commercial pricing terms and discounts in the Commercial Sales Practices (CSP) form, and then using as GSA's negotiation objective the pricing the contractor gives to its MFC. See, e.g., GSAM 538.270-1(c) ("The Government will seek to obtain the offeror's best price (the best price given to the most favored customer)."). While GSA "recognizes that the terms and conditions of commercial sales vary and there may be legitimate reasons why the best price is not achieved," id., GSA has earned a reputation for driving a hard bargain for MFC rates or better whenever possible.
How does the Price Reductions Clause (PRC) come into play?
To ensure that pricing remains low throughout the lengthy term of the contract—MAS contracts typically have one five-year base period and three five-year option periods—GSA has most often inserted a standard PRC into MAS contracts. See GSAM 552.238-81. The PRC basically envisions a two-step process:
- At the start of the contract, GSA and the contractor establish a pricing relationship between the basis of award (BOA) customer, or group of customers, and MAS buyers. As noted, GSA's objective is for the BOA customer to be the contractor's MFC, and for MAS buyers to receive the same pricing or a discount as compared with the MFC.
- During performance, if the contractor offers better terms or discounts to the BOA customer, it must flow the same or better terms/discounts through to all MAS customers.
The PRC refers to this process as maintaining the "Government's price or discount relationship to the" BOA customer(s), such that "[a]ny change in the Contractor's commercial pricing or discount arrangement applicable to the" BOA customer(s) "which disturbs this relationship shall constitute a price reduction." Id.
This clause can create significant compliance risk for MAS contractors, as a single salesperson's decision to provide a one-time discount to the commercial BOA customer could arguably trigger millions of dollars in price reductions on future MAS orders. The PRC is perennially described by MAS contractors as among the most burdensome requirements of the MAS program.
How did GSA's TDR avoid the MFC/PRC framework?
In 2016, GSA implemented the voluntary TDR pilot program. MAS contractors who opt into TDR do not have to submit a CSP, negotiate a BOA, or comply with the PRC. Instead, they electronically report on a monthly basis (at no additional cost to the government) specified "transactional data elements" which "encompass[] the historical details of the products or services delivered by the Contractor during the performance of task or delivery orders issued against" the MAS contract. GSAM 552.216-75(a), (b)(2).
GSA implemented a pilot program for TDR because, while such data is often found in the government's contract writing systems and financial systems, these systems are not shared across agencies, and some agencies use multiple versions of these systems. See 81 Fed. Reg. 41104, 41117 (June 23, 2016). Hence, no mechanism existed to compile and analyze transactional data from a wide range of purchases made across the government. The idea was that GSA would "use this added market intelligence to make smarter buying decisions and share the information with its agency customers so they can also make smarter buying decisions when utilizing GSA's contract vehicles." Id. at 41104.
Why has GSA's OIG been so critical of TDR?
GSA and its OIG have long disagreed regarding the utility of TDR replacing the BOA/PRC framework, and whether it meets CICA's "lowest overall cost alternative" requirement.
In a 2015 comment in the Federal Register, the OIG "question[ed] if the prices resulting from price analyses based primarily upon government sales alone (i.e., transactional data) will satisfy" CICA's "lowest cost alternative[.]" By 2019, in another Federal Register comment, OIG had concluded that "eliminating the requirements for CSP and the PRC" as part of the TDR program "severs the link to the commercial marketplace, thereby eliminating the basis of the Schedules Program and violating the Competition in Contracting Act."
The OIG has since issued a series of reports criticizing TDR, calling for its cancellation and a reversion to the BOA/PRC methodology, and accusing TDR of violating CICA, including:
- Report No. A140143/Q/6/P21002, GSA's Transactional Data Reporting Pilot Is Not Used to Affect Pricing Decisions (June 24, 2021)
- Alert Memorandum No. A210081-2, FAS is Planning to Expand the Transactional Data Reporting Rule Despite Ongoing Data Quality and Access Issues (July 18, 2022)
- Report No. A200975/Q/3/P22002, FAS Cannot Provide Assurance That MAS Contract Pricing Results in Orders Achieving the Lowest Overall Cost Alternative (September 30, 2022)
- Report No. A210081/Q/3/P23001, GSA's Fiscal Year 2020 Transactional Data Reporting Pilot Evaluation Provides an Inaccurate Assessment of the Program (May 1, 2023) and
- Report No. A230040/Q/3/P24002, FAS Should Strengthen Its Price Analyses When Consolidating Multiple Award Schedule Contracts (Sept. 30, 2024)
Why is GSA asking Congress to change the "lowest overall cost alternative" requirement?
GSA has consistently rejected the OIG's conclusions regarding TDR and interpretation of CICA. For example, when OIG recommended canceling TDR in 2022, GSA refused, as documented in its GAO-IG Act Reporting report from February 2024:
Not implementing - TDR eliminates the complex and burdensome tracking and disclosure requirements of the CSP and the Price Reductions Clause (PRC), increasing opportunities for small businesses. TDR empowers the Federal Government to: Make better buying strategy decisions through Category Management; Comply with policy directives; Reduce price variation and lower costs; and implement dynamic pricing models not based on a single company. Final action.
More recently, GSA has proposed legislation to end the debate once and for all. GSA's proposal would remove the "lowest overall cost alternative" standard entirely and replace it with a "best value products and services for the Federal Government" standard. The proposal acknowledged that the MAS program's BOA/PRC pricing structure is "outdated," that it creates "public reporting costs estimated to be a combined $130 million per year as of 2022," and that "GSA MAS contractors claim that these requirements increase their administrative costs, which leads them to charge the Government higher prices." GSA also noted that the "legacy pricing procedures" "pose a barrier to entry for small businesses to the federal marketplace and can hinder GSA's ability to add new products and services to GSA MAS when agencies need them."
Will Congress adopt GSA's modernizing approach over the OIG's adherence to the legacy BOA/PRC model?
Congress may be poised to pass a version of GSA's proposed legislation. The "Value Over Cost Act" would permit GSA to use either a "lowest overall cost alternative" or "best value to meet the needs of the United States" standard when pricing MAS contracts. The bill has cosponsors from both political parties and passed out of the U.S. House of Representatives on November 12, 2024.
One of the bill's cosponsors has noted that "[v]arious GSA MAS contractors claim the legacy procurement standards increase their administrative costs, which leads them to charge the Federal Government higher prices," "[t]his legacy procedure is administratively burdensome—and GSA has agreed that change is necessary," and "this bill puts the GSA MAS program on a level playing field with other acquisition procedures" using the best-value standard.
What are the takeaways for federal contractors?
Transition away from the administrative expense and compliance risks associated with the CSP form and PRC could make the MAS program significantly more inviting for companies interested in selling to the federal government. If the change increases the offerings available from MAS contractors, federal agencies may also buy more of their requirements from MAS instead of other vehicles. See FAR 8.004(a)(1) (making MAS a preferred, but not mandatory, source).
That said, companies should bear in mind that being a MAS contractor still means following other significant regulatory requirements, such as the Trade Agreements Act—an area of newfound scrutiny for GSA's OIG. Corporations seeking to join the GSA MAS program should consider consulting with experienced practitioners beforehand.