GSA: Changing price reduction clause 'not feasible'

Tools

Changing the price reductions clause for General Service Administration schedule contracts is "not feasible," GSA told the White House in a report dated Aug. 18.

Although GSA acknowledges that the clause is "difficult to apply to service contracts," in a report regarding implementation of an Obama administration executive order ordering agencies to conduct an analysis of existing regulations in search of rules that may be obsolete or excessively burdensome, the agency says the clause is nonetheless a necessary mechanism.

The clause works by establishing a relationship (such as "equal to" or "lower than") between a select group of schedule contractors' commercial customers called the "basis of award." Thereafter, when contractors lower their basis of award prices, they must correspondingly reduce their schedule price--although commercial transactions above a certain negotiated threshold called the "maximum order threshold" are exempt from the price reductions clause.

Where the price reductions clause can get particularly confusing is when commercial companies lower or discount their prices to basis of award customers but keep the basis of award price higher than the schedule price. Many companies believe that because the schedule price is still lower, they need not make a corresponding reduction--but since the price reductions clause establishes a relationship between commercial and schedule prices based on relative--not absolute--prices, companies must nonetheless reduce the schedule price yet further.

A February 2010 report (.pdf) from a multiple award schedule advisory panel suggested removal of the price reductions clause in favor of regulations that would ensure greater competition between GSA schedule holders. Competition, rather than the clause, would ensure that government buyers via the schedules would continue to receive a fair and reasonable price, went the thinking.

Since then, GSA has implemented regulations requiring competition similar to those the task force had in mind; since mid-May, contracting officers have had to distribute a schedule-based request for quote for a planned procurement worth more than the simplified acquisition threshold to a sufficient number of vendors to "reasonably ensure" that at least three schedule holders capable of fulfilling the requirements respond with an offer.  

Nonetheless, GSA says the clause is the way it ensures "the government is getting at least as good a price as a contractor's private-sector clients."

For more:
- download the Aug. 18 GSA report (.pdf)
- download the Multiple Award Schedule Advisory Panel Final Report (.pdf)

Related Articles:
Backgrounder: Simplified acquisition 
GAO: IDIQ bid protest authority not lost, actually expanded 
Increased competition for GSA schedule, BPA and IDIQ orders