Last month, the General Services Administration (“GSA”) finalized a rule marking what the agency describes as the most significant development to its Schedules program in over two decades. The rule completely changes how GSA will analyze vendor pricing for products and services.
Under the rule, vendors will eventually be required to submit monthly transactional data reports with information related to orders and prices under certain GSA Schedule contracts and other vehicles. Along with the implementation of the new Transactional Data Reporting (“TDR”) requirement, GSA will relieve vendors from two preexisting compliance burdens—eliminating the Commercial Sales Practices (“CSP”) and Price Reductions Clause (“PRC”) reporting requirements when vendors begin submitting transactional data.
While vendors should welcome the relief provided from the elimination of two burdensome regulations, the shift to TDR will not be without cost and risk; and, the eventual efficiencies promised by GSA remain to be seen. Indeed, the impact of the change will likely extend beyond compliance burdens, with potential effects varying from the nature of False Claims Act suits to the potential publication of competitive information.
We summarize these and other key takeaways from the new rule below, and answer questions important to vendors as GSA rolls out this significant development.
The TDR rule marks a transformational shift in how GSA assesses vendor pricing, shifting from a vendor-specific commercial sales model to a comparison of prices charged by competing vendors to the federal government. Under the preexisting model, GSA relied on a “vertical” approach to establish the price reasonableness of products and services available on its Federal Supply Schedule (“FSS”) contracts. That is, GSA compared the prices and terms a vendor offered the government to the prices and terms for the vendor’s commercial customers.
With the implementation of the new rule, GSA will transition to a “horizontal” approach where, instead of comparing the prices offered by a vendor to its own customers, GSA will compare a vendor’s pricing to the government pricing of other vendors for similar items.
I. Monthly Transactional Data Reporting
To compile this horizontal information, the TDR rule will require vendors to submit monthly reports containing certain transactional data points from orders placed under the FSS—except the Department of Veterans Affairs’ Schedules—as well as other GSA contract vehicles (e.g., governmentwide acquisition contracts and governmentwide indefinite-delivery indefinite-quantity contracts). Under TDR, vendors will be required to report 11 data points to GSA monthly, which include descriptions of the product or service, quantity, price paid per unit, and total price.
GSA will begin implementing the TDR clause under eight Schedules on a pilot basis within 60 days of the June 23, 2016 rule publication. Under the eight-Schedule pilot program, the TDR rule will be voluntary for current Schedule contracts but mandatory for new contracts and extensions. The pilot Schedules will include, for example, the information technology Schedule 70 as well as the Professional Services Schedule (00CORP).
For non-FSS governmentwide GSA vehicles, the TDR clause immediately applies and must be included in all future solicitations.
II. Elimination of Commercial Sales Practices Disclosures and Price Reductions Requirements
Under the new rule, FSS vendors subject to the TDR requirement will no longer be required to provide Commercial Sales Practices disclosures or be subject to the Price Reductions clause. These two compliance areas tended to create the largest risk exposure for FSS contractors. Both were fraught with complexity and ambiguity, frequently leading to high-profile False Claims Act (“FCA”) allegations in addition to defective pricing claims with respect to CSP disclosures. For example, as recently as May 2016, a contractor entered into a multimillion dollar settlement agreement with the Department of Justice to resolve FCA allegations related to its compliance with the Price Reductions clause in its GSA contract for IT services.
III. Takeaways for GSA Vendors
Will the new rule ultimately cost or save vendors money?
While GSA estimates the elimination of CSP and PRC requirements will save vendors $44 million annually, compliance with the TDR is estimated to impose a $15 million burden. Thus, while this effort at streamlining may offset the collective burden in raw numbers, irrespective of the savings from the elimination of these requirements, the new TDR rule will impose on vendors a new, detailed reporting requirement every month.
The reports, made electronically, will require many contractors to invest in information technology, training, and other costly measures from the outset. In addition, vendors will bear the ongoing costs of compliance and administration through the continuous contract monitoring and data extraction needed to populate the required reports on a monthly basis.
For smaller businesses, in particular, this burden could be significant. Furthermore, vendors particularly invested in the pre-TDR compliance administration may be disproportionately saddled with the costs of such a transition.
Should existing Schedule contract holders participate in the pilot program?
GSA vendors with existing contracts under any of the eight pilot Schedules will have the option of participating in the TDR pilot program or, alternatively, waiting for the TDR to become mandatory. In its published rule, GSA states that it will not expand the pilot program or make TDR permanent on the Schedules prior to at least one year of evaluating the pilot program.
Nonetheless, GSA is encouraging current pilot Schedule holders to participate through bilateral contract modifications with the incentive of eliminating the compliance burdens associated with the CSP and PRC. However, the benefits of participation will vary vendor by vendor.
While CSP and PRC compliance may be burdensome, sophisticated Schedule vendors that have honed compliance programs over years of FSS contracts may be better served to forego participation, stick with what they know, and wait for the TDR rule to fully develop before making the transition.
For vendors with limited Schedule contracts and experience, however, it could be more logical to take advantage of the reduced compliance burdens while shifting the scope of disclosures from commercial to government prices.
How will GSA collect and use the transactional data?
GSA will collect the transactional data through vendor submissions on a new electronic portal, requiring participating vendors to electronically report their data 30 days after the end of the preceding month. The portal data will then be accessible only by authorized users and protected in accordance with GSA’s IT security policies. However, as discussed below, GSA intends to publically share the data “to the maximum extent allowable to promote transparency and competition while respecting that some data could be exempt from disclosure.”
GSA and its agency customers then plan to use the data, which GSA refers to as “added market intelligence,” to make smarter buying decisions. To this end, Schedule Contracting Officers (“COs”) will consider the transactional data when awarding Schedule contracts and evaluating requests to adjust pricing and add new items to current contracts.
GSA reassures vendors that use of transactional data will not transform the acquisition system into a lowest-price procurement model, but that the data will be “viewed in the context of each procurement, taking into account desired terms and conditions, performance levels, past customer satisfaction, and other relevant information.” Nonetheless, GSA may eventually see an increase in protests of best value procurements alleging improper awards to lowest-priced offerors where there appears to be an over-reliance on such transactional data.
How will GSA implement the TDR requirement?
GSA will implement the TDR rule through a multilayered phase-in process centered around the pilot program. GSA category managers will first be given insight into options for using the data to meet requirements and support smarter buying strategies. Next, FSS COs and then agency ordering offices will be given access to the transaction information. While each buying group will receive tailored training, all training will emphasize that prices paid information is only one data point to be considered in conjunction with other factors (e.g., total cost, quantity discounts, customer satisfaction, and other relevant information).
To this end, GSA announced that it is incorporating nonregulatory instructions for GSA category managers and Schedule COs into the GSA Acquisition Manual (“GSAM”). These instructions will direct COs to evaluate transactional data in the context of each offeror, and encourage COs to discuss with offerors “perceived variances between offered prices, transactional data, and existing contract-level prices, in order to evaluate whether other attributes (e.g., superior warranties, quantity discounts, etc.) justify awarding higher prices.”
In addition, GSA provides an order of preference for information to be used when evaluating FSS offers, directing COs, in descending order, to: (1) use readily available data (e.g., prices paid on contracts for similar items or commercial data sources providing publically available pricing information); (2) perform market research; and, (3) when the offered prices cannot be determined to be fair and reasonable based on other data, request additional pricing information such as “data other than certified cost or pricing data.”
What compliance risks are implicated by the new rule?
Separate from traditional compliance costs, the GSA rule may actually reduce compliance risk for vendors related, for example, to False Claims Act allegations and GSA audits. Disclosures made by GSA vendors related to CSP and compliance with the PRC have long been hotbeds of frequent and high-profile FCA allegations.
With their elimination, the industry may see a reduction in FCA allegations involving GSA vendors; however, it remains to be seen whether a new risk area emerges related to TDR representations. Similarly, the resulting elimination of the CSP and PRC basis of award monitoring requirements could impact the nature of audits conducted by the GSA Office of Inspector General.
Will confidential business data be protected?
Under the rule, GSA plans to publicly release most of the transactional data reported by vendors, including total price, part and contract numbers, and item descriptions. GSA claims that, in addition to promoting transparency, releasing the data publicly will benefit small businesses lacking the resources to invest in dedicated business development staff or acquire business intelligence through third parties.
Vendors have some comfort in that GSA exempted two of the eleven report metrics, per unit pricing and quantity sold, from its public disclosure plan. Nonetheless, given the inherently competitive nature of transactional data there still exists concern that such release could jeopardize proprietary information. Amidst such concern, GSA issued a notice seeking comments on its plan to publically release vendor data.
For now, there are many unknowns concerning the TDR rule.
GSA should be applauded for taking on two of the most complex, ambiguous, and burdensome compliance requirements—CSP disclosures and PRC compliance. But, the jury is still out on whether FSS vendors should be jumping for joy. Vendors need to see how GSA will use and apply the TDR rule data, and many questions exist: How will vendors report transaction prices for fixed price contracts and bundled sales? How will GSA share and release TDR data? Will GSA unilaterally seek lower FSS prices based upon the TDR data? Will FSS prices ultimately go up or down as a result of the transition? Answers to these questions will determine the success of the TDR rule.
We will continue to monitor the impact of this important new regulation as the comment process continues and the pilot program is implemented. The final rule is available here.