Do Federal Supply Schedule Contracts Still Have Value?

Merle M. DeLancey Jr.

Over the past several months, there has been a confluence of congressional and agency actions that will have a significant impact on Federal Supply Schedule (“FSS”) contract holders. These changes are so significant that they will likely cause companies with FSS contracts to question whether having an FSS makes sense. These changes could also cause companies to restructure the segments of their companies that are responsible for selling to the federal government.

Order Level Materials

In late January 2018, the General Services Administration (“GSA”) issued its Order Level Materials (“OLM”) final rule. This rule allows agencies to purchase supplies or services in direct support of a task or delivery order placed against FSS contract or Blanket Purchase Agreement (“BPA”). OLMs are subject to special ordering procedures. See GSAR 552.238-82. For example, the OLMs cannot have been known when an FSS contract or BPA was awarded. OLMs (excluding travel) cannot exceed 33.33 percent of the total value of the applicable task or delivery order. Whether an FSS holder is required to obtain competitive quotes for an OLM order depends upon the value of the order and the FSS holder’s purchasing system. Finally, OLMs are not subject to commercial sales practices disclosures, price reductions, or economic price adjustments, but are subject to industrial funding fees.

This relaxation of FSS purchasing rules has been years in the making. It gets rid of the confusion, frustration, and waste experienced under the old rules. No longer will federal customers be required to contract for ancillary or incidental items under separate contracts.

Fiscal Year 2018 National Defense Authorization Act (“2018 NDAA”)

In mid-December 2017, the 2018 NDAA ushered in multiple procurement practice changes. One of the more significant is its increases to the micropurchase (“MPT”) and simplified acquisition dollar thresholds (“SAT”). The MPT increased from $3,500 (technically $3,000) to $10,000 ($5,000 for the Department of Defense (“DOD”)) and the SAT increased from $150,000 to $250,000. To expedite implementation, agencies have been granted authority to issue class deviations from the Federal Acquisition Regulation (“FAR”) to accept the new thresholds.

Further, earlier this week, GSA along with OMB, issued their Phase I E-commerce Implementation Plan Report required by Section 846 of the NDAA. Among other recommendations, GSA recommended that the MPT be increased to $25,000 ($10,000 for DOD).

These increases are significant and will ease federal customer purchasing requirements. Now, with few exceptions, a contracting officer can buy an item that is not more than $10,000 without competition. More importantly, the preferred method of payment for procurements at or below the MPT is a government purchase card. Significantly, purchases under the MPT are open market purchases. Whether good or bad, restrictive government procurement regulations like the Buy American Act’s country of origin rules and socio-economic requirements do not apply.

E-Commerce

The 2018 NDAA also kicked off federal government efforts to develop and implement e-commerce portals for commercially available off-the-shelf (“COTS”) item procurements. The government’s use of e-commerce portals is in its infancy and will be under review and study for another two years. There remain many open issues including whether to require and/or how to comply with the FAR when purchasing through an e-commerce portal.

Notwithstanding the 2018 NDAA efforts, in January 2018 the Department of Veterans Affairs (“VA”), Strategic Acquisition Center, issued a Request for Information (“RFI”) for potential vendors with existing online business marketplaces. According to the RFI, the VA annually spends approximately $4 billion using government purchase cards for purchases below the MPT. VA states it is looking for qualified vendors to provide VA micropurchase buyers access to the vendor’s online business marketplace utilizing an agreement between the VA and vendor(s).

What does all of this mean?

  1. For items valued at or below the MPT it is a new world. Agencies that have implemented the increased MPT can use their government purchase cards to buy these items without regard to FAR restrictions.
  2. Companies with FSS contracts can now market and sell products with prices at or below the MPT to federal customers outside of their FSS contracts without regard to FAR restrictions like the Buy American Act country of origin requirements.
  3. Companies with FSS contracts or BPAs, subject to certain restrictions, can now sell products to federal customers that are not on their FSS contracts if the products are in direct support of an FSS task or delivery order.
  4. Companies that do not have an FSS contract should consider ramping up sales and marketing activities to federal customers for products with prices at or below the MPT.
  5. E-commerce is coming. Companies selling to the federal government need to determine their strategy. Should you make your products available through existing online vendors, invest in your own online marketplace, or both?