GSA Schedules: Recent Trends, Contractor Challenges and Best Practices

2. GSA Schedules: Recent Trends, Contractor Challenges and Best Practices Breakout Session #1201 Tony Fuller, Beers + Cutler Bill Bressette, Beers + Cutler Date April 6, 2009 Time 11:00 AM

3. Agenda • Multiple Award Schedule (MAS) contracting overview • Key challenges faced by GSA Schedule contractors • New initiatives • GSAM rewrite • MAS Advisory Panel • Other developments impacting GSA Schedule contractors • Government Audits • The future of GSA Schedule contracting • Our Best Advice • Questions

4. MAS Contracting Overview • The General Services Administration (GSA) was established in the 1950s in response to increasing government procurement requirements. • GSA negotiates long-term, indefinite delivery indefinite quantity (IDIQ) Multiple Award Schedule (MAS) contracts. • Allows simplified acquisition of “commercial items”: • Reduced procurement lead time • Acts as a catalyst for federal spending • Core objective:“to use commercial terms and conditions and the leverage of the Government’s volume buying to achieve the best possible prices and terms for both customers and taxpayers.” - FSS Procurement Information Bulletin 04-2

5. Key Features of GSA Schedules • Standing solicitations • Evergreen contracting • Five year contract with three additional five year options • Unique pricing disclosure requirements • Sales reporting and the Industrial Funding Fee • Economic Price Adjustments • Trade Agreements Act • Small business subcontracting requirements • Price Reductions Clause (PRC) • Blanket Purchase Agreements (BPA) • Government audit rights

6. GSA Schedules Today • Currently 17,000+ contractors offer in excess of 11 million products and services across more than 40 GSA Schedules. • In 2008 GSA reported schedule sales of over $36B. • The expanding use of professional services under the Schedules has led to confusion regarding: • Application of the Price Reductions Clause • Identification of a Basis of Award customer (or group of customers) • Determination of fair and reasonable prices • Increased oversight in the wake of several high profile investigations: • Office of Inspector General (OIG) audits • Department of Justice (DOJ) referrals

7. Contractor Challenges Disclosure of commercial pricing practices Negotiation of fair and reasonable prices Negotiation of the Basis of Award (BoA) customer Scope of contract and open market (non-schedule) items Compliance with the Price Reductions Clause (PRC) Pre and post-award audits Contractor assistance visits Industrial Funding Fee (IFF) compliance Compliance with Buy American Act and Trade Agreements Act

8. New GSA Initiatives • Ongoing initiatives could have considerable impact on the future of GSA Schedule contracting: • Rewrite of the GSA Acquisition Manual (GSAM) • Creation of the MAS Advisory Panel to provide feedback on existing MAS program policy • Role of the newly formed GSA MAS Program Office

9. The GSAM Rewrite Initiative • GSA Acquisition Manual (GSAM) • Incorporates GSA Acquisition Regulation (GSAR) • Incorporates internal GSA guidance/policy • Purpose of the rewrite initiative • To maintain consistency with the Federal Acquisition Regulation (FAR) • “To implement streamlined and innovative acquisition procedures…” • Of particular interest to Schedule Contractors – GSAR Part 538, published in the Federal Register Vol. 74, No. 15, 1/26/2009 • On many key issues, GSA is “awaiting the recommendations of the MAS Advisory Panel…”

10. Highlights of the Proposed Part 538 Rewrite • The addition of a CSP-2 for supplies/services without an established catalog price • Clarifications regarding Contractor Partnering Arrangements (CPA) • Currently known as Contractor Teaming Agreements (CTA) • Changes to additional contract clauses

11. The Proposed CSP-2 • GSA’s objective is somewhat unclear • Intended for supplies and services for which there is no established catalog or list price. • Unclear how products/supplies would be disclosed using this form. • Adds “Flat Rate” Pricing disclosures for what appears to be solutions pricing • Requires more detailed labor category and contract information • Explicitly permits the disclosure of federal customers’ pricing when there are insufficient commercial sales of an item or service • Language has been removed allowing contractors the option to provide this information in their own format • Does not address proposed implementation plan

12. Proposed Changes to CPAs • Clarify the responsibility of the parties to a CPA • 538.906-3 Roles and responsibilities • 552.238-55 Addresses IFF remittance • Formalize what previously existed on GSA’s website as guidance to schedule holders • Do not clarify certain key issues like consolidated invoicing

13. Proposed Changes to the PRC and Other Clauses • GSA believes that the PRC is necessary for the FSS program but will await recommendations from the MAS panel. • Economic Price Adjustment (EPA) clarifications (price list/market pricing) • Contracting Officer’s right to include, “appropriate provisions and clauses when applicable…” • 96 additional provisions/clauses proposed for inclusion • Includes new clauses, modified clauses and other clauses that are relocated from other sections of the GSAM

14. The MAS Advisory Panel • Established in March 2008 in accordance with the Federal Advisory Committee Act. • Objective: To provide advice and recommendations to GSA on pricing and the price reduction provisions of the MAS program. • Reports to the GSA Administrator. • Consists of 16 panelists from both government and industry. • Meeting agendas, transcripts and presentations can be found at: • http://www.acquisition.gov/comp/masap/index.html • http://www.gsa.gov/masadvisorypanel

15. MAS Advisory Panel - Topics for Discussion • The Panel’s charter responsibility was limited to review of: • Most Favored Customer (BOA) provisions • Price Reduction policies and provisions • Current commercial pricing practices • It was subsequently determined that the Panel’s primary focus would be “on the ultimate ability of federal agency customers to award orders that represent ‘best value’ for the user agency.” • As a result, the panel also reviewed transparency, competition, relevancy and currency.

16. MAS Panel – Draft Findings and Issues • GSA Policies and Procedures: • While GSA’s goal is to obtain the best price that an entity gives to its most favored customer, its policy allows for awarding contracts that do not. • Noted inconsistencies within GSA on how the basis of award / most favored customer determinations are made and how the PRC would be applied. • Additional observations and concerns: • Obtaining and determining pricing as fair and reasonable for five years (and potentially longer) is unrealistic in today’s economy. • Meaningful competition occurs at the task order level. • Limited available data is preventing GSA from achieving its core objectives. • There is no pricing guidance for Solutions at the schedule contract level.

17. MAS Panel – Draft Recommendations • The Panel considered recommendations in three primary areas: • Price reductions • Most Favored Customer • Basis of Award clauses • Separate recommendations for products, services and solutions • Key recommendations include: • Eliminate the PRC from MAS program services contracts. • Phase out the PRC from MAS program products contracts. • Disclose the basis upon which contracting officer’s determine that contract prices are fair and reasonable. • Perform a comprehensive review of policies and guidance to facilitate acquisition of solutions. • Solutions should be firm-fixed price, performance based and not subject to the PRC.

18. Other Developments of Interest • New Contractor Business Ethics, Compliance Program and Disclosure Requirements: Effective December 12, 2008 • Contractor Code of Business Ethics and Conduct and Compliance Program • Contracts > $5M and performance period > 120 days • Internal Control System • Shall be established with 90 days unless specified by the CO • Not required for small businesses or commercial item contracts • Mandatory Disclosure • All contractors • Buy American Act (BAA) • BAA “component test” inapplicable to acquisitions of commercially available off-the-shelf (COTS) items. • Consistent with changes to the FAR • Allows COTS items to be treated as a domestic end product if it is manufactured in the United States, without tracking the origin of its components.

19. Government Audits • In 2005, the Senate and GAO urged GSA to increase audits. • GSA OIG semi-annual report to Congress (4/1/08 – 9/30/08): • 66 audit reports issued • 207 referrals for criminal prosecution, civil litigation & administrative action • 45 successful criminal prosecutions • 110 contractors / individuals suspended and debarred • New stimulus package includes $200M for OIG

20. GSA OIG Pre-Award Audit Objectives • Majority are for contract option extensions • Review the proposal submitted in response to a solicitation • Assure the CSP-1 is current, accurate and complete • Full disclosure of commercial discounts and other favorable terms & conditions • Assess the sales reporting and billing systems • Ensure GSA sales can be identified • Validate Industrial Funding Fee • Verify compliance with the price reduction provisions • Employees are qualified for assigned labor positions

21. Option Extension Best Practices • Perform a broad GSA schedule compliance assessment • Test preventive and detective controls • Required field in the order entry system to distinguish GSA sales from commercial sales • Review sales data for PRC triggering transactions • Review policies and procedures • Assess training programs for contract compliance • Newly acquired business units may not be compliant • Conduct a historical pricing review and update GSA pricing disclosures • Typically for the preceding 12 months of sales • Update the commercial sales practice format (CSP-1) • Draft a descriptive pricing narrative to supplement the CSP-1

22. DCAA Initiatives • Increased Audit Guidance

23. DCAA Initiatives • Current Economic Conditions and Financial Condition Risk Assessments • Limited Scope Audit Reports on Internal Controls • Significant Deficiencies/Material Weaknesses and Audit Opinions on Internal Control Systems • Denial of Access to Records Due to Contractor Delays

24. Where Are We Headed? Increased government funding for OIG through the stimulus package will lead to more frequent and/or thorough pre-award audits. Increased emphasis on transparency, accountability and compliance in the federal procurement process. Likely policy and procedural changes resulting from GSAM rewrite and MAS Advisory Panel recommendations.

25. Our Best Advice • Understand current and historical pricing practices • Conduct historical pricing reviews • Ensure that disclosures are current, accurate and complete • Review and update the CSP-1 • Establish a robust compliance program that encompasses all areas of risk and includes internal compliance reviews • Ensure resources staffed to GSA Schedule projects meet labor category experience, education and technical requirements • Know your contract terms and conditions • Create contract award briefs describing the discounting schedule and pricing terms and conditions

26. Beers + Cutler • Tony Fuller, Partner Mr. Fuller leads over 50 professionals in Beers + Cutler’s Government Contracts Consulting Group. Based in Washington, DC, he has worked with government contractors for over 15 years on a broad range of accounting, pricing, compliance, contract administration, audit and litigation related matters. He has extensive experience providing government contract consulting services to contractors in many industries. His specific areas of focus include: pricing strategy and proposal preparation; contract negotiations; compliance assessments; policies and procedures development; audit support; disputes/claims; investigations; and expert testimony. He has a depth of knowledge in commercial item acquisition and GSA Schedule contracting, and he has authored many articles and speaks frequently on these topics. Tel: (703) 923-8688, tfuller@beersandcutler.com

27. Beers + Cutler • Bill Bressette, Senior Manager Bill Bressette is a senior manager with more than 10 years of experience.  He focuses on assisting contractors with virtually all aspects of GSA Schedule contracting, including feasibility assessments, strategic pricing analysis, proposal preparation, contract administration, compliance and audit support.  Prior to joining Beers + Cutler, Bill worked for a global consulting firm. Bill's experience includes contract analysis and administration, rate development and analysis, development and management of contracts and compliance organizations, corporate policies and procedures, organizational risk management, cost estimating and proposal development. Tel: (703) 923-8624, wbressette@beersandcutler.com

28. Questions?