Recent Developments in Multiple Award Schedule Contracting

RECENT DEVELOPMENTS IN MULTIPLE
AWARD SCHEDULE CONTRACTING

Seminar presented by:
Kenneth D. Brody

New Paradigm (1990's)

Government Should Act Like a Commercial Customer

Emphasis on "Efficiency"

Examples:

Greater Emphasis on Commercial Item Acquisition Practices (FAR Part 12)

Simplified Acquisition Procedures For Small Purchases

Government Contracts Should Read More Like Commercial Contracts (Tailoring and "Simplification" of Contract Provisions)

FAR 15 Rewrite - Streamlining the Competitive Negotiations Process - e.g., Reduce the "Competitive Range", Emphasize Past Performance

Greater Emphasis on the Use of Multiple Award Schedules Under the Federal Supply Schedule Program

Government is Still Required To Purchase The "Best Value"

Old Paradigm (1980's) - But Still The Law?

Competition is Good - The Competition in Contracting Act (CICA) (1984)

The Government Must Use Full and Open Competition For All Purchases

Some of the Limited Exceptions to Full and Open Competition

  • Only Available from One Source
  • Urgent and Compelling
  • National Security
  • Socio-Economic Programs

Next Decade

Finding The Correct Balance Between Efficiency and Competition

Reforms Are Popular

But Competition Advocates Are Making Comeback On Some Fronts - See Recent Decisions

BACKGROUND OF MULTIPLE AWARD SCHEDULE CONTRACTING (MAS) UNDER THE FEDERAL SUPPLY SCHEDULE (FSS)

Does Use of Schedule Conform To Requirement for Full and Open Competition Under CICA?

In the 1980's the view had been expressed to Congress that MAS should be abolished because it did not result in competitive prices for Government agencies - but Congress resisted the ban and classified the procedures that had been established for the selection of companies for MAS as "competitive procedures" and thereby authorized agencies to purchase under MAS without the benefit of competition under CICA

However, CICA only authorized the use of MAS in 1984 provided it is open to all responsible sources and use of the schedule results in the "lowest overall cost alternative to meet the needs of the government" - 41 USC 259(b)(3)(B)

The conclusion that use of MAS is competitive is based on the theory that the price negotiations and evaluations that preceded the inclusion of certain products or services on the schedule, even without head to head competition results in "competitive prices"

Therefore, the use of MAS does constitute full and open competition for purpose of CICA

CICA does oblige the Contracting Officer to Choose Competitive Procedures or a "Combination" of Competitive Procedures (MAS + separate procurement) that are best suited for the agency's needs at the lowest "overall" cost - including consideration of administrative costs incurred during the procurement process.

The choice between satisfying requirements using MAS or the open market is left to the discretion of the contracting officer

The exercise of this discretion can be challenged where the contracting officer knows that the government's requirements can be satisfied at a lower cost using competitive procedures

RECENT SIGNIFICANT CASES

ATA Defense Industries, Inc. v. The United States, United States Court of Federal Claims (1997)

Addressed the use of MAS for purchasing "incidentals"

Facts:

ATA sought to enjoin a purchase order for various products and services from Casell's schedule for upgrading Army tanks

  • 65% of products and services were on Casell's schedule
  • 35% were not on schedule

Contracting officer originally attempted to justify the use of the schedule for the purchase of the non-schedule items by arguing that use of schedule was necessary as an urgent and compelling procurement

Court did not buy argument

Government then made a "post hoc" argument i.e., after the fact, that use of schedule was available for purchase of products and services that are "incidental" to the schedule items

The incidentals were not treated as items that were within the "scope" of Casell's schedule.

There was no argument that Casell's schedule could be modified to include the incidentals as an "in scope" change

Result:

Court rejected the "incidental" argument in this case and enjoined the government.

There is no "incidentals" exception to the requirement for full and open competition.

Authority of an agency to purchase against FSS does not extend to incidentals and does not exempt use of competitive procedures in procuring incidentals

What about the other 65% - Was use of the schedule appropriate only for the 65%?

The Court ruled that the agency is required to choose the competitive procedure that is best suited under the circumstances of the procurement, and if resort to FSS is not best suited, i.e. for the remaining 65%, it is inconsistent with the C.O,s obligation to choose that route i.e., it might be more efficient to purchase everything as a competitive procurement.

Compare ATA with Vion Corporation, B-275063.2, 97-1 CPD para 53.

Vion complained that DISA purchased a number of items from Severn that were not included in Severn's contract

Severn responded that these additional items are incidental to and necessary for the configuration and operation of the items that were purchased.

GAO approved the purchase by noting that the schedule appears to include the purchase of components that would make the equipment functional and thus the components were considered incidental items that were also "within the scope of Severn's FSS contract.

Incidentals that are "within scope" of the contract may be okay

Furthermore, GAO held (pre-ATA) that an agency may procure FSS items and non-FSS items that are incidental to FSS items so long as they meet the needs of the ordering agency and offer the lowest aggregate price, and if the cost of the non-FSS items is small compared to the total cost of the procurement.

Are "small" incidental purchases okay?

What Does Within The Scope Mean?

In determining whether or not a change is within the scope of a contact, we look to whether there is a material change between the contract as modified, and the original contract, considering such factors as the extent of any changes in the type of work, performance period, and costs between the modification and the original contract, as well as whether the original solicitation adequately advised offerors of the potential for the change or whether the change was of the type that reasonably would have been anticipated, and whether the modification materially changed the field of competition for the requirement.

OTHER RECENT DEVELOPMENTS OF NOTE

Maximum Order Limitations Are Removed

Contrary to plain English, the maximum ordering limitations do not place an outer bound for contract orders

They merely denote the level at which its is recommended that agencies seek a price reduction

Moreover, Schedule contractors are allowed to offer one time spot discounts from their established schedule prices that need not be extended to other schedule users.
FAR 8.404(b)(3)
Also See Vion case above

In addition, the agency may request reductions from published prices, however, the agency is not necessarily required to compete purchase orders under the schedule merely for the purpose of obtaining price reductions.
National Office Systems, Inc.
97-1 CPD para 12

RECENT IMPLEMENTATION OF FINAL ACQUISITION REGULATIONS DEALING WITH MAS

Most Favored Customer Pricing Policy (GSAR 538.270)

Recommendation was made to eliminate the most favored customer goal in favor of a "fair and reasonable" pricing standard

This recommendation was rejected in the final rule

However, the final rule also states that the government recognizes that the terms and conditions of commercial agreements may vary and that there may be legitimate reasons why the best price is not achieved.

Contracting Officer may award contract that is less favorable where the Contracting Officer decides that prices are fair and reasonable based on other factors

Factors that should be considered:

  • Volume of Purchases
  • Term of Contract
  • Warranties, Training and Maintenance Included in Price
  • Ordering and Delivery Practices
  • Other Relevant Information

Government reserves the right to adjust price under Price Reductions Clause (552.238-76) for the disturbance between the pricing relationship between the government and the contractor's commercial customers that was established as of contract award

Pricing Disclosure/Information Submission Requirements (GSAR 515.804-6)

Emphasis on offeror's written pricing policies or standard commercial sales practices

Less emphasis on obtaining transactional sales data - may be sought where there is a great deviation from policies and practices

GSA continues to seek information on the customer or category of customers that receive better prices (discounts and concessions)

Government cannot negotiate unless it considers the discounts offered to the best customer

GSA continues to expect to receive current, accurate , and complete data, but GSA does not view a statement putting offeror/contractors on notice of its expectations as a defacto certification

Maintain Post-Award Audit Provision For Monitoring Compliance With Specific Contract Provisions Such As The Price Reduction Clause And Industrial Funding Fee Clause, And For Over Billings (GSAR 552.215-71)

Clause allows for access to examine books and records related to overbillings, errors, compliance with the price reduction clause, and compliance with the industrial funding fee clause for three years

Maintains Price Adjustment Clause (GSAR 552.215-72)

GSA rejected industry argument that price adjustment for post award discovery of the submission of incomplete, inaccurate or not current pricing information during negotiations should be deleted as inconsistent with commercial practices

GSA decided that clause needed to be maintained in order to protect the contracting officer and to convince the contractor to negotiate an equitable settlement

New Rule On Publication of Price Lists (1998)

Contractor under FSS MAS program can now print and distribute price lists without written approval of the contracting officer
GSAR 552.238-74

ADDITIONAL RECENT CHANGES UNDER INTERIM
RULE EFFECTIVE FEBRUARY, 1999

(Public Comments Have Been Invited Before Issuance of Final Rule)

Amendment defining activities that are authorized to place orders under an FSS contract
GSAR 516.505 and 552.216-73

Amendment allowing FSS PCOs to authorize ACOs to issue show cause or cure notices - designed to streamline handling of performance problems
GSAR 542.302

Amendment changing the time for submission of final close-out report to eliminate a potential conflict between the required report date and the final date of performance of delivery orders
GSAR 552.238-72

Change reference to "maximum order limit" to "maximum order threshold"
GSAR 552.238-76

FSS MAS contractors now allowed to delete items without prior approval
GSAR 552.243-72

Revision gives contractors the option of publishing supplemental price lists as modifications occur or on a quarterly basis.
GSAR 552.243-72

ONGOING INITIATIVES

The Government Electronic and Information Technology Association (GEIA) has filed a formal petition with OFPP last week seeking to:

Rescind Price Adjustment Clause and Post Award Audit Provisions

However, GEIA dropped request for recession of the Price Reduction Clause

GEIA argues that these provisions are inconsistent with commercial practices.

(Not necessarily true - Cendant recently negotiated a commercial contract with Lockheed as a subcontractor with a post award audit provision)