On June 23, 2016, the General Services Administration (GSA) released a final rule that will result in the most significant change to the GSA Federal Supply Schedules (FSS) program in the last two decades. 81 FR 41103 (New Rule). The New Rule introduces a transactional data reporting element to the FSS program, effectively replacing the current requirements relating to Commercial Sales Practices (CSP) disclosures and the Price Reduction Clause (PRC).
Under current FSS regulations, contractors are required to submit CSP disclosures with their initial offer for a FSS contract, which includes a broad disclosure of discounts the contractor offers to commercial customers for similar products and services. The CSP disclosures are used to identify a “tracking customer,” which consists of a customer or category of customers that will be tracked to identify pricing discounts to GSA customers. The PRC requires the contractor to monitor its ongoing commercial sales to ensure that the government receives the same price reductions given to the “tracking customer.” Through the New Rule, GSA is replacing the CSP disclosures and PRC requirements with a different method of award monitoring: transactional data reporting.
Transactional Data Reporting
The New Rule identified two primary limitations in the current model of utilizing CSP disclosures and the PRC to make best value award decisions: (1) lack of ability to compare one vendor’s prices to another vendor’s, and (2) lack of visibility into prices paid to vendors by other government customers. GSA’s analysis demonstrated that the system of using CSP disclosures for price analysis, which has been in place since the 1980s, had become less effective over time. In fact, GSA determined that government customers tend to receive voluntary price reductions from contractors due to competitive market conditions, unrelated to the “tracking customer” provisions of the PRC.
The New Rule’s transactional data reporting element seeks to utilize data from the contractor’s previous sales to GSA and other government customers to make better buying decisions. Each vendor subject to the transactional data reporting element will be required to submit monthly reports that provide 11 transactional data elements, including:
- Contract or BPA Number
- Delivery/Task Order/Procurement Instrument Identifier
- Non Federal Entity
- Description of Deliverable
- Manufacturer Name
- Manufacturer Part Number
- Unit of Measure (each, hour, case, lot, etc.)
- Quantity of Item Sold
- Universal Product Code (UPC)
- Price Paid per Unit
- Total Price
This information will be submitted electronically, through either GSA’s Interact website or uploaded according to GSA instructions, which will allow the government to collate and analyze the data. The goal is for government customers to be able to utilize this transactional data to compare vendors’ pricing, and the prices paid by other government customers.
Through transactional data reporting, GSA believes that the government will be able to analyze its consumption patterns, as well as evaluate and compare its purchasing channels, which will allow for the identification of best-in-class solutions. The goal is for the government to be able to leverage its buying power to concentrate its purchases through fewer contract vehicles, saving the taxpayers money and reducing the administrative burden on contractors.
Application of the New Transactional Data Reporting Requirement
The new transactional data reporting requirement will begin no sooner than July 1, 2016, but no later than 60 days following the June 23, 2016 effective date. GSA is implementing the New Rule on a rolling basis, as it has identified certain Schedules and Special Item Numbers (SINs) that will be part of a pilot program to evaluate the effectiveness of the transactional reporting requirement. According to the New Rule, the pilot will include eight Schedules, including Schedule 70 and the Professional Services Schedule, and will reach approximately 30% of GSA’s FSS contracts that account for more than 40% of FSS sales volume.1
The transactional data reporting pilot program will affect the following Schedules:
- Schedule 03FAC, Facilities Maintenance and Management: All SINs.
- Schedule 51 V, Hardware Superstore: All SINs.
- Schedule 58 I, Professional Audio/Video, Telemetry/Tracking, Recording/Reproducing and Signal Data Solutions: All SINs.
- Schedule 72, Furnishing and Floor Coverings: All SINs.
- Schedule 73, Food Service, Hospitality, Cleaning Equipment and Supplies, Chemicals and Services: All SINs.
- Schedule 75, Office Products: All SINs.
- Schedule 00CORP, The Professional Services Schedule: Only Professional Engineering Services (PES) SINs.
- Schedule 70, General Purpose Information Technology Equipment, Software, and Services: Only SINs 132-8 (Purchase of New Equipment); 132-32, 132-33, and 132-34 (Software); and 132-54 and 132-55 (Commercial Satellite Communications).
GSA has stated that it will continuously monitor and evaluate the pilot in consideration of whether to expand, limit or discontinue the transactional data reporting requirement. No decisions on expansion of the program will be made until GSA has had at least one year of experience with the New Rule. The Schedules above will be introduced to the pilot on a rolling basis, with vendors receiving at least 30 days notice through GSA Interact before the new transactional data reporting requirements are in effect for a specific Schedule or SIN.
For FSS contracts, the transactional data reporting requirement will only be applicable to newly awarded Schedule contracts (in one of the applicable Schedules noted above), and in Schedule contracts that have had the contract term extended. Vendors holding existing Schedule contracts in one of the pilot Schedules will be encouraged to enter into bilateral modifications to remove the CSP and PRC elements from their contracts and include the new transactional data reporting requirements through the incorporation of GSAR 552.238-74. 2 For FSS contracts not part of the pilot program, contractors will still need to comply with existing CSP and PRC requirements.
GSA GWACs and IDIQ Contracts
While the new transactional data reporting requirements are being phased in for FSS contracts, the new requirements are also intended to apply to any GSA Governmentwide Acquisition Contracts (GWACs) or non-FSS Governmentwide ID/IQ Contracts awarded after June 23, 2016, through the inclusion of GSAR 552.216-75. This clause will be included in all new GWACs and Governmentwide Indefinite-Delivery, Indefinite-Quantity (IDIQ) contracts. For existing contracts with other transactional data reporting requirements, GSA and the contractor may opt to continue to use the existing reporting requirements, or the new clause can be incorporated into the contract through bilateral modification.
Effect of the New Transactional Data Reporting Requirement
The existing CSP disclosure and PRC monitoring requirements have been the source of most complaints from FSS contract holders, and potentially the biggest barrier to entry for prospective vendors. These compliance obligations are very complicated and often misunderstood by even the most seasoned government contractors. As a result, vendors have faced significant risk of allegations of False Claims Act (FCA) violations through defective CSP disclosures and failed PRC monitoring.
Contractors, in particular small business contractors, have had to weigh the potential benefit of an FSS contract against these very real risks of non-compliance, along with the significant upfront costs of obtaining a contract and the ongoing costs and administrative burden required to maintain an FSS contract. With regard to these costs, GSA believes that the elimination of these arcane price regulations will have a significant reduction in the administrative costs required to administer an FSS contract. GSA has estimated a $44 million per year reduction in administrative burden for all vendors subject to the New Rule.
GSA also considered that vendors would be subject to a different type of data collection and reporting requirement, which would increase reporting costs. GSA estimates that vendors subject to the new transactional data reporting requirements would see an increase in costs of approximately $15 million per year associated with the new requirements. However, GSA noted that even with this increase in costs, vendors subject to the new requirements would see a net reduction in costs of $29 million per year associated with the administration of FSS contracts.
Vendors subject to the new reporting requirements will be required to submit a transactional data report within 30 calendar days after the last calendar month, essentially requiring 12 transactional data reports each year. GSA noted that vendors will have the option of either monitoring transactional data on a manual basis or implementing an automated system that automatically compiles the required data to be reported. GSA noted that a manual system would place a significantly small burden on the vendor to establish (estimated 8 hours): however, the reporting effort would necessarily increase as the vendor’s sales increased. Alternatively, GSA estimated that an automated system would take a much longer amount of time to setup (estimated 240 hours), but the reporting effort would likely be static no matter the sales volume.
GSA also noted that the New Rule would represent a significant reduction in the administrative burden for vendors reporting $0 in sales. Currently, vendors with no reportable sales, which in fiscal year 2015 represented 32% of all FSS vendors, were required to report the $0 in sales for each SIN under their Schedule contract. Under the New Rule, vendors with $0 in sales can now click a single field to complete their reporting obligation.
GSA’s New Rule is a major change to the Schedules program. The effectiveness of this New Rule is yet to be determined, but that GSA is considering alternatives to the current complicated and burdensome system should be seen as a positive step. There are still a few aspects of the process that have not quite been addressed by the New Rule, such as how the transactional data requirements apply to initial offers for Schedule contracts. Without a Schedule contract or CSP disclosures from which to gather the pricing data, it is unclear how GSA will evaluate an offerors’ initial pricing. Issues such as this are worth monitoring during the pilot program.
Also, GSA has provided its estimates for the administrative burden to be placed on vendors as a result of the new transactional data reporting requirements, concluding that vendors will be better off under the new system. GSA appears to be relying on the assumption that the administrative costs under these new requirements will be negligible for vendors with no FSS revenue, with vendors’ administrative costs only increasing commensurate with the increase in revenue. If this assumption bears out, it will certainly be a positive for small businesses or contractors with little expected GSA footprint, and may make the Schedules program more cost-feasible for small businesses.
Finally, the elimination of the CSP and PRC requirements will lessen vendors’ potential liability for FCA violations, as the complicated nature of those requirements created significant risk of non-compliance. However, the new transactional data reporting program is not without risks of its own. It is likely that failure to accurately report the transactional data will create its own FCA liability, as the government will be relying upon that data to make its purchasing decisions. Thus, it is imperative that vendors ensure their reporting systems are setup properly and implemented accurately.
1 The New Rule does not apply to Department of Veterans Affairs FSS contracts.
2 While the price reduction requirements of the PRC will no longer be mandatory, the New Rule indicates that alternate text will remain which will give the government the ability to request a temporary or permanent price reduction, and for the vendor to voluntarily offer the government a price reduction at any time during the contract period.