GSA puts surcharge on Group 70

Starting in April, agencies will pay 1 percent more for
purchases made through the General Services Administration's IT schedule contracts. The
schedule vendors will pass the 1 percent surcharge along to GSA to finance the schedules

The surcharges will apply to all Multiple-Award Schedule Group 70 contracts covering
Pbs, mid-range and mainframe hardware, packaged software, financial management software
and telecommunications.

Officials in GSA's Federal Supply Service said the new fee scheme is designed to
transform the MAS IT program into a self-sustaining operation.

IT Service officials had planned to shift to a service fee system gradually, starting
next fall. But after FSS officials assumed responsibility for all IT schedules this fall,
they inserted the 1 percent surcharge into the Group 70 1996 contract solicitations.

Industrial funding is nothing new for GSA. FSS this year shifted all its other MAS
programs to a fee-for-service format. Service organizations such as the IT Service's
Federal Systems Integration and Management Center already rely on cost-reimbursable

"Our appropriations are being cut, and they will be zeroed out for the schedules
programs," said William N. Gormley, assistant FSS commissioner for acquisition.
"We began industrial funding for our other schedules last April. This completes the
transition to full industrial funding for all these programs."

Meanwhile, GSA officials are waiting to see how procurement reform legislation plays
out in Congress before issuing a proposal to open up the MAS program to state and local
government buyers.

Under the industrial fund format, GSA will impose the 1 percent service fee on all MAS
sales. GSA's schedule negotiators and vendors will incorporate the fees into MAS list

It will be up to schedule holders to track their sales and remit the fees to FSS every

Some vendors had balked at the notion of becoming GSA's fee collector. But leaders of
industry groups said they realize the MAS program cannot survive without industrial

"It was not a surprise because ITS was going that way and FSS already does it for
their schedules," said Larry Allen, executive director for the Coalition for
Government Procurement in Washington.

"GSA has been flexible in that if vendors have not been paid, they do not have to
remit," he said. "Companies can also make adjustments in the following quarter
for changes in previous sales periods."

Gormley said the 1 percent figure was based on FSS estimates for what it will cost the
agency to manage the IT contract stable. FSS can recover only its business expenses, and
Gormley said the fees will be altered periodically depending on revenues.

"We're not allowed to make any profit, and additional funds must be turned over to
the Treasury," Gormley said. "We can adjust the fee and will review it at least

Another potential trouble spot following the shift of the IT schedules to FSS is the
contract audit process.

In recent years, schedule holders have complained that GSA has used the threat of
inspector general audits to bolster their negotiating leverage. Some software makers also
have argued that they should be immune from direct audits because they usually sell their
packages through resellers that hold schedule contracts.

Gormley said he knows the audits are a sensitive issue. But vendors should be more at
ease with FSS because the service relies on its regional contract administrators to handle
program reviews, he said.

"Operationally, we're different than the way things have been done before,"
Gormley said. "The reviews will be taken out of procurement and given to those people
whose job it is to administer contracts."

As to the state and local MAS plans, Congress authorized the agency to extend the
program beyond federal agencies as part of the 1994 Federal Acquisition Streamlining Act.

But recently, some members of Congress challenged the feasibility of the cooperative
purchasing approach. Now there is legislation mixed in with other procurement reform
measures to delay state and local access to the MAS until fiscal 1997.

A draft GSA plan for carrying out the project is under review at the Office of
Management and Budget. GSA officials said they will hold off on any further action to see
if Congress alters its earlier mandate.

Ida Ustad, assistant GSA administrator for acquisition policy, said, "We may go
ahead with the proposed rule, but we're trying to reflect on what would be best at this

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