Vendors are unnerved by GSA's price-pushing

The pressure has gotten so intense that Cisco Systems Inc., the leading networking
vendor, reportedly considered withdrawing from Multiple-Award Schedule contracts in favor
of selling through other contract vehicles such as NASA's Scientific and Engineering
Workstation Procurement II and the National Institutes of Health Electronic Computer Store
II.


But a Cisco manager denied the company would abandon the FSS program. "We're
moving in the opposite direction," said Paul Cantwell, federal channel director for
Cisco of San Jose, Calif.


One Cisco reseller, however, said the tough negotiating environment is challenging. GSA
negotiators look for the best prices. But the vice president of a Cisco schedule
contractor said that "you can't lay your best deal on GSA," because there are no
guarantees of business and many buys are small.


GSA officials have long acknowledged that they expect schedule vendors to give federal
buyers the best prices possible, equivalent to the lowest prices that they give commercial
customers.


But Bill Gormley, FSS assistant commissioner for acquisition, refused to talk about
negotiation tactics. He only said, "We do not discuss negotiations with companies or
their resellers."


Debate about FSS negotiation strategies was renewed in part because of the discounts
Cisco offered to the National Security Agency on a networking contract [GCN, Jan.
26, Page 6]. Cisco won the contract, but NSA ultimately decided to cancel the deal and
reopen the buy.


Industry officials said GSA sought information about getting relative prices for such
wares available through schedule contract holders. Spot pricing makes sense to many
vendors when an agency wants to make large buys from schedule contracts, and GSA officials
have urged vendors to use spot pricing.


"GSA is methodically doing its homework" and calling in other networking
vendors to renegotiate their prices, the Cisco reseller said.


But the approach unnerves some vendors. "There needs to be a reconsideration of
the way GSA looks at products and services," said Paul Snyder, vice president of
government national programs at Comstor, a Chantilly, Va., distributor and schedule
contractor.


"You can't treat networking products like a commodity," said Snyder, who
described himself as a GSA supporter. Comstor has an agent program with about 30
resellers, which last year sold $50 million worth of Cisco hubs, routers and switches to
federal agencies, he said.


Cantwell said Cisco has about 230 federal resellers in all.


Comstor operates on 2 percent profit margins for Cisco products, Snyder said, and its
resellers earn 2 to 3 percentage points on Cisco schedule sales.


"It's not a business-friendly model," he said, because Comstor and its
resellers must employ engineers who specialize in Cisco products.


But Cisco's Cantwell downplayed the negotiation debate, and said Cisco's GSA resellers
have done a good job of getting through negotiations. Although profit margins have fallen
for networking products, federal agencies want "end-to-end solutions, such as network
operations centers monitored centrally," Cantwell said.


Cisco recently added Bell Atlantic Corp. to the schedule contract group. "The
expanded scope of the GSA schedule lets our partners provide both products and
services," Cantwell said.


Other schedule vendors were less reticent about criticizing GSA.


"GSA shouldn't be pressuring key vendors to lower margins," said Patrick
Neven, president of MicroAge Federal, a reseller in Vienna, Va. "They should let the
open market dictate."


Many vendors said they found NIH's Information Technology Assessment Center and other
contracting offices more business-friendly than FSS because they can keep the higher
margins.


But NASA officials got more aggressive pricing on Cisco products from Unisys Corp.'s
SEWP II contract than GSA could deliver, said Marisa Cecco, federal alliance manager at
Unisys.


SEWP II, like ECS II, is a governmentwide acquisition that competes directly with FSS.


In March, Unisys will renegotiate its schedule contract.


Cecco said she expects GSA contract officers to be more aggressive in negotiations in
the next round.


In all, Cisco has eight schedule contract vendors, including BTG Inc. of Fairfax, Va.,
Science Applications International Corp. of San Diego and Sylvest Management Systems Corp.
of Lanham, Md.


BTG recently sold its government product sales division to Government Technology
Services Inc. of Chantilly, Va., citing low profit margins [GCN, Jan. 12, Page 8].

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