OFPP rules in GSA's favor on schedule clauses

OFPP rules in GSA's favor on schedule clauses

OFPP's Deidre Lee says the General Services Administration has taken 'reasonable steps in shaping its MAS policies.'

By Christopher J. Dorobek

GCN Staff

Tossing out an industry petition, the Office of Federal Procurement Policy this month refused to rescind the audit and price adjustment clauses included in all General Services Administration schedule contracts.

'I have concluded that the challenged safeguards are consistent with commercial practice to the maximum extent practicable given the current objectives of the Multiple-Award Schedule program,' OFPP Administrator Deidre A. Lee concluded in an Oct. 12 letter to the Government Electronics and Information Technology Association of Arlington, Va.


The GEIA petition, submitted June 1, was the first of its kind filed under OFPP Authorization Act [GCN, June 7, Page 1].

The two clauses have long been a topic of dispute between the government and its vendors. The audit clause lets GSA review vendors' records for overbillings and billing errors, and to see whether vendors are giving government the best price offered to any customer. The price adjustment clause lets GSA reduce contract prices if post-award reviews of company records show a vendor did not offer government buyers the best price.


The OFPP Authorization provision gives the administrator considerable leeway about what action to take if the agency receives a petition. GEIA had asked OFPP to abolish the schedule contract clauses.

'A key consideration in reaching this conclusion rests in the difference between the MAS and comparably large central buying programs used by commercial companies and federal agencies outside the MAS,' Lee said in her decision.

Commercial companies typically limit users' choices to maximize buying leverage. Schedule contracts give government users more choices in vendors, but GSA must ensure that the government is receiving comparable prices to other large buyers, she said.

Furthermore, Lee said, GSA has taken 'reasonable steps in shaping its MAS policies' and the GSA Acquisition Regulation to avoid using post-award audits unless absolutely necessary.

'These audits have not been included in any of GSA's schedule contracts awarded since August 1997,' she said.

There were sharply divergent opinions about OFPP's ruling.

'I think it's lamentable,' said Robert J. Sherry, an attorney with McKenna & Cuneo of San Francisco, who wrote the petition for GEIA.

Congress has directed that commercial- item contracts contain, to the maximum extent practicable, only clauses that are consistent with commercial practices, he said. Lee's decision acknowledges that the audit and price adjustment clauses are not consistent with commercial practices, Sherry said.

'If post-award pricing audits are still permissible, why did the authors of the [Information Technology Management Reform Act] send a letter to the Office of Management and Budget declaring that the law 'eliminated the authority of federal agencies to perform post-award audits of suppliers of commercial items'?' he asked.

Former OFPP administrator Steve Kelman, now a professor of public management at Harvard University's John F. Kennedy School of Government, said the petition amounted to overreaching by industry.

When GSA officials reviewed the schedule regulations, 'they really went almost the entire way toward granting industry what it had asked for,' he said. At that time, industry officials said they could live with the regulations. The petition is about getting what they did not get last time, he said.

GEIA president Dan C. Heinemeier said, 'Lee's principle argument is that extraordinary pricing protections are needed for the MAS because it is unlike commercial buying programs. This argument troubles GEIA in that it concludes that contracting officers awarding MAS contracts need more pricing protection than contracting officers in other agencies who award sole-source contracts for commercial items.'

Larry Allen, executive director of the Coalition for Government Procurement of Washington, which wrote a letter in support of GEIA, said Lee's reasons for rejecting the decision were unsound. 'It's a fundamental rejection of some very sound ideas that were put forward,' he said.

Competitive grounds

Lee rejected the petition on the basis that the government needs to ensure competition, but there is more competition among schedule vendors than for most other contract vehicles, Allen said.

Like Kelman, GSA officials acknowledged that vendors have long disliked the clauses, but the agency has worked to meet their demands when possible.

'Industry hasn't liked some parts of the MAS program from Day 1,' said Les Davison, GSA's acting deputy associate administrator for acquisition policy. 'We think we've improved it quite a bit.'

GSA must improve contracting and be a steward of taxpayer dollars without being a burden on vendors, Davison said. 'The two aims have come to be very contradictory.'

Makes the case

Joseph J. Petrillo, an attorney with the Washington law firm of Petrillo & Powell PLLC, said OFPP's decision makes a compelling case that the federal government has special needs under the MAS program.

'Audits, however, continue to pose a risk to industry, particularly since they are backed with very heavy potential penalties,' he said. 'Industry ought to shift its focus from eliminating the risk ' to mitigating the risk.'

GEIA officials said they have not decided the organization's next step. 'I'm not sure the battle is over at this point,' Sherry said.

Lee said OFPP, GSA and the Veterans Affairs Department will conduct a joint study to 'review whether the MAS program's current objectives and design adequately facilitate effective buying.'

Among other things, the study will review marketplace trends, practices and tools, including the use technology to increase the government's buying power, Lee said.

The review will occur in conjunction with ongoing efforts to ensure that other interagency acquisition vehicles, such as multiple-award contracts, are sound and well-run.

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