Federal Contract Law: Is GSA's schedule tail wagging the dog?

Karen Powell

GSA's Multiple Award Schedules program has been a boon and a bane to contractors. A new General Accounting Office report indicates the same may be true for agencies.

GAO looked at the fees agencies charge one another for use of governmentwide acquisition contracts and the GSA schedules. In all but two cases GAO concluded that the fees charged to user agencies exceeded the administrative costs to the sponsoring agency in at least one of the years examined. Only the GWACs administered by Commerce and Transportation failed to turn a profit.

The best performer was GSA. It generated a $151 million surplus over the three years studied. When Congress authorized GWACs in 1996, it required the sponsoring agency to charge a user fee to other agencies to cover the cost of administering the contract. This was necessary to avoid shifting one agency's expenses to another, in violation of appropriations law.

A similar requirement applies to the GSA schedules program. GSA collects an industrial funding fee equal to 0.75 percent'recently reduced from 1 percent'of the value of the schedule order and uses it to fund its Federal Supply Service. The schedule contractor, not the agency user, pays the GSA directly. Most schedule holders roll this fee into their schedule prices. Essentially, it is GSA's sales commission.

As everybody knows, schedule sales have grown incredibly in the past decade. In 1997, the Federal Supply Service processed $6.1 billion in sales. By 2001, orders under schedule contracts accounted for $16.1 billion, two-thirds of which were for IT.

But with expansion has also come explosive growth in the FSS budget. GAO reports that the program's cost has grown from about $30 million in 1997 to around $100 million in 2001.

Watching GSA these days is like watching a salesman on steroids. GSA constantly seeks to expand its share of the federal procurement pie. It has been plowing time and money into new marketing initiatives aimed at promoting the schedules to potential agency customers. The result is more schedule sales, more fees and bigger marketing budgets.

Schedule holders now get a steady stream of invitations to participate in GSA marketing opportunities, often grouped around new schedules. A case in point is the annual Professional Services Expo. [PSX is owned by Post Newsweek Tech Media, which also publishes GCN. It is supported by GSA, which encourages contractors to exhibit and government workers to attend'ed.] Contractors rent a booth for a few thousand dollars'tchatchkes optional'and showcase their offerings before a mostly federal audience.

A less-attractive result has been the length of time it takes GSA contracting officers to review schedule proposals, or to process modifications to add new products or make changes in schedule prices. Contracting officers are overburdened with off-site training and marketing duties that interfere with their primary job of administering the schedule contracts. Delays raise the financial burden on contractors and those who would like to participate in the schedules.

Karen D. Powell is a lawyer with the Washington law firm of Petrillo & Powell. E-mail her at [email protected].


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