Federal Contract Law: Much ado about GSA's federal supply schedules

Joseph J. Petrillo

The world of GSA Schedule contracting is rocking along, with a major new regulation and several proposals in the wings. The new regulation adopts rules for 'co-operative' purchasing use of IT schedules by state and local governments. This program was an initiative of Rep. Tom Davis (R-Va.), passed as part of the E-Government Act. In the rules:
  • GSA dropped a controversial provision that would have made all dealer sales subject to the price reduction clause.
  • State and local governments can add their own terms and conditions to orders if required by state law and if the provisions don't conflict with the schedule contract.

  • The state's prompt payments rule applies to state orders. If the state doesn't have such a rule, the federal one governs.

  • The program is voluntary. Contractors do not have to participate and, of course, neither do the states.

The success of cooperative purchasing now depends upon states changing their buying laws and procedures to enable, or prefer, this program.

In addition, GSA is moving to implement the reduction of the Industrial Funding Fee from 1 percent to 0.75 percent. It has a draft contract clause dealing with sales reporting and the payment of IFF. Under the new proposal:
  • GSA can change the IFF rate, unilaterally, once a year

  • IFF must be included in prices

  • All sales of contract items to authorized users are subject to IFF unless the contractor can show that the buy took place under some other authority. This places the burden of proof on the contractor.

What GSA left out of the clause was the requirement to adjust contract prices up or down to account for the new IFF rate. But GSA's explanation of the rules makes clear that this is what it intends to do. GSA will hold off the price reduction for one full quarter, though, to help contractors recoup their administrative costs.

GSA also proposes some changes to the basic rules in the Federal Acquisition Regulation for schedule buys. Among the changes:
  • Continuing a trend toward tougher language, the new rules would be more clearly mandatory. The word 'shall' appears before several obligations, such as the requirements to seek three offers from schedule contractors.

  • But the new rules also include documentation requirements for sole-source and restricted competition orders, implying that these are also possible.

  • For agencies with blanket purchasing agreements, the rules imply that ordering can be limited to schedule contractors holding a BPA.

  • Although the rules on small business set-asides don't apply to schedule buys, agencies should give a 'preference' to small-business schedule vendors, whatever that means.

  • For the first time, there are special rules for ordering services priced using hourly rates, such as:
    • 1) Statements of work are required.

    • 2) Above the micropurchase level, the statement must go to three schedule vendors for possible quote.

    • 3) Over the maximum order amount (usually $500,000), 'additional' vendors'more than three'are necessary.

    • 4) Performance-based contracts are preferred, but when used, the agency needs to do a quality assurance surveillance plan.

    Schedule vendors are already busy, and they will be even busier implementing all these changes.

    Joseph J. Petrillo is a lawyer with the Washington law firm of Petrillo & Powell. E-mail him at jp@petrillopowell.com
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