Neal Fox | IGs eclipsed by Sun

IT Contracting | Commentary: Will the government's equivalent of the gang that couldn't shoot straight never learn?

Neal Fox

Chalk up another setback for good government at the hands of overzealous inspectors general, as their attempt to usurp authority from the legitimate leadership in federal agencies continues unabated. The most recent blow came as the General Services Administration IG drove Sun Microsystems to tell the government it will no longer sell directly through the GSA schedules and will only provide its products through resellers.

Will the government's equivalent of the gang that couldn't shoot straight never learn? If not, who will stop them?

Maybe Congress will help. Wait a minute, they enabled and encouraged the IG abuse of Sun, so forget that idea. That would be like sending the Keystone Cops after the gang that couldn't shoot straight. It would be entertaining for a while, but in the end, nothing more than slapstick with a twisted ending.

Other information technology vendors have refused to deal directly with the federal government for years because of the opportunity for intrusive mischief that was so clearly shown in the Sun case. Big names such as Microsoft and Cisco Systems refuse direct contracts. And some IGs have complained for years about not being able to deal directly with certain vendors. Well guess what, the IG has just accelerated a trend that is not in the government's best interest.

So what was the Sun flap about anyway? Were they really overcharging the government on the GSA schedules? I seriously doubt it. Bear with me while I explain why the IG assertion, with the backing of certain members of Congress, is so off base.

First, GSA does not set exact prices on the schedules, but instead it sets maximum prices. So when a forest ranger station on a mountaintop in Idaho needs one server from the IT Schedule, GSA has set the maximum price that can be charged by each vendor. But the real determinant of pricing on the GSA schedules is commercial marketplace forces. Because the schedules are based on commercial principles, GSA uses competition as the means to gain the best pricing under the circumstances in which items are purchased. The schedules allow for unfettered discounting to federal buyers per market conditions, such as when feds buy in quantity, combine shipping, establish a blanket purchasing agreement, or use other factors that can reduce costs for that transaction.

But what about that 'most favored customer pricing' phrase that is thrown about so casually? Doesn't that mean the government must always get a lower price than anyone else? In a word, no. First, the 'most favored customer pricing' concept is merely a GSA negotiating goal, not a mandatory result. Secondly, it only applies to a narrowly defined set of customers and conditions whereby the government sets the schedules' maximum prices for each vendor based on a specific, identified buyer.

An example might be when a vendor sells its products to a large customer, such as Exxon, which buys in volumes comparable to the federal government. Exxon might be the most favored customer for that seller, so their GSA schedule prices are based on that pricing relationship. But that means if the vendor sells that schedule item cheaper to General Motors, or even to Exxon under different terms and conditions (such as when they buy in bulk), there is no violation since the government cannot guarantee they will always buy the same way, or use strategic sourcing like GM. So the pricing rule only applies if the vendor violates a specific pricing relationship with a specific buyer.

Any company can discount its prices without violating the most favored customer pricing relationship as long as it does not change the specific pricing relationship under the same conditions with a specific most-favored customer cited in the GSA contract. That's not that easy to do. But if the vendor does, the company must lower their maximum prices to the government as required by the GSA price reduction clause which exists in each schedule contract.

If the IG has evidence that Sun did that, they are not sharing such information with the GSA contracting officer as required. Suddenly, the case is closed. And sadly, Congress and the IGs completely failed to grasp what was involved in the Sun case.

Once again, the IGs showed that their tactic of public execution by insinuation is out of control, and that Congress can get burned by unquestioning support of such IG methods.

Before Sun exited the schedules program by choice, a senator demanded that the GSA administrator cancel the Sun contract. That is ironic, given that Congress was previously scolding her for interfering with contracting decisions, and specifically on the Sun issue. It was quite entertaining to see her respond that she would refuse to interfere in contracting decisions rightfully held by warranted contracting officers.

There are lessons in this for federal agencies and chief information officers. First, do not cede authority to the IGs. They are advisory staff, so they can only advise those who have real authority. Take good advice when it is given, but push back on bad advice when you see it. Also, the GSA schedules work well for federal agencies, but they still need to buy smart when using them. Use strategic-sourcing programs, and especially dynamic strategic sourcing. Establish some blanket purchasing agreements to negotiate lower prices based on long-term buying relationships. Use eBuy to bring more competition and small businesses into the purchase. By the way, when did you last receive helpful advice like this from your IG?

I thought so.

Neal Fox is the former assistant commissioner for commercial acquisition at GSA and manages Neal Fox Consulting (nealfoxconsulting.com). He can be reached at nfox@usa.com.

About the Author

Neil Fox is the former assistant commissioner for commercial acquisition at GSA's Federal Supply Service, and is now principal at Neal Fox Consulting.

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