We recently wrote about GSA’s new Transactional Data Reporting (“TDR”) pilot program, which requires participating Federal Supply Schedule (“FSS”) contractors to report 11 items of transactional data to GSA each month. The TDR rule also eliminates the requirement to provide a Commercial Sales Practices (“CSP”) format as well as the Price Reductions Clause.  As we noted in our earlier post, the TDR rule promises to give GSA contracting officers greater flexibility in evaluating FSS offers and proposed pricing, but there still is significant uncertainty as to how GSA will apply the rule in practice.

Recognizing this uncertainty, the Coalition for Government Procurement recently submitted 65 questions to GSA focused on five aspects of the TDR rule: Use of the Data, Pricing, Pilot Administration and Operations, Public Disclosure of Information, and Evaluating the Pilot. GSA responded to the Coalition’s questions on September 19th.  While GSA’s efforts to engage with industry are commendable, GSA left unanswered many key questions that are of significance to FSS contractors, including how the TDR rule will impact FSS contract pricing negotiations.

GSA Offers Little Clarity on Pricing Negotiations Under the TDR Rule

Many of the Coalition’s 65 questions sought guidance on how GSA plans to utilize the 11 items of transactional data to negotiate pricing for FSS contracts.

In response, GSA largely pointed back to the new GSAM clause established by the rule, GSAM 538.270-2 (Evaluation of offers with access to transactional data), which creates an “order of preference” for the types of data the government may use to negotiate contract pricing. According to GSA, “[t]he process will not change for determining pricing fair and reasonable [sic].  Through data available as a result of TDR, the [contracting officer] will simply have more data to utilize in making their fair and reasonable determinations.” See id.

Unfortunately for FSS contractors, GSA’s statements raise more questions than they answer. A core premise of the TDR rule is that GSA will utilize the transactional data it obtains to determine if a contractor’s product and service offerings are reasonably priced when compared to the offerings of other contractors for “the same or similar” products and services. See id. But, of course, the value of such comparisons ─ and hence the utility of the transactional data used to make them ─ depends almost entirely on whether GSA negotiates pricing based on products and services that truly are comparable.  In other words, no amount of transactional data will yield fair and reasonable pricing  if the pricing negotiation rests on an “apples to oranges” comparison of dissimilar products and services.

As we noted in June 2016, the TDR rule does not explain how the required 11 items of transactional data will help GSA contracting officers determine whether a contractor’s offerings are the “same or similar” to another offeror’s products or services. And GSA’s responses to several of the Coalition’s questions only heighten the concern that GSA may not yet have an answer to this critical question.  For example:

• It is unclear how GSA intends to negotiate fair and reasonable pricing for “complex configured items.” As the Coalition pointed out in several of its questions, many contractors offer “complex configured items” for sale under the FSS program. Generally, complex configured items consist of a unique set of bundled supplies and services that are sold together for a firm-fixed price (“FFP”). Contractors offering complex configured items typically do not provide line item pricing or sales data for the component supplies or services included in the bundled transaction. As a result, even with the transactional data in hand, GSA contracting officers have no principled way to make an “apples to apples” comparison between contractors’ offerings because the FFP bundles, by definition, consist of unique component products and services. GSA itself recognizes that the transactional data required by the new rule will be of no value in this scenario, yet it offers no explanation of how it intends to conduct pricing negotiations for FFP complex configured items. (“GSA recognizes fixed price data will have limited value compared to data reported for other contract types, including for contract-level price comparisons . . .”).

• FSS contractors may be at severe informational disadvantage during pricing negotiations with GSA. In its responses to the Coalition, GSA indicated it has not finalized its policy with regard to the release of contractors’ transactional data to outside parties, including to competitors and the general public. While it appears GSA intends to issue a policy at some point, the government’s delay in doing so raises a number of potential concerns. For example, contractors will be at a significant disadvantage during FSS pricing negotiations if GSA does not disclose basic information about the products or services (e.g., unit pricing, quantities) that serve as the government’s basis for comparison. And even if GSA disclosed such information, contractors undoubtedly will attempt to persuade GSA that their products and services are unique, resulting in many of the same kinds of delays and complexities the TDR rule is intended to avoid. At the same time, many contractors will feel they need to protect their transactional data from being disclosed, even if GSA has determined that such information may properly be released under the Freedom of Information Act (“FOIA”), Trade Secrets Act, and other applicable laws and regulations. This will surely lead to litigation, which, in turn, will stifle GSA’s ability to conduct pricing negotiations efficiently.

• In the absence of guidance on how to make appropriate pricing comparisons, GSA contracting officers may default to requesting “other than certified cost or pricing data” from FSS contractors. In our June 2016 alert, we questioned whether GSA contracting officers who have grown accustomed to relying on contractors’ CSPs would be unwilling or unable to make fair and reasonable pricing determinations without the information included in CSPs. We raised this concern largely because GSAM 538.270-2 permits contracting officers to request “other than certified cost or pricing data” if, in their discretion, they feel they are unable to determine the reasonableness of an FSS offerors’ prices. GSA’s responses to the Coalition’s questions only stoke these concerns, as GSA confirmed that it has no intention of developing a standard form to guide contracting officers’ requests for additional data under the new rule.

Other Areas of Interest to FSS Contractors

Several of GSA’s responses to the Coalition address other areas that will be of interest to contractors. They include:

• For now, current FSS contract holders may largely “opt in” to TDR compliance, but new FSS contracts will require TDR compliance from day one. GSA confirmed that it does not intend to unilaterally incorporate the TDR clauses into any existing FSS contracts. The TDR clauses will be incorporated via bilateral modifications, although GSA reserves the right not to exercise an option on any contract for which the contractor has not accepted the bilateral TDR modification. New contractors seeking to get on schedule will be required to accept the TDR clauses as a condition of award.

• The requirements to submit CSPs and to track Price Reductions have been eliminated, but not entirely. GSA indicated that, “[o]nce a vendor accepts the bilateral modification [incorporating the TDR clauses], they will no longer be required to provide or maintain CSPs, or monitor the basis of award . . .”  Nevertheless, Original Equipment Manufacturers (“OEMs”) that hold FSS contracts should be aware that, if their Level of Service partners have their own FSS contracts and do not accept the TDR bilateral modification, the OEM will still be required to support their partners’ CSP submissions and price reduction tracking obligations.

• The TDR rule promises to lessen the frequency and scope of pre-award and post-award pricing audits, but the GSA Inspector General has not signed off on the TDR pilot program. GSA has touted that the TDR rule will lessen both the frequency and scope of pre-award and post-award pricing audits of FSS contracts. But the independent entity that historically has performed many of those audits ─ the GSA Inspector General ─ has yet to indicate its approval of the TDR pilot program. Therefore, the promise of reduced audit activity under the FSS program remains to be seen.

As is evident from the foregoing, GSA’s new TDR rule leaves many important questions unanswered, including key questions regarding how GSA contracting officers will conduct pricing negotiations going forward. Thankfully, GSA seems willing to discuss these topics with industry, and FSS contractors would be well-served to engage in such discussions with their GSA contracting officers.