Industry faults rule on pricing, audits

Industry groups last week attacked the General Services Administration's proposed final rule for governing the multiple-award schedule program charging that GSA's language is not in keeping with the spirit of acquisition reform.

GSA late last month issued the proposed final MAS rule as well as a series of options for dealing with post-award audits of contractors' schedule activity. The rule upholds GSA's right to conduct post-award audits and requires vendors to disclose their "most favored customer" price.

Industry executives at a public meeting Thursday complained that the rules are intrusive create a burdensome paperwork load and are not in keeping with commercial acquisition practices. GSA and its agency supporters however contend that the rules enable the government to obtain fair pricing from the vendor community.

Industry executives particularly objected to GSA's adoption of most favored customer pricing as the measure of a fair and reasonable price. The GSA's objective is to ensure that the government gets discounts similar to those offered to a vendor's commercial clients.

But in testimony last week Harris Miller president of the Information Technology Association of America said "retaining `most favored customer' price as the standard for price reasonableness requires vendors to maintain extensive records of their commercial sales transactions in order to be able to identify and disclose [their] most favored customer transactions."

Added Larry Allen executive director of the Coalition for Government Procurement "When prices in the commercial market change by the hour it's difficult to determine the best customer price."

Ken Salaets director of government relations with the Information Technology Industry Council said compelling vendors to compile pricing data would result in a "burdensome record-keeping system."

In addition to the paperwork burden vendors are exposed to criminal liability and financial reparations if their pricing is found to be defective industry executives said. They also said they believe that market research not vendor disclosures is the best way to determine fair pricing.

On a broader level industry organizations said the MAS rule undercuts the Federal Acquisition Streamlining Act the Federal Acquisition Reform Act (FARA) and other initiatives to make acquisition more efficient.

"A fair and reasonable price does not have to be an offeror's most favored customer price " said Dan Heinemeier vice president of the Government Division of the Electronic Industries Association. "GSA's insistence of this policy runs counter to numerous actions to remove such policies that have been taken by Congress and the administration in recent years."

But GSA questioned whether the proposed MAS final rule will generate excessive paperwork. "In our mind we are asking you to disclose discount policies we're not asking you to disclose particular transactions " said Ida Ustad deputy associate administrator for acquisition policy at GSA.

Other government representatives suggested that the MAS rule is necessary to protect the government from being fleeced. John Ames director of the contract review division at the Department of Veterans Affairs' Office of the Inspector General said that vendors' best discounts to hospital groups rarely are published. He added that the VA will recover $41 million in schedule contract overcharges this fiscal year. Ames however was speaking in reference to medical supplies rather than specifically on information technology.

Audits Called Intrusive

Also at issue is the GSA's right to conduct post-award audits in which GSA gathers vendor information to determine whether the vendor adhered to the terms of its schedule contract and provided a fair price to the government. Industry groups have objected to the practice as intrusive and time consuming.

GSA has proposed an option that would "forgo post-award audit rights when a pre-award/modification audit is done." In cases in which a pre-award audit could not be conducted GSA could conduct a two-year post-award/modification audit of contractors with MAS sales of $500 000 or more for the previous year. In addition contracting officers would be authorized to audit "high-risk" contractors - those with a history of providing inaccurate information - or new contractors under the $500 000 threshold.

Allen said this audit-rights option "may have the most potential " adding that his group will study the issue further. Miller however said "maintaining GSA's right to conduct post-award audits is particularly intrusive and ITAA believes inconsistent with the recent statutes."

Lawmakers Have Their Say

Congress also is weighing in on the issue. In a Sept. 18 letter to Franklin Raines director of the Office of Management and Budget Sen. William Cohen (R-Maine) Rep. William Clinger Jr. (R-Pa.) and Rep. Floyd Spence (R-S.C.) wrote: "It has come to our attention that [GSA] intends to promulgate regulations which are contrary to congressional intent. [FARA] eliminated the authority of federal agencies to perform post-award audits of suppliers of commercial items. The clear intent of Congress was that these audits would no longer be performed by federal agencies."

The letter identified the General Accounting Office as the "only remaining authority for the government to pursue post-award audits of contractor records."