GSA ponders cuts in schedule fees

The General Services Administration may reduce the fees agencies pay to buy products and services through the Federal Supply Service's multiple-award contracts.

GSA officials are reviewing an independent study that evaluated whether the 1 percent industrial funding fee charged on every task order should be lowered and, if so, what would be the best method for doing so, according to a GSA spokeswoman.

"There is a draft report that is being reviewed internally, and at the appropriate time, we will discuss any potential changes with our stakeholders," the spokeswoman said.

The agency commissioned the study several months ago, but the issue has gained momentum since the General Accounting Office released a report last month recommending a lower fee.

For GSA and other agencies that oversee governmentwide contracts, the fees are intended to bring in just enough money for the managing agency to recover the costs it incurs in awarding and managing a contract. But with the high volume of information technology business awarded through schedule contracts, FSS made a profit of more than $150 million over a three-year period, according to GAO (see box).

GAO officials found that much of the excess money from the IT schedule has gone to paying for other schedules that are not doing as well and for other programs at the agency.

In a written response to the GAO report, GSA officials said they would look into lowering the fee, but noted that it would be a complex process. For example, because the fee is built into contract pricing, all schedule contractors would have to change the prices of their products and services.

Making the adjustments would not be that complicated, according to Larry Allen, executive vice president of the Coalition for Government Procurement, one of the industry groups that has advocated reducing the fee.

"GSA uses [the price changes] as an excuse, and it is a hurdle, but it is the least of all the hurdles," Allen said. "Companies can't flip a switch, but it is in fact doable.... It's just a question of giving people appropriate time to phase it in."

However, "you've got to be careful that you don't reduce it too much," he added. GSA cannot predict future schedule business, and if demand for products and services drops, it could leave GSA with a shortfall in operating funds.

Some people would like to see GSA use its profits to support the broader acquisition community, according to Olga Grkavac, executive vice president of the Enterprise Solutions Division at the Information Technology Association of America.

Rep. Tom Davis (R-Va.), chairman of the House Government Reform Committee's Technology and Procurement Policy Subcommittee, has proposed using part of the fee profits to pay for training and education for acquisition personnel. And GSA officials plan to use some of the profits for the acquisition-related e-government initiatives the agency is leading, Grkavac pointed out.

GSA officials need to determine what services FSS should provide and how to build those into its management costs, Allen said. For example, officials must decide whether the fees should support FSS programs designed to educate federal agencies about how to use the schedule.

"You have to ask yourself what you really want the [fees] to pay for," Allen said.

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Reported GSA schedule results ... Fiscal 1999 ... Fiscal 2000 ... Fiscal 2001

IT schedule orders ... $6,950 million ... $9,290 million ... $10,850 million

Total schedule orders ... $10,470 million ... $13,640 million ... $16,480 million

Fee revenues ... $114 million ... $151 million ... $168 million

Earnings (surplus fees) ... $39 million ... $55 million ... $56 million