Senate measure targets FTS

A provision in the Senate Defense Authorization bill could cripple the General Services Administration's Federal Technology Service and some other fee-for-service contract offerings by limiting the amount defense agencies can pay in fees.

Section 815 of the bill would forbid agencies from paying a service charge of more than 1 percent when they acquire goods or services through contracts outside the Defense Department. According to procurement experts, if the measure passes, it would prevent DOD agencies from using FTS's procurement services, some governmentwide acquisition contracts and other procurement offerings.

"Obviously, it's a very drastic measure," said Chip Mather, executive vice president at Acquisition Solutions Inc. "The impact is draconian. It's impossible [for FTS officials] to do what they do for" 1 percent.

About 76 percent of the service's business comes from DOD, according to GSA data.

Another provision in the bill is a response to allegations that surfaced last year claiming that some FTS employees in remote centers were misusing funds and violating procurement rules. Section 803 of the bill would prevent DOD officials from making purchases of more than $100,000 through an FTS client support center until DOD's inspector general has reviewed the center's policies, procedures and internal controls.

Each element must be certified as adequate to ensure that the center's employees comply with the law.

GSA officials noted that the Executive Office of the President — which includes White House officials, the Cabinet and executive agencies — has issued a statement opposing both measures, saying they would "restrict [DOD's] ability to use other agencies' contracts for meeting mission needs."

"GSA agrees with the administration's stated policy," GSA officials said in a written statement. "Our overriding goal is to help agencies by providing our customers with the most efficient, effective products and services at best value."

FTS buys products and services on behalf of agencies, charging them the cost plus a service fee, which helps fund the program.

Agencies that maintain governmentwide acquisition contracts also charge fees for use of their vehicles, although some are under the 1 percent limit.

At FTS, fees vary from one program to another, but many exceed 1 percent. In

the Regional Information Technology Program, for example, the fees range from

2 percent to 4 percent, according to a program spokesperson.

Agencies pay only a 0.75 percent fee to use the GSA schedule contracts, a set of multiple award contracts managed by GSA's Federal Supply Service.

Other procurement services do not rely on defense agencies as much as FTS

does. For example, the Interior Department's Minerals Management Service's GovWorks.gov, which charges a 4 percent fee, receives about half of its business from defense agencies.

The Commerce Department's Commerce Information Technology Solutions (COMMITS) contract, which charges more than a 1 percent fee for some deals, attracts mostly civilian agencies.

However, Mike Sade, director of Commerce's Office of Acquisition Management, said that even though the provision

would not immediately impact COMMITS, he is worried about the possible ramifications.

"If the language is enacted as written, it would have an impact on our operations," he said. "The term 'service charge' is somewhat vague, and the definition of it would determine the magnitude of the impact."

At FTS, the impact could be drastic, observers said.

"The net effect for [GSA's] Federal Technology Service is it would put everything they do outside of the telecom business out of business," said Larry Allen, executive vice president of the Coalition for Government Procurement.

"Businesses like GovWorks are in the same boat," he added. "They'd either have to find a way to survive on 1 percent or they'd have to find something else to do."

Agencies that need to use the services could also suffer, said Bob Guerra, a consultant with Guerra, Kiviat, Flyzik and Associates Inc.

"What if you don't have a procurement capability in-house?" he asked. "What are you going to do?"

Agencies that offer fee-for-service procurement should realize that some civilian agencies might follow DOD's example, according to some consultants.

"DOD is often at the front end of these types of changes," Guerra said. "What happens if the larger civilian agencies start saying that buyers have to compete with these types of deals, and if they can't get prices down, they have to use internal agency resources?"

The provision could also affect businesses, which would have to find other ways to get their products and services to DOD buyers, said Alan Chvotkin, senior vice president and counsel at the Professional Services Council.

"Business will always find a way to get to the customers," he said. "It may be more expensive, [and] it may be more challenging to find those ways."

The service fees can look like a lot of money, said Jonathan Aronie, an attorney who specializes in procurement and a Federal Computer Week columnist. The measure could be a response to that, albeit a shortsighted one, he said.

"I think agencies get frustrated with the administrative fees," he said. "This is DOD flexing its muscle a little bit and saying, 'Why should we pay these fees?' It's one of those things that's kind of hard to object to. The fees seem to add cost to the taxpayers," even though a closer examination might reveal savings.

But the move would be counterproductive, Mather said. Paying a fee is less expensive than running a procurement internally for agencies not already equipped to do so.

"There's valid reason for agencies to be using activities like FTS and [GovWorks]," he said. "To make an arbitrary decision that [the limit is] 1 percent makes no sense. These arbitrary and capricious lines in the sand often have unintended consequences."

"I don't know what itch they're trying to scratch," Mather said.