Jan 23, 2014

 

GSA’s Strategic Plan

We are just a few weeks into 2014, but GSA is already making headlines with its Strategic Plan and other proposals to “enhance” the Schedules Program. These headlines and announcements have a common theme that federal contractors would do well to heed – a relentless focus on prices awarded at the contract level and prices paid at the task and delivery order level. Specifically, these initiatives collectively demonstrate that GSA is heavily invested in an integrated strategy to reduce prices throughout the GSA market place. There is nothing wrong with this effort – it’s a rational thing for GSA to do. What I find disturbing, is that GSA’s commitment of resources to the thorny issue of pricing is not being matched by most Schedule vendors who, by and large, appear to have no strategy for justifying or supporting their pricing practices. This is a grave mistake.

Why? Because if a vendor cannot justify or support price premiums or differences on particular transactions, then the customer is going to view that vendor’s products or services as a commodity. This will limit that vendor’s ability to win business to transactions where the vendor meets the customer’s pricing expectation. The best modern day example of this phenomenon was the domestic airline industry, which, until the recent consolidation of carriers, routinely lost money engaging in price wars to attract customers. If you read between lines of its Strategic Plan, this is precisely what GSA has in mind for federal contractors. Here are just a few examples of how GSA is pursuing this strategy:

1.  New FSS Pricing Instructions. If you have been reading recent refreshes to GSA’s Schedule solicitations, you will have noticed that GSA has introduced new pricing instructions for Schedule offers and modifications. If GSA Solicitations aren’t on your must-read list, you may want to review Jennifer Aubel’s excellent blog posting on this subject. The major takeaway is that GSA is reserving the right to assess price reasonableness, not only in relation to a vendor’s own commercial sales practices, but also in relation to the prices currently offered by other vendors for the same or similar items. This new policy literally means that if a vendor’s best commercial customer pays a price of $50 for Product X, GSA could decline to approve that price based on a finding that a competitor offers a similar product on Schedule for $35. This is a huge change in GSA’s pricing evaluation methodology and it is designed specifically to drive down vendor prices. One could also persuasively argue that GSA’s own regulations (the GSAR) do not authorize this form of price evaluations. At present, we are seeing highly inconsistent rollouts of this new pricing policy across the various GSA Acquisition Centers, but it is clearly taking root.

2.  Standard Labor Categories. For those vendors who believe that labor categories for professional services are unique to each vendor, GSA has another surprise for you – a proposal to establish standard labor categories across the professional services Schedules. While still in its formative stages, the idea has already been applied by GSA in its pending OASIS procurement for integrated professional services. Under OASIS, GSA provided a matrix of professional and technical service labor categories based on the Office of Management and Budget’s (OMB) Standard Occupational Classifications (SOC) for vendors to map their service offerings to under the RFPs. GSA then dictated an allowable pricing range for those categories based on the Bureau of Labor Statistics’ (BLS) pay data for those SOCs. Despite industry concerns about this methodology, there was no shortage of bidders for OASIS, notwithstanding the challenging past performance requirements contained in that procurement. Consequently, it would not be particularly surprising for GSA to move in a similar direction under the Schedules program. Whether this is a worthy objective is highly debatable, given the reality that most significant professional services orders are competed on a firm fixed price basis where individual labor rates are not being evaluated. Regardless, this is clearly another effort by GSA to “commoditize” Schedule offerings, with the ultimate objective being to drive down rates.

3.  The Prices Paid Tool. In addition to lowering prices at the Schedule level, GSA is establishing a database to provide buying agencies with transparency into the prices paid to all GSA vendors at the task or delivery order level. The so-called “Prices Paid Tool” is still a work in progress, but it’s coming. The tool will increase awareness of transactional pricing, meaning that those vendors that frequently cut prices at the order level to win business will start shaping the expectations for future customers in a way they likely did not intend. Thus, GSA vendors are not only at risk of being in a “race to the bottom” with their competitors, they may also end up in such a race against themselves. For more information on the Prices Paid Tool, see https://strategicsourcing.gov/prices-paid-tool.

Clearly GSA has an overriding plan to commoditize Schedule offerings in order to drive prices down. For those vendors who wish to push back on being commoditized, I have one piece of strong advice – invest the time and resources to thoughtfully and rationally define the unique value proposition of your product or service offerings to make the business case for why they are not a commodity. Once you have done that, invest the same level of effort into establishing rational pricing standards that you reflect consistently with your customers so that you can justify when and why a lower price was warranted on a particular transaction. Finally, be prepared to push back on GSA’s attempts to re-define who you are and what you offer. In other words, be prepared to negotiate! Yes, all of this is hard work and requires considerable effort, but it is the best, if not the only way, to avoid having your prices defined by GSA. It should be clear by now that GSA is very keen to do that if you will let them.

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