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Article
GSA OIG continues to call for the cancellation of TDR
FAS plans to expand the program
On Sept. 30, 2022, the General Services Administration (GSA) Office of Inspector General (OIG) released an audit report stating that the Transactional Data Reporting (TDR) pilot should be canceled. This statement does not come as a surprise, as GSA OIG has voiced their concerns through multiple audit reports and formal comments since the TDR pilot proposed rule was released in 2015.
The TDR final rule was established by GSA on June 23, 2016. It requires participating vendors to report transaction data from orders placed against GSA’s Federal Supply Schedule (FSS) program. With the issuance of the final rule, GSA commented that the purpose of TDR is to reshape how FSS contract pricing is established, with the intent of centralizing purchasing decisions, reducing contract duplication and lowering acquisition costs. The intent was that Federal Acquisition Services (FAS) contracting personnel would utilize TDR data for price negotiations and as a basis to determine fair and reasonable pricing for Multiple Award Schedule (MAS) contract awards and option extensions.
The focus of this latest audit was to determine if FAS contracting personnel are negotiating and awarding MAS pricing that “represents the best value and results in the lowest overall cost alternative to meet the Government’s needs”. GSA OIG investigated the FAS pricing review process for both MAS contractors that participate in the TDR pilot and MAS contractors that submit Commercial Sales Practices (CSP) disclosures. GSA OIG’s bottom line, and the title of the audit report, is that FAS cannot provide assurance that MAS contract pricing results in orders achieving the lowest overall cost alternative, regardless of whether the contractor participates in the TDR pilot.
TDR Pilot Contracts
GSA OIG sampled eight contracts under the TDR pilot and reviewed the analyses performed to establish pricing at award and option. In this review, GSA OIG found that FAS contracting personnel did not have access to TDR data and therefore relied on the pricing of other MAS contracts and pricing tools to determine price reasonableness. FAS pricing tools, including Contract-Awarded Labor Category (CALC), GSA Advantage! and Price Point Plus Portal (4P) were used to perform horizontal price comparisons, and this caused GSA OIG great concern, as they have previously reported that the use of these pricing tools has resulted in flawed methodologies and practices when performing pricing analysis.
GSA OIG’s December 2019 report noted that “FAS contracting officers relied either solely or primarily on pricing tools to establish price reasonableness, inappropriately based pricing comparisons on labor categories that were not the “same or similar,” used inconsistent sampling methods and used an inappropriate basis to establish acceptable price ranges.” After GSA OIG’s December 2019 report, FAS updated pricing analysis guidance to require the use of templates and instructed contracting personnel that they should not exclusively rely on pricing tools.
This latest audit report notes that TDR data was not utilized or available for any of the eight sampled contracts, which led to FAS contracting personnel mainly relying upon pricing tools, which in turn resulted in hourly labor pricing being awarded that was as much as 50% greater than the average competitor rate. Regardless of whether TDR data was available, GSA OIG stated that “TDR data for professional services is almost completely unusable and consequently, FAS never included services sales under TDR in the GSA evaluations that the FAS Commissioner is using to support the success of the TDR pilot”.
Pricing evaluations for services at the MAS contract level have always presented a challenge, and it remains unclear how GSA will effectively determine price reasonableness and best value for services contractors under TDR. With services representing the majority of sales under the GSA MAS program, it will be interesting to see if FAS contracting officers working with services contractors participating in TDR continue to rely on the previously mentioned pricing tools, more frequently request additional supporting information, or use other methods as they attempt to draw conclusions about price reasonableness.
CSP Contracts
GSA OIG did not limit their audit scope to contracts under the TDR pilot. They also reviewed the price analyses performed for 12 MAS contracts that require CSPs for award or option. The findings were not significantly better, with GSA OIG identifying that FAS contracting personnel relied upon contractors’ CSP assertions that they were providing Most Favored Customer (MFC) pricing but did not in fact obtain data, documentation, or information to support these assertions. Without any additional due diligence, FAS frequently accepted CSP disclosures that were unsupported, outdated, or when there were no comparable commercial sales. Similar to the audit findings resulting from its review of TDR contracts, GSA OIG found that FAS contracting personnel compared proposed pricing to other MAS and government contracts, and mainly relied upon FAS pricing tools.
While not possible to confirm, we wonder if the determination that there were no comparable commercial sales in some way relates to GSA OIG’s common and often frustrating position during its audits, where the OIG has often concluded that comparable commercial sales for services do not exist – even under circumstances when they very clearly do. This often results in a request for cost data, even for contractors that are clearly commercial in nature and do not accumulate cost data in a format that readily supports such a request.
Audit Report Conclusions
- Cancel TDR: GSA OIG has consistently identified concerns regarding all aspects of the TDR pilot and is recommending that the FAS Commissioner cancel the TDR pilot. GSA OIG points out that they are not alone in their conclusion and that when they “interviewed FAS’s contracting personnel, 7 of 11 expressed concerns to us about the TDR pilot’s value to the MAS program and concluded that, in their opinion, the TDR pilot should be canceled”.
- Agencies should perform independent price determinations: Regardless of whether a contract is under the TDR pilot or requires a CSP, GSA OIG recommends that customer agencies perform a separate price determination prior to ordering under a MAS contract.
- This would align with the class deviation issued by the Department of Defense (DOD) in 2014 and would represent a monumental change in the way that pricing in the MAS program has traditionally been viewed—as being fair and reasonable, requiring no additional fair and reasonable determination, and as having met competition requirements when orders are placed following the requirements outlined in FAR 8.404.
- Update price analysis requirements for CSPs: Based on the audit findings, GSA OIG concluded that FAS should require contractors to provide documentation to support CSP disclosures and establish protocols to require other than certified cost or pricing data when there are no comparable commercial sales.
- As noted above, a request for cost data has frequently been GSA OIG’s practice during audits of contracts for professional services. They have also taken very strong and limiting positions on what represents a comparable commercial sale.
- Identify new pricing methodologies: GSA OIG recommended that FAS explore new pricing methodologies that allow contracting personnel to leverage government buying power to negotiate pricing that that reflects the lowest overall cost alternative to meet the needs of the government.
FAS Commissioner Response
The FAS Commissioner responded to GSA OIG’s draft report and disagreed with three out of the four recommendations. FAS stated that their evaluation of the TDR pilot concluded that TDR creates a more effective alternative to the traditional CSP disclosure requirements, and that for contracts that require CSPs, contracting personnel have adequate procedures and controls to evaluate pricing. FAS does not agree that customer agencies should perform separate and independent pricing determinations and maintains that the current procedures meet or exceed the requirements.
Throughout the audit report, GSA OIG repeatedly stated that “FAS contracting personnel cannot provide customer agencies with assurance that orders placed against MAS contracts will result in the lowest overall cost alternative”, regardless of whether the contract is under the TDR pilot. GSA OIG noted that this standard of lowest overall cost alternative to meet the government’s needs is required according to the procedures established under the Competition in Contracting Act (CICA) of 1984. The audit report focused almost solely on this metric of lowest overall cost and does not consider FAS’s evaluation of best value or price reasonableness. In their response, FAS noted that they believe if they comply with the recommendations to require contractors to provide detailed pricing data and information and establish protocols to require other than certified cost or pricing data when there are no comparable sales, they may fall out of compliance with the Federal Acquisition Streamlining Act (FASA) as well as FAR and GSAR regulations. FAS interprets FASA as establishing fair and reasonable pricing as the pricing standard that should be met through pricing analyses, and that price reasonableness is consistent with the FAR, MAS solicitation and contract clause requirements. FAS continued and stated that the “deficiencies noted in the report may be related to disagreements” over requirements including CICA’s requirement to achieve the lowest overall cost alternative. FAS argued that they must view the CICA requirements within the original context of when they were established in 1984. At that point in time the MAS Program was a mandatory source of supply, and an agency customer could only purchase outside of MAS if they did not have the lowest overall cost alternative to meet its needs. Now that MAS is non-mandatory, FAS stated that the ordering activities are required to follow FAR procedures to “ensure that the order represents the best value and results in the lowest overall cost alternative”.
What this means for contractors
It is very clear that FAS and GSA OIG fundamentally disagree on the effectiveness of the TDR pilot as well as pricing analysis requirements and standards to establish price at award and option. Regardless of these differences, it appears that FAS will move forward with plans to expand the TDR rule to all MAS contracts by November 1, 2022. Many companies who have participated in the TDR pilot have benefitted greatly from the removal of the compliance burdens associated with CSP requirements and price reductions clause. Therefore, current and prospective MAS contractors will need to decide on whether to continue with the current CSP structure or opt into the TDR program. As government contractors begin discussions on whether to participate in TDR, they should consider the following:
- Disclosing task order level pricing could impact your current GSA pricing and future negotiations, and discounted government sales under MAS may cause GSA to push for lower baseline contract prices, either during contract performance or during negotiations at the next option period. The same discounted government sales could also lead to tough negotiations and lower prices at the order level.
- Consider how your pricing lines up with your competitors, and even to other GSA Schedule contractors you do not regularly compete with, as GSA OIG’s report highlights what we have seen in practice, that FAS contracting personnel rely heavily on horizontal pricing comparisons. This is particularly important for services contractors given the OIG’s comments regarding TDR data for professional services, and their push for the use of other than certified cost or pricing data.
- TDR does not necessarily release you from having to disclose commercial sales and discounting policies, or potentially providing other than certified cost and pricing data. If FAS is unable to make a fair and reasonable price determination, they may request that you remove specific products and services from your proposal/contract or reject your offer/modification entirely.
- Review your systems, policies, and procedures to determine if you are able to timely and accurately create monthly TDR reports that include the required data fields.
There is a lot to consider with this decision as it fundamentally changes how GSA negotiates pricing and there is often no simple answer, as the facts and circumstances influencing this decision could vary from company to company.
