Spotlight on GSA Schedules:
IG criticizes pricing and vendor non-compliance;
Schedules sales trending down since fiscal 2011
The Office of Inspector General of the General Services Administration is calling attention to two “major issues” identified in the Multiple-Award Schedules program, based on its most recent set of preaward audits.
Schedules contracts “may not provide the lowest overall cost alternative,” according to the OIG.
In addition, schedules contractors “are not in compliance with their schedule contract terms,” the OIG reported.
R. Nicholas Goco, GSA’s assistant inspector general for auditing, outlined the concerns in a Sept. 19 memo to Federal Acquisition Service Commissioner Tom Sharpe. Goco wrote that “additional management attention is needed.”
However, Venable LLP attorneys have suggested that several of the OIG’s findings are based on “faulty premises.”
Schedules Sales Down
The critical report comes at a time when schedules sales have been trending downward for the last five years, according to a Set-Aside Alert analysis.
Third-quarter, fourth-quarter and annual schedules sales have fallen nearly every year since fiscal 2011 and appear likely to drop slightly again for fiscal 2016.
IG’s critical audit
The IG’s recent memo was based on 42 preaward audits of schedules contracts with estimated sales of $6.5 billion, performed in fiscal 2014. There were 42 prime contractors.
The IG found:
- 79% of the contractors submitted Commercial Sales Practices disclosures that were not current, accurate or complete.
- 55% of the contractors routinely granted schedules customers lower prices than those in the schedule. One vendor’s discounts averaged 19%. The IG said this practice shows that a schedule price may not be “the best price.”
- 43% of the contractors did not have adequate systems in place to report schedule sales. Of those with inadequate systems, 83% computed their Industrial Funding Fee incorrectly.
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- 29% of the contractors billed the government higher prices than what was listed in their schedule contracts. The overbillings totaled just under $1 million.
- For 18 of the contractors, schedules users were their largest customer, based on sales volume. But seven of those contractors did not offer those customers equal or better prices than what they offered other customers.
- The audit included 20 services contracts. Of those, the IG said that 25% “charged the government for labor that did not meet the minimum requirements of the contract.” In one instance, the auditors said 53% of the sampled employees failed to meet minimum labor requirements.
GSA officials told Set-Aside Alert they are preparing a formal response to the IG’s memo.
The IG’s “faulty premises”?
In a blog posting on Sept. 26, Venable attorneys Dismas Locaria and Melanie Jones Totman said several of the IG’s findings were based on “faulty premises.”
For one, the IG “seems to imply that the regulatory standard of fair and reasonable pricing means absolutely best pricing; this is not the regulatory standard. In fact, in determining ‘price reasonableness’ the GSA Acquisition Manual explicitly states otherwise.”
The attorneys also say the IG seems to assume GSA dictates the terms in pricing negotiations, but that is not the standard and contractors may have well-developed justifications for their prices.
The IG emailed a statement generally defending the report.
Schedules sales dropping
Schedules annual sales slid four years in a row starting in fiscal 2011, with a slight uptick in fiscal 2015, according to Set-Aside Alert’s analysis. From $38.6 billion in fiscal 2011, annual sales decreased each year to $32.8 billion in fiscal 2014, rising slightly to $33 billion in fiscal 2015, Schedule Sales Query database reports.
While fiscal 2016 totals are not yet available, the first three quarters suggest a slight drop for the year. The first three quarters generated $23.3 billion in schedules sales in fiscal 2016, in comparison to $24.5 billion in fiscal 2015 and $24 billion in fiscal 2014.
More information:
GSA IG memo: http://goo.gl/s2so46
Venable LLP blog posting: http://goo.gl/2BIeH0
