www.pwc.com Multiple Award Schedules A roadmap to getting a Federal Supply Schedule contract

www.pwc.com Multiple Award Schedules A roadmap to getting a Federal Supply Schedule contract

Table of contents Overview of Multiple Award Schedules... 1 Considerations before getting on a Schedule... 2 Mechanics of getting on a Schedule... 3 What to do once you are on a Schedule... 4 How can help... 5 Conclusion... 6

Multiple Award Schedules (MAS), particularly through the General Services Administration (GSA) or the Department of Veterans Affairs (VA), offer commercial companies a unique opportunity to sell to the United States government. GSA and VA contracting can offer companies increased revenue streams and opportunities they may once have avoided due to the fear of contracting with the US government. Indeed, Schedule contracting does require compliance with many requirements and regulations that must be considered before and while doing business through a schedule contract. As a follow-up to our Getting Into Government Contracting (http://www.pwc.com/us/en/forensic-services/publications/government-contracting-opportunities.jhtml) discussion, this roadmap to Schedule contracting highlights the pre- and post-award considerations for contractors as they begin Schedule contracting. Overview of Multiple Award Schedules In FY 2012, the GSA Schedule program accounted for $50B in sales through various Schedule contracts (per GSA.Gov), with $11B in annual sales stemming from VA Federal Supply Schedules (FSS) (per FSS.VA.Gov); combined, they represent approximately 10 percent of government needs. FSS contracting offers contractors the opportunity to sell goods or services to the US government while reducing the cost of compliance that is generally associated with government contracting. The VA FSS program manages nine Schedule programs through the Department of Veteran Affairs and is used primarily to support healthcare acquisitions. The following information applies to GSA and VA FSS contracts interchangeably. GSA and VA Schedule Contracts, also known as Federal Supply Schedules (FSS), are indefinite delivery, indefinite quantity (IDIQ), long-term contracts under the GSA s MAS Program. The purpose of the Schedules program is to leverage the buying power of the federal government in order to negotiate streamlined contracts with commercial businesses. FSS contracts were developed to assist the federal government in purchasing products and services that contain pre-negotiated prices, delivery terms, warranties, and other key terms and conditions that can be used to solicit hundreds of federal customers, including executive branch agencies, Congress, the military, independent agencies, and commercial companies doing business with the government with authorization to make Schedule purchases. A general lack of understanding of FSS contracts has deterred potential contractors from entering into such contracts, often due to the perceived high cost of compliance. However, FSS contracts require less time, paperwork, and administrative burden to the contractor when compared with traditional government contracting. They also have the potential to be a large revenue source, especially due to the selling opportunities across multiple agencies if marketed appropriately. 1

Considerations before getting on a Schedule Having an FSS contract represents an investment on the part of the contractor. Careful analysis, planning, and proactive steps around compliance are required to assist contractors in being successful under the FSS program. When considering the prospect of obtaining a Schedule contract, potential contractors should first assess the government s demand for the products and services being considered. Understanding where a contractor s products or services fit in the current and future market landscape and conducting an analysis of competitors business behaviors with the federal government, through either supply schedules or other contract vehicles, are key steps as a contractor considers a Schedule contract. These types of analyses will highlight existing business opportunities while also considering the compliance requirements of FSS contracting. Additionally, this type of analysis will inform the proposal planning and preparation process should that step be taken. As with any contract, understanding the requirements prior to contract acceptance is paramount to success. FSS contracts attempt to mirror commercial contracts, but there are certain compliance requirements that each contractor needs to understand before proposing and performing work. While contractors need to be aware of a number of compliance concerns when considering contracting through the GSA and VA, three specific requirements are of critical importance: the Price Reduction Clause (PRC), payment of the Industrial Funding Fee (IFF) and quarterly supply Schedule sales reporting, and compliance with the Trade Agreement Act (TAA). The Price Reduction Clause (GSA Acquisition Manual 552.238-75) states: Before award of a contract, the Contracting Officer and the Offeror will agree upon (1) the customer (or category of customers) which will be the basis of award, and (2) the Government s price or discount relationship to the identified customer (or category of customers). This relationship shall be maintained throughout the contract period. Any change in the Contractor s commercial pricing or discount arrangement applicable to the identified customer (or category of customers) which disturbs this relationship shall constitute a price reduction. The PRC establishes the precedent that the contractor must negotiate a customer or class of customer as the basis of award and ensure on an ongoing basis that the selected class of customer and the FSS procurements maintain the established pricing relationship. If the pricing relationship is disturbed, the price reduction must be passed on to the government to re-establish the pricing relationship. The PRC can be data-intensive and oftentimes requires that new policies and procedures be put in place to track the price relationship and control discounting practices to the category of customer(s). During the proposal process, the contractor will be required to submit the last 12 months of sales data to all commercial customers. This data will subsequently serve as the starting point for negotiations and identification of the Basis of Award (BOA) customer. Because the government will rely on this data to make its determination of obtaining a fair and reasonable price for the product, it is important to verify that the data is accurate and complete, as it will serve as a key piece of documentation if the government later alleges a defective pricing suit. Contractors should pay special attention to the sales data and disclosures made to the government, as there is a trend toward pursuing defective pricing claims on the government s side. Defective pricing allegations can be accompanied by high potential damages that can amount to as much as three times the initial claim. In-depth analysis and knowledge on how the disclosed pricing compares to the contractor s commercial and BOA customer sales is vital in understanding the compliance requirements of defective pricing. 2

The second major compliance component of FSS contracting is the calculation and repayment of the Industrial Funding Fee. The IFF is a fee paid by contractors to cover GSA s cost of operating the supply Schedules and is calculated as a percentage of sales (currently 0.75 percent for most products and services). This fee is paid to the GSA by the contractor but is often absorbed in the contractor s FSS price paid by the government. Contractors report at the end of each quarter all Schedule sales by special item number (SIN) and make applicable IFF payments. Paying and accurately reporting for IFF purposes is integral to contract compliance and highlights the need for centralized systems or procedures. The requirement to comply with the Trade Agreement Act (TAA) is included on all supply or service contracts over $203,000. The TAA, which can be found within FAR 52.225-5, effectively states that all products listed on the Schedule must be manufactured or substantially transformed in a TAA-designated country. While maintaining compliance with the TAA is each contractor s responsibility, the Office of Regulations and Rulings is available to assist in determining or providing opinions on the substantial transformation location of a product. In addition to the compliance considerations, a contractor is responsible for verifying that the Schedule contract aligns with the long-term strategic management plan. Is the company prepared to open itself up to the reporting, disclosure requirements, and potential government audits? Is the company confident that the additional sales resulting from being on a Schedule will outweigh the costs (both immediate and years after performance of the contract) of Schedule compliance? Is the company comfortable with competitors knowing what they charge the government for Schedule goods or services? Each company faces unique challenges in making these decisions. The people, process, and technology components should also be considered to establish an infrastructure to maintain compliance. Companies that have knowledgeable staff (i.e. trained and appropriate level of experience) to administer the contract while keeping processes up to date, with the appropriate technology and data needs in mind (i.e. ability to track discounts and sales), will establish an environment that can allow contractors to remain compliant while entering a new market and developing additional revenue opportunities. Mechanics of getting on a Schedule Once a company has considered the benefits of getting on a Schedule, the next step is to research and identify the appropriate Schedule solicitation based on the products or services being offered. After a solicitation is identified and the market analysis completed, the proposal process begins with administrative tasks, including the filing of registrations and certifications. Preliminary registrations include SAM (System for Award Management), DUNS (Data Universal Numbering System), and a Past Performance Evaluation (survey of past work performance). These registrations are required in order for a company to complete the solicitation. The solicitation process continues upon completion of preliminary registrations with the drafting of the solicitation document. The required information and format for each Schedule varies; however, most solicitations will require Commercial Sales Practices (CSP), BOA customer selection, corporate sales information, discounts, and a proposed Schedule price list. It is important to submit accurate and complete information for each section, supported by financial records and other source documentation, in order to avoid delays or rejection of a contract award. In addition, reviewing that the information provided is clear and not open to significant interpretation is critical to mitigate risks during performance under the contract. The data provided in the solicitation is used by the government when awarding contracts and dictates the terms and conditions a contractor proposes to operate under. The CSP section allows the government to analyze past sales; estimate future sales to the government; and identify the discounts and pricing arrangements, including those that are non-standard, offered to the Basis of Award (BOA) customer(s). Once a BOA is established, the Price Reductions Clause can be negotiated. The PRC identifies the price reduction terms for the GSA/VA and maintains the link between a company s commercial and Schedule pricing. 3

Upon completion and submission, the solicitation becomes an offer and the GSA/VA will review it for eligibility of contract award. During the review, the GSA/VA will negotiate the discounts and terms offered in the solicitation. To enhance future sales prospects while maintaining a company s profitability, contractors should be prepared for these negotiations by having all necessary sales information available, along with legal counsel and appropriate company sponsorship. After terms are agreed upon, a Revised Final Proposal Letter is requested. A final review is performed to approve the pricing arrangements and terms and conditions before the proposal becomes a contract. What to do once you are on a Schedule Now that the contract has been successfully awarded, contractors must implement or enhance a number of processes to maintain a compliant business environment. As described above, implementing the necessary people, processes, and technology to monitor compliance on a continuous basis is key to successfully contracting with the GSA and VA. Contractors should monitor compliance with key terms and conditions of their own contracts, including the following higher-risk areas: Price Reduction Clause IFF reporting and payments Trade Agreements Act Labor categories and rates for service agreements Overpayments In maintaining a compliant business environment, contractors must pay special attention to the process put in place around monitoring the PRC. While there are numerous compliance considerations to be aware of after award, compliance with the PRC is the area that most often triggers non-compliance and that eventually may lead to allegations of defective pricing. Because the PRC relies on the price relationship established between the BOA and the GSA or VA discount being offered, a continuous monitoring process should be maintained. The contractor has the option to take a proactive or a look-back approach. The proactive approach relies on the concept of establishing a protocol that, on a real-time basis, monitors BOA discounts. This proactive approach can take many forms, including a specific approval processes (manual or through various technologies) for discounts that would disturb the price relationship for a reason identified in the CSP form other than those listed as a non-standard transaction. Contractors may also consider a systematic process that would block BOA transactions from being processed as a final sale without review, approval, and documentation if the discount may disturb the price relationship. The lookback approach, on the other hand, relies on the historical review of sales data for a specified period of time to evaluate the BOA sales to determine if the price relationship disruption occurred and is a more manual process when compared to the proactive approach. The risk with a look-back methodology is that, under a single point of failure pricing relationship, all sales for a particular product, service, or SIN may have a pricing impact going forward, thus lowering ongoing margins for federal sales. Each approach is data-intensive and requires timely analysis and reporting. If a price relationship disruption and violation occurs, the contractor must adhere to the terms and conditions of their Schedule contract to promptly notify the applicable government body and pass along any financial obligations that resulted from the price disruption. Contractors must also consider the impact of the disruptions compared with their disclosed sales practices and the Schedule discount. If there is a change in sales practices or the price relationship needs to be reevaluated, a contract modification might be in order, along with the submission of an updated CSP form. In addition to monitoring compliance, contractors should establish processes and training for not only those staff selling to and monitoring the federal sales through the Schedule contract but also the commercial side of the business. Establishing a clear, company-wide point of view and process regarding the administration and compliance with the Schedule contract is fundamental, reducing the administrative burden while maintaining compliance. Contractors should also take the opportunity to properly market their FSS contract to federal entities and potential buyers. By attending trade shows, training their sales force, and establishing a name and presence for 4

the Schedule contract, contractors can use marketing initiatives to utilize their Schedule contract to increase revenue and market presence. Purchases of goods and services off of a contractor s GSA Schedule should be based off of the contractor s published price list or off of GSA Advantage! GSA Advantage! is an online government marketplace that allows purchasers to search particular products, services, vendors, and item categories that most accurately align with their needs. Orders can then be placed directly through the website. Contractors should be sure to monitor the activity on GSA Advantage! to verify price lists are up to date and items sold via the website are still available. While monitoring compliance and the purchasing activity of the FSS contract, the contractor must be aware of possible government audits during the performance of their contract. Audits can be completed by the Defense Contracting Audit Agency, the Office of the Inspector General, Department of Labor, and/or the GSA Industrial Operations Analysts. The types of audits differ but may include: Pre-award audits Attestation reviews to examinations Post-award audits Pre-award, on-site equal employment opportunity compliance review Government Accountability Office audit Inspection of services Labor audits Contractor assistance visits The thought of audits can be overwhelming, but they are a necessary step from the government s perspective. Being prepared by retaining the necessary documents, training personnel, and engaging the proper resources before the audit begins will assist in making these audits a more manageable task. Approaching each of these audits consistent with the approach to other regulatory audits will make for a smoother audit process. How can help offers a number of solutions to assist companies throughout the lifecycle of contracting with the GSA and VA. When considering whether GSA contracting is right for your company, can assist in understanding how GSA or VA contracting can fit into your business, sizing the potential federal market associated with your goods and services and working with management to identify how the compliance requirements will impact their current business model based on our deep experience across industries. can also assist contractors during the proposal and negotiating phases of GSA or VA contracting by providing assistance in development of the proposal including supporting the narrative portions as well as developing the Commercial Sales Practice and advice during the negotiation phase to facilitate the successful award of a Schedule contract. Once a GSA or VA contract is awarded, can assist companies with establishing compliance and monitoring solutions that decrease the impact to the current business model and also provides independent reactive monitoring solutions as part of an overall compliance program. These services include assisting with Price Reduction Clause monitoring, Industrial Funding Fee reports and updates or modifications to the contract based upon changes in sales practices and additions/deletions to the goods and services offered to the government. Finally, should the need for disclosures arise, can work with counsel to develop impacts associated with potential non-compliance or government investigations. 5

Conclusion Before deciding to contract through the FSS program, business leaders should analyze the associated risks and rewards with a clear understanding of where their corporate strategy is heading and how it might be affected by such a move. While Schedule contracting requires compliance with numerous requirements and regulations, it can offer a new source of revenue previously unavailable to companies that are willing to put the proper people, processes, and technology in place. has the subject matter specialists available to help you determine that right balance of people, processes, and technology within the Schedule contracting environment. For a deeper discussion of how your company can leverage Schedule contracting, contact anyone below. A special acknowledgment to the authors of this piece: Kristin Szkrybalo (646) 471-8886 kristin.szkrybalo@us.pwc.com Jim Nelson (312) 298-5236 james.nelson@us.pwc.com The authors wish to thank and acknowledge Government Contracts Practice team members Lauren Ruhling and Sarah Katt for their valuable contributions to this article. To discuss how this subject may affect your business, please contact: Philip Koos (646) 471-2454 philip.koos@us.pwc.com John May (617) 530-5340 john.m.may@us.pwc.com Suzanne F Roske (602) 391-3191 suzanne.f.roske@us.pwc.com James Thomas (703) 918-3050 james.w.thomas@us.pwc.com 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. refers to the US member firm, and may sometimes refer to the network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.