Contract Management:

Opportunities to Improve Pricing of GSA Multiple Award Schedules Contracts

GAO-05-229: Published: Feb 11, 2005. Publicly Released: Mar 14, 2005.

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Federal agencies can directly purchase more than 8 million commercial products and services through the General Services Administration's (GSA) multiple award schedules (MAS) contracts. Over the past 10 years, MAS contract sales have increased dramatically--with sales jumping from $4 billion to $32 billion. In addition to simplifying the procurement process, the MAS program is designed to take advantage of the government's significant aggregate buying power. While GSA seeks to negotiate best pricing for its MAS contracts by analyzing vendor-provided information--such as discounts given to other customers and recent sales data for the same or similar items--past reports have found that GSA has not always used pricing tools effectively and that management controls for better ensuring fair and reasonable pricing had been reduced. This report discusses GSA's process for negotiating most favored customer prices for MAS contracts and its efforts to improve the overall quality of negotiations.

Contract negotiators at the four MAS acquisition centers that GAO reviewed use a variety of tools for obtaining most favored customer pricing--that is, the prices vendors offer their best customers. However, the GAO analysis of GSA's review of selected fiscal year 2004 MAS contract files found that nearly 60 percent lacked the documentation needed to establish clearly that the prices were effectively negotiated. Specifically, the contract documentation did not establish that negotiated prices were based on accurate, complete, and current vendor information; adequate price analyses; and reasonable price negotiations. GSA's efforts to ensure most favored customer pricing have been hindered by the significant decline in the use of pre-award and postaward audits of pre-award pricing information, two independent pricing tools that have helped GSA avoid or recover hundreds of millions of dollars in excessive pricing. In fiscal year 1995, GSA conducted 154 pre-award audits; by 2004 the number of pre-award audits fell to 40. Postaward audits--which resulted in an average annual recovery of $18 million in the early 1990s--were discontinued in 1997 when GSA revised its MAS contract audit policies to increase the use of pre-award audits--an increase that has not materialized. In March 2003, GSA established the Acquisition Quality Measurement and Improvement Program, initiating the use of prenegotiation panels and postaward quality reviews of contracts. However, the effectiveness of these initiatives has been limited due to insufficient oversight. For example, three of the MAS acquisition centers that GAO visited had not reported the results of their 2003 prenegotiation panels--information needed by management to identify problems and make needed improvements. Moreover, the fourth acquisition center--which accounted for about 56 percent of the fiscal year 2004 MAS sales--has yet to hold a panel. While the postaward quality reviews--the second program initiative--have identified deficiencies in contract file documentation, they did not determine the underlying causes of these deficiencies or prescribe actions needed to address them. As a result of these weaknesses, GSA cannot be assured that fair and reasonable prices have been negotiated for its MAS contracts.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In February 2005, we reported that the General Services Administration(GSA) officials responsible for overseeing the MAS program were unaware of the effectiveness of prenegotiation panels held to ensure quality of GSA's most significant contract negotiations. GSA established prenegotiation clearance panels to provide contract negotiators advice and concurrence for contract awards or modifications that exceed an established threshold (ranging from $5 million to $80 million depending on acquisition center) prior to initiating discussions with a vendor. Panel procedures may also be applied to sensitive actions such as contract negotiations with vendors having problematic performance or sales reporting histories. We found that GSA officials neither collected nor analyzed information on the implementation of panels and did not require acquisition centers to report panel outcomes to program management. GAO recommended that GSA revise the acquisition improvement program to measure and report on the performance of the prenegotiation clearance panels. In response to our recommendation, on February 18, 2005, GSA revised and implemented the program operating procedure to require acquisition centers to report the quarterly performance of their prenegotiation clearance panels. The centers began reporting in fiscal year 2005. By receiving reports on prenegotiation panels, GSA program management can monitor and assess the panels' performance to better ensure the quality of contract negotiations.

    Recommendation: The Administrator of the General Services Administration should direct GSA program management to revise the Acquisition Quality Measurement and Improvement Program to measure and report on the performance of the prenegotiation clearance panels.

    Agency Affected: General Services Administration

  2. Status: Closed - Not Implemented

    Comments: In response to our recommendation, GSA published advance notice in the Federal Register on March 11, 2005, requesting government and industry comments on whether postaward audit provisions should be included in MAS contracts. However, GSA put a hold on its determination of what guidance should be issued until after the completion of the Federal Acquisition Service reorganization. Concerns have been raised in public comments in response to the Federal Register notification, as well as the SARA panel, that indicate a reluctance to increase the use, or potential use, of post award audits. Concerns center on the notion that they are overly burdensome in terms of maintaining cost and pricing information, as well as overly intrusive to the contractor. Since this time, a number of reforms have gotten lost in the shuffle of the GSA reorganization and the agency focus has been on using scarce OIG resources to increase pre-award audits because they have a much better rate of return than post-award audits. Further, an OIG official stressed that pre-award audits of contract extensions are essentially the same as post award audits of the original contract.

    Recommendation: The Administrator of the General Services Administration should develop guidance to help contracting officers determine when postaward audits are needed.

    Agency Affected: General Services Administration

  3. Status: Closed - Implemented

    Comments: In February 2005, we reported that the General Services Administration(GSA) multiple award schedule (MAS) contract negotiators had not requested pre-award audits when new offers and extensions met the established sales dollar value threshold. GSA's guidance for ensuring full evaluation of MAS price proposals and a clear determination of fair and reasonable pricing instructs contract negotiators to request audit assistance when the dollar value for estimated sales of new contract offers and extensions exceeds $25 million for the 5-year contract period. We found that in fiscal year 2003 about 34 new contracts and 37 extensions met the $25 million threshold for pre-award audit. However, GSA completed only 14 pre-award audits, which identified about $4.1 million in negotiated savings. GAO recommended that the Administrator of GSA ensure that pre-award audits are conducted when the threshold is met. In response to our recommendation, GSA implemented a procedure to have MAS program management, in collaboration with the GSA Inspector General, increase the number and improve the pre-award audit process. In fiscal year 2004, the GSA management and Inspector General selected and completed 40 pre-award audits. For fiscal year 2005, GSA officials set a goal of completing 70 pre-award audits. By increasing the number of pre-award audits of new contract offers and contract extensions, GSA can better identify and avoid millions of dollars in overpricing.

    Recommendation: The Administrator of the General Services Administration should ensure that pre-award audits are conducted when the threshold is met for both new contract offers and contract extensions.

    Agency Affected: General Services Administration

  4. Status: Closed - Implemented

    Comments: In February 2005, we reported that the limited scope of the General Services Administration's (GSA) multiple award schedules (MAS) quality reviews minimized their effectiveness. GSA established the quality review program to evaluate and improve the overall quality of MAS contract negotiations. We found that in fiscal years 2003 and 2004 GSA identified a number of deficiencies in the documentation supporting price negotiations and price reasonableness determinations. However, the effectiveness of these reviews were limited because GSA did not identify the underlying causes of the deficiencies found or prescribe actions needed to address them. In fiscal year 2004, for example, GSA found that the negotiation documentation of a contract with a dollar value of $3.5 million lacked an adequate price analysis and did not identify the vendor's most favored customer price. GAO recommended that GSA revise the quality review procedures to broaden the scope of the quality reviews to determine the underlying causes for contracting pricing weaknesses and develop appropriate plans to implement corrective actions. In response to our recommendation, GSA agreed to broaden the scope of the quality review and in April 2005, issued the Contract Quality Review Summary of the fiscal year 2004 results. The report includes discussion and identification of underlying reasons for the weaknesses found. Additionally, acquisition centers developed action plans identifying the weaknesses found and the corrective actions to be taken. By determining the underlying causes of identified documentation deficiencies and prescribing actions to correct them, GSA can better assure that fair and reasonable prices have been negotiated for its MAS contracts.

    Recommendation: The Administrator of the General Services Administration should direct GSA program management to revise the Acquisition Quality Measurement and Improvement Program to broaden the scope of quality review initiative to (1) determine the underlying causes of contract pricing deficiencies and (2) develop appropriate plans to implement corrective actions.

    Agency Affected: General Services Administration

 

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