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[ Market Watch ]
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'Get It Right' does resellers wrong
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by Andrew Mohr and C. Kelly Kroll
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Not to belabor the point, but GSA is at it again.
We recently grumbled about GSA's overzealous implementation of its "Get It Right" program and the unintended (negative) consequences on the GSA Schedule program (see Government Video, November 2005). The gist of the article was that edicts to cure admitted program deficiencies had GSA contracting officers and specialists running for cover and grinding the wheels of the GSA Schedule program to a halt as they overanalyzed every contract action. As a result, the typical modification or renewal now takes twice as long to execute as it did a year ago.
But the real detriment is that GSA contracting officers and specialists are using contract modification and renewal requests as an opportunity to seek further discounts and concessions from GSA Schedule contractors without any apparent change in the contractor's sales practices. We argued that GSA was harming its Schedule program through its overly rigid implementation of Get It Right without regard to what was fair and reasonable.
We don't think GSA read our article, or if they read it, aren't taking it to heart, as yet another disconcerting practice has surfaced among the GSA contracting officers and specialists presumably in the name of Get It Right.
In recent months we have had several resellers ask us for assistance after hitting a wall with their GSA Schedule contracting officers. In each case, the GSA Schedule contractor was a reseller that has had a GSA Schedule contract for many years and was seeking to either simply add new products or renew their GSA Schedule contract for another five years.
Each contract was originally awarded based on the reseller's own commercial pricelists for the offered products and documented commercial sales to the reseller's own customers that demonstrated that the prices offered to GSA were fair and reasonable in comparison. In addition, the resellers, in most cases, had even disclosed their cost of obtaining the goods from the manufacturer so that GSA was aware of the reseller's allowed markup. With each modification or renewal request during the long course of their Schedule contracts, these resellers had provided the same documentation to GSA that they had supplied for years, certified as to the validity of their commercial sales practices, and disclosed their dealer costs.
Sharing Sales Data
So what's the problem? Well, it seems that now the GSA contracting officers also want the manufacturer of the offered products to directly supply its own commercial sales data to GSA before GSA would allow the reseller to add another product or renew its contract.
For a long time, there have been two ways under the GSA Schedule program for dealers to prove that their pricing is fair and reasonable. First, when a dealer or reseller does not have substantial sales of its own for the products offered, the dealer must provide GSA with the manufacturer's sales data so that GSA can make a determination that the offered price is fair and reasonable in comparison to the manufacturer's commercial sales. However, when the dealer does have substantial sales of its own for the products offered, it can provide its own commercial sales practices showing how, and at what prices, it sells these products. GSA has seemingly abandoned option number two.
To ask for a manufacturer to provide commercial sales practices and data when the reseller has millions of dollars of its own commercial sales and has disclosed its dealer cost is not logical and contravenes the plain language of the Schedule solicitation document. The contracting officers have been provided with sufficient data to compare the dealers' sales practices with the GSA price -- and can clearly see the markup that the resellers are taking to cover their costs.
To obtain the manufacturer's data, if even possible, takes time and expense to compile, especially if the manufacturer isn't a government contractor and hasn't developed standard practices for disclosure. But the contracting officers couldn't be convinced otherwise. It was manufacturer's sales data or the highway.
Bureaucratic Burdens
GSA's new plan to require manufacturer's sales data from all resellers, while obviously designed to ensure that GSA was getting the best price from the reseller, is flawed in several respects. First, as mentioned above, the provision of the manufacturer's data is burdensome and unnecessary in light of solid data provided by the reseller that more than justifies the reseller's GSA price. By requiring this additional data, GSA is returning unnecessary hurdles to the procurement process that Congress and GSA has worked so hard to remove.
Second, the policy doesn't take into consideration the fact that many manufacturers just don't want to do business with the federal government and the bureaucracy it necessarily entails, either directly or indirectly. By using reseller channels, many manufacturers have intentionally and deliberately chosen to steer clear of the compliance and liability issues that go hand in hand with federal procurement. To think that these same manufacturers will voluntarily compile and disclose commercial sales practices, agree to subject themselves to audit, and agree to monitor and pass along price reductions to the resellers -- just so the resellers can sell on Schedule -- is highly doubtful.
In fact, in each instance we were contacted about, the reseller approached the manufacturer about supplying the required data and was turned down cold. A letter of supply is one thing, but compiling a full, accurate, and complete disclosure of their various commercial sales channels, including deviations and concessions, proved too much.
As a result, in those cases, not only has GSA not obtained better pricing from the reseller, but it has effectively shut down the GSA Schedule business for those resellers. There are now less resellers competing for GSA sales and less variety of products to buy. Less competition could not possibly be the intent of this new policy.
Find A Friendly Face
Finally, the most egregious flaw in this new policy is that GSA contracting officers aren't applying this new policy evenly (what else is new). While instances of this new policy in action turn up every day, there are still contracting officers who don't ask for the information and will add new product to a reseller's Schedule without it.
As a result, manufacturers are now shopping around for resellers that have been assigned a "friendly" contracting officer that does not require the manufacturer to provide this information. This obviously creates an uneven playing field for resellers. If GSA is going to implement a new policy of requiring this data (which it shouldn't), then it should do so across the board.
Time will only tell how this will play out. Resellers, many of whom are small businesses, may continue to drop out of the GSA Schedule program as they are unable to produce the requested information from the manufacturers. Or it may turn out that manufacturers will notice the drop in their bottom line and give in to pressures from their resellers to provide the information.
Regardless of the outcome, the immediate impact of Get It Right has been to shut some resellers out of the GSA Schedule program, reduce the ability of manufacturers to sell through GSA Schedule dealers, and deprive agencies of many products. Get It Right has gotten it wrong.
Andrew Mohr is a partner in the law firm of Cohen Mohr LLP and a Professorial Lecturer at American University in Washington, DC, who specializes in government and commercial contracts, including GSA schedules. C. Kelly Kroll is an associate at Cohen Mohr with extensive experience in GSA Schedule contract proposal preparation, negotiation, and administration. Contact them at (202) 342-2550, fax (202) 342-6147, or at www.cohenmohr.com.
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