Contract Management
Opportunities to Improve Pricing of GSA Multiple Award Schedules Contracts Gao ID: GAO-05-229 February 11, 2005Federal 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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-229, Contract Management: Opportunities to Improve Pricing of GSA Multiple Award Schedules Contracts
This is the accessible text file for GAO report number GAO-05-229
entitled 'Contract Management: Opportunities to Improve Pricing of GSA
Multiple Award Schedules Contracts' which was released on March 14,
2005.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to the Chairman, Committee on Homeland Security and Governmental
Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
February 2005:
Contract Management:
Opportunities to Improve Pricing of GSA Multiple Award Schedules
Contracts:
GAO-05-229:
GAO Highlights:
Highlights of GAO-05-229, a report to Chairman, Senate Homeland
Security and Governmental Affairs Committee:
Why GAO Did This Study:
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.
What GAO Found:
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.
MAS Pre-Award Audits, Fiscal Years 1992 through 2004:
[See PDF for image]
[End of figure]
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.
What GAO Recommends:
GAO is making four recommendations aimed at better ensuring that
appropriate tools are used effectively to negotiate MAS contract prices
and at increasing the effectiveness of GSA‘s program to measure and
improve its contract negotiations. GSA agreed with the recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-05-229.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact cooperd@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Use of Price Negotiation Tools May Not Ensure Best Pricing on MAS
Contracts:
Opportunities Exist to Improve Management Oversight of MAS Price
Negotiations:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: MAS Acquisition Centers' Products and Services:
Appendix III: Comments from the General Services Administration:
Table:
Table 1: Contract Documentation Weaknesses of MAS Contracts by
Acquisition Center:
Figures:
Figure 1: MAS Sales, Fiscal Years 1992 through 2004:
Figure 2: Fiscal Year 2004 MAS Sales by Center:
Figure 3: Increase in the Number of MAS Contracts, Fiscal Years 1995
through 2004:
Figure 4: Number of FSS Contract Specialists, Fiscal Years 1997 through
2004:
Figure 5: MAS Contract Price Negotiation Process and Common Tools:
Figure 6: MAS Pre-Award Audits, Fiscal Years 1992 through 2004:
Figure 7: Negotiated Cost Savings from Pre-Award Audits, Fiscal Years
1992 through 2004.
Abbreviations:
FSS: Federal Supply Schedule:
FAR: Federal Acquisition Regulation:
GAO: Government Accountability Office:
GSA: General Services Administration:
MAS: Multiple Award Schedules:
United States Government Accountability Office:
Washington, DC 20548:
February 11, 2005:
The Honorable Susan M. Collins:
Chairman, Committee on Homeland Security and Governmental Affairs:
United States Senate:
Dear Madam Chairman:
Each year, the federal government spends billions of dollars to buy
commercial products and professional services through the General
Services Administration's (GSA) multiple award schedules (MAS) program.
The MAS program is designed to take advantage of the government's
significant aggregate buying power and to provide a simplified method
for procuring commonly used goods and services, ranging from office
supplies to technical support. Through more than 16,000 MAS contracts,
federal agencies can directly purchase more than 8 million products
from more than 10,000 commercial vendors.
To ensure the federal government is getting the most value for the
taxpayer's dollar, GSA seeks to obtain price discounts equal to those
that vendors offer their most favored customers.[Footnote 1] GSA's goal
is to obtain most favored customer pricing as measured against the
vendor's commercial customers who purchase in a manner similar to the
government. After GSA negotiates MAS contract prices, agencies compare
prices, terms, and conditions offered by various vendors and select
those that best satisfy their product or service requirements.
Between fiscal years 1997 and 2004, MAS program sales have increased
more than fivefold, from $5.6 billion to about $32.5 billion. Despite
this dramatic increase, GSA and GSA's Inspector General have reported
that MAS contract negotiators had not consistently negotiated for most
favored customer pricing, in part because price negotiation tools were
not being used effectively and management controls had been
reduced.[Footnote 2] Concerned that GSA may be not be obtaining the
best prices for its MAS contracts, you asked us to assess how GSA (1)
negotiates most favored customer prices for MAS contract awards and
extensions[Footnote 3] and (2) assesses the overall effectiveness of
price negotiations.
To conduct our work, we discussed implementation of GSA policies,
procedures, and management controls with agency officials at GSA's
Office of Acquisition Management, Office of Performance Improvement and
the Office of Government-wide Policy, and Office of Inspector General.
We also visited four of GSA's seven acquisition centers: the National
Furniture Acquisition Center, Services Acquisition Center and
Information Technology Center in Virginia, and the Office Supplies and
Administrative Services Acquisition Center in New York.[Footnote 4] To
assess GSA's contract negotiation process, we identified the tools
used--such as checklists, invoices, price analyses, and sales
histories--to negotiate selected MAS contracts and discussed price
negotiations with management officials and contract negotiators at the
four GSA MAS acquisition centers we visited. To determine GSA's efforts
to assess the quality of MAS contract price negotiations, we analyzed
GSA's assessments of contract negotiation quality and discussed these
efforts with officials from GSA's federal supply schedule office at GSA
headquarters who are responsible for managing the MAS program. We
conducted our review from February 2004 through February 2005 in
accordance with generally accepted government auditing standards. See
appendix I for a more detailed discussion of our scope and methodology.
Results in Brief:
According to contract negotiators[Footnote 5] at the four MAS
acquisition centers we visited, they used a variety of tools to analyze
vendor-provided information and obtain most favored customer pricing.
However, a June 2004 review by GSA of selected fiscal year 2003 MAS
contract files found that nearly 60 percent of the files lacked
sufficient documentation to establish clearly the prices were
effectively negotiated. Specifically, the contract files 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 has been hampered by the significant decline in the number of
pre-award and postaward audits of MAS contracts--two independent
pricing tools that have helped GSA avoid or recover hundreds of
millions of dollars in excessive pricing. Between fiscal years 1992 and
1996, GSA conducted an average of 125 pre-award audits per year;
between fiscal years 1998 and 2004, this average fell to about 21 per
year.[Footnote 6] Postaward audits for price negotiations--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, to oversee and improve the quality of MAS contract
negotiations, GSA established the Acquisition Quality Measurement and
Improvement Program, which includes assessing the effectiveness of
price negotiations. The program has two initiatives--prenegotiation
clearance panels, which aim to ensure that negotiators are fully
prepared to negotiate high dollar contracts, and quality reviews of
contract negotiation files for evaluating the overall quality of
completed contract negotiations. While this program represents a step
in the right direction, GSA's oversight of these initiatives has been
limited. For example, three of the four MAS acquisition centers we
visited conducted a few panels in fiscal year 2004, but they did not
report the results of the panels to MAS program management. Without
such data, management cannot measure the effectiveness of the
initiative across the organization or make needed improvements.
Moreover, the fourth acquisition center, which accounted for about 56
percent of the fiscal year 2004 MAS sales, did not hold any panels. The
quality reviews of contract files have also been limited. For example,
the first three reviews, which took place in 2003 and 2004, did not
determine the underlying causes of identified deficiencies or prescribe
actions needed to address the causes. As a result of the weaknesses in
its Quality Measurement and Improvement Program, GSA does not have
reasonable assurance that contracting officials are effectively
negotiating MAS contract prices.
GSA officials said they plan to implement changes during fiscal year
2005 to improve the Acquisition Quality Measurement and Improvement
Program. Key efforts include providing on-line training with a module
on price negotiation, making contract quality a performance measure to
balance the contract negotiator's focus on quality as well as
timeliness, and requiring each acquisition center to develop an
individual improvement plan. While these efforts appear to be positive
steps, their effectiveness is uncertain.
We are making two recommendations aimed at better ensuring that
appropriate tools are used effectively to negotiate MAS contract prices
and two recommendations aimed at increasing the effectiveness of GSA's
Acquisition Quality Measurement and Improvement Program. In commenting
on a draft of this report, GSA agreed with our recommendations. GSA
also provided a broad description of the MAS program, which covers
topics beyond the scope of our report. In addition, GSA provided
technical comments, which we incorporated as appropriate.
Background:
GSA, through its Federal Supply Schedule (FSS) program, makes commonly
used commercial items and services available to federal agencies. MAS,
the largest FSS program, is designed to provide federal agencies with a
simplified method for acquiring varying quantities of a wide range of
commercially available goods and services, such as office furniture and
supplies, personal computers, scientific equipment, library services,
network support, and laboratory testing services. The MAS program
provides several advantages to both federal agencies and vendors.
Agencies can use a simplified method of acquisition and avoid other
procurement methods to purchase these items, which can be time-
consuming and administratively costly. Vendors can receive wider
exposure of their commercial products and expend less effort to sell
their products.
In administering the MAS program, GSA is responsible for ensuring that
all procurement regulations are followed and MAS prices reflect the
government's aggregate buying power. GSA awards indefinite-quantity
contracts to multiple vendors supplying comparable commercial goods and
services and provides the contracts categorized under various schedules
to federal agencies. MAS contract awards are based on the results of
price negotiations between contract negotiators and individual vendors.
GSA negotiators seek to obtain discounts from a vendor's commercial
price list, which are equal to or greater than the vendor's most
favored customer's discounts. The most favored customer is a customer
or category of customers that receives the best discounts from the
vendor's commercial price list when purchasing quantities comparable to
the government's under similar terms and conditions.[Footnote 7]
Vendors provide catalogs and price lists to federal agencies, which in
turn order the particular goods or services directly from the vendors
that best meet their needs.
MAS Program Changes:
In August 1997, GSA revised its acquisition regulations to expand
access to commercial products and services and to implement greater use
of commercial buying practices and streamline purchasing for
customers.[Footnote 8] GSA believed that these changes would lead to
more participation in the MAS program by both large and small
businesses--procedures more consistent with commercial practice would
increase competition and thereby provide federal agencies a wider range
of goods and services at competitive prices. Beginning in the late
1990s, MAS program sales increased significantly (see fig. 1).
Figure 1: MAS Sales, Fiscal Years 1992 through 2004:
[See PDF for image]
Note: MAS sales amounts include single award sales for each year of
less than $1 million.
[End of figure]
In fiscal year 2004, the Information Technology Acquisition Center had
the largest MAS sales volume with more than $18 billion (about 56
percent) of total MAS sales. Figure 2 shows the MAS sales for fiscal
year 2004 by GSA acquisition center. (See app. II for a description of
the products and services offered through each of the acquisition
centers.)
Figure 2: Fiscal Year 2004 MAS Sales by Center:
[See PDF for image]
Note: The Other category includes MAS contracts administered by GSA
centers other than MAS acquisition centers.
[End of figure]
As MAS sales volume skyrocketed over the last decade, the number of
contracts offering goods and services to federal agencies also
increased. For example, in the mid-1990s, GSA had about 5,200 MAS
contracts. By fiscal year 2004, this number had increased to over
16,000 MAS contracts (see fig. 3).
Figure 3: Increase in the Number of MAS Contracts, Fiscal Years 1995
through 2004:
[See PDF for image]
[End of figure]
As the number of MAS contracts managed increased, the number of FSS
contract specialists[Footnote 9] remained relatively stable, ranging
from 512 in fiscal year 1997 to 503 in fiscal year 2001. In the last 3
years, however, the number of contracting specialists has risen from
540 in fiscal year 2002 to 593 in fiscal year 2004 (see fig. 4). As a
result, more contract negotiators are available to negotiate and
administer an increasing workload. Additionally, GSA has initiated some
technology and process improvements, such as E-Buy[Footnote 10] and E-
Offer,[Footnote 11] to help contract negotiators better manage the
increasing workload.
Figure 4: Number of FSS Contract Specialists, Fiscal Years 1997 through
2004:
[See PDF for image]
[End of figure]
Negotiating Fair and Reasonable Prices:
GSA's goal is to obtain the offeror's best price (the best price given
to the most favored customer). However, the regulations recognize that
there may be legitimate reasons why the best price is not achieved.
Thus, the regulation permits an award at prices greater than the most
favored customer price so long as the award is in the best interest of
the United States and the price is fair and reasonable. To prepare for
negotiations, contract specialists conduct price analyses by comparing
each vendor's proposed prices to (1) other vendors' prices; (2)
vendors' commercial customer prices; (3) competitor price lists,
discount terms, or rebates; and (4) market prices. In performing a
price analysis, the contracting officer or an authorized representative
(the GSA Office of Inspector General) also has the right to conduct a
pre-award pricing audit, in which the vendor's books, records,
documents, papers, and other records are reviewed to verify the
pricing, sales, and other vendor-submitted data. Figure 5 shows some of
the tools that can be used by GSA during the MAS contract price
negotiation process.
Figure 5: MAS Contract Price Negotiation Process and Common Tools:
[See PDF for image]
[End of figure]
Federal Acquisition Regulation (FAR) specifies that the complexity and
circumstances of each acquisition determine the level of analysis
required.[Footnote 12] For example, determining a fair and reasonable
price for professional services can be complex and would likely involve
analyzing labor rates for a variety of skill levels. Conversely,
analyzing the price of a ballpoint pen that is similar to many other
pens already on a schedule would, in most circumstances, be
straightforward and require the use of different tools such as
catalogs. In addition, federal government sales and performance
histories are available to help evaluate prices when contract
extensions are considered.
Use of Price Negotiation Tools May Not Ensure Best Pricing on MAS
Contracts:
According to negotiators at the four acquisition centers we visited, a
variety of tools are used to analyze vendor-supplied information and
negotiate contract prices that nearly always were at least equal to the
vendor's most favored customer prices. However, our analysis of a
recent GSA review of product and service contract files found that most
lacked sufficient and reliable documentation to establish clearly that
prices were effectively negotiated. In addition, we found that the use
of pre-award and postaward audits of pricing information--two key price
negotiation tools that, in the past, have helped GSA avoid or recover
hundreds of millions of dollars in excessive pricing--have declined
dramatically.
Reviews Showed Effectiveness of Tools Used Is Unclear:
The MAS contract negotiators at the four acquisition centers we visited
used a variety of tools, including checklists, invoices, sales
histories, and pre-award audits to help them analyze and negotiate
prices. While their selection of tools was generally determined by the
type of product or service being purchased and the type of proposal,
other factors---such as GSA policies and procedures, resource
availability, and performance metrics--also affected the use of certain
pricing tools. For example, contract negotiators at the Services
Acquisition Center were required to use numerous standardized tools
such as checklists, letters, prenegotiation memorandums, and price
negotiation memorandums to help them evaluate proposals, while contract
negotiators at the National Furniture Center had more flexibility in
selecting pricing tools.
Regardless of the pricing tools used, all of the contract negotiators
whom we spoke with stated that their negotiations nearly always
resulted in prices that were at least equal to vendors' most favored
customer prices. However, GSA's June 2004 file review of 62 MAS
contracts awarded or extended during 2003 at GSA's seven MAS
acquisition centers found that 37 of the contracts--nearly 60 percent-
-lacked sufficient documentation to clearly establish that the
contracts were effectively negotiated. Roughly 40 percent of the
contracts lacked adequate price analyses or price negotiation
documentation. We analyzed GSA's review of the 62 contracts and
developed a profile of the types of documentation weaknesses identified
in the review (see table 1).
Table 1: Contract Documentation Weaknesses of MAS Contracts by
Acquisition Center:
Acquisition center: Center for Facilities Maintenance and Hardware;
Contracts reviewed: 2;
Contracts that did not meet pricing documentation requirements[A]: 2;
Contracts with inadequate price analysis: 0;
Contracts that did not fully document price negotiations: 0;
Contracts that did not identify most favored customer price: 0.
Acquisition center: General Products Acquisition Center;
Contracts reviewed: 10;
Contracts that did not meet pricing documentation requirements[A]: 5;
Contracts with inadequate price analysis: 5;
Contracts that did not fully document price negotiations: 0;
Contracts that did not identify most favored customer price: 0.
Acquisition center: Information Technology Center;
Contracts reviewed: 10;
Contracts that did not meet pricing documentation requirements[A]: 8;
Contracts with inadequate price analysis: 5;
Contracts that did not fully document price negotiations: 7;
Contracts that did not identify most favored customer price: 4.
Acquisition center: Management Services Center;
Contracts reviewed: 10;
Contracts that did not meet pricing documentation requirements[A]: 10;
Contracts with inadequate price analysis: 9;
Contracts that did not fully document price negotiations: 9;
Contracts that did not identify most favored customer price: 4.
Acquisition center: National Furniture Center;
Contracts reviewed: 10;
Contracts that did not meet pricing documentation requirements[A]: 2;
Contracts with inadequate price analysis: 1;
Contracts that did not fully document price negotiations: 2;
Contracts that did not identify most favored customer price: 1.
Acquisition center: Office Supplies and Administrative Services
Acquisition Center;
Contracts reviewed: 10;
Contracts that did not meet pricing documentation requirements[A]: 9;
Contracts with inadequate price analysis: 6;
Contracts that did not fully document price negotiations: 6;
Contracts that did not identify most favored customer price: 2.
Acquisition center: Services Acquisition Center;
Contracts reviewed: 10;
Contracts that did not meet pricing documentation requirements[A]: 1;
Contracts with inadequate price analysis: 0;
Contracts that did not fully document price negotiations: 0;
Contracts that did not identify most favored customer price: 1.
Acquisition center: Total[B];
Contracts reviewed: 62;
Contracts that did not meet pricing documentation requirements[A]: 37;
Contracts with inadequate price analysis: 26;
Contracts that did not fully document price negotiations: 24;
Contracts that did not identify most favored customer price: 12.
Source: GAO analysis of GSA data.
[A] Contract file documentation is to clearly establish that the vendor-
supplied pricing information was accurate, complete, and current; that
the vendor information was relied upon during the negotiations;
adequate price analysis was conducted; reasonable negotiation
objectives were established; the leverage of the total government's
requirements was considered in negotiating prices; and the prices
awarded were determined fair and reasonable as required in GSA Manual
538.270. [FSS Acquisition Letter FC-03-1: Acquisition Quality
Measurement and Improvement Program; Mar. 25, 2003 and FSS Acquisition
Letter FX-03-1, Supplement 1; Acquisition Quality Measurement and
Improvement Program; March 2004.]
[B] Each contract could have all, some, or none of the weaknesses
listed in each of the columns.
[End of table]
While GSA's June 2004 file review revealed weaknesses in the MAS
contract negotiation process, it often did not identify the specific
causes for the weaknesses. For example, for some contracts, the
reviewers reported that the contract file documentation of the price
analysis was unacceptable, but did not report what made the
documentation unacceptable.
In September 2004, GSA completed a review of 28 additional MAS
contracts. These contracts were awarded or extended between November
2003 and June 2004 at the seven MAS acquisition centers. Again, the
preliminary results found that the documentation for 27 of the 28
contracts was insufficient to clearly establish that the most favored
customer price objective was used for contract negotiations. As of
January 21, 2005, GSA had not issued a final report on its fiscal year
2004 quality reviews.
Use of Pre-Award and Postaward Audits of Negotiation Information Has
Declined Dramatically:
In addition to the pricing tools available to contract negotiators, pre-
award and postaward audits of negotiation information conducted by the
GSA Inspector General have been valuable tools for ensuring the
government is not overpaying for items purchased under MAS contracts.
However, the use of these audits has dramatically declined in recent
years. As the number of pre-award and postaward audits performed
decreased, so too did the amount of negotiated cost savings and
recoveries reported from these audits.
Pre-Award Audits:
Pre-award audits enable contract negotiators to verify that vendor-
supplied pricing information is accurate, complete, and current before
the contract is awarded. Historically, pre-award audits have allowed
GSA to identify and avoid hundreds of millions of dollars in
overpricing. For example, in August 2001, the GSA Inspector General
reported that a photocopier vendor offered state and local governments
a price that was $5,582 less than its price to GSA for the same type
copier; the Inspector General estimated that the higher price paid by
GSA customers could cost them nearly $4 million more in just one year.
In another example, the Inspector General found that a major
distributor of information technology products sold its top 10 GSA-
selling computer models to commercial customers at an average price
that was 6 percent less that the price offered under the MAS contract.
The Inspector General projected that over the contract's term, GSA
customers would pay nearly $40 million more for these products than
they should have.
Despite the cost avoidance realized through pre-award audits, the
number of these audits decreased dramatically between fiscal years 1992
and 2003--from 130 to 14. Between fiscal years 1992 and 1996, the
average number of pre-award audits conducted annually was about 125;
for fiscal year 1998 through 2003, the average number of pre-award
audits conducted annually fell to 18. In 2004, pre-award audits rose
slightly to 40 (see fig. 6).
Figure 6: MAS Pre-Award Audits, Fiscal Years 1992 through 2004:
[See PDF for image]
[End of figure]
As the number of pre-award audits performed decreased, so did the
amount of the negotiated cost savings. Between fiscal years 1992 and
1997, the GSA Inspector General reported a total of nearly $496 million
in savings--an average of nearly $83 million per year. Between fiscal
years 1998 through 2004, the total savings reported had dropped to
about $125.9 million--an average of nearly $18 million per year (see
fig. 7).
Figure 7: Negotiated Cost Savings from Pre-Award Audits, Fiscal Years
1992 through 2004.
[See PDF for image]
[End of figure]
According to Inspector General and MAS contracting officials, the
decline in pre-award audits was largely due to an organizational
culture that stressed making awards quickly and because pre-award
audits were not emphasized institutionally in GSA. For example, the
performance goal for negotiating and awarding MAS contracts for the
Office Supply and Administrative Services Acquisition Center is 79
days--a goal that would be difficult to meet if pre-award audits, which
take on average 90 or more days to complete, were to be conducted. GSA
management officials also noted that extending the contract performance
period from one year--the contract period in the mid-1990s--to 5 years
has reduced the number of opportunities for conducting pre-award audits.
Recently, MAS program and Inspector General officials formed a work
group to address the decline in pre-award audits. In June 2003, GSA
issued guidance that recognized the importance of pre-award audits to
the evaluation of MAS price proposals and a clear determination
regarding fair and reasonable pricing.[Footnote 13] The guidance
instructs contract negotiators to request audit assistance for new
contract offers and extensions when the dollar value for estimated
sales exceeds $25 million for the 5-year contract period. We applied
the $25 million threshold to MAS contracts awarded or extended in
fiscal year 2003 and identified about 34 new contracts and 37 contract
extensions that were subject to pre-award audits. However, only 14 pre-
award audits--which identified about $4.1 million in negotiated
savings--were completed in fiscal year 2003. For fiscal year 2004, GSA
management and GSA Inspector General officials collaboratively selected
about 55 MAS contracts for pre-award audits; by the end of fiscal year,
the Inspector General had completed 40. For fiscal year 2005, the
officials set a goal of completing 70 pre-award audits. To help achieve
this goal, the FSS program has provided the Inspector General $2
million to hire more auditors.
Postaward Audits:
From fiscal year 1990 through fiscal year 1994, the GSA Inspector
General reported that it recovered an average of $18 million each year
in vendor overcharges through postaward audits. Most of these
recoveries were the result of vendor failure to provide accurate,
complete, or current information in the negotiation of their MAS
contracts and the vendors' failure to report and offer price
reductions. Inspector General officials told us that they believe
postaward audits of negotiation information are a key pricing tool and
a deterrent to vendor pricing abuse.[Footnote 14]
Despite the significant recoveries, postaward audits of pre-award
pricing information have not been conducted since 1997--when GSA issued
a final rule, changing its policy. Specifically, GSA removed language
from the examination of records clause that automatically granted
postaward audit rights for pre-award pricing information in every MAS
contract.[Footnote 15] GSA expected the reduction in these postaward
audits to be offset by an increase in the number of pre-award audits.
However, the anticipated increased use of pre-award audits has not
materialized.
While the policy changes greatly limited the use of postaward audits of
pre-award pricing information, we found that it did not expressly
eliminate its use. Under GSA's revised regulations, the contracting
officer can modify the examination of records clause to provide for
access to pre-award pricing information for 2 years after contract
award or modification. To modify the examination of records clause, the
contracting officer must, first, determine that there is a likelihood
of significant harm to the government without access to verify the
information. Such determination must be made on a schedule-by-schedule
basis. Secondly, the contracting officer must obtain the senior
procurement executive's approval to modify the examination of records
clause of the contract. However, according to GSA management and GSA
Inspector General officials, no contract clause modification requests
have been sought or approved since the policy changes were made. These
officials said that GSA has not issued guidance to help contracting
officers determine the likelihood of significant harm to the
government.
Opportunities Exist to Improve Management Oversight of MAS Price
Negotiations:
In March 2003, GSA established the Acquisition Quality Measurement and
Improvement Program, a management control process for assessing and
improving the quality of contract negotiations. The program consists of
two initiatives--prenegotiation clearance panels[Footnote 16] and
quality reviews of contract files.[Footnote 17] While these initiatives
are a good first step toward establishing management controls for
assessing the quality of MAS contract price negotiations, opportunities
exist to increase their effectiveness.
Use of Prenegotiation Clearance Panels Has Been Limited:
GSA established prenegotiation clearance panels to help MAS acquisition
center management ensure the quality of its most significant contract
negotiations. Prior to initiating discussions with a vendor for a
contract award or modification that reaches a center's dollar
threshold,[Footnote 18] the contract negotiators are required to seek
advice and concurrence from the clearance panel. Panel procedures may
also be applied to sensitive actions such as the first contract
negotiations under new programs and contract extensions with
problematic performance or sales reporting histories. However, since
the initiative was implemented, few panels had been conducted at the
acquisition centers we visited, and those that had been conducted had
not been assessed at the agency level.
The Information Technology Center--which administered contracts with
more than $18 billion, or 56 percent, of fiscal year 2004 MAS sales--
has yet to conduct a clearance panel. According to center management
officials, no panels have been held because no contract's estimated
annual sales had exceeded the center's $80 million threshold for
conducting a panel. However, we found five contracts that exceeded the
threshold and, therefore, were subject to a clearance panel.
Specifically, in fiscal year 2003, GSA awarded four contracts with
total estimated sales values ranging from $102.5 million to $700
million and extended one contract with an estimated sales value of
$20.3 billion. Each of these met the threshold for a panel.
Each of the remaining three centers--which, combined, administered $6.5
billion, or about 20.1 percent, of fiscal year 2004 MAS sales--had
conducted a small number of panels in the past year. The Office
Supplies and Administrative Services Center held 10 panels, the
Services Acquisition Center held 9 panels, and the National Furniture
Center held 6 panels. According to the management officials and
contract negotiators at these centers, the panels helped prepare them
to successfully negotiate most significant MAS contracts. For example,
officials at the Office Supplies and Administrative Services Center
stated that the panels helped contract negotiators learn how to better
negotiate large, sensitive, and controversial contracts. The officials
at all three centers also stated that clearance panels helped in
identifying inconsistencies in the documentation and analyses used to
develop their negotiation objectives. The officials further noted that
because these reviews have been a valuable prenegotiation technique,
they lowered the dollar threshold required for a panel review to
increase the number of panel reviews. For example, the Office Supplies
and Administrative Services Center officials reduced the center's
threshold from $5 million to $2 million so that more contracts would
qualify for panel review.
While these efforts helped centers prepare for negotiating their most
significant MAS contracts, GSA officials responsible for overseeing the
MAS program were unaware of the effectiveness of the panels. GSA
officials acknowledged that they neither collected nor analyzed
information on the implementation of the panel initiative and did not
require the acquisition centers to report panel outcomes to MAS program
management. However, they stated that they would implement a procedure
to collect panel information by the end of calendar year 2004.
Scope of Quality Reviews Limited Their Effectiveness:
In the first 2 years of its quality reviews, GSA identified a number of
deficiencies in the documentation supporting price negotiations and
price reasonableness determinations. However, the scope of these
reviews was limited, minimizing their effectiveness. Moreover, GSA did
not identify the underlying causes of the deficiencies found or the
specific actions to address the causes--despite actions taken to
improve the quality review initiative.
Through its quality review initiative, GSA planned to select a
representative sample of MAS contracts at each of the acquisition
centers[Footnote 19] and assess the pre-award documentation--rating it
as excellent, satisfactory, marginally acceptable, or
unacceptable[Footnote 20]---in the following three pricing
areas:[Footnote 21]
* Price negotiation documents are to clearly establish that the pricing
information provided by the vendor was accurate, complete, and current;
the information was relied upon during negotiations; adequate price
analyses were conducted; reasonable negotiation objectives were
established; the amount of the total government's requirements was
leveraged in negotiating prices; and the prices negotiated were fair
and reasonable considering the prices offered by the vendor to their
most favored customer.
* Contract modifications documentation should support the conclusion
that all contract modifications were adequately reviewed to establish
that the terms proposed were in the interest of the government and that
prices for newly awarded items were determined fair and reasonable
considering the prices offered by the vendor to their most favored
customer.
* Contract extension decisions are to be fully documented in compliance
with regulations, and the prices for the option established as fair and
reasonable with consideration of the prices offered by the vendor to
its most favored customer.
For the fiscal year 2003 quality review, GSA did not meet these
criteria--largely because it had significantly reduced the scope of the
review. For example, GSA completed its review at only one of its seven
centers--the Services Acquisition Center. According to MAS program
managers, a lack of resources and reviewers and concerns about the
independence of the available reviewers prevented them from conducting
more reviews. In addition, in its one review, GSA assessed 19 fiscal
year 2003 contracts, which did not make up a representative sample. GSA
found that the price negotiation documentation for 4 of the 19
contracts reviewed was "unacceptable."
For fiscal year 2004, GSA planned to review 10 contracts each quarter
at each of its seven MAS acquisition centers--a total of 280 MAS
contracts--to improve the independence of the review team members, and
refine the review criteria and rating categories. However, GSA
completed only two quarterly reviews of a total of 90 MAS contracts and
eliminated the rating system--instead, contract reviewers identified
only strengths and weaknesses of each contract negotiation. Moreover,
reviewers did not determine the underlying causes for identified
pricing deficiencies or develop plans to address the causes. For
example, the negotiation documentation for 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, but the cause of
these deficiencies was not determined. Similarly, the documentation of
a contract with an estimated value of $125,000 was insufficient in
either the contract extension or the original contract to determine if
any of the pricing requirements had been met. Again, however, the
causes for these deficiencies were not identified.
In September 2004, GSA completed a review of 28 additional MAS
contracts that were awarded or extended between November 2003 and June
2004 at the seven MAS acquisition centers. GSA's preliminary findings
of these reviews are inconsistent. For example, GSA reported that all
28 contracts contained sufficient documentation to establish clearly
that they met pricing requirements. However, the most favored customer
price was not established clearly for 27 of the 28 contracts. In
addition, GSA reported that one contract's negotiation documents
clearly showed that reasonable negotiation objectives were established
and an adequate price analysis was conducted. However, the review also
stated, "While the contract file contains several pages where, for each
item offered, the government price and discount is listed, as well as
the commercial price, the contract file does not contain a commercial
pricelist. Thus, there is no way to substantiate that the commercial
prices shown in the tables comparing commercial and government prices
are, in fact, the published commercial prices." As of January 21, 2005,
GSA had not issued a final report on its fiscal year 2004 quality
reviews.
According to GSA officials, several efforts to improve the quality
review process are to be implemented during fiscal year 2005. Key
efforts include, providing on-line training with a module on price
negotiation for contract specialists, making contract quality a
performance measure to balance the contract negotiator's focus on
quality as well as timeliness, and requiring each acquisition center to
develop an individual improvement plan. While these efforts appear to
be positive steps, their effectiveness is uncertain.
Conclusions:
The MAS program has provided the government with a more flexible and
cost-effective approach to buying commercial items and services, and
the MAS's popularity has increased significantly in recent years.
However, MAS contract negotiators do not use the full range of tools to
ensure that the government is effectively negotiating prices. While GSA
has taken steps to establish a program to assess the quality of its MAS
contract negotiations, all acquisition centers are not fully
participating, and the scope of the program is limited. Moreover, the
program has not yet determined why deficiencies it has identified thus
far are occurring. Until GSA takes steps to ensure the appropriate use
of available pricing and negotiation tools, it will continue to miss
opportunities to save the government hundreds of millions of dollars in
the procurement of goods and services.
Recommendations for Executive Action:
We are making four recommendations aimed at helping GSA ensure that
prices are effectively negotiated for MAS contracts. We recommend that
the Administrator of the General Services Administration:
* ensure that pre-award audits are conducted when the threshold is met
for both new contract offers and contract extensions,
* develop guidance to help contracting officers determine when
postaward audits are needed,
* 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, and:
* 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 for contract
pricing deficiencies and (2) develop appropriate plans to implement
corrective actions.
Agency Comments:
GSA provided written comments on a draft of this report. GSA agreed
with our recommendations, and stated that it has already begun to take
the following actions:
* FSS will work with the GSA's Office of Inspector General to increase
and to improve the pre-award audit process.
* GSA will work with the acquisition community to generate a discussion
about the role that postaward reviews should play in the acquisition
process. To foster this discussion, GSA will have the Office of Chief
Acquisition Officer publish a Notice of Proposed Rulemaking.
* FSS has already revised its program operating procedures to require
reports on prenegotiation clearance panels.
* GSA is expanding an action plan to improve file documentation
pertaining to contract pricing and is placing strong emphasis on proper
negotiation.
While GSA agreed with our recommendations, it felt that our report fell
short in a few areas. First, GSA thought that our report should have
described in more detail the MAS program. We have provided the
information needed to understand the issues of concern in our review.
GSA provided additional details on the MAS program, which are reprinted
in appendix III.
Second, GSA asserted that the findings of its Acquisition Quality
Measurement and Improvement Program reviews should not be interpreted
to mean that FSS is not obtaining good pricing. To illustrate this
point, GSA noted that it reexamined 8 of the 62 contracts covered by
the June 2004 quality review and now concludes that the contracts had
"excellent" pricing. It is unclear how GSA's examination of contract
documentation that was previously found to be inadequate supports such
a determination. More important, we are concerned that GSA's position
understates the seriousness of the problem it has in ensuring that GSA
contracting officials are effectively negotiating MAS contract prices.
In addition to its own quality reviews, our report shows the use of pre-
award audits and the millions of dollars in savings from such audits
have declined dramatically in recent years. We also reported that the
use of prenegotiation clearance panels, designed to ensure quality of
significant contract negotiations, has been limited. Such problems are
not new. For example, the GSA Inspector General reported in August 2001
that (1) GSA contracting officials were not consistently negotiating
most favored customer prices, (2) contracts were being extended with
little negotiation or price analysis, and (3) pre-award audits had
decreased significantly in recent years. Clearly, these problems are
serious, longstanding, and have significant financial consequences.
Thus, we believe GSA needs to place priority attention on obtaining
adequate documentation to ensure its contracting officials are
effectively negotiating MAS contract prices.
Third, GSA commented that while our report points to a significant
decline in the number of pre-award and postaward audits, it does not
address the factors that contributed to this decline. We disagree. As
discussed in our report, MAS contracting officials and Inspector
General officials identified a number of factors that in the past
contributed to the reduction of the number of pre-award audits. These
factors include an organizational culture that stresses making contract
awards quickly and performance measures that focus on timeliness. The
reduction of the number of opportunities for conducting pre-award
audits caused by the extension of contract performance period from 1
year--the contract period in the mid-1990s--to 5 years was also cited
as a factor. However, according to GSA it receives more than 3,000 new
MAS contract offers each year. Despite these opportunities to conduct
pre-award audits, the number of pre-award audits has only increased
from 14 in fiscal year 2003 to 40 in fiscal year 2004.
Fourth, GSA expressed concern about our understanding of the regulatory
framework required for postaward audits of commercial contracts and
that we underestimated the risk and overestimated the savings
associated with these postaward audits. We are aware that the 1997
change to GSA's regulations stimulated substantial disagreement and
discussion concerning the extent of GSA audit authority. GSA received
numerous comments asserting that the Clinger-Cohen Act (PL 104-106)
eliminated its authority to conduct postaward audits of pre-award
pricing information. Similar views were expressed in post enactment
language by the House Armed Services Committee in House Report 104-563.
Although GSA concluded that it retained authority for postaward audits,
GSA's final rule restricted the use of postaward audits. Specifically,
the final rule allows the contracting officer to modify the Examination
of Records by GSA (Multiple Award Schedule) clause to provide for
postaward audits only "after the contracting officer makes a
determination that there is a likelihood of significant harm to the
Government without access to verify the information and obtains the
Senior Procurement Executive's approval." We have not recommended that
GSA change the postaward audit restriction. Rather, we have noted that
contracting officers do not understand the rule and need guidance to
fulfill their responsibilities under the rule. Regarding the savings
associated with postaward audits, the estimates were produced and
reported by GSA's Inspector General.
Fifth, GSA commented that because the Acquisition Quality Management
and Improvement Program has yet to be fully implemented, it is not
reasonable to evaluate the adequacy of the program in achieving
improvements. This misses the point. We believe that improvements
should be made when the need for them are identified regardless of the
program's implementation stage. For example, we found that the program
when it was launched in March 2003 was limited to two initiatives--
prenegotiation panels and quality reviews--and that other initiatives
key to a successful improvement program, such as training, were not
formally included as an initiative under the program. Coincident with
our finding, GSA has initiated a training program.
Finally, GSA commented that it had made a commitment to establishing a
culture of quality contracting and identified 12 improvement actions
taken since November 2001. Our report identifies five of these actions:
establishing the Acquisition Quality Measurement and Improvement
Program; implementing a contract quality measure in the individual
performance plan for each contracting associate; developing on-line and
classroom training courses and modules for FSS contracting
professionals via FSS Center for Acquisition Excellence; forming an IG
Working Group to focus on the need for pre-award audits; and increasing
the number of contracting associates. The remaining seven improvement
actions either were not directly related to the issues in our report or
were implemented after we completed our fieldwork. Therefore, we are
not in a position to comment on these improvement actions.
GSA also made a number of technical comments, which we respond to in
appendix III.
As agreed, unless you publicly announce its contents earlier, we plan
no further distribution of this report until 30 days from its issue
date. At that time, we will send copies of this report to the Honorable
Stephen A. Perry, Administrator of the General Services Administration;
appropriate congressional committees; and other interested parties. We
will also provide copies to others on request. In addition, the report
will be available at no charge on the GAO Web site at
http://www.gao.gov.
If you or your staff have questions concerning this report, please
contact me at (202) 512-4841 or by e-mail at cooperd@gao.gov or James
Fuquay at (937) 258-7963. Key contributors to this report were Sanford
Reigle, Elaine Boudreau, Sameena Ismailjee, Mary Jo Lewnard, Sylvia
Schatz, and Karen Sloan.
Sincerely,
Signed by:
David E. Cooper:
Director, Acquisition and Sourcing Management:
[End of section]
Appendix I: Scope and Methodology:
To determine how GSA negotiates most favored customer pricing
objectives for MAS program contract awards and extensions, we examined
GSA policies and procedures for contract negotiation, including
information requirements for price negotiation memorandums, periodic
reviews focusing on the quality of MAS price negotiations, specific
guidance on contract price negotiations, and training given to
contracting officers and contract specialists. We discussed
implementation of GSA policies, procedures, and management controls
with agency officials at GSA's Office of Acquisition Management in
Arlington, Virginia; Office of Performance Improvement and the Office
of Government-wide Policy in Washington, D.C; and the GSA's Office of
Inspector General in Washington, D.C. Also, we visited the Office
Supplies and Administrative Services Acquisition Center in New York,
New York; and the National Furniture Acquisition Center, Services
Acquisition Center, and Information Technology Center in Arlington,
Virginia. We obtained and analyzed GSA data on MAS contract awards and
sales volume as recorded in the Federal Supply Service Automated Supply
System FSS-19 used by GSA to procure and distribute supplies across the
federal government. To help ensure reliability of FSS-19 data, we
reviewed the results of the GSA Inspector General's audit of the
system's internal controls and tests of application controls completed
in support of GSA's fiscal year 2003 consolidate and combined financial
statements. Also, we reviewed GSA Inspector General reports, analyzed
cost avoidance and cost recovery estimates, and discussed these data
with GSA Inspector General officials.
Further, we reviewed contract files and discussed price negotiation
practices and tool use with management officials and contract
negotiators responsible for selected MAS contracts at four of GSA's
seven MAS acquisition centers. At these centers, we reviewed the
contract files that GSA had randomly selected for review under their
Acquisition Quality Measurement and Improvement Program. Based on our
review of price negotiation procedures and discussions with acquisition
center management officials concerning the GSA selected MAS contracts,
we developed a flowchart of the contract price negotiation process
identifying tools used and controls over their use.
To determine how GSA assesses the overall effectiveness of MAS contract
price negotiations, we reviewed GSA policies, procedures, and efforts
to evaluate the quality of MAS contract negotiations and awards,
identify and implement needed improvements, and communicate best
practices throughout the acquisition community. Also, we discussed
management controls established to assess the effectiveness of MAS
contract negotiations to obtain the most favored customer price
objective with agency officials at GSA's Office of Acquisition
Management in Arlington, Virginia; and the Office of Inspector General
in Washington, D.C. We reviewed prior GAO and GSA Inspector General
findings on GSA's MAS contract price negotiations. Further, we analyzed
the 2003 and 2004 results of GSA's Post Award Contract Reviews and for
selected contracts, interviewed responsible acquisition center and
contract negotiation officials to evaluate the quality of GSA's review,
identify underlying cause for unacceptable price negotiations, and
document corrective actions taken.
[End of section]
Appendix II: MAS Acquisition Centers' Products and Services:
Acquisition Center: Center for Facilities Maintenance and Hardware;
Products and Services: Appliances; Coatings; Lawn equipment; Machining
equipment; Tools.
Acquisition Center: General Products Acquisition Center; Products and
Services: Buildings and building materials; Industrial services and
supplies; Total solutions for law enforcement, security, facilities
management, fire, rescue, clothing, marine craft, and emergency
disaster response; Food service, hospitality, cleaning equipment and
supplies, chemicals, and services; Sports, promotional, outdoor,
recreational, trophies, and signs; Temporary administrative and
professional staffing; Laboratory testing and analysis services; Test
and measurement equipment, avionics equipment, unmanned aerial
vehicles, and related services; Chemistry, biochemistry, clinical
instruments, general purpose laboratory instruments, and services;
Geophysical, environmental analysis equipment, and services.
Acquisition Center: Information Technology Center;
Products and Services: General purpose commercial information
technology equipment, software, and test administration.
Acquisition Center: Management Services Center;
Products and Services: Energy services; Environmental services and
products; Language services; Logistics worldwide; Management,
organizational, and business improvement services.
Acquisition Center: National Furniture Center;
Products and Services: Office, imaging, and document solution;
Professional audio/video, telecommunications, and security solutions;
Office furniture; Household and quarters furniture; Packaged furniture;
Comprehensive furniture management services; Special use furniture;
Miscellaneous furniture; Floor coverings; Furnishings.
Acquisition Center: Office Supplies and Administrative Services
Acquisition Center;
Products and Services: Training aids and devices; Instructor-led
training; Course development; Test administration; Office
products/supplies and services; New products/technology; Publication
media; Shipping, packaging, and packing supplies; Human resources and
Equal Employment Opportunity services.
Acquisition Center: Services Acquisition Center;
Products and Services: Financial and business solutions marketing;
Media and public information services; Professional engineering
services.
Source: GSA data.
[End of table]
[End of section]
Appendix III: Comments from the General Services Administration:
GSA:
GSA Administrator:
February 1, 2005:
Mr. David E. Cooper:
Director:
Acquisition and Sourcing Management:
United States Government Accountability Office:
Washington, DC 20548:
Dear Mr. Cooper:
Thank you for affording the opportunity to comment on the General
Accountability Office (GAO) draft report entitled "Contract Management:
Opportunities Exist for GSA to Improve Oversight of Multiple Award
Schedules Contract Price Negotiations" (GAO-05-229). I also appreciated
the professionalism and dedication that you and your team demonstrated
while conducting your review.
In order to fulfill our mission to "... help Federal agencies better
serve the public by offering, at best value ... acquisition services
...," General Services Administration (GSA) associates must adhere
strictly to Federal acquisition policies, regulations, and best
practices. To ensure that this is the case, without exception, GSA
launched the agency-wide "Get It Right" plan in July 2004. "Get It
Right" is a comprehensive approach to achieving excellence in Federal
acquisition. The plan consolidates a number of existing and new
initiatives into a unified GSA-wide effort for assessing regulatory
compliance and providing feedback to customer agencies, industry
partners, the acquisition workforce, and other stakeholders. The "Get
It Right" plan has five objectives:
1. Secure the best value for Federal agencies and American taxpayers
through an efficient and effective acquisition process, while ensuring
full and open competition, and instilling integrity and transparency in
the use of GSA contracting vehicles.
2. Make acquisition policies, regulations, and procedures clear and
explicit.
3. Improve education/training of the Federal acquisition workforce on
the proper use of GSA contracting vehicles and services.
4. Ensure compliance with Federal acquisition policies, regulations,
and procedures.
5. Communicate with the acquisition community, including agencies,
industry partners, Office of Management and Budget (OMB), Congress, and
other stakeholders regarding the use of GSA contracting vehicles and
services.
To improve oversight of the ever-increasing number of Multiple Award
Schedule contracts, the Federal Supply Service (FSS) established the
Office of Acquisition Management in 2003. Among the many actions taken
by the FSS Office of Acquisition Management was the establishment of
the Acquisition Quality Measurement and Improvement Program (ACQMIP).
To ensure proper performance of the contract award system within FSS,
this system was reviewed by ACQMIP. In fact, the same Multiple Award
Schedule contract sample generated for use in the ACQMIP review was
also used by the GAO team that prepared this report.
We are pleased that GAO found the data collected by FSS sufficient for
its use as a basis for many of the MAS report conclusions. It is
important to note that although the reviews performed by FSS and GAO
discovered that oversight of the Multiple Awards Schedule contract
award system should be improved, we believe that FSS continues to
secure best value for its customers and achieves fair and reasonable
pricing. This is illustrated by the fact that, following the GAO
review, FSS reexamined a sampling of the contract files in which we had
our most serious documentation concerns. Those eight contract files, in
fact, did have excellent pricing (most favored customer or better). FSS
is reviewing the remaining files in question. In addition, FSS is
continuing its review of the findings of the contract quality reviews.
As noted above, one of the key objectives of the "Get It Right" plan is
to '[Ejnsure compliance with federal acquisition policies, regulations,
and procedures." Non-compliance is unacceptable. To this end, we
developed an action plan to improve file documentation, which is
consistent with many of the recommendation in your report. For example,
we have:
Established the Office of Acquisition Management (3/2003);
* Published FAR 8.4 update incorporating ordering procedures for
services and guidance on sole-source orders (7/2004);
* Initiated the development of a negotiation quality measurement and
improvement process (11/2001);
* Established the Acquisition Quality Measurement and Improvement
Program (3/2003);
* Implemented a contract quality measure in the individual performance
plan for each contracting associate (11/2004);
* Tied senior manager performance plans to remediation of concerns
identified (11112004);
* Established a pricing division in the Information Technology
Acquisition Center to oversee review and negotiation of pricing
(10/2004);
* Established a nationwide program to regularly document and evaluate
contractor performance across over 25 specific contractor requirements
(10/2002);
* Conducted customer compliance surveys (8/2003, 9/2004);
* Developed on-line and classroom training courses and modules for FSS
contracting professionals via FSS Center for Acquisition Excellence
(3/2003);
* Established IG Working Group to facilitate preaward audits (12/2001);
* Significantly increased the number of contracting associates (2001-
2004), and:
* Initiated agency-wide Procurement Management Reviews (2004).
Your report offered four specific well-considered recommendations that
we are acting upon. FSS will work with GSA's Office of Inspector
General to increase and improve the pre-award audit process. We will
also work with the acquisition community to generate a discussion about
the role that post-award reviews should play in the acquisition
process. We will foster this discussion by having our Office of Chief
Acquisition Officer publish a Notice of Proposed Rulemaking in the GSA
Manual (GSAM). This will promote the dialogue that should provide a
direction to follow. Consistent with GSA's "Get It Right" plan and your
recommendation, FSS has already revised its program-operating
procedures to require reports on pre-negotiation clearance panels.
Finally, your report called for broadening the scope of quality reviews
in the interest of developing corrective actions. FSS secures best
value for our Government customers by negotiating fair and reasonable
pricing based on most favored customer analysis and by educating our
customers about schedule ordering procedures designed to foster best
value. Complete file documentation enables FSS to demonstrate to our
customers how that best value has been achieved. Therefore, we are
expanding an action plan to improve file documentation pertaining to
contract pricing and we are placing strong emphasis on proper
negotiation.
GSA is proud of the help we provide to Federal agencies to enable them
to better serve the American people by offering best value acquisition
services. In our quest for progress and continuous improvement, we will
use this report as a useful tool for improving our contracting
operations and promoting a culture of acquisition excellence throughout
GSA.
Additional comments are provided in the attached statement.
Sincerely,
Signed by:
Stephen A. Perry:
Administrator:
Attachment:
GSA COMMENTS ON THE GAO DRAFT REPORT,
CONTRACT MANAGEMENT: OPPORTUNITIES EXIST FOR GSA TO IMPROVE OVERSIGHT
OF MULTIPLE AWARD SCHEDULES CONTRACT PRICE NEGOTIATIONS,
DATED DECEMBER 27, 2004 GAO-05-229:
GENERAL COMMENTS: GSA appreciates the work GAO has done and appreciates
the opportunity to comment on the report. We feel that the GAO report
should provide for its readers a fuller description and understanding
of the Multiple Award Schedule Program (MAS program) which is part of
an integrated procurement process that provides best value to our
customer agencies and the taxpayer.
At the schedule contract level, GSA concentrates on obtaining fair and
reasonable pricing. We do so by using the concept of most favored
customer pricing as a starting point, and then negotiating from there
based on all the specifics of the situation. Our goal is to obtain a
fair and reasonable price as measured against the vendor's commercial
customers who purchase in a manner similar to the Government. Just as
important, the prices and terms and conditions established at the
contract level provide a framework or starting point from which
agencies can leverage their own requirements seeking price reductions
through competition at the order level.
FSS provides a number of tools that assist agencies in conducting
competitions, seeking price reductions and making product or service
comparisons among our contractors prior to placing an order.
GSAAdvantage!© is our electronic catalog that includes over 8 million
items. This electronic catalog allows contracting officers to conduct
market research and to analyze products online in real time. For
example, agencies can conduct market research focusing on small
businesses and get credit towards their socio-economic goals for
subsequent orders. The FSS electronic request-for-quote tool, e-Buy,
allows customer agencies to post statements of work online and request
quotes in response from our contractors. It enhances competition by
both streamlining the process and providing transparency in the order
process. Last fiscal year over 25,000 agency notices were posted on e-
Buy resulting in an average number of three contractor proposals
received in response to the notices. The MAS program, with its
streamlined, competitive ordering process provides customer agencies
and the taxpayer with an effective and efficient procurement tool for
obtaining best value.
As GAO correctly notes, the MAS program has increased dramatically over
the last 10 years, with sales growing from $4 billion per year to sales
of $32 billion per year. This growth reflects the strength of the
underlying program and the numerous benefits resulting from it. In the
same time, the number of multiple award contracts has roughly tripled -
and over 3,000 new schedule offers are received each year.
With this program growth, GSA's program management responsibilities
have increased. To improve oversight, FSS established the Office of
Acquisition Management in November 2003. This new office was set up to
provide acquisition management guidance for all FSS procurement
programs, to develop internal and Government training on FSS
procurement vehicles, to improve acquisition systems, and to improve
contract administration and contract management practices.
One of this office's first efforts was the establishment of the
Acquisition Quality Measurement and Improvement Program. Under this
program, FSS began reviewing how well it performed in awarding new
contracts. GAO used these FSS reviews in concluding that "nearly 60
percent lacked the documentation needed to clearly establish that the
best price objectives were negotiated." In fact, the reviews did
establish that FSS had a number of areas where it could continue its
improvement efforts, including the quality of its documentation.
However, these results do not mean, and should not be interpreted to
state, that FSS is not obtaining good pricing. Neither FSS nor GAO
turned up evidence to suggest that the weaknesses in documentation
resulted in prices that were unreasonable. FSS reexamined a sampling of
the contract files where we had among our most serious documentation
concerns. Those eight contract files, in fact, did have excellent
pricing (most favored customer or better). FSS is reviewing the
remaining files in question. In addition, FSS is continuing its review
of the findings of the contract quality reviews. The next step is to
issue a draft report to all the acquisition activities who were
subjects of the review. In essence it is a comment period for the
acquisition activities to give the reviewers feedback on the results
and validate the review process. This step is part of the internal
checks and balances designed to ensure the accuracy of the final
report.
GAO points to a significant decline in the number of pre and post-award
audits over the last 10 years. The draft report does not address the
factors that, in the past, contributed to the reduction in the number
of audits. FSS moved to longer term contracts resulting in fewer
preaward audits since many of the major contractors already had long
term schedule contracts. FSS and GSA's Office of Inspector General (the
IG) are now focusing on conducting audits of these contractors as part
of exercising options to extend these existing contracts. GSA agrees
that over the last 10 years the number of audits has sharply decreased,
but also notes that this trend was reversed over the last two years.
From 2003 to 2004, there was nearly a tripling of the number of pre-
award audits requested. For FY 2005, FSS has provided funding to the IG
to ensure that more pre-award audits are completed.
GAO recommends that GSA issue additional guidance on appropriate use of
post-award audits. GSA is concerned that GAO has not fully understood
the regulatory framework required for post-award audits of commercial
contracts and thus underestimates risks and over estimates savings
associated with them. For example, recently, GSA has focused our audit
efforts on preaward audits as the best vehicle to protect the
Government's interests in developing contract pricing. FSS and the IG
are working to increase the number of preaward audits and the dollar
value of schedule contracts covered by those audits.
GAO states that the Acquisition Quality Management and Improvement
Program is a step in the right direction, but concludes that its
effectiveness has been limited due to insufficient oversight. There are
always opportunities to improve oversight, and FSS concurs with most of
the specific recommendations made in the report. Many of them, in fact,
are already part of GSA's long-term plan for the Acquisition Quality
Measurement and Improvement Program. As the program has not yet been
fully implemented, and has not even formally issued its first report,
it is not reasonable to evaluate the adequacy of the program in
achieving improvement. Upon report issuance, FSS will develop
appropriate action plans, including one to address file documentation.
FSS notes that while GAO addresses two key aspects of the program (pre-
award panels and contract reviews) it does not note the third key
aspect, training. Based on preliminary findings of the reviews, FSS
began developing a new online training module for its course on
schedule basics. The new module, launched in October 2004, focused on
Most Favored Customer pricing. As the quality reviews continue, FSS
anticipates adding new training courses and modules.
Finally, FSS notes that it has made a commitment to establishing a
culture of quality contracting. Towards this end it has:
* Established the Office of Acquisition Management (11/2003);
* Published FAR 8.4 update incorporating ordering procedures for
services and guidance on sole-source orders (7/2004);
* Initiated the development of a neqotiation quality measurement and
improvement process (11/2001);
* Established the Acquisition Quality Measurement and Improvement
Program (3/2003);
* Implemented a contract quality measure in the individual performance
plan for each contracting associate (11/2004);
* Tied senior manager performance plans to remediation of concerns
identified (11/2004);
* Established a pricing division in the Information Technology
Acquisition Center to oversee review and negotiation of pricing
(10/2004),
* Established a nationwide program to regularly document and evaluate
contractor performance across over 25 specific contractor requirements
(10/2002);
* Conducted customer compliance survey (8/2003, 9/2004);
* Developed on-line and classroom training courses and modules for FSS
contracting professionals via FSS Center for Acquisition Excellence
(3/2003);
* Established IG Working Group to facilitate preaward audits (12/2001);
and:
* Significantly increased the number of contracting associates (2001-
2004).
SPECIFIC COMMENTS ON THE DRAFT:
Introduction page: First paragraph, first sentence, delete the words
"the prices vendors offer their best customers" and substitute the
following: "prices offered to commercial customers who purchase in a
similar manner as the Government," or words to that effect. Second
sentence, delete the words "the best price" and substitute the
following: "the price that reflects the manner in which the Government
purchases," or words to that effect.
Second paragraph, last sentence, delete the words "best prices" and
substitute the following "price that reflects the Government's buying
practices," or words to that effect.
Page 1, First Paragraph of the cover letter to The Honorable Susan M.
Collins: Currently there are more than 8 million items on GSAAdvantage!
including both products and services. In addition, there are over
16,000 MAS contracts. Therefore, GSA recommends revising the last
sentence to reflect the current numbers.
Second paragraph, first sentence, delete the words "most favored
customers" and substitute the following: "customers that buy similarly
to the Government," or words to that effect. Footnote one should be
deleted. Add a sentence at the end of the paragraph which states that
"GSA encourages its customer agencies to negotiate further discounts at
the time they place an order," or words to that effect.
Last paragraph, fifth sentence, should be modified by adding the words
"who purchase similarly to the Federal Government, after the words:
most favored customer's," or words to that effect.
Page 2, Fourth Paragraph of the cover letter to The Honorable Susan M.
Collins: The acquisition center name "Facilities Maintenance & Products
Acquisition Center" should read "Center for Facilities Maintenance and
Hardware."
Page 3, Results in Brief: The first paragraph of the "Results in
Brief"does not provide the full context for the results of the reviews.
The reviews identified weaknesses in the documentation of the files
regarding the negotiation of pricing. The weaknesses in the
documentation do not mean that FSS did not negotiate and obtain fair
and reasonable pricing. Rather the weaknesses indicate that our
contracting officers must do a better job in documenting files in
support of awards. Also, the first paragraph indicates that the lack of
audit support has hampered the ability of GSA to obtain fair and
reasonable pricing. GAO points to the reduction of pre-award audits
from approximately 125 per year to approximately 21 audits per year.
However, the "Results in Brief' do not highlight or indicate that for
the last two fiscal years there has been an increase in audit support
and the number of audits being performed. FSS and the IG have been
working together via a working group to increase the number of audits
as well as improve the audit process. FSS has also agreed to provide
the IG with $2 million this fiscal year for additional program support,
including increasing the number of audits.
The second paragraph of the "Results in Brief' indicates that the
oversight of the Acquisition Quality Measurement and Improvement
Program has been "weak." It is premature to reach such a conclusion
given that Fiscal Year 2004 was the first year of the review of the
entire organization and that the next step in the process will be the
issuance of the final report. Based on the results of the final report
FSS management is committed to establishing action plans to address the
results of the report. These action plans will include, as appropriate,
additional training and guidance for contracting associates as well as
focused implementation plans to address any issues at the operational
level. With regard to the pre-negotiation panels, GSA agrees that
reports on the use of the panels should be made to MAS program
management and we will revise our policy letter governing the program
to require such reports.
Page 4: The first paragraph should be revised from "Agencies can use a
simplified method of acquisition and avoid other procurement methods"
to "Agencies can use the MAS program to streamline their
acquisitions..." This paragraph does not discuss the competitive
procedures for placing orders under the MAS program. Federal
Acquisition Regulation (FAR) 8.4 establishes the ordering procedures
for the MAS program that are designed to both streamline the process
while enhancing competition. Further, the Department of Defense has
special ordering procedures for the service orders exceeding $100,000
under the MAS program. In order to put the MAS program in proper
context there should be a discussion of the ordering procedures and
GSA's e-tools such as e-Buy which further enhance competition at the
order level. The prices and terms and conditions established at the
contract level provide a framework or starting point from which
agencies can leverage their own requirements seeking further price
reductions through competition at the order level.
Page 8: In the first sentence, add the words: "based on the manner the
Federal Government buys," or words to that effect.
Page 11: In the second paragraph, first sentence, add the words: "based
on the manner in which the Government purchases," following the words:
"most favored customer prices," or words to that effect.
Page 12, Reviews Showed Effectiveness of Tools Unclear: The discussion
of the results of the reviews does not put into context the ongoing
nature of the reviews. The review program's goal is to continuously
improve contract quality. FSS believes that the organization is
accomplishing that goal in a focused and systematic manner. For
example, a quality review was done of the Services Acquisition Center
in Fiscal Year 2003 which identified areas that needed improvement in
the negotiation of contract awards. The Services Acquisition Center
developed an implementation plan to improve contract quality and as a
result the Fiscal Year 2004 quality reviews demonstrated a significant
improvement in contract quality.
With regard to the level of documentation of the June 2004 quality
reviews, the documentation of the reviews has improved. As a result of
feedback from the acquisition centers along with an internal review of
the evaluation process, the format and instructions for the reviews
were revised to ensure that the results were fully and fairly
documented. The fourth quarter reviews in September 2004 reflect the
changes in the evaluation of the contract files. Additionally, the
final report and the overall evaluation of the contract files will
identify weaknesses and areas where improvements are needed as well as
any best practices. Finally, this section of the report does not
discuss or describe any of the steps that FSS has already taken to
address contract quality. A host of information was provided to GAO
that demonstrates a proactive effort on the part of FSS to ensure
contract quality:
* Information regarding FSS corporate performance measures that include
contract quality.
* Information regarding individual appraisal plans for its FSS
contracting personnel which include contract quality.
* Information regarding FSS's online course on the negotiation and
award of MAS contracts which was made mandatory for all FSS 1102
contracting personnel in April 2004.
* Information regarding several new FSS procurement bulletins to
contracting officers highlighting contract negotiation issues.
Page 13: In the first paragraph, revise the number of additional
reviews from 28 to 35. In addition, delete or revise the sentence
stating "27 of the 28 contracts was insufficient to clearly establish
..." Reexamination of the September 2004 consensus reports by FSS
revealed that, if used the same standard as in June 2004, the
percentage requiring improved pricing documentation would have been
about the same.
Page 13, Use of Pre-Award and Post Award Audits of Negotiation
Information has Dramatically Declined: As a matter for clarification,
in the schedules context, pre-award audits refer to pricing audits by
the IG whereby the commercial pricing information submitted by the
vendor is reviewed and validated.
Page 14, Use of Pre-Award and Post Award Audits of Negotiation
Information has Declined Dramatically: The draft report does not
address the factors that in the past contributed to the reduction in
the number of audits. First, FSS moved to longer term contracts
resulting in fewer pre-award audits since many of the major contractors
already had long term MAS contracts. FSS and the IG are now focusing on
conducting audits of these contractors as part of the process for
exercising options to extend these existing contracts. The report also
states at the bottom of page 14 that "pre-award audits rose slightly to
40 in Fiscal Year 2004." FSS believes that an over 150 percent increase
from one fiscal year to the next is a significant change in direction.
The goal for this fiscal year is 70 audits. FSS's goal is not an
arbitrary increase in the number of audits but a focused and sound
audit plan that implements the appropriate number of audits in terms of
the dollar value of the contracts audited. The steady increase in the
number of audits over the last two fiscal years reflects that goal.
Page 15: The draft report on page 15 refers to an organizational
culture that stresses making award decisions quickly. This statement is
used to demonstrate a lack of audits. The report then provides an
example of a center with a performance goal of 79 days to award while
an audit typically takes 90 days. This does not tell the entire story.
FSS has made contract quality a performance measure that balances the
cycle time performance measure. In addition, FSS believes that a
measure for processing cycle time makes sense for the management
oversight and, ultimately, the taxpayer. Cycle time measures the
efficiency of the organization. This helps ensure that taxpayer funds
are efficiently and effectively managed. At the same time, balancing
processing cycle time with quality provides for a balanced scorecard.
GSA believes that the adoption of FAR Part 12 and commercial practices
in conjunction with the move to long term contracts were significant
factors in the reduction of the number of audits. In any event, FSS and
the IG have made significant progress in increasing the number of
audits.
Page 17, Use of Pre-Negotiation Clearance Panels has been Limited: GSA
agrees with the observations regarding the use of panels. FSS is
amending the policy letter governing the use of the panels to institute
a reporting requirement. The reports will be used to assess progress in
the effectiveness of negotiation and will be an opportunity to share
best practices. With regard to the IT Acquisition Center, the threshold
for the use of panels will be lowered to increase the frequency of the
panels.
Page 19, Scope of Quality Reviews Limited Their Effectiveness: The
quality reviews were not designed to identify the underlying "causes"
for any weaknesses in contract file documentation. The quality reviews
evaluate and document issues identified in the contract files. FSS
management will review the results of the quality reviews, identify any
"causes" for any weaknesses and develop action plans to address those
weaknesses. This process will address the "causes" by identifying any
new training or guidance that is needed as well as making any necessary
changes to management and oversight of the program operations.
Footnote 21 states that only three of the seven critical factors of the
quality review cover pricing issues. This statement is misleading. The
three factors comprehensively cover the price negotiations issues.
Further, the other four factors cover appropriate issues such as
evaluation of contractor responsibility and small business programs.
Finally, as FSS moves into the next stage of implementation, contract
pricing negotiations will be the most important factor.
RECOMMENDATIONS FOR EXECUTIVE ACTION:
The report recommends that GSA:
1. ensure that pre-award audits are conducted when the threshold is met
for both new contract offers and contract extensions;
GSA Response: Agree. FSS and IG continue to work to increase and
improve the pre-award audits. The goal for the number of audits this
fiscal year is 70.
2. develop guidance to help contracting officers determine when post
award audits are needed;
GSA Response: Although GSA believes that current policy guidance is
clear, GSA agrees that we will explore what, if any, additional
guidance is needed in this area.
3. direct GSA program management to revise the Acquisition Quality
Measurement and Improvement Program to measure and report on the
performance of the pre-negotiation clearance panels; and:
GSA Response: Agree. GSA has already revised and implemented the
program operating procedure to require reports on pre-negotiation
clearance panels.
4. 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 for
contracting pricing weaknesses and (2) develop appropriate plans to
implement corrective actions.
GSA Response: Agree in principle. The Acquisition Quality Measurement
and Improvement Program is in its first year of implementation across
FSS as a whole and the process is ongoing. GSA believes that the
process already incorporates these recommendations. Upon issuance of
the report, FSS will be taking appropriate actions to address any
weaknesses. This will involve a discussion and identification of the
underlying reasons for any weaknesses. To further supplement the
program, GSA plans to convey the critical need for documentation of all
contractual actions while continuing to place a strong emphasis on the
adequate documentation of contract pricing and analysis, and
negotiation.
GAO Comments:
1. The language in our report is consistent with the language in the
General Services Administration Acquisition Manual (GSAM).
Specifically, GSAM 538.270 Evaluation of multiple award schedule (MAS)
offers states :"(a) The Government will seek to obtain the offeror's
best price (the best price given to the most favored customer).
However, the Government recognizes that the terms and conditions of
commercial sales vary and there may be legitimate reasons why the best
price is not achieved." Further, GSA states in the supplementary
information to its final rule, 62 Fed. Reg. 44,518, 44,519 (August 21,
1997) that; "The pursuit of "most favored customer" pricing as a goal
is consistent with commercial practice and totally consistent with the
objective of negotiating a fair and reasonable price."
2. Technical revision has been made.
3. Technical revision has been made.
4. The language in our report is consistent with the language cited in
comment 1; however, we added the language that notes GSA's pricing
goals. Also, while GSA encourages its customer agencies to negotiate
further discounts at the time they place an order, the focus of our
work was on how GSA negotiates MAS contract prices, not on the
responsibilities of GSA's customer agencies.
5. The language in our report is consistent with the language cited in
comment 1.
6. Technical revision has been made.
7. Without documentation that establishes clearly that the contract
negotiations were conducted using accurate, complete, and current
pricing information and adequate price analyses; GSA cannot ensure that
negotiation objectives were properly established and the prices were
effectively negotiated. Historically, pre-award audits have allowed GSA
to avoid hundreds of millions of dollars in overpricing. Between fiscal
years 1992 and 1997 the GSA Inspector General averaged about 125 pre-
award audits each year and reported a total of nearly $496 million in
savings--an average of nearly $83 million per year. In August 2001, as
pre-award audits continued to decline, the Inspector General reported
that contracting officers were not consistently negotiating most
favored customer pricing because they often failed to evaluate and
quantify differences between commercial pricing and schedule terms and
conditions. As discussed in our report, the Inspector General provided
specific examples of overpricing with millions of dollars in potential
overpayments by GSA customers. While the number of pre-award audits GSA
completed increased from 14 to 40 between fiscal years 2003 and 2004,
we do not view this increase as significant--especially given the
skyrocketing MAS sales.
8. In fiscal year 2003, GSA was to complete quality reviews of 11 GSA
activities, including all 7 of the MAS acquisition centers. However,
GSA completed and reported on only one center--the Services Acquisition
Center. According to GSA officials, the results of its fiscal year 2004
review would be issued in October 2004. This date slipped several times
to December 31, 2004, to January 7, 2005, and now to sometime in
February 2005. We believe that better oversight early in the program's
implementation could have helped the program better meet its
established milestones.
9. Our review focused on how GSA negotiates most favored customer
prices for MAS contracts and assesses the overall effectiveness of
these price negotiations. We did not look at how GSA's customer
agencies order items and services from MAS contracts.
10. The language in our report is consistent with the language cited in
comment 1.
11. Technical revisions have been made.
12. We support the use of quality reviews and believe they are a good
first step to improved MAS contact negotiations, as we noted in our
report. However, we also believe that identifying specific causes of
documentation deficiencies and the requirement for action plans
addressing these causes would increase the effectiveness of GSA's
quality reviews.
GSA asserts that the improvement in contract documentation at the
Service Acquisition Center is a direct result of their quality reviews.
The evidence we have been provided does not support this assertion.
While GSA's June 2004 quality review of the Service Acquisition Center
found that contract documentation had improved since its fiscal year
2003 review, we learned during the course of our review that the
Service Acquisition Center began a continuous improvement program about
4 years ago and that one of the Center's divisions had been developing
tools and standardized documents to have an audit trail of the
information that was used and how decisions were made in negotiating
the contract. Because the Center's efforts pre-date GSA's quality
reviews, it is unclear to what extent the Center's improvement efforts
and the reviews had on the documentation improvements.
GAO recognizes that GSA has initiated a number of efforts to better
ensure contract quality, and our report identifies those that are
relevant to our review. However, because these efforts were recently
implemented, we did not assess and cannot comment on their
effectiveness.
13. Our findings are based on the 28 contract reviews completed as of
September 2004. For these reviews, the GSA reviewers stated that most
favored customer pricing was not clearly established for 27. The
additional seven reviews and reexaminations were expected in October
2004, they were not completed until February 2005. Therefore, we have
no basis to comment on either GSA's additional seven reviews or their
reexamination of the September 2004 consensus reports.
14. Our report describes the use of pre-award audits and their conduct
by the GSA Inspector General for contract negotiators.
15. As discussed in our report, MAS contracting officials and Inspector
General officials identified a number of factors that in the past
contributed to the reduction of the number of pre-award audits. These
factors include an organizational culture that stresses making contract
awards quickly and performance measures that focus on timeliness. The
reduction in the number of opportunities for conducting pre-award
audits caused by the extension of contract performance period from 1
year--the contract period in the mid-1990s--to 5 years was also cited
as a factor. However, despite the 5-year contract period, GSA increased
the number of pre-award audits from 14 in fiscal year 2003 to 40 in
fiscal year 2004 and plans to complete 70 in fiscal year 2005.
Moreover, according to GSA, it received more than 3,000 new MAS
contract offers each year, presenting GSA with numerous opportunities
for pre-award audits. Therefore, we do not believe that the extension
of MAS contracts from 1 to 5 years was a major underlying cause of the
dramatic decline in pre-award audits over the last decade.
16. We asked contract negotiators why they did not request pre-award
audits on new contract offers, as required by GSA. According to the
contract negotiators, the performance goal for awarding a new contract
did not allow enough time for pre-award audits. While we agree that
establishing a performance measure to reduce cycle times may be
warranted, it must be balanced with other measures of quality, as GSA
points out.
We also agree that increasing the number of pre-award audits from 14 to
40 shows progress; however, we do not believe that this increase can be
characterized as "significant"--especially when an average of 125
audits were completed annually in the early 1990s and GSA receives more
than 3,000 new schedule offers annually.
17. We agree with GSA's proposed actions.
18. Identifying underlying or "root" causes is essential for correcting
process deficiencies. While GSA notes that FSS management intends to
identify such causes, we believe GSA missed an opportunity to do so
through its formal review. Further, it is unclear how FSS management
plans to identify the underlying causes. Regardless, we believe that
expending resources to resolve deficiencies without first determining
the causes of the deficiencies unnecessarily increases the risk that
improvement efforts will not succeed and resources spent will be
wasted.
19. The acquisition letter implementing the quality reviews identifies
the seven critical factors. While all of these critical factors could
involve contracting pricing in some manner, only three factors
specifically address pricing.
FOOTNOTES
[1] Most favored customers are customers or categories of customers
that receive the best price from vendors. [48 C.F.R. 538.270a] The
pursuit of most favored customer pricing is consistent with the
objective of negotiating a fair and reasonable price. [Final rule, 62
Fed. Reg. 44,518, 44,519 (Aug. 21, 1997).]
[2] General Services Administration, GSA Annual Performance and
Accountability Report, Fiscal Year 2002 (Washington, D.C.: 2002) and
MAS Pricing Practices: Is FSS Observing Regulatory Provisions Regarding
Pricing? (Washington, D.C.: Aug. 24, 2001).
[3] Extensions are 5-year options to renew the initial MAS contract.
[4] GSA has nine acquisition centers. Of these, seven support the MAS
program--the National Furniture Center, Information Technology Center,
and the Services Acquisition Center in Arlington, Va; the General
Products Acquisition Center in Fort Worth, Tex; the Center for
Facilities Maintenance & Hardware located in Kansas City, Mo; the
Office Supplies & Administrative Services Acquisition Center in New
York, N.Y; and the Management Services Center in Auburn, Wash. We
visited the centers in Arlington and New York.
[5] In this report, we refer to both contracting officers and
specialists as "negotiators."
[6] In 1997, GSA reengineered its MAS program to implement commercial
buying practices and streamline purchasing for customers. Because MAS
contracts were negotiated under different rules during the year, we did
not include fiscal year 1997 in our comparison.
[7] Terms and conditions of sale can include such factors as delivery
requirements, warranty requirements, timing of price increases, and
functions performed for the government by the vendor.
[8] Final Rule, 62 Fed. Reg. 44,518 (Aug. 21, 1997) to be codified at
48 CFR Part 504, 507, 510, 511, 512, 514, 515, 538, 539, 543, 546, 552,
and 570.
[9] The Office of Personnel Management defines the contract specialist
occupational group as positions that manage, supervise, perform, or
develop policies and procedures involving the procurement of supplies,
services, construction, or research and development using formal
advertising or negotiation procedures; the evaluation of contract price
proposals; and the administration or termination and close out of
contracts. Office of Personnel Management, Handbook of Occupational
Groups and Families; (Washington D.C.: August 2002).
[10] E-Buy is an on-line request for quotation tool designed to
facilitate the request for submission of quotations for commercial
services and products that are offered by schedule contractors. E-Buy
was implemented in fiscal year 2001.
[11] E-Offer enables a company to become GSA-approved by preparing and
submitting its offer and interact with contract specialists
electronically. E-Offer was implemented in fiscal year 2004.
[12] Analytical techniques and procedures may be used singly or in
combination with others to ensure that the final price is fair and
reasonable. The complexity and circumstances of each acquisition should
determine the level of detail of the analysis required. [FAR 15.404-
1(a)(1)]
[13] General Services Administration, Procurement Information Bulletin
(PIB) 03-4: Audit Assistance--Multiple Award Schedule (MAS) Contracts
(Washington, D.C.: June 20, 2003).
[14] The GSA Inspector General officials' comments are supported by the
Department of Veterans Affairs Inspector General officials who have
found postaward audits help protect against overcharging by vendors and
often result in recovery of vendor overcharges. See GAO, Contract
Management: Further Efforts Needed to Sustain VA's Progress in
Purchasing Medical Products and Services, GAO-04-718 (Washington, D.C.:
June 22, 2004).
[15] GSA, however, retained the right to conduct postaward audits for
over billing, billing errors, and compliance with the Price Reduction
and Industrial Funding Fee clauses. [GSAR 552.215-71].
[16] Prenegotiation clearance review panels provide advice and
concurrence to the contract negotiator and ensure that the negotiator
is fully prepared to negotiate the most significant contracts.
[17] Quality reviews evaluate the overall quality of completed contract
negotiations.
[18] GSA policy gives acquisition centers the discretion to lower their
dollar thresholds for determining when a panel review should occur. In
fiscal year 2003, thresholds for each center were as follows: National
Furniture Center, $7 million; Information Technology Center, $80
million; Services Acquisition Center, $9 million; General Products
Acquisition Center, $7 million; Hardware Superstore, $5 million; Office
Supplies & Administration Services Acquisition Center, $5 million; and
the Management Services Acquisition Center, $9 million. [FSS
Acquisition Letter FC-03-1; Acquisition Quality Measurement and
Improvement Program, Mar. 25, 2003.]
[19] General Services Administration, Acquisition Quality Measurement
Improvement Program, Acquisition Letter FC-03-1 (Washington D.C.: Mar.
25, 2003).
[20] A contract file that indicated that the negotiator used excellent
skill and initiative to resolve problems and establish pricing that
fairly represented the full value of the contract would be rated as
excellent. A contract that needed significant corrective action to meet
regulatory requirements or to establish fair and reasonable pricing, or
both, would be rated as unacceptable.
[21] In 2003, the quality review included seven critical factors of
which only three were directly related to pricing.
GAO's Mission:
The Government Accountability Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains
abstracts and full-text files of current reports and testimony and an
expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases. You
can print these documents in their entirety, including charts and other
graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order
GAO Products" heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office
441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm
E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director,
NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548:
