Current Pricing Challenges & Strategies for GSA and VA Schedule Contractors. Breakout Session # 508 James S. Phillips, Esq. July 20 th , 2010 2:00 PM. 1. Overview.
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Breakout Session #508
James S. Phillips, Esq.
July 20th, 2010
Federal Supply Schedule (FSS) contracts provide for streamlined contracting based on the Government’s prior approval of Schedule vendor’s prices/rates for products and/or services offered through the Schedules program.
Pricing is approved at the Schedule contract level based on the vendor’s submission of a contract pricing proposal complying with the Schedule solicitation’s requirements, followed by price negotiations.
Disclosure + Negotiation = Contract Award.
Successful pricing of FSS proposals is dependent upon the vendor’s ability to competently communicate to GSA or VA how it prices its products/services commercially.
This is done through the Commercial Sales Practices (CSP) Disclosure template contained in Schedules solicitations.
An extremely high number of proposals are rejected (@45%) due to pricing problems.
Negligent or intentional omissions of required pricing information may subject the vendor to significant legal and contractual jeopardy!
The Bottom Line
You are permitted/expected to negotiate hard but you
may not conceal information relevant to the pricing of
your offered products/services.
Your first pricing “Challenge” is to ensure you have made the required disclosures
Your second pricing “Challenge” is to establish why your offered price is “reasonable” based on your pricing disclosures
Success is achieved by fulfilling your mandatory disclosure obligations and successfully establishing a “reasonable” FSS price that allows you to profitably compete for future orders, including providing additional discounts when necessary or appropriate.
Can you supply 2 years of financial information?
Do you have any commercial sales of the proposed Schedule items?
Do you have the ability to disclose why different customers receive different prices/rates for such items (i.e. standard practices).
A “no” to any of the above is a definite impediment to being able to succeed.
Most Favored Customer (MFC) Disclosure/treatment.
Are you offering GSA/VA prices equal to or better than your MFC prices?
Note if your offer encompasses multiple SINs you may have different levels of MFC prices to disclose/evaluate
Ensure you understand the advantages/disadvantages of proposing MFC pricing
If not, have you established why your MFC customer(s) is not comparable to FSS customers?
Do you maintain a true commercial price list or
do you price based on the market?
Price list based offers work better under the FSS CSP template because GSA/VA assume vendors have clear price/discount levels they follow. The key then becomes to map FSS customers to the most comparable customer discount level.
Offerors without true price lists need to investigate and understand what market conditions result in lower prices/better discounts. This may be very challenging if discounts vary widely.
For service vendors without true commercial price lists a better alternative may be to go with a “cost build” up pricing basis.
Note: The outcome to this question will also dictate how you obtain future Economic Price Adjustments (i.e. price increases)
Make sure you understand the advantages/disadvantages of each pricing model!
Do Certain Sales Constitute Deviations from Standard Commercial Sales Practices?
FSS Pricing is to be based on standard sales practices
GSA & VA recognize that certain sales result from non-standard sales transaction – i.e., deviations
Evaluate sales prices that deviate from the norm to assess whether they are deviations
Note: Deviations must be disclosed but if legitimate should not be the basis of GSA pricing
Volume Drives Discounts
In most markets, the higher the value of a sales transaction, the lower the unit price of the good/service
Likewise high sales guarantees will impact pricing
GSA/VA recognize this – Schedule contracts include maximum order thresholds above which FSS customer are to request add’l discounts
Evaluate commercials sales practices in terms of the volume of sales by customer and highlight special discounts attributed to spec’l sales volume
Is Your Product/Service Bought
as a Commodity?
Products/Services that possess special attributes are purchased based on consideration of factors other than price – i.e. best value
Vendors of such products/services are solicited for new work based on factor other than price
For vendors of these items, it is highly desirable to have schedule prices that leave room for additional discounts as warranted by the transaction
Commodities sales are largely driven by price. Sellers of commodities need to ensure that their Schedule prices are low enough to ensure that they are solicited for new work.
6. FSS Price = Basis of Award
FSS prices are tied to prices charged commercial customers unless a cost build up model is used
The customers or class of customers on which FSS prices are based are referred to as the Basis of Award or BOA
Under the FSS Price Reductions Clause, the price/discount relationship established between the FSS price and the BOA customer price must be maintained throughout the contract. If BOA customers later get lower prices or better discounts, that may trigger an obligation to reduce FSS prices
In considering your pricing strategy always think about the need to designate a BOA customer category & the challenges of complying with the Price Reductions Clause
Special Issues for Service Providers
Cost build up may be easier to administer than CSP pricing but then profit is specifically negotiated. Then have to establish proposed profit is reasonable.
Service Contract Act applies to non-professional labor categories outside IT Schedule 70. Need to align your labor categories to SCA labor categories and ensure SCA compliance.
FSS labor pricing is specific to unique labor categories. Ensure personnel meet labor category qualifications to avoid compliance issues.
Special Issues for Product Resellers
Product resellers that have substantial commercial sales of proposed FSS items may rely on their own CSP disclosure to establish FSS prices.
Resellers lacking substantial commercial sales of these items must obtain a letter of supply from the manufacturer of the products and supply manufacturer commercial pricing information. This is problematic.
FSS contracts are subject to renewal every 5 years provided that the vendor has complied with the contract & GSA/VA determines the vendor’s FSS prices remain reasonable.
Price Reasonableness is determined based on a re-submittal of the vendor’s CSP Disclosure as a part of its renewal package.
No Commercial Sales of Schedules Items at Renewal
This is a problem! Plan for it and try to avoid it!
If it happens, evaluate alternative pricing strategies – cost build up; sales to non-FSS federal customers.
Failure to Monitor Price Reductions
CSP at renewal may establish that BPA customer prices/discounts have changed without comparable reduction in FSS prices. This is highly problematic because it suggests failure to comply with the Price Reductions Clause.
Be sure to review Price Reductions compliance and report required price reductions prior to submitting renewal package!
3. FSS Pricing Have Not Kept Pace
with Commercial Pricing
This is problematic because at renewal the price discount relationship between the FSS price and the BOA price will be revisited and reestablished.
You will then be obligated to maintain the increased price discount relationship going forward.
Make sure you obtain all available price increases prior to submitting your renewal paperwork!
James (Jim) Phillips