Current Pricing Challenges & Strategies for GSA and VA Schedule Contractors

2. Current Pricing Challenges & Strategies for GSA and VA Schedule Contractors Breakout Session #508 James S. Phillips, Esq. July 20th, 2010 2:00 PM 1

3. Overview 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.

4. Overview 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!

5. Overview 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. Therefore: 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.

6. Initial Questions to Ask 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.

7. Basic Strategic Questions to Consider Before Submitting 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?

8. Basic Strategic Questions to Consider Before Submitting 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!

9. Basic Strategic Questions to Consider Before Submitting 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

10. Basic Strategic Questions to Consider Before Submitting 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

11. Basic Strategic Questions to Consider Before Submitting 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.

12. Basic Strategic Questions to Consider Before Submitting 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

13. Basic Strategic Questions to Consider Before Submitting 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.

14. Basic Strategic Questions to Consider Before Submitting 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.

15. Special Pricing Challenges for FSS Contract Renewals Overview 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.

16. Special Pricing Challenges for FSS Contract Renewals 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.

17. Special Pricing Challenges for FSS Contract Renewals 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!

18. Special Pricing Challenges for FSS Contract Renewals 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!

19. Current Pricing Challenges & Strategies for GSA and VA Schedule Contractors Questions?

20. Current Pricing Challenges & Strategies for GSA and VA Schedule Contractors Thank you! James (Jim) Phillips jphillips@centreconsult.com (703)288-2800