What is “Fair and Reasonable” When It Comes to GSA Schedule Pricing – There is No Knowledge That is Not Power

There is no knowledge that is not power.

When preparing for pricing negotiations with your GSA counterparts, your guiding principal should be “There is no knowledge that is not power.” This venerable phrase is first attributed to Ralph Waldo Emerson from his January 1862 “The Atlantic Monthly” essay Old Age where he extolls on the value of experience and wisdom gained though a long life, well spent. A truly valuable and important work especially in today’s world but for our purposes, I’d suggest its inclusion as an opening quote in the mid-1990s video game “Mortal Kombat 3” might be more relevant.  For those unfamiliar with the “Mortal Kombat” video game series, the player’s objective is essentially to win a martial arts tournament against the computer or another player in direct battle.  Player moves are controlled on screen through complex patterns of joystick-movement and button-mashing. The goal: a “Flawless Victory” achieved by winning a round without incurring any damage. In its simplest description, the game is two players competing one-on-one for a single prize and you can’t win if you don’t know the right moves. As it works in practice now, negotiating the pricing on your Schedule often seems like a similar head-to-head situation where a comprehensive knowledge of the correct “moves” is the essential key to your success.

Of course, we must never forget that the real purpose of the GSA Schedules program is to provide a mechanism for Industry to supply our Government Agencies with the commercial goods and services they need to successfully accomplish their missions.  We are partners in a system that allows all components to simultaneously be successful and whose ultimate success depends on the individual success of all the component groups. BUT…..there are situations where the Contractor’s goal is in direct conflict with their CO’s objective.  Their objective is to get the best price for the Government, in many cases, regardless of terms and conditions.  I’ve never heard a CO voice a concern that a Contractor is offering GSA too big of a discount or refuse discounts that are better than those that a Contractor’s Distributors receive even though Distributors operate in an arrangement that is vastly different from that of a Government Customer. Now factor in the transformation in the definition of “Fair and Reasonable” and better than your best discount— regardless of terms and conditions— STILL may not be enough.  If GSA determines that another company’s rates are even more “fair and reasonable” than yours, they can say your rates are still too high and push for even further discounts.

The Offeror’s goal should be, first, to fully comply with the terms of the solicitation, provide a current, accurate and complete account of their commercial sales and discounting practices.  Then negotiate apples-to-apples rates that are not so high that it will make them appear unreasonable to Government price list skimmers and not so low that they cannot offer the optional (but frequently-required) additional discounts at the order level.

First we have to be clear on the circumstances we are discussing: It is a very long shot to get goods/services on your contract that your company has never sold before to anyone and, in that situation, the information below will rarely be enough to make your case.  The strategies and tactics to get rates that are truly “fair and reasonable” starts from the premise that the Contractor has proven their experience and the commerciality of the offered goods/services through invoices, pricing worksheets, Industry Indexes, Cost Build-Ups, Manufacturer’s Price Lists / Commercial Sales Practices (product resellers) or whatever other means the CO has determined as acceptable.

1.  Do your research.  To some this may seem like common sense, but we regularly see Contractors that have little to no understanding of how their industry or competitors conduct business or have any interest in finding out.  There is something to be said for doing what you do best and not worrying about anyone else but, in this situation, you had better do the research because the person you’ll be negotiating with certainly will have done theirs.  While GSA COs will make a serious effort to research and build a fair case, you have to remember they have probably never worked in your world and may only have the barest understanding of how your industry operates commercially. However, it is their job to review what they consider comparable products or services and determine if another company’s rates are more “fair and reasonable” than those that you may have reams of evidence to support.  Since “responses due by” times are often shorter than the time needed to start your research from scratch, start now building your corporate knowledge base. Ideally, the information should be in a form that can be shared and passed on to new employees so compile a file that documents:

Your industry’s commercial market landscape:

• Competitors who sell like your company. (similar goods / services; sold with similar pricing and discounting practices)
• Competitors that don’t sell like your company. (Example – a company that sells by the foot when you sell by the pound or whose Project Managers only require a Bachelors and 2 years where yours requires a Masters and 4 years.)
• The typical practices in your industry. (Examples – discounting practices, delivery models, standard certifications etc.)
• The atypical practices in your industry. (Examples – unusual discounting practices, unconventional packaging, atypical delivery models, non-standard certifications etc.)

Your industry’s government market landscape:

• Competitors who sell like your company and have significant government sales and/or a GSA Schedule and their publicly available rates.
• Competitors that don’t sell like your company in the government market but have significant government sales and/or a GSA Schedule and their publicly available rates.
• The typical practices in your industry on the government side.
• The atypical practices in your industry on the government side.

A clear and accurate description of what makes your company and its goods/services special commercially and in the government market.

2. Build your case. On GSA’s side, in most cases, their research starts with their infamous “pricing tool.”  They enter your labor category titles, minimum education/experience requirements and responsibilities (or product information) and compare your pricing to other companies that have your same Schedule and SINs.  A report is generated and any product/service with a price that is above the allowable +1 standard deviation is a target for negotiations. Note that the “pricing tool” apparently does not give the names or other details on the actual competitors you are measured against in the report.  It also does not take into account for the fact that many SINs are so broad that even though labor category descriptions may be similar there can legitimately be major differences in the pay rates based on the uniqueness of the differing markets.  Your rates that are within the +1 standard deviation are not completely safe either, as discounts are often negotiated on an “across the board” basis. GSA’s pricing review usually doesn’t stop there as most current GSA solicitations include this statement mentioned part 1 of this series: “To determine fair and reasonable pricing, the GSA Contracting Officer may consider many factors, including pricing on competitor contracts, historical pricing, and currently available pricing in other venues.”  So COs are essentially free to consider any source they consider relevant. The overwhelming majority of COs conduct pricing research in the best and most logical manner they can, based on their understanding of your offer and your commercial market.  (And I should add that, just like the pricing information you provide, their research must also be documented and is open to scrutiny from supervisory and other government entities such as auditors, too.) The challenge that the contractor must convince them to face is staking the boundaries around what factors truly are relevant to their particular offer. That’s where your market landscape analysis comes in.

The Contractor’s objective is to help the CO in the pricing review process by providing them with a factual justification that outlines the uniqueness of your labor categories, rates and/or market and is supported by reasonable documentation. The justification should also address any differences between how you do business and the sales practices of Contractors that would seem to be your most likely competitors on Schedule. Essentially, to bolster the argument that a review based on SINs, NAICS, Labor Category descriptions or keywords won’t give the true picture of the relevant pricing landscape. You’ll find almost all COs are quite willing to review this information, especially if it makes their job easier.  It should be presented in a clear and complete manner so it can help them in a part of their job that is often forgotten by Offerors.  Most GSA COs and CSs must present their review of your offer to their supervisor and, in effect, defend their determination on the fitness of the Offeror and the offer itself, including their pricing and “Fair and Reasonableness” determinations. You can make the best justification possible but if the CO can’t translate it into their review documents, then you’ll probably find yourself back in negotiations again once their supervisor shoots the pricing down.  If you’ve done your preparation; creating a pricing justification that is cogent, accurate, complete and documented on a tight deadline should not be difficult.

There are rare instances where a CO refuses to be swayed regardless of how much legitimate justification and documentation you provide them.  I’ve seen a CO dig in her heels and insist the discount negotiations for one, single product a company was offering GSA had to start at rates below the discount this company gave a commercial customer that bought their product directly off the manufacturing machines by the tractor-trailer full without ever touching the Offeror’s warehouse floor.  Regardless of the justification we provided, we could not get her to agree on any level that a company guaranteeing orders by the truckload legitimately deserves a bigger discount than any party buying a single item, even the government. In these rare instances, an Offeror can request to elevate the issue and present their justification to the CO’s supervisor or even higher, if necessary. However, the move to elevate should not be undertaken until you are sure you are at a complete impasse.  Of course, there is no guarantee that the CO’s supervisor will take your side against their co-worker but discussing the situation with a more seasoned person at GSA may bring a perspective that can dislodge the negotiations or, at least, further illuminate the government’s position. When deciding whether to elevate, you should also remember that you still have to work with the same CO to manage your contract going forward.  That working relationship is still required and no one likes someone going over their head to their boss.

Back to our guiding principal: “There is no knowledge that is not power.” If you’ve done your research then you have the knowledge you need to create a cogent pricing justification with detailed and documented support…and this is where my “Mortal Kombat”/“two players competing one-on-one for a single prize” analogy fades. In this “competition”— if you make your case successfully— both sides win. Your company will have received pricing that’ll allow it to be competitive and successful in the GSA Schedules marketspace. Just as important, you’ll have provided the current, accurate and complete account of your company’s commercial sales and discounting practices that is required by GSA.   You will also have helped the CO do their job. By giving them the information they need to make a comprehensive review of your pricing based on truly relevant sources, they can make informed decisions and ensure GSA receives a good deal.  This “Flawless Victory” is a negotiation that results in pricing that is “Fair and Reasonable” for both players.

Schedule a consultation with an experienced Aprio advisor to discuss your GSA Scheduling needs.