What Is “Fair and Reasonable” When It Comes To GSA Schedule Pricing?

Part 1- GSA trusts other companies more than yours…

Supporting evidence is required anytime a Schedule-holder requests to add new goods or services to a GSA Schedule Contract (via Mod or in a new offer), or requests to increase their currently awarded rates. The Contracting Officer (CO) typically requires that the contractor provides pricing support to confirm that the rates offered “are fair and reasonable,” or, to put it another way, “have withstood the test of the market space.”

In the past, your invoices (or pricing worksheets for firm-fixed price offerings) were enough to make this case — you offered it commercially, someone bought it and you have the invoice — therefore, “fair and reasonable.”* This process is important because it not only proves experience and commerciality (meaning not a government-only good or service) but sets the starting point for pricing negotiations.

At a recent government event, multiple officials from GSA declared publicly what we have seen in the last few months at the ground-level. Proof that you’ve sold something at a certain rate — even hundreds of times — will not be enough to prove your rates are “fair and reasonable.”

Now, as part of their standard review, the CO is going to compare your rates with those of your competitor’s on Schedule (and possibly off-Schedule, too). Certainly, this is not a new practice and has often been a part of their process in the past (especially if the offeror’s pricing support was meager). The difference is that, now, rates found elsewhere are no longer considered subordinate to your actual fully-supported rates. If they find lower rates elsewhere, they will look to use those rates as equal or even more valid for determining the pricing starting point, regardless of how much support you have for your own rates. In fact, many of the solicitations have added the following language:

“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. Offers which provide Most Favored Customer pricing, but which are not highly competitive will not be found fair and reasonable and will not be accepted.”

A CO can consider comparable products or services and determine that another company’s rates are more “fair and reasonable” than those you have mountains of evidence to support. In response to contractor outcry, one GSA official attempted to minimize this practice by describing it as just another tool in the CO’s toolbox for determining pricing and not the only or primary one. In practice, however, we have seen it used as the sole tool — a hammer — to push contractor’s rates down regardless of other pricing support, and, in some cases, equivalence to the contractor’s product or service offering. It is a difficult government market now, where many are struggling to not only meet the Schedule-contract minimum sales requirement but to survive at all. Confronting this focus on price, often without context, is just another burden on contractors already hampered by the long modification/offer review times and heavy Schedule compliance requirements.

Why is GSA doing this now and how can contractors counter this practice? Look for parts two and three early 2014 of this series where we will address those questions.

*Note: COs will occasionally accept other evidence of commerciality and “price reasonableness,” such as Industry Indexes, “Cost Build-Ups” and, for product resellers, Manufacturer’s Price List/Commercial Sales Practices.

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