Agencies warned not to pad contracts with 'incidentals'

Agencies cannot tack on incidental purchases above $2,500 when buying off federal supply schedules, the federal government's comptroller general said this month.

In a July 15 decision, Comptroller General David M. Walker said agencies must seek additional bidders for incidental products or services not listed on the federal supply schedules (FSS).

"Where an agency buys non-FSS items, it must follow applicable acquisition regulations," Walker said in the decision (Pyxis Corporation, B-282469; B-282469.2).

The decision is important to the federal procurement community, Walker said, because in 1998, agencies bought $7.7 billion worth of goods and services off the federal supply schedules. The schedules list products for which the General Services Administration has pre-negotiated prices. Agencies can quickly order products off the schedules without the need to conduct full-blown, open-market procurements.

In the case decided July 15, the U.S. Army Medical Command used the schedules to purchase $3.1 million worth of medical equipment. Of that total, $184,150 was for six items not specifically included on the schedules. The command should have sought other bidders for the additional items because the cost of each of the items was more than $2,500, Walker ruled.

The decision follows on a 1997 ruling by the U.S. Court of Federal Claims that incidental additions to schedule purchases are not permissible. That case involved a situation in which 35 percent of the $673,376 the Army paid to a contractor was for what the service said were "incidental" items.

The comptroller general decision this month clears up a discrepancy between the 1997 court ruling and previous comptroller general decisions, which allowed for incidental add-ons to schedule purchases.

Gail Hauswirth, director of the commercial acquisition policy division at the Federal Supply Service, which runs the schedules, said the comptroller general ruling is already reflected in schedule guidance. The supply service updated the guidance following the 1997 court case, Hauswirth said.

"If there are items that are incidental to the overall procurement, then the customer needs to follow the appropriate rules and regulations for acquiring the items," Hauswirth said.

Chip Mather, senior vice president of Acquisition Solutions Inc., a Chantilly, Va., consulting firm, said procurement professionals need to carefully review the rules for purchasing incidental items.

"Some of these rules are not really well known and understood. There's a lot of misinformation out there," Mather said. "People still don't understand the proper procedures for placing orders for incidentals under the GSA schedules."