Two more IT vendors drop GSA schedule contracts

Two large information technology vendors recently chose not to renew schedule contracts with the General Services Administration because of increased questioning by the agency's inspector general into their pricing of services and products, with more defections possible, according to federal IT industry sources.

EMC Corp., which develops software and systems for information management and storage, and Canon USA, which manufactures printers, copiers, scanners and other office equipment, have chosen not to renew their multiple award GSA schedule contracts, which the majority of federal agencies use to buy IT equipment and other supplies. EMC officials chose not to renew their contract when it expired on June 30, and Canon officials did not renew their contract after it expired on Oct. 31, following a one-month extension.

EMC and Canon join Sun Microsystems Inc., maker of computer components and software, in dropping GSA schedule contracts. Sun canceled its contract in September amid an ongoing investigation into the company's pricing for information technology products and services.

The amount of sales EMC and Canon have had on the canceled contracts is not insubstantial. EMC had $46.8 million in fiscal 2006 and $28.2 million in fiscal 2007, according to Eagle Eye Publishing, a federal procurement research company in Fairfax, Va. (EMC's contract terminated at the end of the fiscal third quarter, missing the typically high sales in the federal government's fiscal fourth quarter.) On the contract Canon declined to renew, sales topped $66.3 million in fiscal 2006 and $62.5 million fiscal 2007, according to Eagle Eye.

EMC officials would not comment on why they did not renew. Canon spokesperson Michael DeMeo confirmed that an audit from the GSA's inspector general resulted in "unreasonable demands" that drove the vendor's decision to not renew. Canon is now looking into alternative procurement vehicles, the spokesperson said, and hopes to revisit a Multiple Award Schedule contract with GSA down the road. Officials with the GSA's inspector general's office did not return phone calls asking for a comment.

GSA spokesman Brian Filpot said, "EMC and GSA reached a mutual decision not to exercise the option to extend the contract." He declined to say why. He said either EMC or Canon can submit a new proposal at any time.

But a procurement expert familiar with the specifics of both contracts who asked not to identified said audits from GSA's inspector general, much like those conducted with Sun Microsystems, drove the vendors away. The IG had not audited the contracts in as much detail as the Sun contract, the expert said.

The IG often chooses to audit at the time of option extensions, asking for sales data and statements indicating that no price reductions have occurred under the contract. Each GSA schedule contract contains a clause that provides the government the option to extend the term after the first five years for five more years, up to three times. That would result in a total term of 20 years.

According to rules for multiple award schedules, contractors have to offer government their lowest prices. "For Sun, it wasn't worth the time and expense to defend themselves," the procurement expert said. "This wasn't a matter of serious compliance issues, but rather how the issues they did have were being portrayed by the IG. The same is true with EMC, and there are others that are leaving as we speak."

Multiple Award Schedule 70, which agencies use for the procurement of IT products, services and solutions, maintains 5,500 contracts, GSA's Filpot said. between January and September 2007, 188 contractors opted not to extend contracts for various reasons, although it's unclear how many were up for renewal and therefore subject to audit. Regardless, industry sources say that increased oversight by the IG's office has many contractors -- including some of the largest IT manufacturers -- worried about compliance.

"These requirements were always there, but no one took them seriously because the IG never enforced anything," said Steve Charles, executive vice president of the Immix Group, a government business consulting firm in McLean, Va. "Now the IG is back in the game enforcing requirements for companies … analyzing all commercial sales data and making disclosures that fully represent what's in that data. Everyone is being faced with this."

"Many people in industry recognize that the GSA IG is very much more actively auditing than they typically were in the past," said Ray Bjorklund, chief knowledge officer at McLean, Va.-based market research firm Federal Sources. "Consequently, some companies are being proactive by seeking counsel on how to modify their schedules so the terms and conditions are in line with the present government rationale for scrutinizing the schedules program. A company seeking a schedule and a government contracting officer negotiating that schedule both have to engage in due diligence. We should not forget that the [schedules] program is built, in principle, on commercial offerings and practices."

For vendors who choose to drop out of the schedules, some can offer part of their product portfolio through partners who remain on the GSA schedules. They also can offer their products on other governmentwide acquisition contracts managed by other agencies.

The decisions to drop off the schedules have ramifications for agencies. Those using products offered by vendors dropping off could find it more difficult to obtain maintenance, leasing, service and parts replacement. Agencies that want to purchase new products not covered by another indefinite delivery, indefinite quantity contract will have to pay more to buy on the open market.