Challenges await GSA’s plan to cut agency contract fees

The General Services Administration, as part of its top-to-bottom review of its operations, is eying a cut in the fees it charges other agencies that use the pre-negotiated contracts in its multiple award schedules program. The move comes as the White House is considering directing agencies to take advantage of bulk buying through governmentwide strategic sourcing vehicles.

Acting GSA Administrator Dan Tangherlini earlier in September told a Senate panel that “several fees assessed by the Federal Acquisition Service on purchases made by other agencies could be reduced below their current levels without a negative impact on the operations of FAS.”

He then announced a new interagency group to review and develop recommendations on the overall fee structure for contracts and services that FAS provides, including lower fees to help agencies reduce administrative costs.

FAS is running a reserve fund of about $687 million, according to the GSA inspector general, a fact that concerned Sen. Joe Lieberman, I-Conn., at a Sept. 12 hearing by the Homeland Security and Governmental Affairs Committee.

The fees other agencies pay to access the GSA schedules for billions of dollars in office supplies and other products are used to cover GSA operating expenses, including salaries of employees who oversee the quality of the contractors’ work. The so-called industrial funding fees generate some $6 million in revenue annually and were last reduced in 2004. They are fixed at 0.75 percent of multiple award schedule sales.

But not all contractors are happy with the proposed fee reduction. Trey Hodgkins, senior vice president for national security and federal procurement policy at TechAmerica, told Government Executive, “reducing the fees for a surplus is not a flip-of-switch activity since there are a number of systems that underlie both the government’s and vendors’ positions. Technology systems that calculate pricing and cost would have to be modified and some disruption can occur.”

He said his group would rather see GSA take the surplus and devote it to modernizing some of the agency’s information technology systems “that are still using old computer languages, like COBOL. That would drive some efficiencies and enhance capabilities to better serve customers.”

Jim Williams, who did three stints at GSA, including serving as acting administrator during the final months of the George W. Bush administration, noted the reserve helps meet operating expenses for some 3,600 employees overseeing 18,000 eligible contractors and also serves as an emergency fund. “Somewhere there’s a philosophy of why that reserve is where it is, but you’d have to look behind the financial protections to understand it,” said Williams, now a senior vice president at Daon Inc.

If the reserve got too low, GSA might have to consider layoffs. The proposal to reduce the fees is “probably intended to also show leadership and spark interest in the schedules,” he said. It is appropriate to review those fees periodically to see if they are at the right level to cover costs, emergencies and necessary investments, according to Williams.

On a separate track, Jeffrey Zients, acting Office of Management and Budget director, signaled his goal of improving performance by mandating use of strategic sourcing, where agencies analyze their spending patterns and identify items that could be bought cheaper in bulk.

"Given that we've got some areas that are just so obvious we should be doing this together, and we have a history of not doing it that way, I think the risk-reward is very much tilted in the direction of [mandates instead of voluntary initiatives]," he said during a Sept. 7 quarterly meeting of the President's Management Advisory Board. "I think without it, we're just going to be chasing this opportunity rather than getting ahead of it or catching up to it."

This worries Paul A. Miller, a lobbyist who represents small business contractors as chief executive officer of Miller/Wenhold Capitol Strategies. He said he is concerned about the impact on small business from “agencies canceling their buying programs to go to [GSA’s] Federal Strategic Sourcing Initiative,” which offers blanket purchase agreements for items such as office supplies.

Recalling the reinventing government initiative that Vice President Gore championed in the 1990s, Miller said, “it may look good on paper, but the implementation of such a program may not achieve the goals people want or think.” The trend toward contract bundling favors larger companies over small businesses and reduces competition, he added. That makes for a “bigger chance for price creep and the agency won’t necessarily know it because there will be less comparison shopping.”

TechAmerica’s Hodgkins said, “strategic sourcing works best with commodity items, such as pencils, ink for copiers, reams of paper and paper clips. When you push it into areas beyond generic commodity products and get to more sophisticated, customized products and services, it loses its effectiveness. You’re shoehorning what is better contracted through other means into a mechanism into that doesn’t fit those circumstances.”

Agencies should support GSA’s strategic sourcing initiative as a cross-government effort to better use acquisition personnel and save money, according to Williams. “Agencies will tell GSA, ‘If you get a good deal, we will come,’ but GSA will say, ‘if you come, we will get a good deal,’ ” he said. “But there ought to be something in the middle.”

GSA, however, is not the ideal agency for all types of contracts, Williams noted. Purchasing ammunition for law enforcement, for example, might better be handled by the FBI or another law enforcement agency. “Strategic sourcing should be mandatory as the default position, but if you provide clear evidence that you can get a better deal, then that agency should be allowed to go ahead and GSA should pay attention to how it can do better,” he said.