MULTIPLE AWARD SCHEDULE ADVISORY PANEL

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TOPIC: THE ROLES AND RESPONSIBILITIES OF THE GSA MAS CONTRACTING
OFFICERS AND THE MAS ORDERING ACTIVITIES CONTRACTING OFFICERS

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JULY 21, 2008

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The Advisory Panel came to order at 9:00 a.m. in the Board Room of the
American Institute of Architecture Building, 1725 New York Avenue, NW,
Washington, DC, Chairman Elliott Branch, presiding.

MEMBERS PRESENT:

Elliott BRANCH, Chairman

LARRY ALLEN

ALAN CHVOTKIN

DAVID DRABKIN

DON ERICKSON

THOMAS ESSIG

JAN FRYE

JUDITH NELSON

GLENN PERRY

LESA SCOTT

THOMAS A. SHARPE, JR.

DEBRA SONDERMAN

APRIL STEPHENSON

DESIGNATED FEDERAL OFFICIAL:

PAT BROOKS, GSA

P-R-O-C-E-E-D-I-N-G-S

9:11 a.m.

MS. BROOKS: Good morning, everybody. We\'re going to get started. I am
Pat Brooks, the designated Federal Official for the Panel. During the
deliberations this morning, or during break, if you have any questions,
or need any help on something regarding the Panel, please come to see
me.

Just a couple of administrative things and then I\'m going to turn the
Panel over to Elliottt, our Chairman. Please turn off all cell phones
and pagers. If you didn\'t do so already, please sign in at the desk
where you picked up the material for today\'s session.

The bathrooms during break, or if you just need walk out, are out the
door and to your right, both the ladies and the men\'s bathrooms are
there. When we break for lunch, I think most of you have been here
before, so you\'re pretty familiar with the eating places in the area.

We have \-- you should have copies of \-- we brought extra copies of all
the presentations that we have so far. If you did not get a copy, these
will be posted on the Panel website later on during the week. Any
questions?

Then I\'m going to turn the Panel over to Elliottt.

CHAIRMAN BRANCH: Good morning, everyone. Can you hear me? I guess this
is about our forth meeting. And we\'ve had a very diverse set of
presentations, a very wide set of views here. And we\'re going to
continue on that course today. We\'re going to hear from a number of the
stakeholders.

And after we do that, we\'re going to take the time and the afternoon to
start necking down toward deliverables. I think we\'ve probably heard
enough to scope the larger issues that we need to address on this panel.
And what I\'d like to do this afternoon, during our deliberations is to
sit and come to come consensus on a plan of attack.

So, it\'s going to be a very busy morning, a lot of presentations, a
very busy afternoon. So, I won\'t go on. I\'ll ask Mr. Bill Woods,
who\'s the Director of Acquisition and Sourcing Management from GAO to
come up. They\'re going to give us a presentation. Welcome Bill. Thanks
for joining us this morning.

MEMBER WOODS: Well, thank you, Mr. Chairman and members of the Panel.
Thank you so much for inviting GAO to be part of this discussion this
morning.

Let me begin by just introducing a couple of my colleagues who are going
to handle the bulk of the presentation this morning. First is Jim
Fuquay. Jim is an Assistant Director in our Dayton field office. And
next to him is John Kang. John is with our Office of General Counsel,
and has considerable experience in handling protests in this area.

What we\'d like to do this morning is, discuss a few things. I just want
to make a few introductory remarks before turning it over to Jim and to
John. You should have the presentation, the slide in front of you.

The first one just talks \-- speaks to the volume of activity in the
multiple award schedule program. And you\'re all familiar with that, and
I won\'t repeat that. But let me just touch on the prism through which
we view this issue.

And that is part of the broader issue of inter-agency contracting.
Because of the large volume of dollars that go through the multiple
award schedule program as well as the increased level of activity in
other inter-agency contracting vehicles, the Government-wide acquisition
contracts, the multi-agency contracts, we decided a couple of years ago,
that for a number of reasons, this issue of inter-agency contracting
belonged on our high risk list.

Our high risk list is one we periodically revisit and put on issues that
are of concern for waste and mismanagement and misuse throughout the
Federal Government. And we put inter-agency contracting on that high
risk list for basically three reasons.

One is, the volume of dollars that go through the programs. And that\'s
a relatively recent phenomenon. Relatively recent, I mean in the past
ten years, the volume of activity has increased greatly.

At the same time, we all know about the pressures of the acquisition
workforce, numbers have come down. There\'s a limited amount of
expertise at the, particularly at the using agencies in the use of both
the multiple award schedule programs as well as some of the other
inter-agency vehicles that I mentioned.

And then thirdly, the lines of responsibility for whose supposed to do
what in an inter-agency transaction have not been all that clear.
Recently, the Office of Federal Procurement Policy issued additional
guidance in that area. And hopefully, that will clarify who is
responsible for particularly contract oversight. Once the order is
placed, whose responsibility is it to make sure that the agency gets the
goods and services that they purchased.

Another contributing factor was the fact that the \-- all of these
inter-agency vehicles operate on a fee-for-service basis, where the
agency, including GSA, gets either an industrial funding fee, or some
other fee to compensate them for setting up the programs, and for the
use of the programs. And we pointed out that sometimes, that can have
less than desirable effects where the agencies are really trying to
market their \-- the use of those vehicles in competition with other
inter-agency vehicles.

So, that\'s really the prism that we look at this program through. And
the set of issues that we bring to the table. What I\'d like to do now,
is ask Jim Fuquay to come up and talk specifically about a couple of
reports that have addressed the pricing issues that this Panel is most
concerned about. Jim.

MR. FUQUAY: There is the agenda that Bill covered. I\'ll catch us up
here. Bill was talking about the growth and the schedules program, and
you\'ve got some numbers up there. You have them in front of you.
There\'s high risk area.

So, as Bill said, I\'m Jim Fuquay. I\'m Assistant Director with GAO, and
I\'m very glad to be here this morning. In preparing for this, we went
back and looked at GAO reports. We looked at the transcripts of the
Panel\'s proceedings in May. We looked at presentations that previous
presenters had made. And we also took a look back at the SARA panel
report, which had addressed a number of issues dealing with pricing and
commercial practices.

And so, also you should have a blue folder in front of you. I think
there are two GAO reports in it, and there\'s also a flow chart in
there, which is page 11 from one of the reports. And we\'ll talk about
those in just a couple of minutes.

But I just wanted to acknowledge that there is \-- there are inherent
tensions and tradeoffs between GSA and the vendor community. And kind of
the goal is striking a balance between satisfying the Government and
satisfying the vendors.

Of course, vendors want to get on the schedule quickly, and GSA has a
responsibility to conduct due diligence to make sure that whoever goes
on the schedule is responsible and can deliver.

The Most Favorite Customer and the Price Reduction clause, are often not
viewed as fun things for the vendor community, but they are tools that
GSA uses to protect buyers, particularly when negotiating five-year
contracts.

Of course, vendors don\'t always realize sales when they get on the
schedule. That\'s the first step. They\'ve incurred some expenses. They
want sales, but they\'ve got to do the marketing to get on \-- to start
generating some revenues.

And then I guess one thing about the Government, they generally do pay
on time, which helps minimize some of the financial risk to the vendor
community.

I want to talk a little bit about the work we did on pricing. We issued
a report back in 2005. You have a copy of that in your folder. The focus
of this report was really on two things. It was looking at what tools
does GSA have available to it, to insure that it contains good prices,
and secondly how are these tools working.

And so, on that flow chart you have in front of you, it sort of maps out
the process and the tools that are typically used by GSA folks when they
negotiate contracts. Now, that\'s a 2005 flow chart, so there might be
some changes that have taken place. But I think the basic tools are
there.

So, in a nutshell, we asked are the tools being used and does GSA have
documentation to show how well those tools are working? And I\'m just
going to highlight up here what we found from that work.

One of the tools that we looked at heavily, was the use of pre-award
audits. Those are conducted by the GSA IG. And I think they\'re probably
going to talk a little bit more about that this afternoon when they meet
with you.

But we found that pre-award audits really were not being used to a very
large extent. In fact, their use had declined. And we also found that
post-award audits, pricing data, the policy on that issue was not very
clear and post-award audits were not being used.

So those were two key tools that helped in the price negotiation
process. They\'re conducted by the IG, which gives them a little bit of
independence in the way they look at pricing.

The other thing we looked at was something called the Acquisition
Quality Measurement Improvement Program, which GAO had \-- or, GSA had
put in place in 2003. And it was really an effort by GSA to look at how
well they were documenting the price negotiation process.

So that was a part of that program, was to look at the documentation.
And the second part was to look at the use \-- was to use
pre-negotiation clearance panels to help contracting officers early in
the process to make sure that they were positioned to carry out
successful negotiations and have a pretty realistic price negotiation
objective.

So, what we found from our work on the Quality Measurement Program, is
that it had some limited scope. And we thought the scope could be
expanded. Because it was showing that a large number of the cases that,
or the contracts that were looked at were not very well documented. So
it was hard to determine if, how the price negotiation process had been
carried out.

We also found that very few pre-negotiation clearance panels were being
conducted. There are some thresholds that come into play with those
panels. And even for those contracts that were being extended, or
renewed contracts that were being negotiated, the pre-negotiation panels
were not in place.

So, what happened as a result of our audit, GSA Inspector General has
increased it\'s pre-award \-- number of its pre-award audits, focusing
mostly on contract extensions. They now cover about ten percent of the
dollars, and about five percent of the contracts being extended.

And they are showing results. In the last three years, they\'ve showed
they\'ve had price reductions that resulted in nearly \$3 billion in
savings, money that could be spent elsewhere by users of the schedules
program.

Post-award audits of pricing data still are not being done. It really
hasn\'t been much action taken on clarifying the policy on that issue,
at least unless it happened yesterday.

And then the GSA Acquisition Quality Measure Improvement Program has
really not been emphasized. And we are not sure what happened with that.
It might have been sort of lost its way when FTS and FFS merged. We\'re
not sure. We just know that there\'s not very much happening on that
front.

The other thing we wanted to talk about in our work is strategic
sourcing. I notice from going back through the transcripts of your first
couple of meetings, it looked like the Panel was really searching for
data, data they could use to get a handle on pricing issues.

And I think it\'s fair to say, there\'s not a whole lot out there. I
don\'t think you\'re going to find a whole lot. And what we would like
to draw your attention to, is our work on strategic sourcing, which is
really a tool where you take a strategic approach to how you buy goods
and services.

But to do that, you\'ve got to have data. You\'ve got to have data on
what you\'re buying, how much you\'re paying for it, what kind of
discounts you\'re getting, who the vendors are that are providing the
goods and services and so forth. And I don\'t think this is new, a new
concept to anybody here in the room.

So we in these two reports, we really try to take a look at across
Government how strategic sourcing was being carried out. And what we
really found, is there\'s not \-- there\'s some action being taken, but
not a lot. GSA does plan to implement spend analysis for its GSA
Advantage Program. And I think that plan has been underway for some
time.

There\'s a little bit of effort going on on strategic sourcing for some
commodity groups, which I\'ve listed up here. And so, I guess I want to
re-emphasize the point that strategic sourcing can provide information
to help leverage Government buying power.

So, beyond those two reports, we wanted to put a couple of issues on the
table for you to think about in you deliberations. I\'m not going to go
into each one of these in detail, but the whole idea of performance
measures determine how Federal buyers are using MAS contracts and
leveraging buying power, goes along with the points I made on strategic
sourcing.

One thing the Panel might consider is looking at how schedule prices for
goods and services on the MAS Program, compare across Federal Agencies,
how they compare to GWACs, the prices that are on GWACs and MACs. And
you might even look at some of the enterprise-wide contracting rates,
such as DHS\'s Eagle, or Navy Seaport Contracts, just to see if you can
learn anything about how they go about getting good prices under those
arrangements.

Another point, is past performance. GAO is a firm believer that past
performance can help make better sourcing decisions. And we\'ve got some
preliminary work going on on the schedules program, as well as at other
agencies looking at the use of past performance data.

And I think if you find \-- you\'ll find if you look at the past
performance information retrieval system, that there\'s very little past
performance data in that system regarding GSA vendors.

And with that, I\'m going to \-- John\'s going to come up and talk about
bid protests.

MR. KANG: Thank you very much and good morning. I\'d like to talk a
little bit about bid protests this morning. As I\'ll mention in my
comments, there is not \-- we do hear protests of multiple award
schedule orders. But I think from a bid protest perspective, there is
less interest from our work to this Panel than might be found in my
colleague\'s work on the audit side.

But with that, let me make just a few general remarks about bid
protests. Our experience is that in comparison to the total number of
procurement actions that occur within the course of a year by the
Federal Government, relatively few protests are filed.

In Fiscal Year 2007, we received approximately 1400 protests. And
compare that to the hundreds of thousands of actions, procurement
actions that could be protested, and we\'re thinking of every
solicitation issues, all the amendments to the solicitations, instances
where a contract order has been placed that could be protested as a sole
source action that should have been subject to competition, every
contract awarded, every order issued, these are hundreds of thousands of
potential actions. And again, we received approximately 1400 protests in
the last year.

Generally speaking, contractors tend not to protest low-dollar value
procurements. I think there is certainly a reflection \-- or, an
understanding in the private sector, that the protest can be expensive
to file, even though they can be filed pro se by the contractor without
the aid of an attorney.

But from a business perspective, I think our understanding is that the
contractors realize that to a certain extent, bid protests are suing
your customer. So, there is a degree of limitation on the actions of
contractors. And generally speaking, the very small orders placed on the
FSS or contracts awarded, these tend not to get protested.

Protests can be adjudicated expeditiously. And as I think many of you
know, GAO protests must be resolved by statute within 100 calendar days.
And this strikes a balance between the need to have \-- need to allow
our office to give a thorough to protest allegations, but also, we
recognize that bid protests have an impact on Federal Agencies and their
missions.

So, within the 100 days, that is \-- we are trying to strike a balance
between the need for full and adequate review of the protest
allegations, but also, limiting the impacts on Federal Agencies.

Certainly, there are issues with regard to stay of performance under
CICA, and there are other balanacing issues that are, that take place
there.

Three over-arching benefits that I think we\'ll mention, protecting the
fairness of competitions, preserving the integrity of the procurement
system, and promoting competition. And really, the third issue,
promoting competition, that is really reflected in the first two aspects
as well. Because we are trying to encourage more participation in
Federal contracting.

And the ability of a disappointed bidder, or in this case, vendor, to
have any perceived unfair treatment or deviation from the terms of the
competition be reviewed by a neutral third party. That increases
confidence in the procurement systems overall, promotes integrity and
transparency, and by doing so, we hope that it encourages more
participation in Federal contracting.

Some general issues relating to multiple award schedule protests. Just
as a brief recap, I think this may be old hat for many of you. But GAO
hears protests of MAS orders. And we were not affected by the ban under
FASA.

In 1994, the Federal Acquisition Streamlining Act placed a ban on the
protests of orders under IDIQ contracts. Now, in a decision called
[Severin]{.underline} which may be familiar to many of you, GAO
determined that we do have jurisdiction because the authority for the
multiple award schedule contracts is different from FASA. These are
separate lines of authority.

So, in our view, and this was subsequently taken in the same view by the
Court of Federal Claims, the limit on IDIQ contract task order protest
does not apply to MAS orders.

Recently, as many of you may also know, our jurisdiction was amended so
that we now have jurisdiction of protests of IDIQ orders over \$10
million. But again, because these are separate lines of authority, that
\$10 million is not going to apply to multiple award schedule protests.
So, again, every order placed multiple award schedules can be protested.

Our experience with MAS protests, is that they tend to be what I call,
run-of-the-mill issues. These are price or cost technical evaluation
issues. These are kinds of protest issues you would find in any kind of
protest, regardless of the contracting vehicle.

These are the bulk of MAS protests, and for the most part, these, I
don\'t think, are going to be of great interest to this panel. But
again, from a background perspective, I\'ll be listing to several issues
that are unique to the FSS. But these tend to be the minority of
protests that we hear at GAO.

There are very few protests that address the pricing issues that I think
are going to be of most interest to this panel. Things like the Price
Reduction Clause, or the Most Favored Customer clause. We really don\'t
see protests regarding these. And I think it may be because this is a
really contract administration issue, and it\'s something that would
happen outside of the award, or I\'m sorry, the issuance of orders
themselves.

But looking back through some of our cases, I think the last time we
addressed a most \-- a Price Reduction Clause issue was in 1990. And
that was a fairly picayune issue where a protest had argued that a
vendor had not provided its best price to the Government. And there\'s
certainly nothing in the record in that decision which bore that out.
But again, these decisions are few and far between.

Areas where MAS protests do present a particular issues, and let me
mention at the outset here, where we do have issues that are unique to
the multiple award schedules, we try to get GSA\'s participation with
this. I\'ve embarrassed him on several occasions before by mentioning
how helpful he is, but there is an attorney in Atlanta, his name is
Michael Tully, and he\'s sort of our designated point of contact for
multiple award schedule issues.

So if there is something where we believe GSA\'s input might be helpful,
or even if we think GSA would simply like an opportunity to comment, we
try to get their participation. And in a similar way we do for the Small
Business Administration, or other agencies, other \-- who may be
involved, other than the actual awarding agency itself.

The standard of review for most bid protests involving multiple award
schedules is the same you would see in any other bid protests. We really
look for the ground rules placed, established by the ordering agency
when they issue their RFQ. In \-- as we know, FAR 8.4 is what governs
the multiple award schedule system, and orders placed under multiple
award schedules.

FAR Part 15, negotiated procurement, is a much more formal system, but
there is \-- agencies can use principles in negotiated procurement when
they are placing \-- when they are conducting competitions under the
multiple award schedules.

And to the extent an agency establishes ground rules that resemble
negotiated procurement, those are the ground rules that we will follow
in evaluating protests.

I think the most common issue that we see, regarding multiple award
schedules, to the extent that it\'s a MAS specific issue, is the scope
of the schedule and the order. The orders must be within the scope of
the underlying contract. That\'s really just a very basic principle. But
those are the \-- in several protests, we have found that orders under
vendors \-- orders issued to vendors have been outside the scope of
their underlying contract.

Occasionally, we have seen orders that are outside the scope of any
schedule that the ordering agency might be able to point to.

I\'m going to skip over a number of these issues. But if any \-- if
there are, we\'ll have time for questions an answers at the end, so if
any of these are of particular interest to you, I\'d be happy to comment
them, comment on them.

Duration of MAS contracts and the effect of placement of orders, in a
case we addressed the situation where an order was going to be placed
for a certain term. And the allegation by the protestor was that the
vendor to whom the order was issued, their underlying schedule contract
was due to expire during the course of performance of this order.

And this is one where we sought GSA\'a input. And the resolution of this
protest, we stated that as long as the ordering agency has a reasonable
expectation that the vendor\'s underlying schedule contract will be
renewed, then that order can properly be placed.

Schedule contracts can be renewed I think fairly, it\'s a fairly routine
matter. So, unless there is specific information that the ordering
agency has that the vendor\'s contract will not be reissued, an order
that bridges that period is acceptable.

However, in a more recent case, we sustained a protest because an order
was \-- actually, pardon me. We denied a protest of a cancellation of an
RFQ because the order had been placed with a vendor whose underlying
contract had expired.

And there was a competition among BPA holders. And because the awardee,
the awarding vendor\'s BPA was related directly by terms of contract to
the underlying schedule contract, once that schedule contract has been,
had expired, no further orders could be placed against their BPA.

So, again, we\'re looking backwards towards the underlying schedule
contract itself. And it is those terms that we are most interested in
for duration of the contract.

Let me mention a few other issues here. Fair and Reasonable Pricing, one
area where we have issued a few decisions. When a schedule contract is
issued, GSA makes a determination that the prices especially, unit
pricing and labor rates, are fair and reasonable.

When an agency places an order, the agency\'s not required to do a
reasonableness analysis, because by definition, the underlying schedule
contract has fair and reasonable pricing. In fact, we had denied
protests where protestors have argued that the agency failed to do a
reasonableness analysis, where the record shows that the vendor\'s \--
the awardee\'s prices were below their quoted schedule prices.

But on the other hand, again, ordering agencies are allowed to establish
different requirements in their RFQs. So, agencies are allowed to
provide for price realism analysis, or cost realism analysis. And again,
this is separate from the reasonable analysis, which GSA has made at the
outset of the award of the schedule contract.

I think the final issue that I\'ll mention, some of you may be aware of
a protest called FitNet Purchasing Alliance. This is an issue that we
did not have an opportunity to fully resolve. If you look at the
decision, there is very little discussion of the issue, which is
probably of most interest to us.

But it is whether orders issued under multiple award schedule contract,
must comply with the set aside provisions of the Small Business Act. Now
for years, it\'s been the understanding, especially as reflected in the
FAR, that MAS orders do not need to comply with the set aside provisions
of the Small Business Act.

We dismissed this protest because the protestor here was not an MAS
contract holder. So therefore, in our terms, he was not, the contractor
was not a interested party to file the protest. What I want to just to
raise everyone\'s attention is that somewhere, somewhere out there,
there is a vendor who has a multiple award schedule contract, is a small
business and will likely be an interested party to raise this issue in
the future.

When this issue was brought before us, it was determined that SBA and
GSA have diametrically opposed views as to the applicability of the
Small Business Act in this context. So, we think it\'s a fair certainty
that at some point in the future, we will be called upon to resolve that
issue. So it would be certainly be helpful for everyone to think about
this issues in advance.

Again, it is a statutory construction issue.

With that I will turn it back over to Jim.

MR. FUQUAY: Just a couple of slides of overall observations. We talked
about these already. I want to leave a little bit of time for Q&A.
Obviously, there are inherent conflicts between GSA and the vendors,
that are likely to continue. But as you have all seen from sales growth,
they haven\'t really hindered use of the schedules.

I\'m sure there\'s some pain points, but the schedules continue to be
popular and used across the Federal Government.

And I think when you look at the existing tool bag that GSA has, there
are tools in there that work. And as we saw with the pre-award audits,
it does help keep prices fair and reasonable.

Just a comment on the Price Reduction Clause. When you\'re in a
situation where you\'re contracting for five years, and you\'re in a
fairly volatile market, like information technology, then the Price
Reduction Clause does give the Government some protections. It seems
like something that you would \-- if you wanted to replace it, you\'d
need something just as effective.

I made the point about strategic sourcing. I think that is something the
schedules program needs to embrace a little more actively and could
benefit in helping Government buyers better leverage their buying.

There\'s a lot information that flows through those schedules. And I
don\'t think from our \-- from what we\'ve seen it\'s being fully
reflected, captured, analyzed, supplemented with financial information,
other information that really gives a broad picture of what kind of
purchasing is going on throughout the Government.

And then as John said, bid protests do not indicate that pricing is a
continuing protest issue. And so we just listed some reports on this
last slide, we think are related to some of the issues which you\'re
dealing with. We talked about two of those today.

With that, we\'d be happy to answer any questions you might have.

CHAIRMAN BRANCH: April.

MS. STEPHENSON: First, I\'d like to thank the GAO for coming here this
morning, and accepting the Panel\'s invitation. We do recognize the
excellent work of the GAO, and we appreciate you sharing that with us
this morning. So, thank you for taking the time out of your busy
schedules to be here.

I do have a few questions on some of the slides. I\'ll ask a few, and
then I\'ll defer to my colleagues on the Panel. And I may come back with
a few more.

On your slide 6, it\'s mentioned that there was a decline in the
pre-award audits and the post-award audits. Is there any insights as to
why there was a decline in these? Was there a \-- was it due to a
funding shortfall? Was it seen as just not being value-added? Any
insights you could add on that?

MR. FUQUAY: I think at the time we did our work, the IG just didn\'t
have the resources to do pre-award audits. And we brought some attention
to that issue. The IG worked out a reimbursable arrangement with,
through OMB, and were able to get additional resources to increase the
number of pre-award audits. So, I think it was primarily a resource
issue.

MS. STEPHENSON: And in you review, did you see that there was perhaps a
better price set when there were audits involved than where there were
not audits involved?

MR. FUQUAY: I think when you look at the results of what\'s taken place
as they\'ve increased the number of pre-award audits, that \$3 billion
cost-avoidance, or savings over a three year period, a fairly
substantial savings. So, I mean, I can\'t give you a contract by
contract accounting. Perhaps the GSA IG could do that this afternoon.
But certainly, I think we\'ve seen positive results for that.

MS. STEPHENSON: One last question. You had mentioned the \$3 billion in
savings for the price reductions that took place between \`05 and \`07.
Any insights on what the primary root cause was that led to those
savings? I know some of the things that we\'ve heard is when there\'s a
price set at low quantities and they\'re bought at higher quantities,
that sometimes leads to greater savings.

MR. FUQUAY: I honestly can\'t give you a good insight into that.

MS. STEPHENSON: Sure.

MR. FUQUAY: I think perhaps Mr. Patchan this afternoon, whose really
immersed in those pre-award audits could probably help you with that.

MS. STEPHENSON: We\'ll do that, thank you.

CHAIRMAN BRANCH: David.

MR. DRABKIN: Yes, I think we need some clarification. You\'ve use the
word, pre-award audit and talked about how the increase made a
difference. Do you actually know what they call a pre-award audit in the
in the GSA IG?

MR. FUQUAY: I think we do, yes.

MR. DRABKIN: Would you mind sharing with us what your understanding of
that pre-award audit is?

MR. FUQUAY: Yes. In helping the contracting officer negotiate, the terms
of the contract and the prices.

MR. DRABKIN: The original contract, or is this the exercise of the
option?

MR. FUQUAY: Well, most of what\'s happening now within the IG community
is, they\'re going after the extensions.

MR. DRABKIN: The options.

MR. FUQUAY: The open-end extensions.

MR. DRABKIN: We don\'t have extensions in contracts.

MR. FUQUAY: Or options, when the five-year period is up \--

MR. DRABKIN: The option.

MR. FUQUAY: \-- they\'re looking at the option to extend that for
additional time.

MR. DRABKIN: Would it surprise you to know that the IG\'s not interested
in doing pre-award options on new contracts?

MR. FUQUAY: It wouldn\'t surprise me. Because I think we\'ve found that
that\'s, they\'re looking mainly at the options.

MR. DRABKIN: Would it surprise you to know that what they call a
pre-award survey or pre-award review on an option is actually what
constitutes a, what we used to call a post-award review.

MR. FUQUAY: We\'ve had that discussion. And I think some folks would say
that\'s a fair statement, because they are looking back \--

MR. DRABKIN: Are you aware that post-award \--

MR. FUQUAY: They are looking back at the prices they received during
that first five year period, or whatever the period might have been.

MR. DRABKIN: Are you aware that post-award reviews for commercial item
contracts are prohibited except under certain very limited
circumstances?

MR. FUQUAY: Well, I think we had that debate when we did this work,
David.

MR. DRABKIN: Right. I know you did. But I \--

MR. FUQUAY: And I don\'t think we ever got resolution on that. I mean,
GSA had their position, we had our position \--

MR. DRABKIN: You all \-- right.

MR. FUQUAY: \-- the IG\'s auditor had their position on what that is.

MR. DRABKIN: But you all didn\'t read FASA, the law that talked about
post-award.

MR. FUQUAY: We did. We did.

MR. DRABKIN: Okay.

MR. FUQUAY: We also read the regulations that pertain to that.

MR. DRABKIN: Right. Which were written by the FAR, in the FAR?

MR. FUQUAY: Well, they were the regulations, and \--

MR. DRABKIN: In the FAR.

MR. FUQUAY: \-- we interpreted the FAR. And there\'s some debate over
that, the provisions that were in that and whether you could post-award
audit.

MR. DRABKIN: Okay. Moving on.

MR. FUQUAY: That\'s why we asked \-- that\'s why we asked in our work
for a clarification of the policy on post-award audits.

MR. DRABKIN: Okay.

MR. FUQUAY: Because we couldn\'t get a clear answer that everybody could
agree on.

MR. DRABKIN: Right. Because the IG wants to do post-award audits, which
they were told they could not do by regulation, and they do it under the
guide of pre-award. But that\'s not what we\'re here to argue about.
Let\'s move on.

MR. FUQUAY: Yes. Yes. Because I think what you said \--

MR. DRABKIN: Are you aware that \--

MR. FUQUAY: \-- about pre-awards that in effect being post-awards, in
fact \--

MR. DRABKIN: Are you aware that GSA asked for the capability to do more
pre-award surveys, as that term is defined in the FAR?

MR. FUQUAY: Dave, I can\'t answer that question.

MR. DRABKIN: Are you aware that the IG can at most schedule only seven
pre-award \-- 70 pre-award surveys a year, and that we have some 18,000
contracts?

MR. FUQUAY: No, I\'m not.

MR. DRABKIN: Are you aware that GSA lacks as well as many civilian
agencies the capability to do in-house audits?

MR. FUQUAY: Could you expand on that a little bit?

MR. DRABKIN: Are you aware that GSA like many other agencies, except,
DoD, and I think Veterans Administration, lacks the internal capability
to do additional pre-award audits on their own?

MR. FUQUAY: Are you saying they\'re limited by resources? Are you saying
they\'re limited by regulation? I\'m not sure I\'m following you.

MR. DRABKIN: Resources and the conflict between whether\'s it\'s the
IG\'s role or management\'s role to do these types of audits?

MR. FUQUAY: I don\'t \-- I\'m not sure about the conflict. I think it\'s
clear that the IG can do the audits and is doing those audits.

I think there was some move afoot at one time to contract out for those
type of audits. And I think that was pretty controversial and I think
the decision was made not to do that.

MR. DRABKIN: In DoD, are you familiar with the fact that pre-award
audits are done by DCMA, DCAA?

MR. FUQUAY: Yes.

MR. DRABKIN: And DCAA is not an arm of the IG is it?

MR. FUQUAY: No. But it\'s an organization, I think you can ask \--

MR. DRABKIN: Actually, DCAA also does pre-award audits.

MR. FUQUAY: \-- the lady right there can answer that question better
than I can.

MR. DRABKIN: But DCAA also does pre-award audits.

MR. FUQUAY: Yes.

MR. DRABKIN: These are separate, management auditors reporting to
management.

MR. FUQUAY: Yes.

CHAIRMAN BRANCH: Dave \--

MR. DRABKIN: I\'m done here.

MR. FUQUAY: Let me turn your \--

MR. DRABKIN: I\'m done.

MR. FUQUAY: Can I just finish something. I want to make a point here.

MR. DRABKIN: I\'m done.

CHAIRMAN BRANCH: Are you?

MR. FUQUAY: I want to make a point.

MR. DRABKIN: I\'ll make the same point with the IG this afternoon.

MR. FUQUAY: I want to make a point. One thing I didn\'t bring up in the
discussion is, you might want to look to the VA IG, and talk to them a
little bit about their experience with pre-award audits, because they
are the biggest user of their own schedules. And so, it\'s in their best
interest to get the best prices.

You might find some insights into that, to do that.

MR. DRABKIN: And they have found \-- and they have hired auditors who
are subject to review by the IG.

MR. FUQUAY: I don\'t \-- I can\'t speak to that.

MR. DRABKIN: I\'m telling you. We have asked them. We\'ve done already
what you\'ve asked.

CHAIRMAN BRANCH: Yes. Just in the interest of keeping us on time, it\'s
9:52. I\'d like to just make sure \--

MR. DRABKIN: I\'m done.

CHAIRMAN BRANCH: \-- the rest of the Panel \-- Judith, and then Debra
and then Glenn.

MR. FUQUAY: Do I have to get sworn in for this next round of questions?

(Laughter)

MS. NELSON: No, no. None whatsoever. I have two separate questions, or
things. One goes to two different points and I\'m trying to find the
pages. The first is, starting on slide 4, regarding the unclear lines of
accountability and role definitions of parties involved in inter-agency
contracting processes. And I guess it was on June 6th, I think it\'s
June 6th that OFPP issued its guidance.

MR. FUQUAY: Right.

MS. NELSON: And then one of your recommendations is that \-- and I
don\'t know which slide it\'s on, that GSA take a look at what other
agencies are doing with their inter-agency contracts and what type of
pricing their customers are paying. And it\'s under some of their IDIQs
and MACs and how they\'re not \-- and how they\'re awarding them and how
they\'re getting paid.

And I\'m looking if perhaps not today, but perhaps in a followup, if the
GAO \-- I had some conversations a couple of months ago with the budget
side of the GAO, could offer some advice.

Not that long ago, a couple of months ago as part of a leading practices
study, I took the responsibility of looking across many, many of the
agencies, including the Department of Defense, and the \-- two of the
contract vehicles that you mentioned, and many more.

And what we found is, you know, obviously most of those are awarded on a
competitive basis. And many, many of those inter-agency contracts,
whether or not they\'re MACs or IDIQs, are benchmarked against the fair
and reasonable pricing that\'s been determined by GSA.

GSA does not have insight, I\'m sure you\'re aware of this, into what
customers are paying on a task order basis. And even as part of the DoD
MOA that GSA has signed, it\'s very hard to get customers and their
procurement offices to give us insight as to what they\'re paying on a
task order basis. They\'re hesitant to show us what they\'re contracting
officers are paying.

So, if the GAO has any insight into how GSA could take a look at that,
we\'d be happy to use that as a marketing tool. The budget office at OMB
is \-- wants us to go out and do that. DoD would love for us to supply
that information to them.

So, any followup information you have would, on how to go about doing
that, GAO, DoD, OMB, is strongly recommending that GSA do that. This
Panel here has asked over and over for that data. Only the agencies can
provide it to us. And we haven\'t gotten any agency to provide that
information to GSA.

So, I\'d love some followup information on recommendations on how to do
that.

MR. FUQUAY: Could I just ask, when you\'ve asked for the information,
have they simply said, We don\'t have it, or we\'re not willing to share
it?

MS. NELSON: We don\'t have the capacity to give it to you.

MR. FUQUAY: Okay.

MS. NELSON: The only way we can get at it is through the source, you
know, FSSI. That we have. But otherwise, you know, we don\'t go down to
task order level, unit by unit on, you know. So, that has to come from
the agencies. GSA doesn\'t have insight into that. So, if GAO has any
insight into that, that would be great.

The other thing that I wanted to ask you about, has GAO done any
followup \-- I notice that it\'s been mentioned a few times in here,
that there\'s been no followup to the quality, the acquisition quality
studies. And that was in the 2005 report, and then again in the 2007
report.

And Mr. Drabkin sits in the office of the Chief Acquisition Officer. We
no longer do even remotely those acquisition \-- is the GAO aware of
that? They\'ve actually been subsumed by the CAO\'s office in the form
of a PMR procurement management review that has its own office within
there.

MR. FUQUAY: We have not done any followup on that report.

MS. NELSON: Okay.

MR. FUQUAY: So, if they \-- how things have changed since then, I
couldn\'t really describe. Although I \--

MS. NELSON: Okay. So we have now \-- I didn\'t know if the GAO was aware
that now the Office of the Chief Acquisition office has a formal office
that does annual procurement management reviews, both on the award
process and the contract management process.

MR. FUQUAY: We were aware of the formal office, but we weren\'t aware of
what that office is doing at this point in time.

We did note \-- I did note when you went to the transcripts and Robin
Bourne was giving you kind of a history of all the changes that have
taken place in the schedules, that neither the Acquisition Quality
Management Improvement Program was mentioned. And maybe it wouldn\'t be
because it was not that big a program, nor was the Get it Right Program
mentioned, which was kind of in the news for quite some time a few years
ago when a lot of problems hit.

MS. NELSON: That came into place when the CAO\'s office was formed.

MR. FUQUAY: Okay.

MS. NELSON: And responsibilities were moved around. So but it\'s a
different set of requirements. And they go through all of the FAR and
GSAR and GSAM requirements.

MR. FUQUAY: Okay. I would just add that I think GSA, GAO\'s going to be
asked to do some work in the area of GSA I think by, there\'s both House
and Senate interest in that. So, if we do proceed with that work,
certainly keep the points that you\'ve mentioned in mind as we scope
that work.

MS. NELSON: I think also at least Mr. Bibb has mentioned in his
conferences that the new language for S-680 that\'s coming out of
Senator Collins will require a review of all inter-agency contracting
after the effective date of the passage of the \--

MR. FUQUAY: That may be the case. But it could change. We were doing our
work on the SARA Panel, we were tracking the previous version of 680 and
it was pretty \-- kept changing. So, it\'s really hard to keep up with
things. So, we\'ll see when the final Bill comes out and is passed.

CHAIRMAN BRANCH: Debra.

MS. SONDERMAN: Thank you for being here. I have a couple of questions.
You talk about leveraging buying power in a number of your
recommendations. And I\'m not sure whether when you think about that,
that means as a practical matter, lowering the base price that\'s on the
schedules that affect the you know, order one quality or order 10,000,
or whether you are really looking to the agencies to do more
consolidation.

We won\'t call it bundling because that creates other problems. I\'m
just curious about how do we balance opening access to the schedules to
more vendors. Because we really need for our economy to have a lot of
vendors participating in government contracting. It\'s in the best
interests of our nation\'s economy, in my opinion.

MR. FUQUAY: Yes. I think \-- I don\'t think we were advocating for maybe
doing some of practices the private sector does, where they really
winnow down their supplier base. That\'s not what we\'re suggesting.

I think what we\'re suggesting is to take \-- rather than taking a
transactions by transaction look at procurement activities, try to think
more strategically. I know that sounds sort of ambiguous, but that is
our intent, is to start looking across, what are we buying, from whom,
what are the prices, what kind of discounts? Are there opportunities for
example, where you\'ve got some set requirements where you might use a
BPA, for example.

That\'s a simple example, but those kinds of looks that we are
advocating when we say strategic sources.

MS. SONDERMAN: May I address a question to the other \--

MR. FUQUAY: Sure, absolutely.

MS. SONDERMAN: I\'m curious, we\'ve had some lively discussions recently
about the enforceability of BPAs against schedules. And I\'m just
wondering whether that is coming up at all in any of the cases you are
seeing?

MR. KANG: Unfortunately, my answer is really a non-answer. We don\'t \--
I don\'t believe we have seen any protests which a vendor has argued
that a BPA is not enforceable. And I think that\'s probably going to
come \-- the cause of that is that we deal in pre-issuance, pre-award
situations.

So, I don\'t think there\'s going to be a vendor who\'s going to be in a
position of saying, this RFQ cannot be enforced because of the
relationship of the BPA to the underlying schedule.

MR. FUQUAY: We \-- it\'s probably not going to be done in time to help
the Panel, but we do have some work on-going looking at the use of BPAs
by Federal Agencies. So, it\'s just getting started.

CHAIRMAN BRANCH: Glenn.

MR. PERRY: And I have a couple of questions. On the last page, next to
the last page of your slides, could you define what you meant by
\"inherent conflict between GSA and the vendors.\"

MR. FUQUAY: I think it\'s some of those first things we had up there on
the one slide. There\'s \-- (microphone feedback). You know, I\'m not
sure what\'s causing this.

I think it\'s those things we\'re talking about up here. It\'s not a
love-in. It\'s \-- there\'s always going to be those natural tiffs that
take place between a buyer and a seller when you\'re trying to arrive at
a fair and reasonable price and terms and conditions that satisfy both
folks. And there\'s always going to be some tradeoff that takes place
between those parties. I mean, in real, simple terms, that\'s what
we\'re talking about.

MR. PERRY: Well, you\'ve made a couple of references to the most-favored
customer and the pricing clauses. Could you back that up with any
examples of why you\'ve come to that conclusions, why those clauses are
helpful in this situation?

MR. FUQUAY: On the clause, I think the point I made that when you\'re
going into a five-year contracting period, you\'re trying to agree on
prices up front. There are all types of market dynamics that can take
place over the course of that five years\' period.

And I think information technology is probably a good example of that.
If you look a prices and capabilities on computers that take place,
generally, what\'s the technology period on those? Two to three years,
at some times? To lock into a price for five years out, seems to be
short-sighted. And so, that\'s where I think the most \-- the price
reduction clause would provide some protections for the Government.

MR. PERRY: In your work, though, did you test that theory?

MR. FUQUAY: We did not test that. Because for \-- protection, I think,
we have not gone in and examined that clause. In fact, I did some
research. I don\'t \-- I haven\'t seen anybody that\'s really examined
it. It seems like people have problems with it, and can find fault with
it, but there\'s not any hard analysis that really takes apart \--

MR. PERRY: That\'s right. We\'ve been searching for those who could give
us \--

MR. FUQUAY: Right. Right.

MR. PERRY: \-- one way or the other that some information as to whether
that\'s working or not. And the fact you haven\'t seen any protests on
them raises a question in my mind, is the clause even relevant to folks?

MR. FUQUAY: I think it\'s the administration of it, if you\'re a vendor,
trying to make sure you \-- there\'s some administrative
responsibilities involved which creates a little pain, but vendors do
realize that as \-- well, I hope they\'re realize it when they go into
enter into a contract with GSA.

MR. PERRY: And you work also, did you do any data, or did you do any
research as to, or get any feel for the experience of the personnel that
are negotiating the schedule contracts, and whether or not they had a
strategic view when they were working the pricing for any particular
schedules?

MR. FUQUAY: When we did our work in 2005, we talked to a number of
contracting officers, and also the management of a number of the
schedules, for intra-schedules, I.T. Schedule. And I think the sense we
had is that, they weren\'t taking a strategic look. They were just
trying to get their work done. And I think it goes to some comments Bill
made early on, that if you look at the growth in sales, and you look in
the growth in acquisition workforce, the workforce has been relatively
stable, maybe a slight up-tick in the last few years. But the volume
continues to go up, up, up.

And there was kind of a sense that, just get them on contract. And
sometimes that means getting as much, quickly as we can, and not always
doing the due diligence in applying those pricing tools as well as we
would like to see them do that. And that\'s the sum of our points we
made in that 2005 report.

MR. PERRY: Okay. Thank you.

MR. KANG: If I could just, just one point regarding the, part of the
reasons why we don\'t see protests of the pricing issues. Again,
remember, that the protests are triggered by allegations from
competitors.

So, when we\'re thinking about Price Reduction Clause, a protestor would
have to have knowledge of their competitor\'s pricing in order to argue
that the awardee vendor had not been forthright with the Government in
its quote submitted in response to an RFQ.

So, I think that sort of lack of transparency into competitor\'s data is
in large part the reasons why we don\'t see these types of protest
allegations.

CHAIRMAN BRANCH: Yes. I think we\'ll take one more from Judith, and then
in the interest of time, we really do have to move along.

MS. NELSON: Just following up on what Glenn said, and I really don\'t
know the answer to this without \-- and it\'s one of the things that we
have to rely on the IG and perhaps our PMR reviews. Because without the
hard data, we don\'t know.

There is a sense within GSA and we don\'t know how to go, which is why
we\'ve convened the Panel, and I\'d love to get the GAO response. I know
that you\'ve said that price reduction tool is a good tool, but this
Panel was convened to see whether or not in the case o particularly
products, right, whether or not a revised price reduction clause for
products and allowing competition in the market to take place, and take
that administrative burden off the contracting officers, then allowing
them to spend \-- because monitoring that price reduction clause, both
on the part of the vendor and on the part of the CO.

And then, because one of the things that GAO here has stressed is, you
know, that value add tool taking a more strategic look and using the
tools. MFC doing the fair and reasonable determinations on behalf of the
Government. So, is that something that GAO would might consider in
recommendations?

MR. FUQUAY: I think we\'d have to look at it and see what kind of data
you had to back up the recommendation.

I just want to speak just for a second to competition. To getting on the
schedule, there\'s really not a competition. It\'s kind of a
qualification process. Competition really should take place when you got
out with a task for a delivery order.

MS. NELSON: Well, that\'s what I\'m referring to.

MR. FUQUAY: What we found \--

MS. NELSON: When we have vendors on, letting competition in the market
at the task order, or purchase order level.

MR. FUQUAY: I think theoretically, that would be good if it happened.
Our work has showed repeatedly that it doesn\'t happen. Buyers go to
their favorite contractor, favorite vendor, one they have a good
relationship with and place a task order against the contract.

Now, Section 803, which the Department of Defense operates under, they
have to \-- supposed to get three proposals. The SARA Panel, I think,
made that same recommendation. But I don\'t think that\'s put in place
yet.

Now, if that would be put in place, then perhaps that might be an
answer. I don\'t think GAO would say that\'s the answer at this point.
We\'d want to see some data to back it up. I don\'t know if that answers
your question or not.

MS. NELSON: I think there\'s a FAR working panel, FAR working group
working on that right now.

MR. FUQUAY: Yes.

CHAIRMAN BRANCH: All right. I appreciate Bill, Jim and John coming and
sharing their insights with us today. I appreciate your gracious
response under some very tough questioning this morning.

And I know from my perspective, I feel very strongly that you have
reinforced at least my personal view of the three questions this Panel
really needs to address. And I will speak to those this afternoon in
deliberations. But we certainly thank you for your presentation. We
thank you for your insights this morning. And hopefully, we can call on
you, if we need you, for any subsequent insight. Thank you very much.

MR. FUQUAY: Sure. Thank you Mr. Chairman, panel members.

CHAIRMAN BRANCH: Al right. Good morning. We now have Roger Waldron from
Mayer & Brown, LLP, to talk to us about \-- great.

Roger, welcome. We are appreciative of your coming before us this
morning to provide your insight of almost two decades of service with
GSA and are looking forward to your views on what we\'re trying to do
today. So, welcome. Thank you.

MR. WALDRON: Well, first, thanks for inviting me. I appreciate the
opportunity. I think this Panel is a very important endeavor. It is
about time that GSA and the Federal Government looked at the schedules
program and how it operates. And I think this is a great opportunity to
improve the program, moving forward.

And just first, I\'m going to give a quick background of who I am. That
will take a minute. Then I\'m going to talk a little bit about the
article I wrote for [Legal Times]{.underline} and just my views on price
reduction clause, and the way the schedule program currently operates.
And to the extent you have questions, I\'m more than happy to answer
those.

First of all, I do have 20 years in Federal Government. I spent 13 years
in the GSA Office of General Counsel, where my clients were primarily
the Federal Supply Service. And I also counseled the Federal Technology
Service as well.

I spent four years at FSS, where I worked in the Acquisition Management
Center and worked on the schedules program in particular. And then the
last couple of years, I spent in the Office of the Chief Acquisition
Officer. And I also was honored to serve on the SARA Panel that reviewed
Government procurement in general over the course of two years.

So, that\'s sort of my background. I\'m here today, these are my
personal views. I don\'t represent anybody. I really care about the
program, and I care about GSA and I just wanted an opportunity to sort
of express my views.

You know, I have provided you a copy of my article. And you know,
essentially the thrust of my article is, as I believe, the Price
Reduction Clause, and the Most Favorite Customer pricing are no longer
relevant to the program.

And I think sort of that last conversation or dialog about the ordering
procedures is a lot of what I\'m talking about. I\'m going to step
through the factors in the way I think the program has changed and
evolved, especially over the last ten years. And then sum it up and
explain why I believe that it\'s time to really take a look at these
clauses and the operation of the program.

First of all, services. The growth of services in the program. When I
started at GSA, and you know, when I worked in Washington, in the early
\`90\'s, three-quarters of the dollar value going through the program
were for products, or probably even higher. It was a very focused
program on products. Services only came onto the schedules in about
1996.

Today, three-quarters, roughly, of the dollar volume going through the
schedule program are in fact services as opposed to products. So, it\'s
flipped 180 degrees, where services \-- and it reflects our economy, a
much more service-oriented economy. And that dynamic, or that structural
change in what we buy sort of demands that we take a look at how we\'re
doing it, and whether we\'re doing it well.

And the Price Reduction Clause, and the underlying policies are over 25
years old, approximately. They go back to the early \`90s. And you know,
they\'ve been modified to a certain degree over time and incorporated
into the regulations incorporated into GSAM, but I think this is the
first time there\'s really been a fundamental step back, and take a look
and whether this is the right way to negotiate the contracts.

And I say particularly with regard to services, I think it\'s time to
really take a look at that. So, you have a fundamental shift in what we
buy. That\'s the first aspect of it.

Second aspect of it is, over the last ten years, GSA has invested
heavily in its electronic tools. GSA Advantage, and e-Buy in particular,
are what I\'m referring to.

GSA Advantage, now I don\'t know the exact number. I know when I was
there, it was well over 11,000 contracts are online with millions of
products and services, and the associated pricing.

And I believe it used to get 35,000 some odd hits a day. So, contracting
officers and the competition take a look at GSA Advantage and see
what\'s going on there. And they use it for market research, as they
should, and as the regulations with regard to ordering tell them to in
terms of trying to you know, place an order and provide best value to
the taxpayer and to the agency.

And then we developed e-Buy. And I say, I slip every once in a while
still, even though it\'s been over a year since I left GSA. But GSA
developed e-Buy. E-Buy is electronic RFQ tool that allows agencies to
post requirements and seek competition. It provides transparency.

There\'s a bulletin board on e-Buy where if you are a contracting
officer and I go in there and post my requirements seeking quotes, I can
click on a box, and say, here, send my RFQ to this, you know, these ten
contractors. These are the folks I\'ve done some market research. These
folks really are capable doing the job. I send that to them.

But at the same time, that requirement goes on a bulletin board so that
every contractor who was registered on GSA Advantage, can actually go
into e-Buy and see the traffic. And they can pull it down. They can
submit offers. The rules require that if you submit an offer, even
though you haven\'t been solicited, you\'ve \"solicited.\" The agency\'s
required to consider it.

So there\'s an element of transparency there that never existed before.
And e-Buy has grown from an initial year, I think, of approximately, you
know, 10,000 postings to well over 50,000 last fiscal year. So, I think
it\'s an area where GSA\'s investment in electronic tools both GSA
Advantage and e-Buy, have enhanced competition, have enhanced
transparency.

And I think the track record demonstrates that Agencies believe it\'s an
effective tool, because they continue to use it, and they use it more
and more.

The last aspect of this sort of three-pronged discussion, is the change
in the ordering procedures. Which also, I think is a fundamental dynamic
change in the GSA marketplace for the schedules program.

First, we have Section 803 that applied to DoD only. And I can remember
I \-- I was actually invited to participate in writing the rules in the
DFARs for use of 803. And we kept talking to the DoD about e-Buy and the
fact that it\'s, hey, this is a tool that provides notice to all.

And under 803, just real quickly, I\'m sure you\'re familiar, but, under
803, for orders over \$100,000 for services under the statute, the
contracting officer had to provide notice to all the contractors on the
schedule, or as many as practical, to reasonably insure receipt of at
least three offers.

If they chose the later approach, and they got less than three, they
could still award a contract, but they had to document their file
demonstrating the efforts that they made to obtain competition.

So, DoD implemented that through the DFARs and the initially implemented
it and applied it to services. And the regulations specifically
mentioned e-Buy as one medium to provide notice to all the contractors.

And corresponding to that, DoD is the biggest user of e-Buy. And they
account for probably, I want to say, 55 to 60 percent of the notices
that are posted on e-Buy, during my period there, and I assume that\'s
still consistent number.

And then DoD took the next step and applied it to products as well. So,
now, for all DoD orders off the schedules program over \$100,000, the
contracting officer has to provide notice to all the contractors, or as
many as practical, to reasonably insure receipt of at least three
offers.

And the next step, and I know there\'s a FAR case open, is to take that
Section 803 rule and apply it Government-wide. And that was also a SARA
Panel recommendation as well.

So, eventually, what you\'re going to have is a set of ordering
procedures, uniform across the Federal Government that\'s going to say,
for orders, products or services, over \$100,000, you need to provide an
opportunity to get all the contractors, or as many as practical, to
reasonably insure receipt of at least three offers.

And you know, over time, to me that you know, sort of is a couple of
things here. I mean, the Government\'s sort of trying to have it both
ways. And it goes back, I know, my friends in GAO, which have a lot of
dealings th GSA, you know, did mention that GAO did a lot of audits. And
I recall those in the late \`90s I think, and early 2000s, where they
looked at practices of orders under the schedules program, and you know,
there were problems. And there were sole sources. And one of the things
that we did, in the regulations, is number one, address sole source and
when you could and couldn\'t do it, and that\'s in the FAR 8.4.

And then you saw you know, the concern with regard to competition at the
order level, the passage of 803, the extension by DoD to products, and
now, I think it culminates with it being applied Government-wide
eventually.

So, you have this robust competition. You have the electronic tools that
then enhance and facilitate that competition. Then you have services.
And the regulations encourage folks to do performance based statements
work, and get firm, fixed price for an order.

Services in my view, are very requirement-specific. They\'re dependent
upon your technical approach, your skill mix, the level of effort, the
personnel you propose, I think. You know, the labor rates are,
especially when you\'re doing firm, fixed price, I think those labor
rates are not, you know, entirely relevant to the work that\'s being
done. There\'s a lot of other factors that go into it.

So, at the same time you have all these changes, you\'re going to
enhance competition, you\'re buying services that are very
requirement-specific, we still have a price reduction clause that\'s
tied to the negotiation based on most favorite customer, and requires
the contractors to track this through the life of the contract.

And I don\'t think, you know, ultimately, the result at the order level
where the competition is now, the way the Federal Government has sort of
structured the program, where the competition takes place, that price
reduction clause is not really relevant, quite frankly.

Because \-- and this has never been done, but you know, a study of the
number \-- and it goes back to I think Judith\'s question about the data
from agencies about price reductions at the order level. You know, what
percentage of that competition at the order level is resulting in price
reductions? My view, with 803, and e-tools and the growth of services,
that\'s where the rubber meets the road. That\'s where the competition
takes place.

And I know \-- I don\'t know how much time I have left. But, in terms of
speaking, I want to give folks an opportunity to have questions.

And just sort of to tie that into the SARA Panel, the SARA Panel made a
recommendation that GSA establish an I.T. Professional Services
schedule, where pricing would be in a sense set by the marketplace. And
that contractors would have to have satisfactory history of past
performance, offer a commercial service, and agree to GSA\'s terms and
conditions, and also agree to post any rate, all their rates, on GSA
Advantage for public review.

And that agencies would be required to follow the Section 803 ordering
procedures for competition at the order level. That\'s sort of \-- we
found that consistent with commercial practice. Commercial firms rely on
competition.

The price reduction clause and most favorite customer are oversight
tools. And if you\'re going to have competition that\'s envisioned by
803, I don\'t think those are relevant clauses. The \-- just for
real-life example, where I think, and this is fairly technical, but
I\'ll try to lay it out.

Right now, there\'s a disconnect in the regulations that exists with
regard to the maximum order threshold. If you go look at the price
reduction clause, it says that the price reduction clause does not apply
to definite quantity orders that exceed the maximum order threshold in
the contract.

Okay. So, the maximum order threshold is also referenced in FAR 8.4,
where it says that, \"Agencies shall seek price reductions for orders
that exceed the maximum order threshold.\" And if you think about, what
it says in the FAR, and what it says in the clause are consistent.

FAR is saying, you seek additional price reductions. The clause says,
for DQ orders, you know, in the commercial marketplace, over the maximum
order threshold, the price reduction clause doesn\'t apply. That\'s
because the Government\'s seeking additional competition.

So the exemption is consistent with the regulations. Now, what maximum
order threshold in these contracts can vary from \$500,000 to \$750,000,
to a million dollars. Okay? Then you look at DoD\'s ordering procedures,
they require competition for every order, competition, you know,
consistently way of three, for all orders over \$100,000.

And the FAR\'s eventually going to say, you know, presumably, all orders
over \$100,000, you have to have 803 competition. So, I submit that
that\'s a disconnect. And that the maximum order threshold is also not
relevant, or alternatively, it\'s really \$100,000. And that\'s what it
should be for every contract.

Because the Government is imposing \-- not imposing, is requiring
additional competition requirements at the order level for everything
over \$100,000. So you know, you have that disconnect that exists right
now.

And it\'s \-- frankly the disconnect is, fundamentally recognizes the
value of competition, because it exempts from price reduction purposes,
a class of order because the Government envisions competition at the
order level for that class of order.

And I think to be consistent, at a minimum, it needs to be lowered to
\$100,000 in all GSA schedule contracts, and more fundamentally, and you
can take a look at my article, I think the price reduction clause should
be eliminated across the board. And with that, I will take your
questions, if you have any.

CHAIRMAN BRANCH: Questions? Yes, April.

MS. STEPHENSON: With the theme of today\'s meeting being the roles and
responsibilities of the various parties, and given your experience, what
do you view as being the roles and responsibilities of GSA versus the
roles and responsibilities of the ordering agency?

MR. WALDRON: GSA\'s role fundamentally I think, and this is not \-- is
to establish the \-- and I don\'t want to \-- a process, a framework,
almost a marketplace. A Federal commercial marketplace, for the
acquisition of commercial products and services.

And that currently involves the negotiation of the contracts, you know,
agreeing to the terms and conditions that are consistent in the
Government\'s best interest.

It means creating the tools that are, that facilitate getting best value
for customer agencies, for example, like GSA Advantage, or e-Buy, or
whatever the next idea that comes along that would improve, you know,
the operation of the program. That\'s GSA\'s responsibility.

The administration of the contacts, making sure that the contractors are
operating consistent with the contract terms and conditions. Providing
\-- I would submit that GSA should and we looked at it periodically,
provide \-- and it does sort of in a formal sense, provide consulting
services to agencies, saying this is the best way to get value out of
the program. I think that should be enhanced.

You know, a lot of it\'s that framework, in establishing and
facilitating, and assisting the agencies in placing the orders. And you
know, a further example of that is, you know, the SARA Panel had a
recommendation that GSA establish a market research capability as part
of its \-- I mean, a robust market research capability as part of its
organization.

And if you look at the Panel recommendations across commercial
practices, they\'re integrated. I mean, they tie together. There\'s a
consistent theme there. And that, for example, that recommendation\'s
idea would enhance Agency\'s use of GSA\'s vehicles, would enhance
Agency\'s own separate procurement if they decided not to use GSA.

It would be a service that would be available that say, that would sort
of look at the marketplace, this is how commercially folks are buying
services now. These are the improvements that they have made. This is,
you know, the rates, or the kind of prices you can anticipate in the
market for current, particular service. So, that\'s recommendation, for
example, the kind of role that GSA can play.

With regard to the Agencies, obviously a contracting officer in
agencies, their job is to get the best value out of the program they
can. They need to follow the regulations, take advantage of the tools
that GSA makes available. You know, do their due diligence. I don\'t
know if that\'s the right term, but you know, and do market research.
Conduct essentially, you know, effective application of the ordering
process and GSA\'s tools to get best value out of the program.

It\'s a long-winded answer.

CHAIRMAN BRANCH: Larry.

MR. ALLEN: Thank you for those remarks, Roger. We\'ve talked a little
bit this morning, and in previous Panel meetings about the bifurcation
among, between products and services on schedule. And talking a little
bit why things are different and probably necessarily so.

But in the discussion of roles and responsibilities this morning, I
can\'t help but thinking that, on GSA\'s side, would it not make sense
for there to be a centralized office that would have the ability for
agency customers to come and ask questions across the entire program,
rather than forcing the customer to go to different areas to try and
find what could be differing answers?

MR. WALDRON: That makes sense to me. I think GSA needs to think about
what\'s the most effective way to interface with the customer, and
what\'s the most efficient way.

And you know, having four different, sort of I guess, portals, through
which you access the information, or get advice of how to use the
program, I don\'t think is the most effective way to go.

You know, that goes to my view as well, that there are too many
schedules, and that they need to be reduced as well. Consistent with
that, I think that you know, there should be a focused voice from GSA
about how the program works.

And I know to the extent, you know, you go out in the regions and the
field offices, they\'re going to be talking to GSO folks maybe in Kansas
City, or where ever about how the program works. That\'s all fine, well
and good. But there needs to be some sort of single voice in the sense
of, here\'s how we explain it. And you provide that to folks in GSA who
can then communicate it.

But if there\'s \-- and where it resides, I don\'t have a view one way
or the other. But I think a focused voice from GSA about how to use the
program would be a very good thing.

CHAIRMAN BRANCH: Alan.

MR. CHVOTKIN: Thank you, thank you Roger. Your suggestions on the price
reduction clause, would you also recommend eliminating the price
reduction clause for the commodities, for the products?

MR. WALDRON: Yes. I believe \-- yes. My view is that it ought to be
eliminated for commodities as well.

MR. CHVOTKIN: And does the competition question answer it for both
services \--

MR. WALDRON: Yes.

MR. CHVOTKIN: \-- as well as products with you?

MR. WALDRON: Yes. The competition question, you know, the electronic
tools, you know, the requirement to post your pricing on GSA Advantage,
creating that marketplace. If I\'m a contracting officer, you\'ve got to
use those tools effectively. And that means, go in and do your market
research and see whose providing, you know, pricing at a particular,
just how the competition on the market.

Believe me, in my experience at GSA, companies all the time would go in
and do temporary price reductions, and post those on GSA Advantage
because it\'s the end of the inventory period, or they\'re changing
models. They would go in there and believe me, changing prices all the
time to update their pricing, to provide temporary price reductions over
a period of time. Because, you know, that\'s where the market was taking
the pricing.

MR. CHVOTKIN: And are you familiar with the June OFPP guidance on
inter-agency contracting and the proposed structure that they laid out
for MOUs between the buying activities and the selling activities, not
of course limited to just the schedules program? And does that answer
some of the questions on roles and responsibilities? It add clarity to
it at least?

MR. WALDRON: I think it adds clarity with regard to assisted services,
where someone\'s hiring an agency such as GSA to conduct a procurement
on their behalf.

I think the roles and responsibilities with regard to direct order,
direct bill-type programs is a little different thing. So, I don\'t
think it really, you know, I looked at it, and it didn\'t really focus
on that piece of the puzzle, which is something you guys, this purpose
of this meeting that would be a great service to make a statement in
that regard.

CHAIRMAN BRANCH: Okay. Lesa, then Judith.

MS. SCOTT: Would you say that we should have the prices in the schedules
now, or would you say we should no longer price the schedules?

MR. WALDRON: I would, you know, that\'s a good question. One of the
things that we talked about with regard, on the SARA Panel was with
regard to the I.T. Professional Services recommendation is, what do
these prices really mean? You know, the competition\'s at the order
level.

And you know, I think the view of there was, let\'s try this program for
a couple of years, see how it works, and then see if it needs to be
expanded across the Government. That was \-- I mean, across the
schedules program for services in particular.

You know, I think \-- I think there should be some sort of obligation to
post some pricing on GSA Advantage to \-- that sets a framework for
future competition. But we also said that the contractors could change
that pricing at their discretion.

And if you go back historically and you look \-- and I don\'t know
whether it was Clare Cohen, or it might have been, I can\'t recall, but
there was \-- Congress did propose a pilot program, involving GSA and
the schedules program.

That basically said, that once 60 percent of the dollar volume going
through the schedules program was going through GSA Advantage, that\'s
60 percent, of let\'s say \$35 billion, that doesn\'t happen \-- didn\'t
happen. But that was a trigger.

And at that point, oh, no. Actually, excuse me, I misspoke. It applied
to the I.T. schedule in particular. It said, once 60 percent of the
dollar volume going through the I.T. schedule was being purchased
through GSA Advantage, then GSA was to implement a pilot program where
the contractors could go in and post their pricing at their discretion,
and change it at their discretion. And agencies would conduct their
competition, or place their orders based on that.

That was never implemented. That\'s partly where we got the idea to look
at, you know, the I.T. professional services schedule and see if, you
know, find a way to try to implement that and try that.

MS. SCOTT: Yes. Because my concern is the posting the prices, and then
having the vendors change them at their will, and it mitigates, or
eliminates the contracting officer\'s determination of fair and
reasonable. And I\'m trying to figure out how to reconcile the current
standard with that type of move.

MR. WALDRON: Well, you know what? The regulations for services in
particular, talk about the contracting officer reviewing the labor mix
and the approach, and determining, I believe, don\'t quote me on it, but
I think it does talk about for that particular requirement, you\'ve got
to do an analysis. And I think that\'s FAR .4.

MS. SCOTT: That\'s requirement specific, yes.

MR. WALDRON: Yes. That would be, you know, that\'s a good question as
about how you deal with that fair and reasonable pricing for
commodities. Buy I think that\'s a challenge that \--

MS. SCOTT: My concern is at the schedule level itself, where you don\'t
have the instant requirements, you\'re not evaluating the labor mix, the
hours, or the \--

MR. WALDRON: I would say, I would respond to that that in a couple of
different ways. Legally, could you do it? I believe you could because
GSA has the statutory authority for the operation of the schedules
program, you know, 41 USC 259(b)(3), gives the administrator the
authority to operate the program.

And so \-- and that\'s where GSA issues the GSAM regard to schedules,
and also issues FAR 8.4. You\'ve got \-- you have this great tool, the
statutory authority, that you guys can use to \-- and you have a lot of
flexibility of how to improve the program. And you can address that
issue at the contract level, I think.

I think it\'s still creates a binding contract, you know, even if you
have the flexibility in the pricing.

CHAIRMAN BRANCH: Judith, you\'ve got the last word on this one.

MS. NELSON: Well, in regard to posting, negotiating prices, and then
changing them at will. Tom Essig could, might be able to correct me if
I\'m wrong. But I believe it\'s DHS Eagle, or one of the others that
they negotiate their pricing and then the vendor has the ability to
alter that pricing, and then their contracting officers go and post that
and check them in retrospect and make sure that they\'re, remain in
accordance with their agreement. Is that correct? So, there must be a
way to do it.

MR. ESSIE: Actually, I\'d have to \-- I\'d have to double-check. As far
as I know, we compete individual orders onto both Eagle and First
Source.

MS. NELSON: So I think there must be a way to do it.

The question I was going to ask you follows up on something I was
talking with GAO before. In regard to the guidance that came out on June
6th, in roles and responsibilities from OFPP, do you think that there\'s
been a lot of talk here about transparency, of the awarded price, and
the task order price.

Do you think that in data, because there seems to be going, not just
here, but across the Government, and from Congress, more and more
movement towards transparency. Do you think it would be, it is incumbent
upon GSA to be able to provide information at the order \-- what the
ordering prices are, or it\'s incumbent upon the ordering activities to
be able to provide that data?

MR. WALDRON: Right now, the way it\'s structured, it\'s not GSA\'s
information. I mean, it\'s the Federal Government\'s information, but
it\'s not GSA\'s information. There\'s no \-- you know, the way \--
there would have to be some reporting requirement in the schedule
contract.

And I \-- you know, what I\'d answer the question, is I think it\'s a
collaborative effort on the part of the customer agencies and GSA to
figure out how to both get that information and understand that
information. I think that sort of goes back to the SARA Panel
recommendation that I mentioned about a market research capability in
GSA that would be provided to agencies that would look at trends in
commercial services, but also look at what\'s going on in the Federal
marketplace and be able to provide feedback on that as well.

You know, I think that \-- what your question and your concern hits on a
point that you know, there isn\'t a lot of transparency. And it\'s not
just, you know, the pricing on GSA schedules. I think generally, any
multiple award IDIQ contract, there\'s a transparency question.

I think that\'s one of the things that we found on the SARA Panel was
that it was hard to get good data about what was going on at the task
order level across what \-- regardless of the contract type.

That\'s a big picture, sort of fundamental questions, I think part of
the way we could anticipate, try to deal with that, was the idea of this
market research capability that would work with the agencies as well,
and provide it as a service to the agencies.

CHAIRMAN BRANCH: Roger, thank you for your remarks this morning. I
appreciate your standing and to answer questions for us.

It\'s about 10:45, and we\'re about 15 minutes off schedule. So, if I
could ask Mr. Cotton to just bear with us for 15 minutes, while we take
a quick comfort break. Let\'s come back at 11:00 o\'clock, prepared to
hear from him. Thank you.

(Whereupon, the afore-mentioned proceeding was on break from 10:45 a.m.
to 11:02 a.m.)

CHAIRMAN BRANCH: About two minutes after eleven. If we could get
started. We have Mr. David Cotton, of Cotton & Company, LLP, to give us
his views on schedule pricing.

Mr. Cotton, welcome. Thank you for joining us this morning.

MR. COTTON: Thank you very much. Chairman Branch, Ms. Brooks,
distinguished advisory panel members.

I sincerely appreciate the opportunity to speak with you today. My name
is Dave Cotton. I\'m chairman of Cotton & Company, LLP. We\'re a CPA
firm, headquartered in Alexandria, Virginia.

I\'d like to give you a little bit of background about our experience
with the GSA schedule. We consider ourselves to be a GSA schedule
success story. And based on that background, I will admit in advance our
perspective is a narrow one.

I have six recommendations for your consideration. We were founded, our
firm was founded in July 1981. And from day one, we focused on providing
auditing consulting services on behalf of Federal Agencies. We are
currently classified as a large business. We have about 110
professionals, and about 80 percent of our business is directly related
to Federal organizations programs activities and functions.

We were one of the first firms awarded a GSA schedule contract under
what is now referred to as the Financial and Business Solutions or FABS
schedule. We were a schedule contractor for 11 years, and one day, from
July 14, \`98, through July 14, 2008, and let me footnote that sentence.
Our GSA schedule FABS contract expired on July 14th, but on July 15th,
GSA asked us to agree to a 90-day extension. And I\'m not sure of the
reasons for that. But that doesn\'t bear on my recommendations.

During the 11 years that we worked through the GSA schedule, we were
awarded 256 contracts. We performed about \$52 million of work for 39
different Federal agencies. Many of our engagements were repeat
engagements for the same agency.

Our Federal agency clients under FABS included the Congressional Budget
Office, Government Accountability Office, Department of Education. We
currently do work for GSA itself under the scheduled, Department of
Homeland Security, Department of Energy, Department of Health and Human
Services, National Science Foundation, Small Business Administration,
Securities and Exchange Commission and the Department of Veterans
Affairs, just to name a few of our more significant clients.

We provided many hours of high-quality, professional services at what we
think were very reasonable prices. I\'ve included a table in my handout
that shows for the firms we compete against, the large businesses in the
Washington, D.C. area, under the FABS schedule, how our rates compare
with the high, low and average rates of those competing firms.

Our rates were very near the lowest rates for all labor categories, and
were in fact, the lowest rates for 5 of our 13 labor categories.

Our latest open rating score was 95. We\'re very proud of that. And our
win-loss record, under the FABS schedule, reflects what we think is high
value, and I define that as high quality and low price.

In 2007, we bid on 17 GSA schedule contracts. We won 13. That\'s a 76
percent win rate. In 2008, we won 8 of 9 contracts. We propose that\'s
an 89 percent win rate.

Based on our 11 years experience as a GSA schedule contractor, I have
six recommendations for you to consider. And these recommendations
relate primarily to services. Some of these recommendations may be
applicable products, but we don\'t sell products. We sell professional
services.

And let me narrow my perspective even a little bit further. We operate
in the part of FAR 8.4 that deals with services, procurement requiring a
statement of work.

Recommendation one, clarify FAR 8.4 regarding price reasonableness. FAR
8.404(d) states that, \"GSA has already determined the prices of
supplies and fixed-price services and rates for services offered at
hourly rates under schedule contracts to be fair and reasonable.\"

While that may or may not technically be true, we think it misleads
buying agencies into believing that any contract awarded under the
schedule results in a fair and reasonable price for services purchased.

When services are being purchases, there are really three key variables,
hourly rates, level of effort and quality. And although FAR 8.405-2
explains the need for further evaluation when purchasing services, the
fact that a buying agency only needs to solicit quotes from three
contractors creates significant vulnerabilities to abuse.

As Mr. Essig stated at your May 22nd meeting, there are two reasons that
buying agencies use the schedules. And I\'m quoting from the transcript
at page 280, \"One, because they\'re a heck of a lot faster and I can\'t
wait eight months to get my contract in place. Two, and I actually heard
this one, I can get the source I want.\"

This panel should ponder the implications of that second reason buying
agencies use the schedule. No one really knows the extent to which
schedule purchases are being what I call gamed, or even worse. But the
fact is, that it happens.

Companies market their services directly to agency personnel, and it is
easy to find two other contractors with higher rates from which to
solicit, \"competing\" quotations.

Widespread use of the GSA schedules may paradoxically be improperly
costing the Government tons of money due to the manipulation of
competition to steer contracts to favored vendors. FAR 8.4 should be
revised to make clear that GSA schedule rates for services are just one
of those three key variables in best-value procurement, and that buying
agencies have the sole responsibility of assuring that they enter into
best value contracts based on competitive consideration of those three
variables, levels of effort, rates and quality.

Recommendation number two, make buying agencies the sole focal point for
competition, increase the competition required and optimize the levels
of competition required. I believe from looking at the transcript of
your earlier meetings, that everyone in this Panel appears to agree that
competition is the best means of assuring best prices at any point in
time for any requirement.

The FAR, however, only requires three quotations to be solicited when
using the GSA schedules. The Government\'s better buying offices, I
think, recognize the fallacy of such limited competition, and already
require greater competition.

All Government buying offices should be required to optimize competition
when using the GSA schedules. The mechanisms for facilitating optimum
competition, primarily e-Buy and GSA Advantage, exist. The FAR and these
competition vehicles should be modified and their use made mandatory
when buying GSA schedule services.

When purchasing schedule services, via a GSA schedule, e-Buy should
generate randomly, four the buying office, a number of contractors from
whom proposals are sought. The number of randomly generated potential
contractors can be tiered based on the size of the procurement.

For example, the system would generate ten contractor names for
procurement up to \$500,000, 15 for procurement up to one million, 20
for procurements up to 1.5 million, and so forth. Nothing scientific
about those numbers. It\'s just an example for your consideration.

Buying officers should be allow to add more randomly generated
contractor names if they wish, but should be allowed to add specific
contractor names to the randomly generated lists only with managerial
approval and based on adequate justification. And as e-Buy currently
allows remaining schedule contractors, should have the opportunity to
bid on any procurement that\'s purchased through the schedules, without
prejudice.

Determining the optimum levels of competition for procurements of
varying sizes can be done at a later time. I think it would be an
excellent focus of study for some folks from academia. But increased
competition can and should be made mandatory as soon as possible.

Recommendation number three, eliminate the MFC clause and the price
reduction clause. And let me emphasize that I\'m focused on services,
not products. Careful reading of both of those clauses makes clear that
they were written with products, not professional services in mind.

Products sold commercially seldom differ from products sold to the
Government. And thus, some form of MFC clause may make sense for product
sales. Attempts to apply those provisions to professional services are
based on what I think is the flawed premise that commercial professional
services and governmental professional services are somehow easily
comparable.

While providing services to the Government may require the same skill
sets as providing services in the commercial sector, providing services
to the Government usually requires significantly different knowledge and
experience basis.

For example, auditing standards and accounting principles are different
in the commercial and governmental sectors. So, someone providing those
services in the commercial sector, has a bit of a learning curve to
provide those services in the governmental sector.

GSA\'s interest in establishing initial prices and schedule services
contracts to be assure that the labor rates, prices, are in general
realistic and reasonable, period. The determination that prices are
reasonable and realistic, should be based on prices in the marketplace,
rather than on any particular contractor\'s historical prices.

Buying agencies should have the sole responsibility for deciding on the
best value for a specific requirement. The MFC clause should be replaced
with a clause that simply states:

A. That the labor rates in the contract have not been determined to be
fair and reasonable for any specific requirement;

B. That the labor rates are the maximum rates that can be used to price
deliver your task orders under the schedule;

C. That the buying agency may and should seek further labor rate
reductions as part of the competitive purchasing process and

D. That buying agencies remain solely responsible for making best value
decisions for specific requirements.

If buying agencies make optimum use of competition, as recommended in my
second recommendation, there\'s no need for a price reduction clause.
The Government can and should rely on market forces to assure that it
receives the best price for any particular requirement at any point in
time.

Fourth recommendation, GSA should establish standard labor categories
under each service schedule, services schedule, so that buying agencies
can make meaningful price comparisons. The current schedules have prices
for specific labor categories in which the highest price on the schedule
is more than 400 percent higher than the lowest price for the same labor
category.

On average for, in our FABS schedule contract, for the labor categories
that we have on our contract, the highest prices were 238 percent higher
than the lowest prices. That\'s the average across 13 labor categories.
This is because contractors are allowed to make their own labor category
definitions. And this renders the stated prices for labor categories
meaningless for any efforts to compare prices and value.

GSA working with buying agencies should define the labor categories the
schedule contractors must use and specify the education, certification
and experience requirements for those labor categories. Doing this will
reduce the range of prices for a given labor category and enable buying
agencies to make best value decisions based on a more level playing
field.

Recommendation five, GSA\'s role. I believe that\'s the theme of this
particular meeting. GSA\'s role in the Government procurement process
should be defined as being and restricted to that of providing the
marketplace where willing buyers and willing sellers come together. A
fundamental fact is that GSA schedule contracting officials do not
actually buy anything.

GSA procurement officials often do not even understand the services
being procured under the schedules. And I\'m not intending to be
disparaging. When we sell services directly to an agency, the procuring
official has access to a technical panel who understands very well
what\'s being purchased. GSA schedule contacting officers don\'t have
that access.

Nevertheless, GSA contracting \-- schedule contracting officials are
serving as the price police for buying these services. GSA\'s role
should be akin to that of a manager, or operator of a shopping mall. In
this case, GSA has established several virtual shopping malls.

Once vendors are granted the right to space at the mall, GSA\'s role
should be to facilitate access to the vendors, provide information about
the vendors, and make it easier for buyers to reach informed purchasing
decisions.

GSA should focus its energies on making information about sellers easier
for buying agencies to access and compare. For example, GSA currently
receives customer satisfaction information compiled by Dun & Bradstreet
via the open rating system.

To the best of my knowledge, GSA does not make this past performance
information readily available to the buying agencies. Would it not be of
great value to buying agencies to be able to see at a glance how one
schedule contractor\'s prices, based on common labor category
definitions, and quality, via the open rating system, compare with other
contractor\'s prices and qualities.

I think we\'ve all experienced similar when we go out to the World Wide
Web, and go to a purchasing site, and you can see a vendor\'s quality
rating next to their prices.

My final recommendation has to do with consistency. If GSA decides to
retain the MFC or the price reduction clauses for services, then GSA
should take steps to assure that these clauses are interpreted
consistently.

This Panel has heard testimony in past meetings indicating that GSA
regions interpret and apply the identical language in these clauses
differently across regions. The problem is a little bit worse than that.
We\'ve seen contracting officers within the same GSA procuring office
interpret these clauses differently.

We\'ve had 17 contracting officer changes in our 11-year experience. And
subsequent contracting officers have contradicted interpretations of
preceding contracting officers, and repudiated decisions made by their
predecessors. The fact of the matter is, these clauses are confusing and
convoluted, especially when you try to apply them to purchasers for
services rather than contracts for products.

As I said previously, I recommend that MFC clause and the price
reduction clause be eliminated. But if either clause is kept, I think
GSA\'s focus should be on a universal understanding and clarification of
what they intend by these clauses and consistent interpretation across
regions, within procuring offices and over time.

I appreciate your time. That concludes my prepared remarks. I\'d be
happy to respond to any questions you have. And again, I think you for
this opportunity.

CHAIRMAN BRANCH: David.

MR. DRABKIN: You mentioned there was a common definition of services. Do
you mean to say that, and if so, where would I find it?

MR. COTTON: Are we talking about labor categories?

MR. DRABKIN: Right.

MR. COTTON: There is not one now. Typically in an agency procurement,
outside of the GSA schedule, the agency will define as part of its
solicitation package, the labor categories and the definitions of those
labor categories.

And I\'m suggesting something similar for the schedule. Right now,
contractors under the schedule use their own labor category definitions.
Some are published on GSA Advantage, some aren\'t. And they\'re not
consistent.

MR. DRABKIN: And then you suggested that GSA publish these common
services with a rating so that customers could know what, I guess what
they were buying. So, in the absence of a common definition of what the
services are, then the ratings would be useless, wouldn\'t they?

MR. COTTON: I\'m not talking about a common definition of services. I\'m
talking about common definitions of the labor categories. Services are
performed by an array \--

MR. DRABKIN: Right.

MR. COTTON: \-- a mix of labor categories.

MR. DRABKIN: Great. I accept your common definition of labor categories.
Are there common definitions of labor categories?

MR. COTTON: As I\'ve said, for agency-specific procurements, there are
for a particular requirement.

MR. DRABKIN: In the marketplace today, that\'s what \-- you\'re here as
a member of the market.

MR. COTTON: Right.

MR. DRABKIN: Are there common definitions of labor categories in the
market, even within your part of the market as a CPA?

MR. COTTON: No, there aren\'t.

MR. DRABKIN: So, the addition of a performance evaluation with a
noncommon definition of a labor market would be of what value?

MR. COTTON: No, I\'m suggesting that GSA working with buying agency
experts define labor category definitions that GSA schedule contractors
will conform to.

So that when you look at a manager for one firm, and compare that
manager with another firm, you\'re at least comparing the number of
years of experience, the education levels, the certifications and so
forth. And that firms would conform their prices to that definition.

MR. DRABKIN: Are you familiar that at one time, not terribly long ago, I
guess it would be in the mid-90s we got rid of them, we had a series of
things called military standards and we had Fed standards, which defined
among other things, labor categories. Are you proposing we go back to
those kinds of definitions?

MR. COTTON: If you\'re implying that we should go back to the specs that
caused a 39 cent glass ashtray to cost 9.95 for the Government, no I\'m
not suggesting that.

I\'m suggesting that labor categories are common in our industry, and
that by simply defining the minimum qualifications for a particular
labor category, it will level the playing field and make the analysis by
a buying agency more meaningful.

CHAIRMAN BRANCH: Judith, and then Alan.

MS. NELSON: Mr. Cotton, thank you very much for your presentation.
There\'s a lot here for us to take a look at.

Going back to some of the things that Mr. Drabkin has looked at, and on
page 5 in particular, there are some things that I do take pause at.
Looking specifically at the statement that you make that says,
\"Attempts to\" \-- starting on the bottom of four, \"Attempts to apply
these provisions to professional services are based on the flawed
premise that commercial professional services and governmental
professional services are comparable.\"

The first question I have is, are you to imply that professional
services therefore under schedule are noncommercial services?

MR. COTTON: No, not at all. Not at all.

MS. NELSON: Okay. Because that\'s how I would read that sentence. And
the schedules program is specifically for commercial products and
services. So, I\'m \-- that would be the first thing that I would say.

And so what I think Mr. Drabkin was saying is, that there is no common
definition within the commercial market for labor categories, right? Is
that what you were saying?

MR. DRABKIN: No.

MS. NELSON: No. Okay. So, that\'s not what he was saying.

(Laughter)

MS. NELSON: I\'m totally wrong, I\'m off base.

MR. COTTON: Well, I agree with what he didn\'t say.

(Laughter)

MS. NELSON: You agree with what he didn\'t say. Okay. But my
understanding is within the commercial market, labor category to labor
category, what you might call a senior auditor, is not what another
company might call a senior auditor.

MR. COTTON: That\'s correct.

MS. NELSON: So, and then the other question that I have is, within your
authorized GSA schedule price list, once you have a contract awarded,
like any other schedule contractor, are you required to then publish
what your labor categories are and all of the minimum educational
requirements and experiential requirements as they were awarded, so that
all agencies can see what those are?

MR. COTTON: We do publish our labor category definitions. I don\'t know
if that is a requirement that we publish those. I\'ve looked at some GSA
schedule holder contractors that don\'t publish their labor category
definitions. So, I\'m not sure if it\'s a requirement or not.

MS. NELSON: Well, it happens, just informationaly, that it is. And
beyond that \--

MR. COTTON: I didn\'t mean to get any of my competitors in trouble.

MS. NELSON: Well, no. It happens that it is, and it happens that all
schedule contractors are required to supply that to any ordering
activity that asks for it.

MR. COTTON: Right.

MS. NELSON: So, just for that. And then the other question is, do you
\-- you also say that, GSA\'s interest in establishing initial prices
and schedule services contracts should be to assure that the labor
rates/or parenthetically, prices, are in general realistic and
reasonable.

Do you think that GSA offers a value add in addition in establishing
base contract terms and conditions?

MR. COTTON: Yes. I didn\'t mean to imply that GSA should only focus on
realistic and reasonable prices. I understand the remaining requirements
in the schedule contracts are very important. My focus, and I apologize
if that didn\'t become clear, my focus is on the MSC clause and the
price reduction clause, hence, prices.

CHAIRMAN BRANCH: Alan.

MR. CHVOTKIN: Thank you. Curious on the standardization question. Should
we focus on the issue of standardization, if at all, at the contract
formation phase, that is, at the GSA schedule phase, or is this question
really most appropriate at agency pricing for the task orders, or the
orders that come up? Where does it make the most sense to focus on this
question of standardization, if at all, in your view?

MR. COTTON: I think if you\'re going to continue to use the GSA schedule
concept for services, it has to be at the GSA schedule level. What\'s
going on now is, pre-GSA schedule and for non-GSA schedule contracts,
the buying agency will specify, these are the minimum requirements for a
partner, senior manager, senior staff, and so forth.

What\'s \-- when an agency buys under the schedule now, since the labor
rates are already there, they don\'t have that opportunity. So, when
they reach out to several firms and get proposals, it would take
considerable extra analysis to try to level that playing field, because
they might be getting quotes from firms, three or four, or five
different firms, that have entirely different labor category
definitions.

And I don\'t think there\'s an easy way for a buying agency to establish
its own labor category definitions, and then try to achieve some sort of
crosswalk between the schedule contractor\'s prices and those new labor
category definitions.

MR. CHVOTKIN: But aren\'t most companies doing that crosswalk already
today between their own activities, what GSA identifies as the \-- what
are on the schedules, and then again to the ordering activity\'s
requirements? And so, somewhere along the line, either the agency has to
map its requirements back to the schedules program, or the contractor
has to map to the agency\'s requirements?

It\'s going to take place somewhere. I\'m just looking for where that
takes place if we decide that standardization makes some sense. And I\'m
not there yet either. But I\'m curious from your view.

MR. COTTON: Well, we have our labor category definitions in our firm.
And when we respond to an agency procurement, we make that crosswalk.
So, one of our managers \-- one of our seniors \-- I\'m sorry. One of
our managers may not meet the agency\'s labor category definition for a
senior, and so we have to make that adjustment.

But that doesn\'t happen under the GSA schedule in my experience, that
the buying agency purchasing off of the GSA schedule will specify its
own labor categories. Now, that may happen, but in my experience, I
haven\'t seen that.

MR. CHVOTKIN: In an unrelated, different area, you talked about randomly
generating a competition. How does that square with an agency\'s ability
then to look at quality, which was one of the three elements that you
highlighted as necessary? Are the two related?

The agency\'s doing market research and has identified a set of
qualifications or criteria or even firms that meet its standard for
quality. Would the random generation of solicited firms comply with
that? Assist in that decision?

MR. COTTON: Well, I suggest the random generation of more firms simply
as a means of impressing upon the buying agencies the importance of
additional competition. The qualitative assessment should take place
after those firms have responded and the buying agencies, my experience,
do a fair job of asking for information about past performance and going
out and again, in my experience, do a pretty good job. Most of our
clients do a good job of checking references and so forth.

But my thought is, let\'s put that open ratings number on GSA Advantage
or on e-Buy so that a buying agency can try to pick the best of the
best.

CHAIRMAN BRANCH: Glenn and then Jan.

MR. PERRY: Thank you, Mr. Cotton, for coming today. And your
presentation and entertaining our numerous questions.

I have a couple of areas. Just one from curiosity factor. Have you ever
had a \-- and I don\'t want to get into semantics, have you ever had an
audit of your schedule contract by GSA?

MR. COTTON: Yes, we have.

MR. PERRY: You have of your pricing?

MR. COTTON: Yes.

MR. PERRY: My main point is, we\'ve been, and particularly the schedule
that you participate under actually, or you participate under a couple
of schedules I believe. We have the MOBIS and the Financial Schedules.
Do you have any \-- do you think there\'s any reasonable expectation
that we could come up with standard commercial, or government/commercial
labor categories with such a wide variety of topic areas within those
schedules?

Based on my experience, it\'s kind of all over the map with different
firms, depending on what firm you are, and the type of work the agency
has.

MR. COTTON: Again, maybe you\'re pointing out the narrow focus that I
have, where we provide auditing services, we provide consulting
services, I.T. services. So, from my perspective, for our small corner
of the market, it would be relatively easy for buying agencies to get
together and come up with common definitions.

We\'ve sold services to the Government for 20 years before the GSA
schedule for services came along. And we would typically see that in the
solicitations, a manager must have these \-- this education level, and
this type of certification and so forth. So, I think for my area, it\'s
relatively easy. But I think it wouldn\'t be that difficult to develop
common labor category definitions for different types of services that
are provided under the schedules.

I mean, it\'s something that the Government has done in the past, still
does now, and I think if GSA\'s schedule prices are going to have any
meaning, it needs to be done with the GSA schedule.

MR. PERRY: What proportion of your work is, are you receiving under the
schedules? Is it a majority now, that the agencies are competing with
you? If you can say.

MR. COTTON: According to the IG\'s audit report in 2007, 59 percent of
our 2007 revenues were derived from the GSA schedule. I haven\'t
verified that number. But I think it\'s probably an accurate figure.

MR. PERRY: A good portion of your company\'s experience has been as a
small business, even though you\'re large with us today. Is there
anything we should be concerned about doing here that affects, that
impacts small businesses as they utilize the schedules?

MR. COTTON: We started on the schedule as a small business. And it was a
very positive experience for us. So, I can\'t think of \-- I think it is
of value to the small business community to have that access. And I know
it was very beneficial to our growth.

MR. PERRY: We\'ve been talking about potentially, or some of the \-- it
keeps coming up every so often, of getting rid of pricing at the GSA
schedule, at the GSA level entirely. What would that impact be? I\'ve
heard \-- I ask that, because either as the prime or also as a team
member, if you have a schedule where you\'re a subcontractor.

MR. COTTON: I understand the need to have some prices in the base
schedule. But if there\'s competition at the buying agency level, what
those prices are become irrelevant. And I understand the dilemma that
you have is, that agencies want to use the GSA schedule so they don\'t
have to read 50 proposals and evaluate 50 technical proposals.

But somewhere, there\'s a tradeoff there. And I don\'t know what the
answer to that is. I suggest you go with the FAR requirement to make
sure that whatever those initial prices are, are reasonable and
realistic.

I know in our experience, one time in 11 years, only one time in 11
years, did we ever discount to a buying agency our schedule prices.
Because our schedule prices were already pretty low. So the GSA schedule
prices serve as a ceiling on us. And we\'ve always stayed at that
ceiling.

But our experience is a little bit different. Because we came at the GSA
schedule from the old cost-plus environment. Whereas many of our
competitors came from the commercial sector where they readily, and
commonly discount their commercial prices by 25, 40 percent. We didn\'t
have that cushion.

So those prices in the schedule has served as a ceiling on us.

CHAIRMAN BRANCH: Jan.

MR. FRYE: Thanks Mr. Cotton for being here and answering these many
questions.

I\'ve got an add on to Alan\'s question here. In recommendation number
two, you state that, Buying agencies, that we should make buying
agencies the sole focal point for competition, increase the competition
required, and optimize the levels of the competition required.

You further go on to say that, All Government buying offices should be
required to optimize competition when using the Government schedules.
What analysis is led you to believe that the Government will obtain a
better value by going to 10, 15 or 20 competitors?

MR. COTTON: No analysis whatsoever. Again, I just threw out those
numbers as an example that I\'ve seen in other purchasing systems
designed to try to achieve an optimum level of competition.

I mean the days of full and open competition where everybody on the
planet had an opportunity to bid on everything, I mean that\'s what led
us to the development of GSA schedules, was that eight month \-- we had
one contract that took 36 months from the time we submitted a proposal
until contract award, in the old days.

And I think we all agree that that\'s not good for either the Government
or the vendor community. So, I\'m simply suggesting that this panel
should try to emphasize the importance of competition at the buying
agency level. And you have an electronic marketplace. You have the
mechanism to try to promote that type of competition. But there\'s
nothing magic about 10, 15, 20 solicitations.

MR. FRYE: Okay, thank you.

CHAIRMAN BRANCH: Are there any other questions for this presenter?
Hearing none, thank you Mr. Cotton. We appreciate your remarks today.

MR. COTTON: Thank you very much. Appreciate it.

CHAIRMAN BRANCH: It\'s about 20 minutes of twelve, and we had originally
scheduled some time here for deliberations. As it\'s getting close to
the lunch hour, I don\'t want to belabor that. But I will take the
prerogative as the chair to kind of summarize where I believe we are,
and where we need to go. And then I will entertain feedback on that
during our afternoon session with respect to deliberations.

We\'ve had five meetings so far. And we\'ve heard a lot of rich
testimony from a wide variety of stakeholders with respect to not only
the price reduction clause, but the most favored customer clause and the
role of pricing in GSA schedules.

And I\'d like to start with two observations. And I\'d like to put three
questions on the table for my fellow panelists.

The first observation I will make is that GSA cannot be held responsible
for the agency execution of the schedules. And I think that needs to be
clear. And I think we get an unevenness with agency execution of the
schedules because of the dynamic tension between the contracting officer
and the program manager\'s role.

I\'ll speak for myself, but it\'s been my observation in almost 30 years
in this business that what a program manager wants from the procurement
system, is he wants whatever good or service that he needs yesterday, he
wants it at a price that he can afford consistent with the quality that
he needs, and he really doesn\'t want to understand what the contracting
officer\'s problems are in doing one and two.

The contracting officer on the other hand, has an obligation to seek
maximum competition, because we as a public policy statement have said
in this country, competition is the way we establish price and quality
and innovation and also offer taxpayers an equal opportunity to compete
to win business that\'s being paid for with their money.

And contracting officers also have an obligation to insure a fair and
reasonable price. And when you have a vehicle as versatile and flexible
as the GSA Federal Supply Schedules, and you have those two frameworks
coming into dynamic tension, it creates significant opportunities for
mischief.

None of those opportunities are the responsibility of GSA. GSA cannot be
held for agency execution of the schedule program.

The second observation that I would like to make is with respect to the
paucity of data. We\'ve been casting around now for five meetings
looking for data. And I applaud my fellow Panel members in that. I tend
to like to have data-driven conversations myself. I prefer not to
speculate from what I call a perch of ignorance.

But the bottom line is, data on execution of schedule, task order, and
delivery order of words, does not exist, and will never exist in
meaningful form.

The reason I say it will never exist in meaningful form is that we
cannot build a database big enough to log every task order, and the
relative information about every task order that would allow an informed
user of that data to discriminate and categorize amongst the information
and reach any kind of a solid conclusion.

Just anecdotally, we had a little exercise in my activity, and we were
simply trying to go through and establish where the spend was for
contract support services in a couple of fiscal years. Who owned the
spend, whose money it was. And I will tell you from personal experience,
it took a hand over hand analysis of almost 30,000 transactions to get
any meaningful data.

When you look at the number of orders executed against GSA Federal
Supply Schedule Contracts, I doubt the nation is willing to invest the
kind of resources to do that kind of analysis on a continuous basis, nor
do I personally believe it would yield enough benefit to be worth it.

So we are in a position, as many contracting officers are often in, in
making very, very hard decisions with less data than we would like to.
Most of us who have held a warrant, know that it\'s a good day if you
have 50 percent of the information you\'d like to have, before you make
a decision.

So, I\'d like to suggest to the Panel that there are really three
questions that we need to focus our work down on. The first is, given
that competition takes place at the task order level, does a fair and
reasonable price at the contract level really matter?

I don\'t have an opinion on that. I have an open mind on that. But I
believe that that\'s a threshold question that we have to address. If
you assume that pricing at the contract level really matters, I think we
have to answer the question, are the methods GSA uses to determine and
maintain a fair and reasonable price, adequate? Are they adequate.

We heard testimony from GAO this morning. They made some observations
with respect to tools in the toolbox to establish and maintain the
adequacy of that pricing. We actually heard \-- we also heard from them
that we could perhaps make better use of these tools.

So, I think the second question that we have to answer, is if you
believe contract pricing, or pricing at the contract level matters, are
the tools that GSA uses to develop and maintain fair and reasonable
pricing, adequate. Either in their design or their execution.

The third question is, if it does matter, if contract pricing above the
task order level does matter, how can we help GSA shape policy to
establish and maintain fair and reasonable prices that is superior to
the policy they use today?

So, my observation halfway through meeting number five is, that we\'ve
got those three questions to address. And what I\'d like the Panelists
to do is, to kind of take some time at lunch, take some time during the
afternoon sessions as they listen to additional testimony, and be
prepared to discuss those issues.

Whether they believe those are the key issues \-- if you don\'t believe
those are the key issues, what are the key issues, and to start to have
a dialog about a plan of work to prosecute a final report of deliverable
to the Administrator.

So with that, it is about quarter to twelve. Let\'s reconvene at 1:15.
Hopefully Mr. Patchan from GSA, from the IG, will be here then. If not,
we will have a little bit of free-float in the schedule and we will hear
from him at 1:30. Thank you.

(Whereupon, the afore-mentioned proceeding was at lunch break from 11:48
a.m. to 1:18 p.m.)

A-F-T-E-R-N-O-O-N S-E-S-S-I-O-N

1:17 p.m.

CHAIRMAN BRANCH: Okay. I have 1:17, and it appears that we have a
quorum. So, we\'re going to get started.

Again, with a view to hearing from as many stakeholders as possible,
we\'re going to continue with that the early part of the afternoon. So,
we have Andy Patchan who is the Assistant Inspector General for Auditing
of GSA to give us his perspective on their roles with respect to the
multiple order schedule program.

Andy, thank you for coming and presenting today. And I will turn the
floor over to you.

MR. PATCHAN: Well, thank you. Good afternoon. I\'m Andy Patchan,
Assistant Inspector General for Auditing. And with me today is Jim
Corchrane, our Deputy Assistant Inspector General for Audits, and Dick
Isley, our Senior Contract Auditor.

I\'m happy to be able to speak to you today about the MAS program, and
the work we do. And some of our thoughts on the MAS program, I know
specifically you\'ve been discussing the most favored customer price and
the price reduction clause, so we\'re happy to be here today to talk a
little bit about that, and share some of our thoughts.

Let me start out at the outset by just saying that we identify
deficiencies, and we do lots pre-award audit reports and post-award in
the MAS program. But that doesn\'t take away from the value of the MAS
program as we see it, as a centralized procurement vehicle for the
Government.

I\'m going to get into some of the details about that, but the MAS
program itself provides, an expedited procurement vehicle for the
Government to use without a lot of the competition requirements in going
through all the full and open competition processes that would otherwise
have to be worked through.

So, we do see a lot of advantages to the program. As an audit
organization, we also see it\'s useful and very important to provide
oversight of that program. So I want those two things hopefully to come
through as we work through the slides.

I guess I have about 20 slides or so, and I\'d like to kind of go
through them and explain how we do our work, and some of the things we
find, some of our thoughts, and then open it to questions that you may
have. We\'d be happy to answer those questions.

This is what I\'m going to talk about, a little bit about the MAS
program. Kind of how we do our pre-award reviews and our post-award
reviews, and then some examples of typical things we find on the MAS
program, and particularly with regard to Most Favorite Customer pricing
and price reduction.

The 1949 Property Administrative Services Act established GSA as a
centralized procurement agency for the Government. In the legislation,
enabling legislation itself, it talks about what theretofore had been
individualize procurement programs within each agency.

And it talks about trying to centralize those procurement programs in
one agency, and thereby leverage the Government\'s buying and purchasing
power to bring about the best prices.

Since at least 1982, GSA has had a policy statement establishing most
favorite customer pricing as a negotiation objective. I think the
Panel\'s already talked about most favorite customer pricing, okay. So I
won\'t go into detail on what that means. I sense that you\'ve talked
about that.

And then nationally under the GSA Acquisition Manual, Acquisition
Regulations, GSAM Part 538 specifically directs COs to use most favorite
customer pricing as a negotiation objective, and to insure that price
reductions are passed on \-- price reductions, that the vendor has made
with their commercial customers, are passed on to the Government as
appropriate throughout the typical five-year life cycle \-- five-year
contract cycle.

On the FAS website, with regard to MAS, it talks a little bit about most
favorite customer pricing, and price reduction and kind of the purpose
of the MAS program. And in reading the website, I think it\'s important
to point out a couple of things that kind of themes related, the website
hammers home.

And one of the themes that the MAS program articulates is, that it is
the objective to achieve the Government\'s \-- the contractor\'s most
favorite customer pricing and discounts, and thereby giving the
Government the best prices in comparison to other of the vendor\'s
commercial customers who buy under similar terms and conditions.

And it also talks about volume discount pricing, bringing the
Government\'s buying purchasing power to bear on the individual
purchases \-- on the MAS price, and therefore carry that across in the
procurements made on the MAS program.

The \-- as I\'m sure the Panel\'s probably discussed, I hope I\'m not
repeating too much of what you already know. But as the website on MAS
also discusses, once vendors get on the MAS program, that really
substitutes for the full and open competition that would otherwise have
to take place in order for the Government to contract with the vendor.

So, we feel that the MAS program is a very unique opportunity for the
Government to have a centralized procurement program that individual
agencies can order supplies and services against, rather than competing
their own procurement at what could be fairly significant administrative
costs and also time lags. And that\'s consistent with the GSA enabling
statute and the 49 Property Administrative Services Act.

I want to talk a little bit about kind of what we do. We\'re the OIG, of
course. We do pre-award reviews and post-award reviews of contracts
under the MAS program. And a pre-award reviews can look at an initial
contract before its awarded, or before an option, typically a five-year
option, is awarded to the original base period, also called an
extension.

Any information we provide is for the CO to provide them with important
information to use in contract negotiation. I want to point out that we
don\'t award contracts for the MAS, the OIG. We don\'t direct the
negotiations with the vendor.

What we do is provide information for the CO to use in the negotiations,
and we\'re available to answer questions the CO may have during
negotiations and sit at the table and respond to vendor questions on our
analysis and so forth. But our role is an advisory one in providing
information to the CO on our pre-awards done.

On our post-award side, we look at whether or not the contract that the
vendor has under the MAS program, is complying with terms of conditions
of the MAS. And that can include everything from whether or not the
Government is being properly billed at the schedule price, if the
contractor is submitting the appropriate industrial funding fee based on
the sales, and whether or not the contractor has been passing on price
reductions as defined in the contract with the vendor under MAS, that
it\'s given the commercial customers that are used as a basis for award.

A pre-award review is of a company\'s proposal or offer to the
Government. Under an extension, after the five-year base period, the
vendor again offers or provides an offer of pricing to the Government.
And that is what we would look at in terms of whether or not that
pricing represents most favorite customer pricing and fully discloses
the commercial pricing that they have for their commercial vendors.

And then our pre-award review of course is done prior to negotiation and
award, so that\'s available to the CO to use in negotiations and try to
get the best price for the Government. The majority of our pre-award
reviews are conducted for contract extensions.

Many of the \-- the majority of the MAS sales dollars are with vendors
who\'ve been under contract for a period of time. So the majority of the
sales actually are wrapped up in these contract extensions.

The process that we actually go through is fairly hones among our
auditors out in the field in terms of the objectives of the review. We
look at whether the commercial sales practice data that the company
submits with its offer is current, accurate and complete.

We also look at whether the company\'s systems for monitoring and
billing the Government, whether the controls are adequate to ensure that
the provisions of the contract are properly carried out, including price
reduction provisions and billing terms.

We also look to see whether or not the company has adequate controls to
insure that it will administer the contract and remit appropriate
industrial fee payment based on its sales.

On a services contract, we look at whether or not the employees are
qualified, the labor categories that the vendor is proposing, and we do
that by sampling, taking a sample basis of individual employees for the
company to see if it matches up with the labor categories for which
they\'re identified.

And we also look to see whether the company has adequate controls to
ensure its system will properly aggregate labor hours, materials, other
direct costs and so on.

Some of our typical findings include that the CSP is not current,
accurate or complete. Which means, that there\'s sales information that
the vendor is not providing, has not disclosed to the Government.
Oftentimes, this includes most favorite customer pricing. Some of the
best clients it has in terms of discount, has not been disclosed to the
Government. And that other discounts, terms and conditions, that are
better than what GSA is getting, are not included in the disclosure.

We also typically find that controls and procedures to properly monitor
the price reduction and billing provisions are not adequate in the
vendor\'s systems, and that the controls are not adequate to insure all
schedule sales are identified and therefore reported at a correct IFF
remittal.

On the services side, we identify oftentimes that employees do not meet
the education and work experience as they\'re billed under the contract,
and that the commercial price list the vendor has provided, does not
include all pricing to all vendor commercial customers.

We also identify often that the labor categories under the MAS program
do not map to the vendor\'s labor categories, I\'m sorry, with its
commercial customers, do not map to the MAS labor categories, making it
difficult for us to insure the Government is getting the best price best
on commercial pricing.

A lot has been asked, I think, of the OIG and in the past volume, how
often do we find problems, and you know, how much is anecdotal, how much
is statistical. And it\'s, I think difficult to put a number or a
summary as to what kind of problems we find in the MAS program, versus
the overall MAS program.

But I do want to give you some statistics to give kind of a feeling as
to the types of problems, the frequency that is, with the problems we
find, so you have some indication of the prevalence.

About 70 percent of our audits in 2007 we found the CSP was not current,
accurate and complete. Which meant that there was pricing information
from the vendor to its commercial customers that the Government was not
being told about.

You see a little blip there in terms of the next category. We found
about 71 percent of the audits where GSA was not offered most favorite
customer pricing. We did about 70 \-- just under 70 audits, pre-award
reviews, in 2007. So, before somebody asks later why is there a one
percent difference, just to explain that, sometimes we find that the
Government does get information from the vendor that is current,
accurate and complete, but we\'re still not offered most favorite
customer pricing. That\'s the reason for the blip there.

And there are about \-- I don\'t have a pointer, but about half the
cases, we find that the price reduction clause that\'s proposed is an
ineffective price reduction clause. Meaning that it\'s very narrow in
terms of the price reductions to similar customers on the commercial \--
on the vendor\'s commercial side, that would be passed on to the
Government. It\'s very narrow.

And then we find on a pre-award reviews, indications that there are
unreported price reductions that have been passed on to the vendor\'s
commercial customers, that was not disclosed to the Government. And
about a third of the cases where the vendor\'s systems weren\'t adequate
to insure price reductions were passed on, that there were no
over-billings, and the appropriate industrial funding fee was remitted.

Now I want to point out that the audits we do of vendor contracts are
based on a variety of risk factors. It includes contracting officer
requests. It includes larger dollar volume contracts. Typically, we
won\'t look at an extension if it\'s not at least 25 million. We try to
apply our scarce audit resources to the higher-risk contract, high-risk
contracts.

But we don\'t go out and just identify those contracts that we have an
indication where there are lots of deficiencies. We do kind of give a
broad brush approach to the contracts in terms of identifying those that
we\'ll look at.

This is a chart that kind of summarizes our semi-annual report over the
last few years that we submit to Congress every six months. And this
shows the achievements that we\'ve had in terms of the work we\'ve done
on the MAS program, what we\'ve identified.

As you can read the columns, the last few years, we\'ve done roughly 70
or so audits, identifying close to a billion dollars a year in
recommended cost avoidance for the contracting officers to use in
negotiation.

On the post-award side, we\'ve performed about a dozen or so post-award
audits. And you can see the recovery amounts that have been actually
achieved by the Government, real dollar savings, in terms of either
administrative recoveries that the CO has worked through with the
vendor, such as the incorrect industrial funding fee remitted, as well
as DOJ settlements with vendors for defective pricing, and related types
of deficiencies.

And these amounts don\'t include the \$98 million Oracle PeopleSoft
recovery from 2006. So, we are very proud of our accomplishments and
what we\'re able to give to the contracting officer for them to use in
negotiations.

Some examples again are the typical MAS findings we identify on the
pre-award reviews. The MSC was not disclosed by the vendor, and we
identified it in the audit. Oftentimes, the contracting officers on the
majority of our audits, we find that they don\'t achieve most favored
customer pricing, but we\'re \-- you know, we\'ve been pleased that the
results we have provided to the COs, in our pre-award reviews, are used
in majority cases to drive down the costs lower than what the vendor
provided as most favored customer pricing in their CSP data.

And we also find oftentimes that the price reduction clause, as I
mentioned earlier, provides really little price reduction protection for
the Government over the period of the contract extension.

I was trying to think of an example that we could provide the panel in
terms of what we typically find on audits in terms of pricing. And I
think we went through maybe nine or ten iterations, and every time we
came up with something, it was still to close to proprietary data to
give me a comfort level.

So, what we have here is, no relation to any particular vendor out
there, or any specific case. But I wanted to give you an idea of
typically what we find. I mentioned in the beginning that the MAS
program, you know, major tenants of the goal of achieving most favorite
customer pricing, establishing fair and reasonable pricing on the
schedule that agencies can use, and the centralized procurement and
volume purchasing power objectives of GSA in general, tilt the program
towards trying to achieve the best pricing for the Government overall on
the MAS.

What we typically find is, the volume purchasing power that the
Government has, does not really get put into play as much as it could be
on the MAS program. And this kind of gives you a typical example of what
we find.

So, typically, we would find, on the first row there, that the most
favorite customer pricing, most favorite customer is getting about 50
percent discount off list prices.

The MAS, the prices offered to the MAS, are 20 percent discount. Now, we
do find sometimes but not frequently, that there is a client agency BPA
during the terms of the period before the extension, where they\'re able
to drive a little bit better discount than the MAS price.

The problem with the different discounts is, looking at the annual
volume in comparison to the discount. So, you can see the MFC customer
in this case, had annual sales volume of \$10 million and was getting a
50 percent discount.

But the Government was having \-- the Government achieved annual sales
volume of ten times that amount, but got a much lower discount. The
issue there is, we feel, the Government isn\'t able to leverage fully
its most favorite customer pricing and it\'s volume purchasing power in
negotiations and leaving it up to the client agency, in those cases
where they can marshal resources at their own expense, to try to drive a
BPA, further.

Just to kind of elaborate a little bit on the last example. Oftentimes,
GSA is the vendor\'s largest customer. More often than not, by large
orders of magnitude. So, it\'s not just a, we have 11 million, and the
most favorite customer price is 10 million. It\'s more like the example
in the previous slide.

Typically, the price reduction clause doesn\'t provide the Government
\-- provides Government little or no protection of any price reductions
would be passed on to the base of award customers during five-year
period.

As a result, the burden\'s really on the individual agencies, on an
individual procurement by procurement basis, to try to negotiate more
favored discounts at the order level.

The only problem with that is, individual agencies are trying to achieve
this on individual procurement, and not able to fully leverage the
Government\'s purchasing power. Which results in millions of dollars
that we\'re not capturing in terms of the MAS price list.

On the services side, I know the Panel\'s talked I think at length about
differences between products and services. Services, as you know, I
think you\'ve probably discussed services, are becoming an increasing
percentage of MAS contracts. And they\'re different than products.

What we\'re increasingly finding is, many vendors don\'t have commercial
sales on services. So, we\'re in a situation where we\'re trying to map
MAS categories to vendor\'s commercial labor categories that don\'t
really map, therefore, unable to look at their commercial pricing as
compared to GSA most favorite customer pricing.

And typically then, as a last resort, we work with contracting officers
to do what we call a cost build up analysis, or cost analysis. And when
we do the cost analysis, and again, under our pre-award reviews, this is
information for the COs. We\'re not awarding contracts.

So we provide information to COs identifying the cost the vendor has in
terms of base salary costs, overhead, G&A and then profit. So that the
contracting officer will know how much room they have for negotiation
based on profit. And oftentimes we find, that the profit can be a fairly
large percentage of these labor rates that are being offered to the
Government.

And we\'re still in the process I think, of working with COs to identify
how best to work with our cost analysis in negotiating. I think the
contracting officers are more used to commercial comparisons. But
sometimes, that\'s difficult to do when the vendors don\'t have
commercial sales, particularly on the services side.

We also find on MAS services, I guess I\'ve kind of beat this to death,
but we typically don\'t find a lot of price reduction protection in the
clauses that they\'re offering for the contracts. Kind of an interesting
quirk, I mentioned differences between services and products is, when
contracting officers review the vendor sales, if the vendor sales
include primarily Federal sales, under the GSAM, Federal sales cannot be
used as price reduction trigger for services contracts, which kind of
puts you know, the GSA contracting officer in the hot seat of trying to
figure out, well, how can you assure price reduction then through the
life of the five-year extension, becomes difficult.

And again, this puts the burden on the individual agencies on their own,
on an individual procurement-by-procurement basis to try to negotiate
their own best pricing to try to achieve most favorite customer pricing
or lowest cost on the part of the contractor\'s offer.

Also wanted to talk a little bit about resellers. Resellers are a big
part of the MAS program. What we typically identify is that the
resellers acquisition cost that is disclosed to the Government doesn\'t
accurately reflect their true acquisition cost.

And there have been some court cases and settlements on this where the
reseller receives rebates from the manufacturer, but those aren\'t
passed on to the Government, as well as an acquisition cost that
doesn\'t really represent the acquisition cost they incur.

And then in summary, I just wanted to talk a little bit about \-- give
you kind of my summary of some our thoughts and concerns and what we
find on the MAS program. We audit about 10 percent of MAS sales dollars
each year, roughly 70 or so pre-award contract audits.

The other 90 percent of the sales dollars, we don\'t cover. We have
limited audit resources, and we\'re covering a lot of ground at GSA. We
look at I.T. security, we review the financial statement audit and so
on. So we only have so many audit resources available.

But we are concerned about the 90 percent or so that we don\'t audit,
and what kind of pricing the contracting officer is achieving on the 90
percent. Oftentimes when we identify most favorite customer pricing
under the audit, it\'s not achieved by the contracting officer.

And I think the contracting officer\'s are working hard to get the best
pricing they can. And I think that\'s kind of a thorny issue. But
there\'s still a lot of room that we see in our audit where the
Government could go farther, we believe, on pricing on the MAS.

And again, we feel that the MAS program does give the Government
opportunity to centralize its procurement for many commercial services
and products, to bring the Government\'s volume purchasing power to bear
on driving down the best prices for the Government, rather than letting
\-- rather than leaving it up to the client agencies to negotiate their
own procurements.

The purpose again, as I started out in the beginning by saying, the
purpose of the 1949 Act that set up GSA was to consolidate that
procurement in GSA and to leverage the Government\'s volume purchasing
power to achieve the best prices.

So we feel that what our audits show is, there\'s a lot farther we can
go and a lot more dollars can be saved by really driving the vendors
down to most favorite customer pricing, particularly when you consider
the large dollar volume purchasing of the Government.

The individual client agency purchases really span the spectrum, if I
could use laptops as example, one laptop to 1,000 laptops. And if the
buy is big enough, as I showed in that example of the typical example of
MAS with the 50 percent, 20 percent and 30 percent, if the buy is big
enough, then you could argue that the Federal agency maybe can do a
better job in negotiating better pricing.

However, the individual Federal agency won\'t have any data from the
vendor in terms of what they charge commercial customers. And again,
it\'s putting the burden on the individual agency of trying to determine
the best price for them, which is contrary really to the enabling
statute setting up GSA, and is also less attainable, given the fact that
the individual procurement can\'t really bring the volume purchasing
power of the full Federal Government to bear.

And then you have lots of cases where you have the onesies and twosies,
computer buys, for example, where it\'s not clear to us that the agency
has any ability, the client agency has any ability to drive down the
price on their own.

I think that\'s pretty much what I wanted to present, some of our
thoughts and how we do work. And I\'d be more than happy to answer
questions. I may have to consult my experts there, Jim Corchrane and
Dick Isley, depending on the question.

CHAIRMAN BRANCH: Okay. How about Debra and then Tom.

MS. SONDERMAN: Thanks for being here this afternoon. I have a clarifying
question on your statistic. Do I understand from the way you presented
your information that you do about 70 audits a year?

MR. PATCHAN: Seventy pre-award reviews, that\'s correct.

MS. SONDERMAN: Oh, excuse me, pre-award reviews.

MR. PATCHAN: Roughly, yes.

MS. SONDERMAN: And that covers 10 percent of multiple award schedule
sales?

MR. PATCHAN: About 10 percent, that\'s correct.

MS. SONDERMAN: So that means 70 individual schedule holders out of
15,000?

MR. PATCHAN: That\'s correct.

MS. SONDERMAN: Account for 10 percent of the actual sales through the
schedules program?

MR. PATCHAN: Yes. We try to target those higher dollar contracts.
Really, we won\'t \-- absent a specific contracting officer request, we
really don\'t prioritize anything under 25 million, just because the
risks are greater with the higher dollars and we have scarce audit
resources.

MS. SONDERMAN: Right. And can you give us some sense of the break out
between services of the reviews that you do, is it, you know, roughly
half of services, and half of products, or does it depend on the year?

MR. PATCHAN: Jim, do you have specifics? I was going to say half and
half. Is it a little higher than that?

MR. CORCHRANE: In terms of numbers, it\'s about half and half. In terms
of dollars, I don\'t know what the dollar distribution is.

MS. SONDERMAN: All right. So would you recommend that we keep the most
favorite customer policy? You\'ve expressed concern that it doesn\'t
actually \-- we don\'t actually seem to be drawing any benefit from it.
And so, I understand that there is \-- Inspector\'s General have a
certain role of independence, and so sometimes it\'s difficult for you
to make recommendations to a group like this.

MR. PATCHAN: Well, no, that\'s a very good question. That\'s a fair
question. I would answer it this way.

We see great value in the MAS program. It\'s a way that GSA has
centralized the procurement for many client agencies, if not all client
agencies for many services and products across Government. And GSA in
centralizing that procurement, those procurements, it\'s able to
leverage the volume purchasing power of the Government to drive toward
most favorite customer pricing and price reductions.

The down side, as you point out, they don\'t always do that. So the
program is well-intended. And there\'s a lot of contracting officers
working very hard to do that. A \$36 billion program, it\'s not going to
be a perfect program. And we do feel that our audit resources are
well-used in overseeing that program.

So I kind of use the, you wouldn\'t want to throw the baby out with the
bath water, so-to-speak. If you have improvements you need to make in
the program, I think virtually every Federal program can be improved.

But that doesn\'t mean that the program\'s objectives are not sound. We
believe the program\'s objectives are sound.

MS. SONDERMAN: Right. I guess I was just trying, if the most favorite
customer policy isn\'t functional, I mean, if in fact we\'re not able as
a practical matter to implement it, do we need to ditch \-- keep the
multiple award schedule program, but ditch that particular policy as a
matter of policy. You know, we often find ourselves in situations where
we create a policy and then we can\'t follow it, and our auditors come
and say, Well, you\'re not even following your own policy. So, we sort
of shoot ourselves in the foot.

And so I\'m asking for your advice about whether it, keeping the goal of
moving toward \-- it\'s fine to have that as a program objective. I
guess I\'m asking a more specific question, your opinion about a more
specific issue.

MR. PATCHAN: I would look at ways where GSA can improve its ability to
drive close to most favorite customer pricing. I think there are
strategies that can be employed to do that. I think there\'s folks in
this room you know, who have \-- probably have some good ideas, maybe
even outsiders who are not intimately, or may be coming out, very
intimately familiar with the MAS program.

Might have some ideas about how to do that at the contracting officer
level. And you know, like most of the Federal Government, you know, I
think we suffer a little bit from downsizing over the years. I mean,
this has been in the press, retirement wave and so on.

And I think there\'s probably more we can do too on the contracting
officer level. What we see is very hard working people out there. And
you know, there could be training, extra training provided to COs and
you know, other types of time and strategy spent with them to really
drive further to the MFC pricing.

The workload, I don\'t have this in my slide and maybe I\'ll just do
general statistics. But we\'ve seen the workload on the average
contracting officer increase either three or four times from the
mid-90s, when the MAS program was much smaller. So that\'s something
that if we could find ways to rectify that, in addition to the erosion
across Government really, of skills and abilities, with the retirement
wave and downsizing, to find ways to kind of you know, right that cart.

And I think GSA can do better towards achieving MFC, but you know, I do
want to just re-emphasize that on our pre-award reviews, we work very
closely with COs. And we find many COs who actively request our work,
and who are very appreciative of the analysis we do. And use that
analysis, and sometimes consult us as appropriate during negotiations to
really lower prices. So they do get close to MFC. You\'re not always
going to be able to attain MFC.

But I do believe it\'s a well-intended program, and improvements can be
made.

CHAIRMAN BRANCH: Tom, and then David.

MR. ESSIG: I think this follows directly from Debra\'s question, it
concerns MFC pricing. First to clarify, to make sure I understand. Your
projected savings that you\'ve shown, includes savings both on products
and services, correct?

MR. PATCHAN: That\'s correct, yes.

MR. ESSIG: With 70 percent then of GSA schedules now covering services,
I think it\'s very important for me to ask the next question. One of our
speakers this morning indicated the price reasonableness determinations
for services should cover currently only labor rates. And I believe if
calculations of projected savings using MFC would have done the same.

He also said, however, it really should consider are rates, hours, and
quality. First off, do you agree with that. And if so, how would that
impact your projected savings?

MR. PATCHAN: I mean, probably about three or four questions in that one.
Let me see if I can dissect them.

I guess I would start off by saying, within services contracts, the
information we provide to the contracting officer is for them to use in
determining what the costs are to the contractor. Some costs that are
unallowable for example, bad debt and advertising, that can\'t be passed
on to the Government. And then what the contractor\'s profit margin is.

We certainly don\'t recommend or tell the CO, again, we\'re not awarding
contracts, what the profit margin should be. But if we\'re able to tell
the CO for Engineer I, this is the labor base salary costs for their
Engineer I, and these other costs represent G&A, and so on, and then
here\'s the profit margin, then the contracting officer has important
information with regard to what their margin is for negotiation.

With regard to specifics how we calculate cost avoidance, and how that
would be changed, can you repeat that, make sure I just have your
complete thought?

MR. ESSIG: Actually, there\'s a related question here. We\'re talking
about commercial products, commercial services. Why do I care what the
profit margin is if I\'m getting a fair and reasonable price? And when
I\'m getting a fair and reasonable price, do I really want to look
solely at one of those three elements of the value?

Or, do I want to look what the final price is, and what I\'m getting for
that price from a vendor?

MR. PATCHAN: Well, I think you have to look at what the relevance of
this cost and these factors are to the individual agency and for the
taxpayer. And if the contracting officer knows that the profit rate is
30 or 40 percent, which sometimes we see, then the contracting officer
has the ability to know that he or she can negotiate that profit down to
obtain the best pricing they can for the Government.

They at least know they have some of that wiggle room in negotiations as
opposed to not having that information and just accepting the vendor\'s
disclosures as indicative of the offered pricing is the best pricing
they can get.

MR. ESSIG: Okay. Also, even within individual ranges, these skills set,
the quality level you get can vary from individual to individual.

MR. PATCHAN: True.

MR. ESSIG: I have two scenarios. Scenario A, \$15 an hour, it takes 20
hours to get the job done. Scenario B, \$20 an hour, it takes 15 hours
to get the job done. Why is the one with the lower rate better?

MR. PATCHAN: Well, I guess that depends on how we determine how many
hours it takes to get the job done.

CHAIRMAN BRANCH: David, and then Judith.

MR. DRABKIN: The roles have turned, Andy.

(Laughter)

MR. DRABKIN: Normally, Andy\'s in my office asking me the questions, and
I\'m on the hot seat.

MR. PATCHAN: Here\'s your chance, David.

MR. DRABKIN: Better take my best shot. I just want to make sure it\'s
clear, for everybody, most favorite customer pricing is not driven by
any statute within GSA, is that right to your knowledge?

MR. PATCHAN: Well, we understand that\'s specifically articulated in the
GSAM/GSAR.

MR. DRABKIN: Right, but it\'s not statute.

MR. PATCHAN: Not Federal statute, right.

MR. DRABKIN: And in the GSAM, that\'s GSA\'s regulation?

MR. PATCHAN: That\'s correct.

MR. DRABKIN: And that\'s a regulation we created?

MR. PATCHAN: That\'s right.

MR. DRABKIN: And we adopted that from the practice that the schedules
had, even before FASA and we moved to the commercial item rule.

MR. PATCHAN: Yes.

MR. DRABKIN: So, it\'s been around for a while.

MR. PATCHAN: Yes.

MR. DRABKIN: Second, when you look at the most favorite customer pricing
approach, as I recall, there\'s nothing in it about profit. It\'s
strictly based upon pegging a customer who the seller has identified as
being similar to the buyer and pegging the price for that buyer, that
commercial buyer, or other buyer to the Government customer, right? It
has nothing to do with profit?

MR. PATCHAN: If I can elaborate. MR. DRABKIN: Well, first I\'d like \--
could you answer whether it\'s true, it has nothing to do with profit?
Then you can elaborate.

MR. PATCHAN: I can\'t answer directly it has nothing to do with profit,
so I elaborate.

MR. DRABKIN: Okay. All right.

MR. PATCHAN: I mean, on the services side, if there were commercial
sales for the services with that vendor, then the most favorite customer
pricing could apply if you can map the labor categories.

MR. DRABKIN: Right.

MR. PATCHAN: Oftentimes, when services were first introduced, you know,
into the schedule, we saw more of that initially. But increasingly, we
don\'t see commercial sales of the vendor. There\'s a lot of vendors
that just go business with the Government, particularly on the services
side.

And so, as a result, we don\'t have those commercial sales to compare.
So that\'s \-- you know, we work real closely with contracting officers
and I mean, we\'re the OIG and you know, we\'re not on all the
contracting \-- all FAS managements, you know, Christmas party\'s
invitations and stuff, and that\'s okay. Because \--

MR. DRABKIN: You used to be.

(Laughter)

MR. PATCHAN: But you know, we have different views, and that\'s the way,
you know, Congress has set things up. But we do work with contracting
officers to try to help them understand under the FAR, we can do cost
build up analysis in support of their work, if there\'s no other
reasonable means to identify the best pricing for the Government.

MR. DRABKIN: Yes. But if the goal is to obtain the most favorite
customer pricing, and most favorite customer pricing is made \-- the
determination is made by a comparison to the customers of the seller,
the fact that the seller is making a lot of profit, or a little profit
has nothing to do with the application of the most favorite customer.

Now, it\'s informative, but in terms of simply following the application
of most favorite customer, how much profit the seller makes is not
relevant, is that right?

MR. PATCHAN: Well, if I could answer that two ways. I would agree with
you that if a vendor \-- if the services vendor has no commercial sales,
then obviously, you don\'t have a commercial customer that you can draw
parallels with to get most favorite customer pricing.

I would also agree with you that it\'s not the OIG\'s role, and
certainly we don\'t assert that it is our role, to determine what the
profit should be for the \-- on the contract.

I would say this from strictly a taxpayer perspective, you know, I would
hope that our contracting officers are looking at that information
that\'s either disclosed or that we identify in the audit for them in
terms of profit, so that as opposed to having some pre-ordained amount
that somehow is the maximum, they do drive the best price in the
Government that they can, which may mean a reduction in the offer profit
that the vendor comes in with.

MR. DRABKIN: Right. But that could be done, could it not, by looking at
either how that company prices among all it\'s customers, or looking how
similar services or products are being sold by other customers in the
marketplace. I mean, in the end, we care about the price we\'re paying,
not how much profit the company\'s making, right?

MR. PATCHAN: Well, that\'s true. I mean, the price at the end of the day
is what our focus would be on and I think the contracting officer\'s
focused.

I think if I can elaborate again, I think what you\'re driving at is,
the most favorite customer objective does have a different application
to services, particularly if they don\'t have commercial vendors. I
would agree with you. I would probably disagree a little bit as to
whether the determination for best pricing for that vendor with no
commercial sales and services should be driven by simply just what they
charge other clients, or should we see how we can get the lowest price
we can for the Government regardless what they charge their average
client.

MR. DRABKIN: But actually, you don\'t get my point. Because my point is,
profit should have absolutely nothing to do with how we price. Price
should have everything to do with how we price. And instead of doing a
\-- if you cannot make a satisfactory determination within the
company\'s pricing itself, then we should be looking at the market to
see what those same, or similar services are being sold for in that
market.

Now, given we\'ve already talked about, there\'s been a lot of testimony
that it\'s kind of hard in the services arena to compare Senior Systems
Engineers across a spectrum of companies who sell us Senior Systems
Engineers.

But that\'s another issue. But my concern is that in your presentation
you talked about profit, and cost build up, and quite frankly, it\'s not
helpful as a contracting person buying commercial items, I\'m concerned
about price. I want to get the best price for the Government.

But I don\'t want to beat this to death. I do have one other area I want
to talk to you about. Now, you said you did 70 pre-award audits a year,
and that\'s up about 20 or 30 from where you were before FSS started
giving you a supplement to do additional.

But what wasn\'t clear, and may not be clear to my colleagues, is what
you called a pre-award audit, is actually the audit that you do before
an option is exercised. It is not the audit that would be done on a new
company that is coming in asking for a GSA schedule. Is that generally
correct?

MR. PATCHAN: Well, I would say that the vast majority of pre-award
reviews are done for the extensions. But we have done them on new
contracts in the past. But if I could just elaborate, David.

MR. DRABKIN: Sure.

MR. PATCHAN: I\'m trying to remember when the Evergreen contract
started, Jim do you \-- mid-90s or so I guess. Right. MR. DRABKIN: \`98
I think, \`99.

MR. PATCHAN: Many of the vendors who were on schedule then, I guess went
into the base year and then went into this 20-year period, base year,
five-years plus three additional five-year extensions, possibly.

So much of the schedule dollars are tied up in the extensions. And
that\'s where we see the best use for our scarce resources on the big
dollar contracts, rather than a new contract, which we you know, it
could pan out to have zero sales the first year, and we would have taken
resources away from \$100 million contract.

MR. DRABKIN: Right. And I\'m not arguing about how you\'re choosing to
allocate your resources. That\'s your job, you\'re the IG. But what I am
a little concerned about is that we have contractors on the schedules.
This is not your fault. This is our fault. Who, got a schedule contract,
but who at the time we awarded the schedule contract to them, had no
system in place for tracking their sales, so that they could demonstrate
at the end of the five-year option period, what their sales were so they
could answer the question, did we get the most favorite customer pricing
based upon their overall sales over the period of performances \--
actually not five years, the four years, because you begin the audit in
year four, actually, or at least you\'re supposed to.

So, I mean, wouldn\'t it make more sense for us to spend our time making
sure that contractors if they were on the schedules, had a system for
collecting this data, that the system was reliable in terms of its
ability to collect the data, spit it back out?

And then when you came to do your review, it would be very easy for you,
instead of taking a year to two years, in some cases even longer, with
the big vendors where the big dollars are at risk?

MR. PATCHAN: You and I have talked about this some.

MR. DRABKIN: We have.

MR. PATCHAN: Yes. I guess I would answer that in a couple of ways. From
an audit perspective, overall IG audit standards, the ways you do
audits, audit principles, it\'s good to have a mix, you know. It\'s good
to have work looking at actual compliance and harm to the Government.

It\'s also good to have some work looking at preventive things underway
and you know, the way the agency develops controls and so on. And we
have a whole \-- I touched on it a little bit in terms of work we do in
the I.T. of financial statement audits that we have. We have whole
others, groups of auditors that do what we call internal audits, which
aren\'t related to contract audits.

But we do reviews of FAS and we have a couple reviews that we\'ve done
of the MAS program overall and some of them are still in place. But I
guess I just, you know, if we had double the amount of auditors, maybe
the Panel can help us with that, more auditors.

(Laughter)

MR. PATCHAN: You know, and seriously, if we had more auditors, I think
that\'s an area we could look at. It\'s just with the scarce resources
we have, it\'s hard to \-- it would be hard for me, I think, to take
more auditors away from pre-award reviews and post-awards where we
identify almost a billion dollars a year in cost avoidance for the
Government and you know, another 30, 40 million in recoveries, and put
them on audits looking at how vendors are getting their systems underway
as they get on the contract.

I\'m not saying it\'s not important, it\'s just Assistant IG, it\'s hard
to make that determination. And if I could just add, there are
initially, back in the \`90s, you know, we were doing more in the order
of 100, 150 pre-award reviews each year when the program was down
around, I don\'t know, \$5 or \$6 billion dollar size. And now of
course, it\'s exploded and we\'re not \-- we don\'t even have our audits
up to where we were when the program was much smaller.

So, we\'re trying to cover a huge amount of ground with not many people.
Did you want to add?

MR. COTTON: Andy, I think it\'s also important to point out, and I
don\'t know if this was discussed prior to us being here today, but
there is a whole group within the agency that work for the Federal
Acquisition Service, the Industrial Operations Analysts, whose really
primary function, in fact really, their only function is to go out and
visit the vendors throughout the contract period, to insure that the
systems are in place to check things like \-- and it\'s really the
controls that they\'re looking at in the systems: Are the sales being
properly compiled, are they being reported to GSA, is the correct
industrial funding fee being paid to the agency, are our customers being
billed in accordance with the terms and conditions of the contract.

And this is a large group that visits many, many more contractors than
we have the opportunity to visit, and their function\'s very valuable.
In fact, the results of their visits are reported to the contracting
officer to take action if in fact there are deficiencies that are
identified.

MR. DRABKIN: I guess my only last point, and then I will stop beating
this horse now, or, for now, and that is, wouldn\'t it make more sense
from the contract management perspective, for the contracting folks to
have a greater pre-award, truly pre-award \-- I\'m not talking about
what you call pre-award, which is actually a post-award review, to see
whether or not they did what they were supposed to do during the first
four years of performance.

I\'m talking about a pre-award review, as it\'s defined in the FAR, in
FAR Part 15, and in FAR Part 9, and in also, other places when they talk
about pre-award surveys, where we had people who did that like for
instance, in DoD, they have DCMA that does pre-award surveys. They\'re
not part of the IG\'s office. They do that work. They support the
contracting officer. They\'re not in an adversarial role with either the
contracting officer or the contractor.

And in fact, if they find something wrong, they turn it over to the
appropriate people to do. In fact, DoD spends 75 percent of all the
dollars we get spent in the country, and they seem to do it using this
system that seems to work for them.

So for GSA and for our schedules program, to help make sure that we are
getting prices, that we catch it in year one or two, and not in year
four or five, would it make sense for our contracting officers to have
this greater capability of an internal audit capacity, much like SOx
demands of publically held companies so that they could do their job,
and you could do your job in the oversight world?

MR. PATCHAN: Well, I guess I \-- you know, without having specific facts
and figures, on how something like that would work in the internal side,
I would be concerned from an audit standpoint that we just don\'t have
the, you know, enough rigor and enough assured independence and rigor in
terms of an internal audit group and what they provide to the
contracting officer.

I\'m not saying that they\'re you know, going to hide things or not
report things. But all the work we do is under yellow book standards,
which has been \-- which continues to be regulated by GAO. And I do feel
that the work we do identifies you know, huge opportunities for the
contracting officer and the GSA under what\'s a very well-intended
program to expedite procurement for the Government.

CHAIRMAN BRANCH: Judith, and then Lesa, and then Glenn, and then April.
This is quite a dialog you\'ve started here.

MS. NELSON: Good afternoon, Mr. Patchan, how are you doing?

MR. PATCHAN: Hello Judith.

MS. NELSON: So, Andy and I have great opportunity for discourse. And
probably the best part of my afternoon is getting Mr. Corchrane on the
record giving the effectiveness of our IOA workforce. So, I\'ll be
looking forward to those transcripts.

So, two of the things I wanted to ask about, and so, I have kind of a
\-- I would like to extrapolate something and maybe it\'s a simple,
stupid question, which many people here would comment that I do that
well.

But on page 17, when you give your review results, I don\'t know if you
have that in front of you. It says that the \"CSP was not currently,
accurate and complete 70 percent of the time.\" So that would be the
data turned over by the offerror, or contractor at some point?

MR. PATCHAN: That\'s correct.

MS. NELSON: And then it says, GSA was not offered MFC pricing, 71
percent of the time. So, we extrapolate there that because they didn\'t
have the data in order to negotiate MFC, they weren\'t offered \-- they
weren\'t able to make that connection, right? The contracting officer?

MR. PATCHAN: Well, it\'s actually \-- I guess essentially. I mean, if
they\'re not offered the CSP accurate and complete data, typically the
deficiencies in the current accuracy and completeness involves MFC not
being disclosed. So, I guess, generally that\'s \--

MS. NELSON: Okay. So can I extrapolate \-- here\'s my simple, stupid
extrapolation. Can I extrapolate that in the 30 percent of the time,
according to the IG, because I\'m going to take exception to your
findings, but can I extrapolate that in the 30 percent of the time that
according to you, that the vendor or the offerror or the contractor
provided current, accurate and complete CSPs that the contracting
officer did negotiate

MFC pricing?

MR. PATCHAN: Well, I would answer this way. I mean, it\'s not always you
know, a huge negative. Yes. I mean, sometimes when we do the audits,
they do provide us current, accurate and \-- they have disclosed \-- we
find they have disclosed current, accurate and complete commercial sales
data.

We do have those books though, and that\'s why it\'s a 71 percent versus
70, where it could be current, accurate and complete, but they\'re still
not disclosing \-- but they\'re still not offering, I\'m sorry, most
favorite customer pricing to the GSA.

MS. NELSON: Understood. But the COs are following the guidance that is
provided to them internally and by the GSAM, and their negotiation
strategies in order to do it, when they have the data in front of them
as appropriately.

MR. PATCHAN: Jim, did you want to?

MR. CORCHRANE: I think it\'s important, I think maybe you\'re
misinterpreting what the GSA was not offered MFC pricing line means.
We\'re not talking about what was negotiated at the end of the day after
the extension was awarded.

We\'re talking about the actual offer that was submitted by the vendor,
and to be evaluated by the contracting officer. And after our evaluation
of that offer, what we actually found.

MS. NELSON: Okay. So, here again, simple, stupid. So, here\'s my other
question or my second question. I would like to establish what the IG is
considering most favorite customer pricing. The question I have is, by
definition, and I know that you quoted the GSA website. And I appreciate
you pulling down some of the GSA website, though, I notice you were
selective in what you pulled down.

But you did say on page 4, \"GSA schedule contracts are negotiated with
the intent of achieving the contractor\'s most favorite customer pricing
discounts under similar conditions.\"

MR. PATCHAN: Yes.

MS. NELSON: Okay. So, I\'m going to go to under similar conditions. And
what we know, I assume, is that the schedule contract is a
non-requirements contract.

MR. PATCHAN: Right.

MS. NELSON: There\'s no statement of work. So, let\'s just stick with
the services.

MR. PATCHAN: Yes.

MS. NELSON: So, does the IG, as a whole, or in general, consider that
most favorite customer, similar customer with similar terms, is that say
a customer who has a firm, fixed commitment of \$5 million,
commercially, or with a Federal customer, so those labor category rates.
Would those be considered a basis of negotiation? Should those be the
basis of negotiation for a schedule contract when the schedule contract
offers no commitment?

MR. PATCHAN: I think what, yes, I think what you\'re driving at is, how
far, you know, do we go in looking at most favorite customer pricing.

And we understand the MAS program is indefinite delivery and indefinite
quantity contract and it has to be that way within its purposes. So, if
there is a commercial \--

MS. NELSON: Well, I\'m trying to understand GSA was not offered \-- I
want you to put some parameters around GSA was not offered MFC. So what
does that mean? Were they not offered firm, fixed, commitment pricing
for the same as the maximum order level, which is what our contracting
officers essentially would say? Were they not offered MFC for firm,
fixed commitments in excess of a million dollars, \$500,000, \$50
million? To give context to the Panel.

MR. PATCHAN: Well, typically \-- well, typically, we wouldn\'t look at
commercial customers of the vendor that is identifying, that is
guaranteeing, or guaranteeing with the vendor that they\'re going to buy
a required amount of goods or services each year, each quarter. Because,
certainly, that wouldn\'t be applicable to GSA.

So, we wouldn\'t consider that as an MFC customer. We would consider a
customer, if you remember that example I had, that\'s buying, that\'s
giving the best discount of commercial vendors \-- best price of the
vendor\'s commercial customers, but is not guaranteeing quantities with
the vendor.

So, that\'s where we would tie the MFC. Do you want to add anything to
that?

MR. CORCHRANE: Well, I think it\'s important too, to have an
understanding of what constitutes a commitment on the part of a
commercial customer doing business with one of our vendors, and compare
that with what we have under GSA.

As you mentioned, we have indefinite quantity, indefinite delivery
contracts. There\'s no guaranteed amount that will be purchased under
those. However, with the vast majority of the vendors that we perform
reviews of, there is a historical precedent of how much is bought under
that contract. And it typically with these vendors, goes back 20 or 25
years.

So there\'s a pretty good indication moving forward that the volume over
the previous, not only five years, but sometimes 10, 15, 20 years is
going to be comparable to the volume moving forward.

Now, what we do when we look at commercial customers, and we look at the
agreements that vendors have with commercial customers, and evaluate
those to identify most favorite customer, is we look at the terms and
conditions of those agreements.

Now, for an agreement to be a definite quantity agreement from the
commercial side, there would have to be some provision whereby if an
agreed upon dollar volume commitment is not met, that there is some sort
of repercussion for that, possibly a bill-back, possibly a reduction in
discount.

By and large what we find, and I\'ve been doing this for a long time, is
that it\'s almost unheard of in industry to have a situation where a
vendor is doing business with a commercial entity where there\'s what
you might term to be a definite quantity.

Normally what it is, is a commitment to buy a certain amount over a
certain period of time, whereby when that commitment is not met,
there\'s either a reduction in discount, or there\'s some sort of
punitive measure taken against that vendor \-- against that customer.

In those cases, we believe that there\'s comparability between our
contract where although there is no guaranteed quantity, there\'s a
historical precedence of quantity, and the companies that we review,
typically that quantity is substantial as Andy has explained, and a
commercial customer who really, although they have estimated that they
will purchase a certain amount, there is no sanctions whatsoever if they
don\'t meet that quantity.

MS. NELSON: So, in essence, when you say, and I\'m just going to sum up
here, when it says that GSA was not MFC under these audits, it is saying
that you are looking at the historical value in a \"pre-award audit.\"
And looking at the terms and conditions where there are buy-backs or
defaults, or something like that, in which case the GSA schedule only
has \$100 guarantee of sales.

MR. PATCHAN: Judith, if I can add something. In terms of MFC, the next
chart I have here, I want to also make it clear that when we identify,
or identify cost avoidance, we do that in a very conservative way. Your
example of the most favorite customer where they may be ordering, I
don\'t know, \$10 million a month, and the Government is ordering \$100
million a month over the last five year period, we will do a
conservative analysis of what can be achieved by the Government in terms
of additional cost savings, by oftentimes taking a sample of some of the
top vendors, some of the top commercial customers of the vendor, rather
than the absolute, you know, most favorite customer of the vendor among
100.

So, we always take a conservative estimate. Because there may be
reasons, and I don\'t want to name a specific vendor or contract, but
there may be reasons why the vendor is just you know, one or two
contractors in that field that can provide that service or product,
where the Government may not be able to draw down to MFC. Anyway, I just
wanted to add that.

MS. SCOTT: Andy, what are you guys looking forward? Have you identified
common pricing methodologies that the commercial vendors are using that
wwuld allow us to identify say, some tools that vendors could use and/or
what about standard \-- the data collection? I\'ll let you answer the
first one first.

MR. PATCHAN: Standard pricing tools that the vendors could use? You mean
in terms of providing what their offering their commercial customers?

MS. SCOTT: No. I mean, what are they doing to set up their commercial
prices? Is there

\-- are there like a software? In the audit side, you have the Deltec
system. Have you noticed any commonalities in the way the vendors do
things that would allow us to minimize, frankly, the work that you guys
have to do in some cases, and we could actually see more value down the
road.

MR. PATCHAN: Now that\'s a good question. I\'ll ask Jim. He more has his
hand in daily audits.

MR. CORCHRANE: Well, with services, we find it\'s very common, most
companies that we audit, use the Deltec system. But in terms of a
pricing tool to determine what \-- if your point is, a fair and
reasonable price or what commercial companies use, the competitiveness
of the marketplace for a true \-- for a company that does have
commercial sales.

Now the services arena, quite frankly, it\'s not very common, at least
with many of the vendors that we look at, that they have substantial
commercial sales that are comparable to ours that we can look at.

Some have no commercial sales. Some have only GSA sales. So, that
becomes a little bit more problematic for us to be able to make a
determination of what fair and reasonable price is.

But as far as a pricing tool? The competitiveness of the market in the
commercial world, is really as we see it, when we go out and do the
reviews of vendors that have commercial sales, what keeps the price
down. And that competitiveness is on-going.

That \-- when you\'re a vendor doing business with a commercial
customer, that commercial customer is only your customer as long as
you\'re price competitive. And so it varies from procurement to
procurement. There\'s \-- and that\'s really what keeps the pricing
down.

It\'s hard to really replicate that, I think, in the MAS program over a
five-year contract, particularly in the services arena, when the labor
rates are awarded on year one, and in essence, they\'re the same rates
except escalated, that are in play for the entire five-year period of
the contract.

You really don\'t see that on the commercial side of the house. What you
see is, how much do we need to cut to get this bid. And again, it\'s
very hard to replicate that on the MAS side.

MS. SCOTT: Obviously, I\'m not getting my question through clearly. When
you go in, since you guys go in and visit all of these different vendors
and you see how they do their business, are there some lessons learned
that are common across all of these commercial vendors that could be put
together to show other vendors how and what the commonalities are?

When they build up their \-- if you were doing a cost build up, and
you\'re right, we go back and use the Deltec to get there, what are the
commonalities in terms of the commercial methods and the commercial
strategies? Is there a particular tool they use?

What I\'m looking for, is wondering if there\'s a way to step back for a
contracting officer and they don\'t have to actually sit down and say,
this price is fair and reasonable. Because this vendor is using X
product to do their pricing as an example.

MR. CORCHRANE: Well, like any tool, the Deltec being a tool, the
information that comes out of that tool is only as good as the
information that\'s put in. And unfortunately, to rely on the output of
the tool, just based on the tool itself, really is not what results in a
product that is quite frankly, all that useful.

And I found that several times in the services reviews that I\'ve done,
where the methodology that was used to develop the price, was
acceptable, but the information that was fed into the tool, as you call
it, or into \-- that was used as part of the methodology, was not
information that was in fact factual information that was based on
actual data.

It was based on the desire or the goal of having a certain outcome.
Which in the cases of a GSA MAS contract, that outcome being the
originally offered GSA price for an hour of that labor.

MS. SCOTT: I understand. That\'s a different issue to my mind. What\'s
the \-- the other question I had is on the data collection methodology
as far as, when we tell the vendors that you\'re coming. Do we have
standard methodology that we give them for the data that we want them to
provide us? How well are we communicating to them in advance what
they\'re going to have to deliver to us five years later?

Is there a tool we should be recommending or suggesting to people, so
that five years later, they\'re going to have the information you need
when walk through the door?

MR. PATCHAN: I\'m sorry. I was going to answer that in terms of our
requests when we start the pre-award. But if I can address that part of
that. Because this might be important for the Panel to know that.

Have you talked at all about the MAS working group, your Panel? Okay. I
think it\'s important to just put in a little sales pitch perhaps on
that. We do have, I guess, monthly meetings, Jim, I think? Monthly
meetings with OIG representatives and FAS representatives.

And you know, in the meetings we discuss things that we\'re not all
going to agree on. I don\'t think that\'s the nature of the beast here.
But they\'re very good meetings in terms of us trying to come to grips
with some of these issues. And some of the ones, I think that Lesa, you
know is talking about.

And one of those are, the data we request from the vendor in order to do
our pre-award reviews. We\'ve worked real hard with the FAS officials, I
guess going on about five years ago or so, when we actually had a lot of
input into the procurement information bulletin, or PIN, I forget the
difference between the PIV and the PIN.

So that the contracting officers would be able to send out a standard
request letter, you know, for data from the vendor officials and that it
would be standardized. So, working with them, again, working with FAS
again now on the timing of those letters, so that we can get the
pre-award started and completed for the information \-- and provide
information to the CO to use in negotiations before the contract runs
out.

I guess but you were going farther than that, I think, in your question.

CHAIRMAN BRANCH: Glenn, and then April.

MR. CHVOTKIN: Can I just jump in with one second, if I may, Mr.
Chairman, if I had a question?

CHAIRMAN BRANCH: No.

MR. FRYE: Mr. Frye will yield at this time graciously.

MR. CHVOTKIN: Spare a minute for one question directly related. You said
that you do all of these \-- you start these pre-award reviews at year
four. Would it make any sense to start these sort of split the
difference between what Mr. Drabkin suggested, which is doing them
earlier, the true pre-award and coming so late.

Would it make any sense to do these in years, you know, after the second
year of the contract where there\'s still some opportunity to
substantially influence the option discussion, instead of year four
where well down the road? Have you evaluated the timing of the pre-award
reviews that you conduct?

MR. PATCHAN: Well, I guess I would answer that, again, you know, if we
had more audit resources. But I would like personally to do more
post-award audits, which would take place, within an earlier time as you
indicated, during that first extension period.

Without more audit resources, you know, we have to kind of triage, or
prioritize what risk areas we cover on the pre-award reviews. So,
that\'s why we do the pre-award review of when the vendor\'s offering
the price for the next extension period, which typically occurs, you
know, towards the end of the extension period.

I guess that\'s the best way I can answer it. But, you know, I\'d like
to find a way to do more post-awards. We\'re trying to balance the, you
know, 160, 170 auditors we have across GSA \$60 billion or so goods and
services they leverage.

MR. PERRY: Great segue into what I wanted to ask about. Thank you for
coming today, and subjecting your \-- again, another witness \-- and
I\'ve enjoyed the \-- thank you for coming today and sharing.

And I\'ve enjoyed listening to so far, the back and forth between your
fellow GSA employees. But I\'m, frankly, from my \-- from where I sit,
because I\'ve already heard about the limitations on the industrial
operations analysts and their capabilities previously.

I haven\'t heard anything in this conversation so far that has reflected
your thoughts on the impact on what you\'ve pointed out, if I
extrapolate this data, across the board, for the agencies, that
basically, we\'re not doing anything about these \-- what\'s a large
amount of spend across the Federal space, for four or so years.

And frankly, at the time the work\'s done, I don\'t know what the value
it is to the agencies that had to spend the dollar back four years ago.
And I\'m finding it a little disturbing that we have a mechanism here
that obviously seems to be pointing out some flaws and some
opportunities for additional savings at the agency level, but no one
seems to be talking from that perspective.

Has the Inspector General\'s office at GSA done any collective work
looking at the overall MAS pricing process, and the way GSA approaches
the pricing up front and what the capabilities are as to what they\'re
offering in order to fulfill the objectives that you set forth at the
beginning of your presentation?

MR. PATCHAN: Can you hear me? Okay, I guess I\'m back on. That\'s an
excellent question.

As I mentioned, the contract audits are a piece of what we do of our OIG
audit program. We have another piece which we call performance or
internal audits where we look at how overall programs and operations can
be improved in GSA apart from individual contracts.

We do have some work underway of the MAS program. It\'s always difficult
when you talk about the MAS program in terms of how do you determine
that you are getting best pricing across the 17,000, you know contracts,
and the \$36 billion a year.

We are looking at how we can do additional audit work in that area. I
wish I had an exact answer for you that we have these audits we do at
the MAS each year on a programmatic side. I think we\'re kind of torn
with the 170 plus auditors in terms of trying to provide enough coverage
of the actual contract audits.

The COs are asking us for what\'s the analysis of the CSP data, where
are the MFC, what other commercial clients are getting better prices.
And we want to give that to them so they can negotiate those dollars up
front and achieve the best price for the Government.

And then we have just numerous regulatory requirements, and actually,
they\'re increasing with what is becoming quickly very activist Congress
in terms of I.T. security requirements, personal identifiable
information requirements, you\'ve got to review.

And somebody mentioned SOx, Sarbanes-Oxley, effect on more financial
statement audit review. And you know, it\'s not really stock response,
we\'re just torn in so many directions it\'s hard to do more, I think
specifically in the MAS program. It\'s such a big animal.

But we\'re looking into how we can do that on the performance side, to
you know, maybe quantify those situations where individual agency
procurements aren\'t getting better pricing, or those situations where
what did we learn on BPAs and how can that be applied, you know, to the
MAS price.

But if I can add, I guess, you know, just from where I stand, and I\'ve
been in Government over 25 years. Maybe it\'s time to get out of
Government, I don\'t know. But what I\'ve seen is, there\'s so much to
be gained in the procurement area, by identifying and actually driving
down costs of the Government and getting better prices.

And if it\'s the, more audits of pre-award contracts, and identifying
the best pricing the commercial customers get, then maybe that\'s the
best approach, that combined with some post-award audits.

I do, you know, I have worked on the programmatic side of the Government
too, outside of the audit field. And what I saw on the procurement side
was you know, a lot of procurement officers, and contrary to some client
agencies, don\'t necessarily have all the information they need to make
the best procurement decision.

So, you know, when I was at Justice System Network, we relied a lot on
the MAS prices to be our guide. And so, that from where I stand in the
\$36 billion the MAS program represents and the other programs that
leverage their pricing with the MAS pricing historically, it\'s so
important to get the best prices we can, not just to save client agency
purchases under the MAS, but they also extend to other programs.

And I\'d like to see, yes, I think more client agencies buy from the MAS
program rather than starting up their own procurement shops, thinking,
well, I know we can get a better deal on X vendor\'s laptops here.

Well, maybe you can, but maybe you don\'t have the MFC pricing. Maybe
the MAS program needs to be improved. But that\'s a procurement vehicle
that can be used advantageously across Government. I may have gotten a
little far from your question.

MR. PERRY: So the answer is, that you haven\'t done other than the work
you\'re doing. You haven\'t done any program audits that would have
recommendations as to \-- so you\'re not left with these types of
results after four years?

MR. PATCHAN: Well, we are in the process \-- we have issued some reports
on the MAS program. And we\'re in the midst of issuing additional
reports on the MAS program.

But I don\'t know that those reports will have sweeping recommendations
from soup to nuts on how to correct efficiency in the MAS program. Some
of the audits that we\'re working on, have involved training for
contracting officers. They\'ve involved performance measures for
contracting officer. They\'ve involved various guidance that is issued
to contracting officers and how can that be improved.

So, I think we\'re on the right track. I\'s just a question of how to
allot, I guess, you know, our auditors across all different facets of
GSA and there are limits to how much we can put in progress. But we do
have work that we\'ve done on that, and work underway, yes.

MR. PERRY: Based on the results that you have, from your perspective on
the, based on this kind of data, how do you respond to the proposition
that we just \-- that the clause in the pricing is basically ineffective
and maybe we do away with it?

MR. PATCHAN: Well, form our experience, although there are deficiencies
in the program, I don\'t think that\'s the reason to decide the most
favorite customer pricing and price reduction clause are totally
ineffective. The percentages are disturbing of what we found, but in
these 70 percent of audits where we find the CSP was not current,
accurate and complete, and we don\'t think the Government was getting
the best pricing as we could, as I said, we give this information to
contracting officers and they actually use this to go further in
negotiating discounts for the Government.

I think what is needed are improvements in the MAS program and I think
the Panel is chartered here with really looking at some of the
underlying causes that have got us to where we are today, and how they
can be rectified. So, I think it\'s a large problem, but I think
Government procurement is \-- stands to be in a better place if you have
centralized procurement programs such as the MAS where you have experts
who \-- improvements can be made, more training can be provided.

But we have experts that have been doing this over a period of time, and
have a better perspective on how to negotiate best price as opposed to
individual procurement shops, and individual agencies trying to get
their best price on you know, one-on-one buy.

Just as an example. A lot of the buys particularly on assisted
acquisitions in GSA are defense buys. And if you\'ve read the, it would
be long to read, but if you read the 2008 Defense Authorization Act, the
Congress has required the OIGs to review again assisted contracting in
Federal agencies, starting with GSA and the DoD, OIG together.

This is something that\'s been an issue for a number of years. But
outside of the GSA assisted acquisition, you have defense contracts and
you \-- we\'ve all read about them in the paper, whether the Boeing
tanker deals, or what have you, that have gone way off kilter in terms
of lack of adequate competition, the price is just soaring.

So, I, you know, I don\'t think there\'s a silver bullet here. But there
is a centralized procurement program that while it has problems, and
we\'re providing oversight, it does provide I think usefulness, I think
a lot of usefulness in the Government.

MS. STEPHENSON: In the interests of time, I have a number of questions.
I\'m only going to ask one. But I would ask, do you have any objection
if we give you written questions that you could respond back on?

CHAIRMAN BRANCH: We have a little bit of additional time. One of our
speakers didn\'t show up. So, we probably got about ten or so more
minutes for questions.

MS. STEPHENSON: Okay. Great.

With that then, I\'ll ask three questions, if that\'s all right. Some of
them are short and sweet. When you\'d mentioned about the \-- not
getting the current, accurate and complete data, certainly in the terms
of what I\'m use to, I think, in the Truth in Negotiations Act, which if
a contractor is found not to provide current, accurate and complete
data, there\'s recourse of the Government to get a payment back for what
that data should have been.

Is there a similar clause within GSA? It kind of dovetails what David
said earlier. Is this a statutory requirement to provide current and
accurate and complete data? Or, is it a GSA policy? And what is the
recourse if the contractor does not provide current, accurate and
complete data?

MR. PATCHAN: Jim, correct me if I\'m wrong, but the current, accurate
and complete requirement I thought was within the GSAR, not the FAR. Is
it in the FAR?

MR. CORCHRANE: And the sanctions for not providing that, are in the \--
actually, they\'re in the solicitation, failure to provide accurate
information, which has sanctions against the vendor if in fact the
information that they provided and was relied on by the contracting
officer resulted in the Government paying higher prices than they would
have otherwise.

MS. STEPHENSON: Just for my own clarification, what\'s the sanction
that\'s leveraged against? Is it a repayment?

MR. PATCHAN: Well, you mean, like for false statement, or?

MS. STEPHENSON: For not providing current, accurate and complete data.

MR. PATCHAN: I think that would lump over into the fraud area, as
opposed to a specific requirement within the GSAR or GSAM.

MS. STEPHENSON: So this comes back to the False Claims Act, as opposed
to Truth in Negotiation Act, or some other requirement?

MR. PATCHAN: Yes.

MS. STEPHENSON: Second question I had is, you had mentioned the
contractors did not have the \-- in some instances, adequate controls,
procedures, et cetera. And again, going back to the FAR environment,
where there can actually be withholds on contractors until they have
adequate systems and so forth, what\'s the recourse within the MAS world
if a contractor does not have adequate internal controls, or an adequate
system in place for complying with the contract?

MR. PATCHAN: Well, I think it\'s really on a case by case basis
depending on the severity, you know, of such a deficiency. Oftentimes,
GSA will work with the vendor in terms of corrective action plan, to
bring systems up to snuff in terms of insuring that for example, all
sales are reported so that the correct industrial funding fee is paid.

MS. STEPHENSON: And last question I have is on your slide 19. And you
don\'t need to go to the slide. It says that the, \"Most favorite
customer pricing was not always disclosed by the vendor.\"

In the first few meetings we had, we had a number of vendors that came
in and said, it was impossible for them to disclose the most favorite
customer prices when something changed from the time that they
originally negotiated. I believe that that\'s part of the requirement,
that if their price goes down, they need to notify GSA so an adjustment
can be made.

Many of those vendors said that it was just impossible to do. Given
you\'ve dealt one-on-one with these vendors, especially in the audit
arena, do you have any thoughts on that impossible to do? I\'m sure
you\'ve had these type of discussions with the contractors. Some of us
would look at it and I\'d say to myself, it doesn\'t seem that difficult
to track this. But do you have any thoughts to share on that?

MR. PATCHAN: Well, you know, one of the things I didn\'t put up, it\'s
hard to know the perfect slide, come up with the perfect slide
presentation.

But one of the other real big benefits of the MAS program, it does
provide the vendors, you know, kind of a centralized source, not,
obviously there\'s sales across Government that aren\'t part of the MAS
program. But it provides the vendor, you know, a good kind of one-stop
shopping, I guess, so-to-speak, to provide their goods and services for
sale to an array of Federal agencies.

So I don\'t doubt that administration of price reduction clause on the
vendors, and it depends on how many products and services and their
systems, and so on, can be a tough requirement. But I guess I look at it
two ways. And I\'m not a vendor up here, I\'m just someone in the red
bulls eye suit of the IG.

But I don\'t know, maybe this is the cost of doing business on the MAS.
If there\'s a way, and maybe it\'s something that the Panel can look at,
is that. Is there a way to ease the administrative burden on the vendors
of reporting price reductions.

And I think Lesa was asking about systems. You know, maybe there\'s some
best practices in terms of vendor systems that they can use to track
that. But the Government of course is very different in the way it
contracts than private industry. I mean, we have competition
requirements, and price analysis and so on. And under the MAS, we enter
into five-year agreements. A five-year agreement is a long time, you
know, particularly on the I.T. side, for example, where the prices on
the product side continue to drop.

As a Federal employee, and kind of a taxpayer, I\'d really like to see
some type of you know, effort retained, on the part of vendors to insure
that the price reductions are getting passed on to the Government.

And sometimes I feel that the discussion is, well, the vendors, you
know, whether it\'s the price reduction, or you know, whether it\'s the
most favorite customer pricing, they\'re profit margin\'s getting
squeezed, you know, the reporting of these price reductions is very
onerous. And that\'s true, but I mean, it\'s large sales volume that
they\'re able to get access to under the MAS program.

So, I think it\'s different in each case. And maybe there\'s best
practices that this panel can find, or others that can be passed on to
vendors in terms of how to manage these. What we often find when we go
into vendors is, you know, a lot of different systems they use.

And some of the systems make it harder to pass on, to track and pass on
price reductions, agreed.

CHAIRMAN BRANCH: I guess I have a couple of questions to kind of wrap
this up. You know, we\'ve talked about the audit savings, and we\'ve had
a lot of conversations about the basis, the assumptions being lined. But
I\'m just curious, so what do you think it would cost the agency to
audit 80 percent of the sales, in terms of resources?

How many auditors would you need to actually go after the majority of
sales to establish compliance, and what would that cost?

MR. PATCHAN: Well, a simple pathetical analysis would be, if we\'re
identifying 10 percent now, you know, seven times that amount. But after
you get \--

CHAIRMAN BRANCH: Right. Which is probably not because \-- the Preto
effect would cause the numbers to get smaller.

MR. PATCHAN: Right. Dick, or Jim, do you have an idea on the number? I
know we\'ve done analysis in terms of large vendors, then there\'s kind
of a, you know, a breakdown in terms of where it starts getting into
smaller dollars. Do you have a perspective on that?

MR. CORCHRANE: I think there\'s the law of diminishing marginal returns.
Because we look at large contracts for the most part, as Andy mentioned,
\$25 million and above. In fact, many of them are \$100 million in
higher in value over the five years.

When you start to get into the smaller contracts, the numbers of
contracts increase very quickly. So you find yourself looking at maybe
70 percent of the contracts, as I think you said, you might be looking
at a contract with \$150,000 in sales, and this really isn\'t a
productive use of our time.

CHAIRMAN BRANCH: Well, but you know, you\'ve asserted that there are \$3
billion worth of cost avoidances in one way or another, on 10 percent of
the sales. And it would seem to me that I could buy a lot of auditors
with \$3 billion to go after what\'s left.

MR. CORCHRANE: Yes.

CHAIRMAN BRANCH: So, I\'m just kind of interested in how many auditors
you think that would cost.

MR. PATCHAN: We might \-- is it possible to submit that for the record
afterwards, gives us a chance to kind of discuss it.

CHAIRMAN BRANCH: Absolutely. I guess the second question, David, do you
want to?

MR. DRABKIN: Just one second, okay? You audited 10 percent of the sales,
total sales is \$36 billion. And you found \$3 billion of that, almost
100 percent in cost avoidance, and you did it with 170 auditors on hand.

So when we start answering these questions, these numbers start to kind
of not make a lot of sense. Because it\'s really difficult to believe
that you found almost 100 percent additional cost avoidance on \$3
billion, or \$3.6 billion worth of audited stuff, just kind of hard to
believe.

MR. PATCHAN: I\'m just looking at the record, Mr. Drabkin.

MR. DRABKIN: Yes, sir. I know you were. And you were asking them about
the record. And it just kind of occurred to me while I\'m sitting here,
that the numbers don\'t make sense.

CHAIRMAN BRANCH: Okay. The second question is not a numerical one, but
goes to kind of the assumption behind these savings and the assumptions
that we\'re making that underlie pricing.

So, I think what I heard Jim say was that hey, when we look at
comparable commercial agreements, in general, while there is not a sum

certain with respect to quantity or dollar sales, there is an agreement
to buy within a range and there also sanctions against a company that
fails to do so.

So that if I say I\'m going to, you know, buy a thousand units from you
know, ACME Computing and I only buy 900, I lose some of that discount
and there may be a bill-back. But other things happen. I guess I\'m
curious as to why we\'re making a direct comparison with that practice
in a GSA contract, when essentially the penalty is a notional amount of
money?

How can we say that there is no value, even given history, to the risk
of no further sales?

MR. CORCHRANE: If I understand your question correctly, I think maybe I
misstated what I said. There typically are no sanctions on the
commercial side of the house

CHAIRMAN BRANCH: Well, I consider the loss of a discount, a sanction.

MR. CORCHRANE: Yes. But that doesn\'t happen. That was the point that I
was making. That doesn\'t happen on the commercial side. When you have
what on the surface might appear to be a definite quantity contract in
commercial contracting, when you\'re looking at a vendor\'s agreement
with a commercial customer, let\'s say an agreement where a commercial
customer has said, Well, I anticipate buying \$3 million worth of your
product over the next year.

And in return for that, the vendor agrees, Well, then we\'ll give you a
40 percent discount. And then, over the course of the year, that
commercial customer perhaps finds a better price with another vendor,
and winds up only buying only half a million dollars worth of product.

Typically what we find is, there\'s no reduction in the discount they
were given for that half a million dollars worth of product. But when
the agreement\'s renewed, let\'s say for the subsequent year, there\'s
maybe a discussion as to what actually they\'ll be buying under that \--
for the subsequent \--

CHAIRMAN BRANCH: Pardon me, then I misunderstood.

MR. CORCHRANE: That would be significant. That would \-- if we did see
that there was a penalty, then we would view that agreement
significantly different.

CHAIRMAN BRANCH: Okay. All right. Thank you.

Andy, I want to thank you and your team for joining us this afternoon.
Like Glenn, I have enjoyed the interplay between you and your
colleagues. I think you have exposed some significant philosophical
questions that the Panel is going to have to deal with.

We appreciate your time and attention to this issue. Thanks again.

MR. PATCHAN: Thanks, very much.

CHAIRMAN BRANCH: It is about ten of three. So, why don\'t we take a
break until about five after and come back and see if we can start to
make sense of all we\'ve heard today and in the previous four meetings.

(Whereupon, the afore-mentioned proceeding was on break from 2:51 p.m.
to 3:08 p.m.)

CHAIRMAN BRANCH: So if we could get started and use everybody\'s time as
efficiently as we can. What I\'d like to start to do this afternoon with
the Panel is to see if we can winnow this down to a set of questions and
objectives that are manageable.

I just finished doing transition planning with our new commander, who is
not an acquisition guy. And he was sitting there and as we were going
through this, he started to talk about himself, and he made a point that
I think we should all take to heart.

He said, \"I don\'t take on world hunger.\" You know, give me something
that is manageable that is scopeable and that we can attack. So, I guess
I\'ve started that discussion, tried to start that discussion before
lunch in outlining really three questions.

The first one is, that given that competition primarily takes place at
the task order level, does a fair and reasonable price at the contract
level really matter?

The second one is, that if that is the case, and I believe that\'s an
assumption that we spent a good part of the last four meetings debating,
then I think the question becomes are the methods GSA uses to determine
and maintain that pricing adequate for them to do so?

And then lastly, if it does matter, can we as a Panel help to improve
the policy that they use to establish and maintain that fair and
reasonable pricing?

And you know, as we\'re kind of going through this a little bit before
lunch, April I think added a fourth question to that. And she and I kind
of just had that dialog. So, I\'m going to ask her to put that one on
the floor as well.

MS. STEPHENSON: Thank you Elliott. Given that your number two and number
three were yeses, if yes this, if yes that, I felt we needed a fourth,
was, if we answered no, then what is GSA\'s role?

CHAIRMAN BRANCH: Okay. So, if contract pricing is not useful \-- or if
pricing is not useful at the contract level, then what exactly is GSA\'s
role in the schedule?

I think at least for me, that kind of scopes things. So, I\'m going to
be quiet and I\'m going to open it up for the rest of the Panel to make
their observations. But I really would like to start, by the end of the
day, I\'d like to have this narrowed down to those issues that we as a
Panel are going to continue to deliberate on so we can formulate a plan
of attack and a path forward to a deliverable back to the Administrator.
David.

MR. DRABKIN: Yes. What I\'d like to suggest, if you\'ll give me a moment
before you react to it, goes back to what Chris Yukins, I think, said to
us on the first day the Panel met.

And please, even though this will be in the record, nobody point to the
record and let Chris know that I actually agreed with him about
something. Because then I won\'t have any fun disagreeing with him in
the future in public.

But it is true that we capture as a part of our process, incredible
amounts of data that would help you establish what prices should be.
Data that\'s not dependent upon a cost build up. It\'s not dependent
upon the system the contractor uses or doesn\'t use to establish the
price, but the actual prices that the contractors offer on a daily basis
in response to multiple RFQs that the schedules process generate.

The problem is, that that data, while captured, is only resident in
paper, and it\'s resident in the 70 or so major agencies, or however
many customers we have, literally all over the world. I think once we
took a count, there\'s like 2,460 contracting offices, and that data
probably resides in every one of those offices. And it\'s not available
to us to use practically speaking, even though we have the data.

So, I\'d like to begin by suggesting that I disagree with your second
point. When you made your opening statement before lunch, which was we
can\'t solve the data problem. Actually, I think we could. And I think
that GSA could be challenged to do it, and I don\'t think it costs a lot
of money. And the way that could be solved is that you only use the GSA
schedules through an electronic process where your requirement is posted
electronically, the offers are captured electronically in a system where
it is transparent to all of us that it\'s there, but it\'s there and we
can capture it and analyze it.

Now, whose going to analyze it is another matter, and you and I
discussed this briefly at lunch. So, I disagree. I think we can solve
the data problem, and I don\'t think it costs a lot of money and it\'s
for sure not rocket science.

We already have in GSA the e-Buy solution. Now everybody doesn\'t have
to use e-Buy, and isn\'t quite as robust as it could be. But it allows
for every agency that wants to use e-Buy to post its requirement there
for every schedule vendor to see.

The piece that\'s not there is the vendor\'s response, the offer the
vendor makes. It doesn\'t get posted on e-Buy. It goes to the buying
agency. But if \-- for some relatively small addition to that process,
or a new process, we could post the requirement, capture the offer,
which would include the prices, and then make that information available
to our contracting officers.

So that when they make a purchase, whatever it is they\'re going to buy,
they can at least see what\'s been purchased by other people, and what
prices were paid. And also, what prices were offered.

It doesn\'t address all the issues. Because there\'s a big issue that
remains in the area of services. We also talked about that on the first
day. And that is, there is no standard definition in the marketplace or
in the various marketplaces for what those services mean.

And although I thinks some people thought I might have been sarcastic
when I asked a question earlier today and I\'m hurt that somebody would
think I\'m sarcastic.

(Laughter)

MR. DRABKIN: Do, should we go back to mil specs or fed specs? I wasn\'t
being sarcastic at all. It may be that at least for this area of the
market, that the Government would be best served, and we discussed this
on the 1423 Panel, although we never came out with a recommendation on
it. Maybe what we need to do is come up with a fed spec that says a
system engineer is X, we\'ll define it.

And a system engineer III, a system engineer II, a program, or whatever
it is. Or, alternatively, we say to industry, you come up with
definitions that you can all agree to, and then price it. Now, each
company will price it differently. That doesn\'t \-- won\'t solve all
the problems. There will always be something where there will be some
modification.

But the combination of those two things, the creation of a system where
all orders on the schedules are posted for people to see, all offers
come in electronically, and we standardize the definition for these
types of services. Because for commodities, it\'s much easier. I mean,
the model numbers may be different, but you know a printer is a printer
is a printer, or a stapler is a stapler.

Those relatively minor things could be done in small, modular pieces,
like Clinger-Cohen told us to do, and in a year to three years, we could
change completely how it was done. And we would provide ourselves not
only in the context of the schedule purchasing world, but also in the
context of the purchases that you make outside the schedules program, an
incredibly robust database on what\'s available, and how it\'s been
priced so that we could all use it.

Now, the reason I say that, I think works for GSA is because, you know,
with revenue, Dealy used to say, comes responsibility. And we generate
revenue on the schedules.

Now, my colleagues in GSA would say, yes, but we also have to spend
revenue because OMB makes us do things in addition to just running the
schedules, and have to generate \-- use that revenue to have to pay for
those things.

But nonetheless, if we want to continue running the schedules program
and improve them, I think we can solve the database problem, which you
said we can\'t. We then can avoid trying to answer what\'s fair and
reasonable, what\'s the most favored customer price, which is obviously
a very difficult problem to address, and let the competitive pressures
of the marketplace where we share internally the pricing, drive the
solution.

And then, the taxpayer will really get the benefit of true competition,
head-to-head competition when we buy things.

Now, it presumes one more thing, which I don\'t think we can fix. And
that is, policing our customer\'s use of the schedules to make sure that
they don\'t decide to do a procurement where they make three phone
calls, which is permitted. You know, they go to one vendor they want,
and two vendors which they know can\'t possibly provide the service, or
won\'t, and they call that a competition.

But, if we do it through the e-Buy process, force it, everybody uses it,
everybody posts it, and allow that process to work, I think it would
solve the problem. Then we don\'t have to figure out what most favorite
customer is. Then we don\'t have to try to decide in advance what\'s
fair and reasonable. The costs will not be significant. It\'s consistent
with the view that the senior procurement executives council took back
in 2001 to create a portal for acquisition. It may well be the first
step towards that portal for the whole Government.

And it won\'t cost us a fortune. It\'s not that expensive. And I\'ll
stop talking.

CHAIRMAN BRANCH: Before we go around, I just want to say three things in
response to David.

Let me clarify what I mean by my opening remark on data. Because I think
this operates at two levels. And I was really referring to the
availability of data that we would like to see as a Panel to make
recommendations. That isn\'t there today.

And we can\'t go hand-over-hand in the agencies and get it in a time to
do that. That said, I tend to agree with you. We can build a portal
Government wanted to go get that data, especially on commodities.

Where I see our real challenge is, is in services. Where, yes, we can
gather that data on statements of work, but then we have to turn it into
information. And I think that\'s \-- I think that\'s worth a discussion,
probably outside of the scope of this Panel. But I think, you know,
those of us who are stakeholders in the acquisition community, probably
owe it to not only every Government program manager and contracting
officer, but every taxpayer to have that discussion down the line.

So, I tend to agree with you, and I just wanted to clarify I was really
talking about that paucity of data, you know, the struggle of this Panel
to kind of get their arms around the problem without seeing that. And
that\'s not available in the short term.

I\'ll get off the stage. Any other observations here? Jan?

MR. FRYE: I\'ve got one. Dave, are you suggesting that we all use e-Buy
and we solicit perhaps dozens and dozens of vendors out there, instead
of using the current methodology? If that\'s the case, we won\'t use GSA
schedules. We\'ll \-- that \-- for those of us who are stuck with doing
contracting in today\'s environment, we\'ve got to get it done quickly.

We don\'t have time to wade through 30 or 45, or 100 bids from vendors.
We just simply can\'t do that.

MR. DRABKIN: Well, here\'s the good news. And I\'ll jump in before my
colleague from acquisition management jumps in, or Lesa jumps in. E-Buy
doesn\'t generate. DoD\'s been using e-Buy now for a little over two and
a half years. It doesn\'t generate tens of offers. It\'s been averaging
somewhere around three to five.

Which, by the way, isn\'t bad. And for commodities, for the commodities
side of the house, they haven\'t experienced any extension in the time
it takes for them to do the work. In fact, some have reported shorted
periods of time because they\'ve got a universal way to get it out. They
can give the \-- whatever time it is, and get it back.

On services, it might well make services a little more challenging than
they are now. But it\'s not going to result, at least, our experience to
date with DoD, our biggest customer, they are averaging three to five
offers per e-Buy, in some cases not even. But they\'re satisfying the
requirement to notify everybody and they\'re getting competitive offers
back in, even on services.

So, yes, I understand, Jan, that some people might fear, and therefore
stay away. But at least our experience to date with our single biggest
customer is, that\'s simply not a problem. So, the answer is yes.

Oh, by the way. I\'m not stuck on e-Buy. E-Buy may not be the right
solution. The right solution may be some new engineered, or some other
product, that you know, e-Buy was done four and a half, five years ago.
There\'s better stuff out there today.

CHAIRMAN BRANCH: Yes. And I\'ll just add that as a Seaport Owner and
Navy, that comports with our experience. We see about an average of
three and a half bids per task order solicitation.

MR. CHVOTKIN: I\'ll take a risk and jump in here. In looking at a little
bit of data that we do have, and I\'ll use a surrogate, the IFF, because
I wasn\'t able to do it as quickly on the schedule sales. But of the 46
schedules, 21 of them have less than a million in IFF. That will be
reflective of the total value of the sales, and several have zero.

Only five have \-- or four, have IFF greater than \$10 million. So, in
the data question, we can start at the highest level, and start working
our way down. We don\'t have to eat this elephant all at one time. There
are some MIS systems, such as you have over at SeaPort, and some others
have started to put into place that might help us to crank through some
of this, as a recommendation.

It won\'t give us the data for the Panel work, but I think it\'s
instructive.

I\'m concerned a little bit about the fed spec, or something on the
definition of services and labor rates. We\'ve had this discussion
before. We\'ll have it here again, and welcome it.

But if you set that up, companies will map \-- right now, companies are
offering their commercial sales \-- their commercial labor rates, their
labor rates in defining their own way, and mapping to a recommendation
or a requirement that comes out of an agency.

If you set that now requirement at a standard at the contract level at
GSA, you have to, to avoid a lot of extra work, you have to prohibit the
agencies from using any schedules, any other kind of labor rate other
than what\'s in the schedule. And I think that\'s in the
solving-world-hunger problem as well. Because agencies are going to look
at their own needs, rather than at a standard Government-wide, I think.

But if we could meet both of them, I suspect from a company standpoint,
standardization would only work in those circumstances.

Then I\'ll come back to the question that Tom Essig so properly raised a
couple of times. Which is, how do you get at quality, and how do you get
at the number of hours to do that job, to make sure that you have all
three components put together. So, standardize labor categories, and
standard labor descriptions still doesn\'t answer the hours to work and
the quality of that. And I think both of those are critical to the
discussion.

I think we then need to look at the tools available, and whether the
existing tools like the MFC and the price reduction clause for services
makes sense. And here again, most of the testimony seemed to be of the
view that the MFC and the price reduction clause aren\'t working.

I didn\'t have a chance to add, but I might follow through some
additional questions from the IG about the extent to which their
identification of gaps in the CSP are a result of degree of difficulty.
Are they technical? They are current, complete and accurate information
is at all accurate, is it all current? Some of elements of that, I think
I\'d need to probe a little bit more before I\'m willing to accept a 70
percent error rate. That just seems a little high to me for something
that\'s been on going for such a long period of time.

And if that\'s an accurate statement, then it\'s indicative to me that
there\'s no understanding of how that really works in the marketplace.
It can\'t be of much value to either the customer, to the agency, to the
GSA. It\'s probably of now value to the buying activity. And if that\'s
the case, then I think we\'re better off investing company resources and
agency resources somewhere else.

MR. ALLEN: I pick up where Alan left off. I think there is a argument to
be made, that if you were \-- and I\'ve said this before.

If GSA is not achieving MFC, which is fine. I mean after all, most
favorite customer is an objective. It\'s not an absolute, must have. But
if there\'s some fair amount of uncertainty in the marketplace, which
there seems to be, about MFC versus fair and reasonable and what it all
means, then I think we\'re better off perhaps making a recommendation to
call the pricing objective what it is. Which is fair and reasonable.

I would note that GSA almost came to that conclusion several years ago
when it debated whether or not to keep MFC as the objective in a
post-Clinger-Cohen world, and kept it by a hair\'s breath.

Similarly, I think we\'ve heard tremendous amount of discussion over all
of our meetings about the workability of the price reduction\'s clause.
I think it seems clear that the clause really doesn\'t serve much of a
purpose, other than something as a hook to catch even the most tried and
true contractors.

If I look at the IG\'s data, and they talk about the fact that they
covered a significant amount of contracts, \$16 billion in sales, I
think, last time, for the last year that was on their chart, they had to
have been looking at some of the most experienced and well-established
schedule contractors.

If they\'re finding price reductions errors, which they are, that seems
to suggest that even companies who have dedicated significant resources
to compliance, and understand the game probably better than most, if
they\'re the ones that are getting tripped up, then I think we\'ve
crossed over the line, arguably from a price enforcement tool, to some
sort of punitive redress mechanism.

So, it\'s something I think the Panel should look at, is whether or not
we retain this clause, whether if we do, what is it pegged to? Is there
a different set of circumstances for services versus products? I\'m not
suggesting that I have the answers to these things, but I think it\'s
instructive to look at it.

I\'m not entirely sure that I am ready to come out and say let\'s do
away with all pricing on the schedule. I think that there is some value
still at having prices established, fair and reasonable prices
established at the contract level.

However, I think that one of the things this Panel might want to take a
look at, is whether we want to add our voice to that of the SARA Panel
in terms of recommending the consideration of a pilot program that would
look to see what happens when you don\'t have negotiated prices at the
contract level, but rather leave things to the task order level
competition.

I think it would be instructive to look at a pilot on that. However, I
think it would be too big of a point of departure to say, as a
recommendation, we want to get away wholly from setting some sort of
price bench mark at the contract level at this juncture.

Those are some of my comments. And I\'m happy to lend time and whatever
talent people think I have in crafting some of those recommendations.

CHAIRMAN BRANCH: Tom.

MR. ESSIG: The answer to your first question in my perspective \-- first
off. Let me start that I found myself in mostly in agreement with the
recommendations that the speakers made today.

I also find myself mostly in agreement with I think the comments being
made by the Panel now. So I think we\'re really starting to get there.

The answer, though, to the first question, in my opinion, as to whether
or not the \-- we need pricing at the contract level, the answer varies
somewhat with whether or not you\'re talking about products or services.

And I believe that at the product level, there is some value in having
what is determined to be fair and reasonable pricing, for relatively
small quantity purchases. Where it really is not worth the
administrative cost in both dollars and time to go out and run a
separate competition for it. When I\'m ordering five staplers, why do I
want to go and recompute, use some other tool to help us do that. Okay?
It could be e-Buy, it could be GSA Advantage, something like that.

For services, I basically think that the pricing in the contract
provides no value whatsoever, however. I\'m particularly concerned about
the tool that we\'re currently using to enforce fair and reasonable
pricing, and that\'s the MFC for a number of reasons.

One, MFC as we\'ve indicated, basically really does not apply to
services acquisitions, where you should be looking in addition to rates
at the number of hours and the quality of the services.

In the area of products, it also creates problems as I think we\'re
talking about commercial products yet, the pricing strategy used in the
commercial marketplace does not reflect fixed prices over long periods
of time. If you got significant, and sometimes frequent changes in
pricing in the commercial marketplace, the commercial sector, if you
look at your Sunday adds, you\'ll see things that are being sold that
week at a loss, for whatever reason. The company needs cash flow, wants
to get rid of stock, wants to do something.

A company can take a small loss over a short period of time on a unit
price. You can\'t expect them to apply that to everything with an order
over the rest of the year. Companies will go out of business, or they
simply won\'t do business with us. So, I don\'t think that the MFC
reflects the way the market prices things.

And as we heard from IG today, it\'s also not clearly understood, or
universally understood, so it\'s probably misapplied. It\'s also not
enforced with 70 percent of them basically not being used.

I think MFC is at this point in time kind of an archaic tool to try to
secure a fair and reasonable price. I think everything that the Panel\'s
been talking about is for products, again, over some minimum level,
possibly over the simplified acquisition level. The use of some tool,
which gives us current, market pricing, I\'m talking today. Because we
recognize, especially like an I.T. systems, it could change from day to
day, some from hour to hour.

But at this point in time, this is a fair and reasonable price, based on
true competition, is a much better tool for us.

CHAIRMAN BRANCH: Anyone else? Yes, April.

MS. STEPHENSON: I have to say I completely agree with what you\'re
saying. This was where I was going to start out as well. I think the
questions have to be answered in terms of products, and then have to be
answered again in terms of services. And they may be different answers,
depending on if it\'s products or services.

I tend to agree that we can do some sort of most favorite customer,
discount quantities, whatever you want to say, for products. Especially
what I would call more standardized commercial products.

When it comes to services, I tend to agree with David. That if we\'re
going to do services, it needs to be standardized, and then prices mean
something. Otherwise, the prices may not mean anything.

But lacking some sort of standardization, I\'m not sure we even need
services on a GSA schedule. Maybe we\'re back to the service \-- each
one of the agencies negotiating their own prices for services.

But I definitely we need to approach this in terms of products and in
terms of services separately.

CHAIRMAN BRANCH: So, Debra.

MS. SONDERMAN: I would echo that as far as looking on two tracks,
products and services. I guess the one group of users of the schedules
that I think we need to keep in mind is the small agencies who you know,
may not have a sophisticated \-- may not have a large enough workforce,
even in a service area, if they need custodial services or something
like that. And I do believe that you know, for some of those agencies,
having prices established in the \-- at the contract level in the
schedule is beneficial to them.

So we need to think about \-- and there are a lot of them. You know,
they\'re all small. But there are a whole bunch of them. And so they may
be a special group that we need to think of as a group of users of the
schedules as we\'re going through these deliberations.

CHAIRMAN BRANCH: Judith and then back to Glenn.

MS. NELSON: To reiterate, you know, obviously I strongly believe that
there\'s a disconnect between products and services. However, I do feel
that they cross over in the reality of the world of procurement. So, if
we do keep price reduction clause in place, I\'m not sure that we can
totally disconnect the price reduction clauses.

Because the reality of the majority of our procurements, or a large part
of our procurements are for turnkey solutions. So, a turnkey solution
may look very different for Mr. Branch as it will look for Mr. Essig.

So, Mr. Branch over in DoD may order the very same labor categories
under a statement of work, and the very same software, and the very same
products. But at the end of the day, his price reduction may be 15
percent, your price reduction may be 15 percent. But the way that it was
calculated is, he ate you know, the vendor ate the software maintenance,
and you ate, the vendor for you ate labor categories.

Okay. But you bought the identical thing, and then how do you manage
that price reduction clause. And especially if you\'ve divided the price
reduction clause. So I think that there is \-- you know, as one whose
had to manage that price reduction clause, particularly on the industry
side, there\'s some complexities there.

I am strongly not an advocate for the standardized labor categories.
I\'m not sure how the Government would maintain those labor categories
over any period of time. They\'d be great for day one. I\'m not sure how
they would be great for day 180, and certainly not day, you know, 450.
And whose responsibility would be \-- who that would be, and how that
would particularly play into small businesses, and some of our other
socio-economic, and what that would do for our small business, even if
they didn\'t \-- let\'s say, first of all, they didn\'t have the
capacity to play in that sphere.

And then if they did, what their capacity would be to compete in that
world. So, I think that would be an issue for us to take a look at if we
went there.

Also, I do think that in the realm of trying to solve world hunger, I\'m
not sure how that would play in the individual agency\'s capacity to
match those to what their requirements are. And every program manager,
and COTRs requirement under their particular procurements. I could just
say Shay Assad having a nervous breakdown.

So, I\'m personally, and this is my personal opinion, that I\'m not an
advocate to that. I do believe that there is an advantage to determining
some fair and reasonable pricing at the contract level. I see \-- and I
hadn\'t thought about this, but when Tom said it, I do think that
perhaps it should be up to a certain level.

Maybe with 803 coming out, we look at what that level is. And I think
maybe it was the GAO who brought it \-- I can\'t remember who brought it
up this morning, or Cotton, who brought it up this morning. Maybe we
look to, look at what DoD has brought up, the \$200,000 and then the
\$500,000 where we look to what the 803 is going to be across the
civilian agencies. And maybe we make recommendations to what the maximum
order thresholds are across the schedule. We look to some of those
areas, but where we do the fair and reasonable determinations.

But I do think it\'s important to do some level of fair and reasonable
determinations to help meet that requirement under the schedules and
benefit our customers.

CHAIRMAN BRANCH: Glenn and then Jan.

MR. PERRY: I \-- you made a couple of \-- before you asked the
questions, you made a couple of statements. One was about data, and I
think we\'ve already \-- I agree with Dave. I think we need to do
something. We can get data. And I think we need to decide, or make some
recommendation about what that is.

I realize some people react to that very, say, well, it\'s too hard to
do. And we\'re going to get that. But I still think there ought to be a
recommendation on some reasonable amount of data. Because I just don\'t
think we can sit here in 2008 with the capacity that we have as a
Federal Government to collect data electronically, or whatever the ease
of which, I don\'t think we can tell taxpayers that we\'re still working
\-- we can\'t do it because it\'s all paper-based someplace. It\'s an
unacceptable response to that.

The second \-- the first thing you said though, is about responsibility
for at the agency level versus what GSA is responsible for. And I would
agree that the agency is responsible for the actual execution of the
orders and how well they get additional competition or whatever.

But I hope it didn\'t mean that, I believe that that work when it comes
to the schedule is based on, there is responsibility if GSA is going to
offer the service, and hold itself out as the buyer for the Federal
Government. Then I believe they do share that responsibility for setting
the platform for where the agency goes after that.

And if anything would come out of this as far as methods, the more I
think of \-- the more you get into and think about it, yes, there is no
one-size-fits-all. Even after we decide \-- even if we were to say,
split the products off from the services, even within the services,
we\'re not going to come up with a one-size-fits-all.

But, I do think we owe it, or GSA owes it to the customer agencies to be
clear about what that platform represents. And we don\'t have that
today. I go to the \-- there was a slide here in the last presentation
about the website on MAS. And I think one of the things we need, that
needs to be done, is it needs to be made clear in each of the market
areas, to what \-- what is the platform that GSA is providing from which
people can depend on. And then make it clear what they still have to do
after that.

For example, but I don\'t think anymore you can say that we\'ve taken
care of \-- based on everything we\'ve heard so far, you can\'t continue
to say that \-- we can\'t \-- you can\'t say this, the way it\'s said.
Because the problem with that is, everybody reads that, and they thinks
that\'s what\'s happening. And it\'s not.

But it\'s not \-- or, it\'s not being done the same way in every sector.
And there are a lot of sectors between the schedules and within a
schedule, there are also market sectors, several market sectors in some
of those schedules, particularly I.T., Financial Services. Some of those
things, there are different market sectors within those, even though on
the schedule on the surface, it looks like it\'s very nice, one neat
package.

So, I think the answer to your question is, I think there is some \--
there is some reliance, there needs to be some reliance on some contract
pricing, or some contract platform that gives folks and also addresses
the issue with the small agencies, it gives them at least some kind of
baseline.

But I think we need to fully disclose and some work needs to be done to
say, what that \-- how good that is, how much rigor has been put behind
it, and just be honest and say, in some areas, there isn\'t rigor. So,
in this particular schedule for this particular item, you need to do the
following, you\'re going to have to do the following things as part of
your order competition.

For instance, there may be another part of the schedule, you could say,
nope, we\'ve done this, this is the kind of rigor. Let them know what it
is. And say, if you just go ahead and order this the way it is, based on
phone calls, or looking at the price list, you\'ll be okay.

But I realize it\'s going to take some work to do that, but I think we
have to be honest about what\'s been done, what\'s not done, and sort of
set that up.

MS. NELSON: Glenn, could you clarify what you mean, what kind of
rigor\'s been done?

MR. PERRY: I think if any agency, GSA in this case, if someone \-- if
GSA really has somebody working, knows the market, really has done the
analysis, has the data, has done the pre-award, we\'re talking pre,
pre-award, made sure the contractor or whoever the vendor is, has the
system in place, has the data to support that this is the price that
they\'re selling to folks at whatever the discount levels or whatever,
and I\'m starting to throw other things in here. But that\'s what I\'m
saying.

And just tell people, this is what I \-- this is what we did. And this
is the kind of data we had behind it, that gives you that \-- you have
some reasonable expectation that that\'s an okay price. Then go ahead
and say that.

But for the ones where you can\'t do that, tell people, this is as much
as we did. And basically, it was just contract to say, this is what we
provided.

CHAIRMAN BRANCH: To just \-- if I could just kind of tag on to what
Glenn is saying here. Because this is something I had in my notes. It
would be helpful in the GSA contract, if I understood what the basis of
the pricing was.

So, for example, most favorite \-- you know, if you say, I got most
\"favorite customer pricing\" and I\'m putting that in quotation marks.
And that means that the equivalent commercial customer chosen, you know,
has within some range of dollar values or units of sales, and the
average order size is within some range to some unit.

If I\'m dealing with an I.T. vendor, and I know, well, the equivalent
customer for this pricing is about \$5 million worth of volume, and the
average sales order against that \$5 million is \$15,000, and I\'m going
out to buy enough laptops for the Navy Marine Corps internet contract,
then that ought to put me on notice very quickly, that I ought to be in
a competitive environment in negotiating.

On the other hand, if I\'m in the Forest Services Field Office up in,
you know, Yellowstone National Park, I\'m looking at that, and I\'m
doing the happy dance because I just got a really good deal. So it might
help if the contract had some basis of pricing disclosure.

And I don\'t know if I\'m putting words in Glenn\'s mouth, but I think
that\'s where you were headed.

MS. NELSON: Without taking too much offense, you know, I can follow
Elliott\'s train of thought. But if I could just respond and we can put
this on the record, and I will do it as gently as possible.

CHAIRMAN BRANCH: And Jan has been waiting patiently. So, he\'s next
however.

MS. NELSON: So if I could just gently put this on the record, Glenn. If
GSA has a contracting officer with the FAC level III, and they have a
PNM in their contract file, and they sign off on that 1449, I\'m going
to gently suppose that they have done all of the requirements in order
to award that contract.

Now, if what Mr. Branch is suggesting, that that \-- there be some way
to make some of that information available across the Government, I
might be able to go along with that.

CHAIRMAN BRANCH: Okay. Jan and then Tom here. Jan, thank you for waiting
very patiently.

MR. FRYE: Oh, that\'s okay. I really do like Dave\'s idea of capturing
data that contracting officers could use across Government. I think
that\'s an excellent idea. And if it can be implemented, I think it
would benefit everyone.

It\'s also becoming increasingly clear to me and it was I thought clear
several meetings ago, that there is a real difference between services
and products. And I think most people around the table nod their head in
that agreement.

I will tell you that I\'m walking away from this meeting today wondering
about GSA\'s value to me. You know, if the IG was correct at all, and he
gets up here and says, MFC is not in place 70 percent of the time, then
what\'s GSA doing? What are their contracting officers doing?

And I\'m probably am going to offend some of you in GSA. And I \-- Tom
is probably going to take up the tail right behind me. I\'m not sure
what he\'s got to say. But given Tom\'s interest in pricing, during our
last session, if we don\'t have most favorite customer and if you\'re
all over the map on fair and reasonable price, then what value is it for
me to use GSA schedules.

I\'ve always said, because you had a fair and reasonable price, because
of speed. That\'s the reason we use GSA. And I\'m starting to wonder
whether you\'re watering this down to the point where, heck, I\'ll just
put my own contracts in place, or we use SEWP or other agency GWACs.

Again, I don\'t know where Tom\'s going on this. But he\'s anxiously
awaiting an audience as well. I would just say, I think GSA schedules
are very, very valuable to us. And if we get to the point where we water
this down, maybe they won\'t be so valuable to us anymore.

CHAIRMAN BRANCH: Okay. Let\'s hear from Tom. Then I\'d like to stop the
discussion for a minute and suggest we have \-- suggest a pathway
forward. And then we can kind of pick up on that.

MR. SHARPE: I guess I\'m concerned with the data. And I\'m sorry I
missed part of today. But I think circling around has been a request of
GSA to support this pricing program. And it\'s very, very large.

I don\'t know how much the GSA contract level prices are relied on. But
what I\'ve learned after five sessions is, there\'s little or no support
for those prices. And if there\'s heavy reliance on those prices,
there\'s a fair size problem, right?

So, I think the price does matter. I think we should be looking at if
we\'ve reached the point where there\'s not the support for those
prices, not knowing the reliance on them, and I really don\'t know the
reliance on those prices \-- I agree with Glenn. GSA I think should
immediately present the right disclosure on what these prices are or are
not. Not knowing the reliance. There may be some harm being done.

And then I think, you know, you paste it well, Elliott. I think that\'s
the right thought process to figure out if we think the prices should
matter, what to do about it, and what\'s GSA role?

I agree with David. I mean, I think there are strategic things we should
be considering. We should be levering the prices. Prices do in fact
matter. And I think this program maybe doing harm right now.

CHAIRMAN BRANCH: I\'m going to give Lesa the floor for just a second,
then come back to suggesting a road ahead for our next few meetings.

MS. SCOTT: I promised I\'d to this in five sentences. On the pricing
fair and reasonable determination, I kind of reached the conclusion, I
think maybe we should be aiming at the quantity \-- GSA should be aiming
at quantity of one, up to whatever the SAP limit is.

That way, as the small purchase limit moves, then it would move in the
schedules, and we wouldn\'t have to go in and make changes. I don\'t
want to lock into a dollar figure. So it would be my concrete suggestion
that they aim at setting the best price between zero and whatever the
SAP limit is.

On labor categories, I\'ve got really strong opinions. And right this
minute, I offer my compromise, which would be to have targeted, on or
two that act as a baseline. If you\'re going to have a FABs, where
you\'re going to have accountants, then you have a category that GSA
says is the category, and then you have definitions.

And then each vendor could then offer variations away from, more or less
differences. But have one or two baseline. One of the reasons I say this
is because everyone comes at me talking about GSA categories, GSA labor
categories and mapping to GSA. We don\'t have any labor categories. But
we keep getting accused of having labor categories, or we keep getting
told that we have labor categories and definitions.

And we\'re there. Everybody thinks we\'re there. So, we might as well
find a way to actually deal with that reality since folks tend to think
we have them. So, my suggestion would be simply to have one or two in
each of the big areas, and then use those just as a baseline place. And
it would be simply that, your platform comment.

And I\'d like to see on the product side, we get back to more commercial
practices. They don\'t fix pricing for five years in the commercial
marketplace. So, we\'re way off base with trying to do that.

And then one of the things I do know from talking to and having been in
a small agency, and having talked with and worked with a lot of
companies, that when we do have products, many, particularly small
agencies, want services with those products. When they buy the product,
they want to be able to get it installed. They want to be able to have
it maintained. They want some service level with it, which is what
caused us to put services into the I.T. schedule in the first place.

And finally, as far as the confidence factor, or like they do in
politics where they do go out and do customer surveys, margin of error.
You know, they\'ll say, that this survey that we did for votes for
Obama, or Hillary, or whomever, has had this much margin of error. Maybe
we could do something like that in terms of the confidence factor or the
pricing, is have some kind of margin of error, or maybe a risk-analysis
range that we can put out there for people so they\'d have a sense of
the confidence in the pricing.

I\'m done.

MR. DRABKIN: Elliott, I\'m sorry. I can\'t let it pass.

CHAIRMAN BRANCH: Dave. MR. DRABKIN: I don\'t want us to \--

Look. With all due respect to my colleagues from the other agencies, GSA
schedules price is the price you try to beat and it\'s the price you use
to measure by.

Now, whether or not the IG\'s charts on 70 percent whatever it was is
relevant or not, it is de facto the price to beat, not only in our
marketplace, go to the State of California. And the State of California
uses the GSA price as the price to beat. Which must mean, that our price
is pretty good to start with.

Go to SEWP, somebody talked about other contracts. SEWP uses our prices
as their prices to begin with. And by the way, if you go to many of the
other contracts, it\'s the same.

I agree with you, we have a problem, and it needs to be fixed. But a
number of you said you\'d walked away today wondering what the value is
of the GSA contract. If nothing else, it set the price in the market
you\'re operating in. And you\'re here because you\'re worried about
whether or not you\'re getting as good a price as you should get.

But you know that you got to beat the GSA price, and you\'re doing,
having a great day. And I just wanted to leave that here, particularly
since the Press is writing this down. And I want to make sure that gets
in the Press. Thanks.

CHAIRMAN BRANCH: I think that\'s a fair comment.

MS. NELSON: Jan, wait. Jan, you specifically said that why not just go
to VA. And I actually know that the VA has a memorandum that requires
that the VA go to SEWP for I.T. products. And as David said, SEWP is
actually bench mark, specifically bench mark on GSA schedule or better.
So they are relying actually on the work that GSA does for fair and
reasonable price determination.

So they\'re actually not doing it. SEWP has one CO. One. Okay. And,
there\'s no price reduction or economic price adjustment clause within
SEWP. Neither. So, but what I\'m saying is, your automatic is, I should
go to another \-- but I don\'t know if VA has actually made a
determination that that is already a better contract vehicle. It just is
out there.

CHAIRMAN BRANCH: Well, hopefully, what we can do, is deliver a set of
recommendations that take those sorts of questions off the table.

So, let me suggest a way forward here. I\'m going to start with what I
didn\'t hear. And I didn\'t hear a lot of push-back against the three
questions I framed supplemented by the one April put on the table. So,
I\'d kind of like to use those four questions as a framework.

The next thing is, I really think we\'ve got four challenges here. We
have goods. We have solutions, which consist of goods and services,
primarily of services that are provided by knowledge workers.

We have services that are provided by knowledge workers without good.
And we have services that one might call commodity services, where I\'m
buying kind of one each, you know, Gate Guard, Janitor, those sorts of
things.

So, I really think we have four general areas that we have to deal with.
Let me suggest as a ground rule with respect to solutions, that we treat
solutions based upon the preponderance of the mix. So, in other words,
if we are buying a solution, and we should recommend a policy on
knowledge worker services and the preponderance of a particular buy, is
those services rather than the commodities, then whatever the policy
that applies to services would apply to those solutions.

On the other hand, you know, if we\'re buying primarily commodities,
then whatever we recommend GSA applies to those commodities would apply
to that body of solution services. And then I think we need probably to
grapple, you know, kind of grapple with commodity services.

But what I would like to suggest is that we work through this over the
next four meetings. And I would suggest that the next meeting what we
do, is we take one of these areas \-- and since I think there is a lot
of energy in the room of \-- I think I\'m hearing a fair consensus, we
believe services and commodities ought to be different.

Let\'s try to tackle services next meeting. The idea to sit down,
deliberate, think through the issues, think through where we are as a
consensus, and in the next meeting, then to actually formulate a set of
recommendations with respect to services.

Then in the third meeting, we would go back and tackle commodities and
follow the same pattern. So we would spend our third meeting really
deliberating on the issues surrounding commodities as we see them
relative to the most favorite customer clause and the price reduction
clause, and come back in the fourth meeting to actually sit down and
come to some consensus on the recommendations we would like to make to
GSA with respect to policy on that.

And then to hold a fifth, and final meeting, to pick up, if you will, or
perhaps a fifth meeting to pick up, if you will, those things that the
lawyers call dicta. Those things that are clearly outside the charge of
this charter, but we believe we need to go back and make recommendations
to GSA on.

And then, hold a sixth meeting to see if we can kind of integrate this
into one product and actually deliver a final to the Commissioner.

So, I would propose that we space these if possible, over the next three
months with the goal of shortly after the beginning of the Fiscal Year,
wrapping this up and providing in deliverable back to the Commissioner
of GSA.

I\'m putting that on the table as a suggested approach. So, I guess I\'d
like of like to hear thoughts on that.

MS. NELSON: I\'m just asking for you to clarify. The first meeting would
be services?

CHAIRMAN BRANCH: First meeting would be, you know, for us to really
deliberate on the issues we believe surrounding pricing in services
contracts. And the second meeting would be to come to closure on a set
of recommendations with respect to what should be done with services
contracting.

MS. NELSON: Both solutions and \--

CHAIRMAN BRANCH: Right. And my ground rule again, my proposed ground
rule on services is, if you\'re buying 51 percent hardware, whatever the
services policy is, doesn\'t apply. The hardware policy applies. If
you\'re buying 51 percent services, then the services policy would apply
to the solution sets. Kind of the same rule we use in DoD in coding, you
know, things for FPDS.

Yes. Tom, and then April.

MR. ESSIG: Just as an alternative recommendation. I\'m not sure we need
to split services into two. I mean, if you have as a target morning we
tackle the issues, afternoon we tackle solutions.

CHAIRMAN BRANCH: Yes. Thoughts on that? You know, there\'s been a lot of
energy around a lot of topics.

MR. ESSIG: And I think we\'re reaching some general consensus on some
things. I\'d like to at least shoot for it. If we can\'t make it in one
day, we can schedule a second meeting.

CHAIRMAN BRANCH: Thoughts on that? I\'m certainly open to that.

MR. DRABKIN: I would like to suggest scheduling a meeting is difficult.
So maybe we should take Elliott\'s proposal. We can get ahead of the
game and then cancel a meeting.

MR. ESSIG: Agreed.

CHAIRMAN BRANCH: Okay. Yes, April.

MS. STEPHENSON: To clarify, we have already have a meeting scheduled for
August that was to assess the fair and reasonable prices. Would that
meeting continue, or that meeting in conjunction with what we\'re
talking here is the first meeting?

CHAIRMAN BRANCH: I\'m proposing that we redirect the agenda of that
meeting. You know, my sense is, again, I\'ll go back to this. For our
purposes, we probably got as much data as we\'re going to collect in a
limited amount of time. Although, I think David\'s vision is right on.
Over the long run, we have to collect this data. We have to take very,
very strong steps towards strategic sourcing.

And I think this Panel is a perfect example of why. Because we really
ought to be having a data driven discussion. And I think we all realize
that that data from the user agencies isn\'t available because it is in
paper. So, I don\'t know that there\'s any point in holding that
meeting.

I would suggest we redirect our energy toward really dealing with the
idea of, what are the issues surrounding services and what are our
specific recommendations with respect to improving pricing on services
in GSA contracts.

MR. PERRY: I would say, is anyone \-- I guess I would ask, does anyone
think they need hear anything else from anybody as far as data or
information? I think there were a couple people that were teed up. Pat,
for the next meeting, you were \--

MS. BROOKS: We had \-- I had submitted an invitation to the VA IG to
present at the 18th meeting on fair and reasonable price determination.
I also had a couple of requests from representative from the ABA as well
as the Coalition and a couple of other participants had asked to present
at the August 18th meeting.

CHAIRMAN BRANCH: I certainly don\'t want to stifle, you know any of, the
ability of the public to present their views. But maybe what we would do
is compress that somewhat and then start into these deliberations and
use Tom\'s optimism to think that we could get that done plus what we
needed to be done in about a meeting and a half. So we have \-- do we
have agreement on that approach to come into closure? Everybody give
that a nod? All right.

MR. CHVOTKIN: Yes. Start early and bring coffee.

CHAIRMAN BRANCH: We can start these meetings at 8:30 as far as I\'m
concerned. We don\'t have to wait until nine.

MR. ALLEN: 8:30? Let\'s do it at six o\'clock, let\'s get going.

CHAIRMAN BRANCH: All right. Well, I\'ll leave it to Pat to contact
everyone outside the public forum to see what time the meetings really
be to start. I think that\'s a way we can approach closure. So, I\'ll
just kind of open the floor for any comments to end the day, and then we
will, you know, give folks back part of their very hard fought, valuable
calendar.

Any last thoughts? Anyone want their nickle back. Okay. I guess we\'re
adjourned for the day. We will see you on the 18th of August, ready to
tackle services.

(Whereupon, the afore-mentioned meeting was adjourned at 4:00 p.m. to
reconvene August 18, 2008.)