> 116 Eclipse Way Mooresville, NC 28117

August 4, 2008

GSA Multiple Award Schedule Advisory Panel

U.S. General Services Administration

2011 Crystal Drive

Suite 911

Arlington, VA 22205

RE: MAS Schedule Policy Advisory Panel Discussion on Fair and Reasonable
Price Determinations.

Dear Distinguished Panel Members:

I am a retired acquisition official of the U.S. General Services
Administration. I was one of the key architects of many of the Multiple
Schedules Policies that you have been reviewing and discussing. As a
contract negotiator, I personally awarded over a thousand schedule
contracts; as a supervisor I reviewed and concurred in still a thousand
more, and while serving as the Director of the Federal Schedule Policy
Office, I developed and implemented key regulations, policies, and
training materials for the MAS program.

Milton Berle, comic and occasional wise sage, noted years ago, "If
opportunity doesn't knock build a door." GSA, industry and your panel
are fashioning such a door and that is wonderful. Transformation is in
the air. Ingenuity, courage, and hard work will improve the schedules
program.

However, I offer one big caveat. The old adage that warns us that those
who ignore the lessons of the past are doomed to repeat them is in play
here. From 1974 through 2006, there were over 30 reports authored by
Congress, the GAO, and the GSA Office of Inspector General that were
critical of the GSA schedules program. The panel members should be
cognizant of these reports and the efforts made to improve the program
based on these criticisms. The success of this panel will not be the
result of a spontaneous combustion of ideas. The ideas should be
developed with a good historical perspective of the program.

The key criticism distilled from these aforementioned reports was GSA's
inability to obtain volume pricing from its vendors. The Most Favored
Customer (MFC) Pricing Policy developed in the early 80's along with an
aggressive audit program eliminated much of that criticism.
Additionally, a robust Federal Supply Service policy office provided
extensive policy guidance in the 1990's that ensured uniform
interpretations of the key provisions of the program.

I note that the MAS panel goal and objective is to look into these
policies consistent with "commercial practices". I believe this
objective means ascertaining the commercial practices of the
**purchasing departments** of corporate America, not solely the
commercial sales and marketing practices of the vendor community. The
panel will find Most Favored Customer (MFC), audit and price reduction
provisions in the contracts and contract forms of America's premiere
purchasing departments. They are also to be found in the purchasing
departments of some of the schedule contractors. I encourage the panel
to invite a few purchasing directors from corporate America with similar
missions akin to those of GSA (e.g., Lowes, Sears, Target, Best Buy).

I strongly urge this panel not to take away the key contracting tools of
the GSA buyer; tools crafted from the numerous recommendations of the
GAO, Congress and the OIG. Why take away the provisions from GSA
contracts that are routinely used effectively by large corporate buyers?
In one of its numerous reports to GSA on the MAS program, GAO argues
that GSA contracting officers cannot negotiate the best prices unless
they consider the discounts offered most favored customers and such a
negotiation tool in supporting a fair and reasonableness determination
was also a "commercial practice". Every professional buyer in both the
public and private sector know that you don't begin negotiations at the
low end of the discount structure. Industry's call for the demise of the
MFC provision and substituting "fair and reasonable pricing" is nothing
more than a euphemism for offering the government's negotiator lower
discounts and higher prices. MFC is only a tool that helps the
government buyer to make the determination of a fair and reasonable
price. When a similar proposal was floated around in the mid 90's,
Eleanor Spector, then DOD's Procurement Director, called such a proposal
to the Schedules program a very anti-buyer, pro-vendor idea. I resurrect
that concern today.

GSA was formed by Congress in 1949 with the idea of creating an
economical and efficient purchasing agent for the federal government
that effectively leveraged its large purchasing volume. GSA is
abdicating that responsibility by encouraging its customers to haggle
for the better price (see PIB "Fair and Reasonable Prices and the MAS
Pricing Policy already provided the panel). If the prices negotiated are
not fair and reasonable as some are arguing, or not the best, and that
further negotiation is required at the ordering level, then essentially
the contract is vitiated to that of an agreement between GSA and the GSA
vendor. And, with "Agreements" vis a vis" bona fide contracts, you will
probably engender a need for more stringent synopsis requirements at the
ordering level as well as complying with small business regulations
which require set asides to orders up to \$100k. These additional
requirements will eviscerate the overall benefits of the MAS program.

Another key criticism of the program from our customers during the
period 1977 through 1988 was the lack of contract coverage. During that
era, a typical GSA schedule contract had a one year period of
performance. In the late 1980's, we converted the contract periods to
three year instruments and subsequently to five years. Those significant
changes in contract periods satisfied both the vendor community and our
client agency partners. In the mid 1990's, the program went "evergreen"
(basic 5 year contract with 3 five year option periods). However, the
evergreen program was not without problems and concerns. The number of
audits were dramatically reduced and the analysis to exercise the option
periods were, in many cases, perfunctory. Detailed price analysis was
absent in many of the cases we reviewed. Evergreen contracting periods
are used commercially to leverage buying power with a few select
companies. GSA does not effectively leverage this long term arrangement.
**The panel should recommend that long term contracts should only be
awarded to those firms that provide for MFC pricing.**

In addition to the effective leveraging of long term contract periods,
another contractual provision that could help attain MFC pricing is the
old Maximum Order Limit (MOL) provision. In the 70's, 80's, and 90's,
contractor ordering limits were based on a tiered structure. For
example, a vendor providing fair and reasonable pricing but not MFC
pricing was given a lower level. The higher the discounts, the higher
the MOL in the vendors contract. Those vendors that provided MFC pricing
were either given the higher tier or no limit. It may be time to rethink
the use of the old MOL provisions if GSA is unable to obtain MFC pricing
during negotiations. Today, the MOL has been replaced by a Maximum Order
(MO) provision. The current MO provision only asks the contractor to
**consider** providing a higher discount. The old MOL provision
**required** a higher discount at higher volume of sales.

Another key and effective price negotiation tool was the audit, both pre
award and post. President Reagan once declared: "Trust but verify, play
the game but cut the cards." GSA has, unfortunately, been lax in
verification. And, GSA has not been "cutting the cards". In its
testimony to the U.S. Senate in 2005, GAO noted that pricing problems
persist and that pre award audits continue to be used on a limited
basis. GAO noted that when GSA used audits, "it has been able to award
or recover millions of dollars in overcharges. The use of audits has
declined dramatically despite dramatic increases in program sales." The
GSA OIG confirmed the GAO's findings in these hearings noting: "In the
three-year period prior to the 1997 rule that eliminated post award
audits, fully 84% of post award audits contained findings of defective
pricing, recovering over \$110 million in civil fraud penalties." Both
the GAO and the GSA OIG urged before the Senate that post award audits
be reinstated into the schedules program and the use of pre award audits
be dramatically increased. Since those hearings, the ratio of audits to
contracts awarded remains absurdly low and at that level provides no
credible verification process to this multibillion dollar program. And,
yes, panel, audit provisions are a commercial practice for many of the
purchasing departments of corporate America. **In order to ensure valid
and reliable price reasonableness determinations, the panel should
recommend a dramatic increase in the use of pre award audits and the
reinstatement of the post award audit.**

I strongly concur with the recommendation provided by David Cotton (July
21, 2008) to this panel that action be taken to assure that the price
reduction and MFC clauses are interpreted consistently and correctly.
The new Multiple Award Schedule Program Office within GSA will foster
such consistencies envisioned by Mr. Cotton and many others. Training
must be provided annually to all GSA contracting officials including
members of the OIG. GSA officials should also participate in annual
training programs offered by consulting firms for their clients on a
routine basis on the interpretations of these clauses. A dedicated web
site should be established on the proper interpretation of these two key
provisions with clear and concise samples and with clear and concise
questions and answers.

Though GSA has a duty to periodically improve its services, products and
offerings to customers, I am just a bit puzzled by the genesis of this
panel. I've read in trade journals that this panel was created at the
request of the previous GSA Administrator and her concerns about some
large schedule contractors canceling contracts because of the burdensome
requirements. If I recall correctly, the contract retention rates during
the 1980's and 1990's hovered between 92% and 95%. Annually, about 5% to
8% of schedule contractors opted to use the 60 day cancellation
provision. The vast preponderance of schedule contractors remain in the
program after contract award. They view the program as profitable and
worth the effort. This is a remarkable statistic especially when you
consider that most of the schedule contractors are small business
concerns and that approximately 30% of all small business firms at the
macro level in America fail in their first year of operation. Ask GSA to
give you the latest figures on the retention rate of its MAS
contractors. Ask how many GSA schedule contractors have cancelled their
contracts in 2007 and how many to date in 2008? GSA has had only a
handful of high profile contractors cancel contracts this past year and
some were under questionable circumstances. Is this a classic case of
the tail wagging the dog in determining whether to revise or eliminate
key policies or to undo much of the progress GSA has achieved in
improving the program?

Lastly, I end with a quote from Shakespeare: "The fault dear Brutus is
not in our stars, but in ourselves." The problems with the GSA schedules
program are not the three prominent clauses that this panel is
reviewing. It is with the culture: the absence of a quality culture; the
absence of excellence. However GSA in the end defines excellence or
success, it is important to keep in mind as many leaders and management
consultants have noted that it is not a project, slogan, poster, act,
job description or meeting a goal. Excellence is a way of life.

Sincerely,

Nicholas Economou, CPPO

<nickecon@gmail.com>

NICHOLAS ECONOMOU

Nicholas Economou is the owner and president of the FSL Government
Contracts Center, LLC, Mooresville, NC. The firm provides consulting
services to businesses involved in federal, state, and local government
contracting. Prior to this, Mr. Economou was owner and president of the
FSL Procurement Solutions, LLC, Manassas, VA. The firm provided
consulting services to procurement organizations involved in public
procurement.

In 2003, Mr. Economou retired from the U.S. General Services
Administration after serving 30 years in key acquisition positions. He
has served as a negotiator, contract administrator, cost and price
analyst, supervisor, division director and from 1987 to 2000 served as
the Director of the Federal Supply Service Procurement Policy Office. He
chaired the FAR committee on Multiple Award Schedules of the Civilian
Agency Acquisition Council. He has provided technical expertise to
officials within the Department of Justice on matters involving
defective pricing claims.

He graduated from Youngstown State University with a major in business
administration and received his Master of Science with emphasis in
procurement and contracting from the George Washington University.

He has a professional certification, Certified Public Purchasing
Officer, from the National Institute of Governmental Purchasing and
maintains membership with the National Contract Management Association
and the National Institute of Governmental Purchasing.

He has authored the first edition of the *Anthology of Commercial Terms
and Conditions* and was a key contributor to the second edition. He has
developed and implemented numerous regulations, policies, and procedures
concerning the GSA Multiple Award Schedules Program. He has developed
and implemented a specialized 5 course certification program for
contractors, the "Government Contractors Certificate Program" on behalf
of the National Institute of Governmental Purchasing. He has lectured
nationally on procurement policy issues and has taught courses on the
how's and whys of governmental purchasing .

He has received numerous awards including the Excellence in
Administration Award for his cost cutting initiatives with the U.S. Navy
and for standardizing reprographic equipment for the Navy fleet; the
Hammer Award and his reinvention efforts for improving the GSA Schedules
Program and the Excellence in Partnership Award from the Coalition for
Government Procurement and the *Federal Times.*

Mr. Economou is a decorated Vietnam veteran and member of the Veterans
of Foreign Wars.