Federal Supply Schedules: More Attention Needed to Competition and Prices
Published: 2015-07-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The FSS program provides agencies a simplified method of purchasing commercial products and services at prices associated with volume buying. In 2011, the FAR was amended to enhance competition on FSS orders. Competition helps agencies get lower prices on products and services and get the best value for taxpayers.
GAO was asked to examine competition and pricing for FSS orders. This report addresses (1) how and to what extent the government is using the FSS program, (2) factors influencing the degree of competition for FSS orders, and (3) the extent to which agencies examine prices to be paid for FSS orders.
GAO analyzed data from the Federal Procurement Data System-Next Generation on obligations through the FSS program for fiscal years 2010-2014 and reviewed a non-generalizable sample of 60 FSS orders awarded in fiscal year 2013 by DOD, HHS and GSA, the agencies with the highest use of the FSS program. GAO also interviewed officials from these agencies and FSS vendors.
section_title: What GAO Found
paragraphs: According to the General Services Administration (GSA), total sales through the Federal Supply Schedules (FSS) program in fiscal year 2014 were $33.1 billion. This includes purchases by federal, state, and local agencies, including federal intelligence agencies which do not report their FSS spending publicly. GAO's analysis of publicly reported federal procurement data shows that federal use of the FSS program has declined from $31.8 billion in 2010 to $25.7 billion in 2014—a 19 percent inflation-adjusted decrease. This is consistent with the decline in overall federal contracting obligations. The FSS portion of total federal contracting obligations remained steady—between 5 and 6 percent.
Most FSS obligations were competed in fiscal year 2014, but only 40 percent of obligations were on orders for which the government received three or more quotes—a number frequently mentioned in the Federal Acquisition Regulation (FAR). These results are influenced by various factors. One factor identified in the orders from the agencies GAO reviewed—the Departments of Defense (DOD) and Health and Human Services (HHS) and GSA—involves situations where few vendors can fulfill agencies' specific needs.
HHS had a significantly higher percentage of FSS obligations in fiscal year 2014 on orders that were competed but the agency received only one or two quotes—51 percent—compared to DOD and GSA, which received one or two quotes for 35 and 32 percent of their FSS obligations, respectively. HHS's practice of targeting solicitations to fewer vendors may be contributing to this higher rate.
Agencies are paying insufficient attention to prices when using FSS. Ordering agencies did not consistently seek discounts from schedule prices, even when required by the FAR. In addition, GAO found cases in which officials did not assess prices for certain items, as required, or had insufficient information to assess prices. Contracting officials were not always aware of the requirement to seek discounts and told GAO that the need to assess prices was not emphasized in training and guidance. When contracting officials are not aware of these regulations, agencies may be missing opportunities for cost savings.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD, HHS and GSA issue guidance and assess training to focus attention on rules related to pricing. DOD, HHS and GSA concurred. GAO also recommends HHS assess reasons contributing to its higher rate of orders with only one or two quotes. HHS concurred.

section_title: Letter
paragraphs: The Federal Supply Schedules (FSS) program, managed by the General  Services Administration (GSA), provides federal agencies a simplified  method of purchasing commercial products and services at prices  associated with volume buying. A schedule is a set of contracts awarded  to multiple vendors that provide similar products and services.  Transactions conducted through the FSS program represent significant  spending: in 2014, GSA reported total program sales of $33.1 billion.  Orders placed through the FSS program generally must follow  competitive procedures laid out in the Federal Acquisition Regulation  (FAR), though agencies can award noncompetitive orders under certain  circumstances. In 2011, the FAR was revised to enhance competition for  orders placed under FSS contracts. Specifically, agencies now must  either give all contractors under the relevant schedule an opportunity to  submit a quote or take steps to reasonably ensure that the government  receives at least three quotes for orders valued over $150,000. Increased  competition among FSS contractors helps ordering agencies compare the  features and prices of comparable products and services to determine the  best value.
You asked us to examine competition and pricing for orders under the  FSS program. This report addresses (1) how and to what extent the  government is using the FSS program to order goods and services,  (2) factors influencing the extent of competition for FSS orders, and (3)  the extent to which agencies examine prices to be paid for FSS orders.
To determine how the government is using the FSS program, we  analyzed data in the Federal Procurement Data System-Next Generation  (FPDS-NG), which is the government’s procurement database, to identify  obligations through the FSS program for fiscal years 2010 through 2014,  the most recent data available at the time of our review. We compared  FPDS-NG data to contract file documentation for a nongeneralizable  sample of orders and, based on this comparison, determined that the  FPDS-NG data were sufficiently reliable for our purposes.
To assess the factors influencing competition and the extent to which  agencies examined prices to be paid for FSS orders, we selected a  nongeneralizable sample of 60 FSS orders under GSA schedules. We  identified the three agencies that made the most use of the GSA  schedules based on obligations reported in FPDS-NG: the Department of  Defense (DOD), GSA, and the Department of Health and Human  Services (HHS). We further identified the components of these agencies  that obligated the most money through FSS: the Department of the Army  (Army) at DOD, the Federal Acquisition Service at GSA, and the Centers  for Medicaid and Medicare Services and National Institutes of Health  (NIH) at HHS. We selected orders to obtain a mix of products and  services purchased off a variety of schedules, including the most  frequently used schedules. Because different ordering procedures for  competition apply depending on the dollar value of orders, we chose our  sample based on four competition categories, with 15 orders selected in  each category: (1) noncompetitive awards above $150,000, which is  generally the simplified acquisition threshold (SAT); (2) competitive  awards above the SAT coded as the government having only received  one or two quotes; (3) competitive awards above the SAT coded as the  government having received three or more quotes; and (4) competitive  awards below the SAT regardless of number of quotes reported.
For each of the 60 orders in our sample, we reviewed contract file  documentation to assess whether required ordering procedures were  followed, the facts and circumstances of competition decisions, whether  discounts were sought, and how prices were assessed in making best  value determinations. We also reviewed the FAR, agency policies, and  Standards for Internal Control in the Federal Government. We  interviewed contracting officials at the selected agencies when necessary  to obtain additional information not documented in contract files. We also  interviewed FSS contractors for some of the orders. A more detailed  description of our scope and methodology is presented in appendix I.
We conducted this performance audit from June 2014 to July 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on audit objectives.
subsections: section_title: Background
paragraphs: The FSS program consists of 40 schedules providing access to almost  20,000 vendors offering a wide range of goods and services. GSA  operates the FSS program under authority contained in the Federal  Property and Administrative Services Act of 1949.and a wide range of medical supplies, GSA has delegated to the  Department of Veterans Affairs the authority to solicit, negotiate, award,  and administer contracts for selected schedules. Figure 1 provides  additional information about the 40 schedules maintained by GSA and the  Department of Veterans Affairs.
section_title: Use of Federal Supply Schedules Has Declined at Roughly the Same Rate as Overall Procurement Spending
subsections: section_title: Use of Federal Supply Schedules Is Declining
paragraphs: In fiscal year 2014, GSA reported its total FSS program sales as  $33.1 billion, which, according to GSA officials, includes data not reported  in FPDS-NG such as awards under the $3,000 micro-purchase threshold  and those made by federal intelligence agencies and state and local  governments. According to data we reviewed from FPDS-NG, the federal  government obligated $25.7 billion through the FSS program in 2014—a  decrease of 19 percent or $6 billion since 2010. This is consistent with  overall federal obligations that have declined at roughly the same rate.   Since 2010, the proportion of total federal contracting obligations awarded  under the FSS program has remained approximately the same—between  5 and 6 percent. While spending on both products and services has  decreased under the FSS program, products have declined more than  services—30 percent compared to 14 percent—with services making up  an increasing proportion of obligations. Services comprised 73 percent of  obligations in 2014, up from 69 percent in 2010. Figure 3 depicts the  proportion of product and service obligations in relation to overall FSS  obligations from fiscal years 2010 through 2014.
The FSS program can be used to meet a broad variety of government  requirements. Agencies can procure relatively simple items—for example,  the sample of orders we reviewed included musical instruments, sleeping  bags, foam cups, and copier and printer maintenance. However, our  sample also included large and complex procurements—for example, a  $123 million order for development of a human resources information  system, a $91 million order for in-person consumer support services, and  a $66 million order for enterprise-level technology support.
In fiscal year 2014, three product or service categories accounted for  70 percent of all FSS obligations: 38 percent ($9.8 billion) were spent on  professional, management, and administrative support services;  20 percent ($5.1 billion) on information technology and  telecommunications services; 12 percent ($3.1 billion) on information  technology products—equipment, software, and supplies. (See figure 4.)  The “other” category includes, for example, office supplies, which account  for only 0.5 percent ($129 million) of FSS obligations.
section_title: Small Number of Vendors Receive Most FSS Obligations
paragraphs: Part of the appeal of the FSS program is that it provides access to a large  pool of potential contractors, but the number of vendors varies  significantly by schedule. For instance, in 2014, Schedule 751 (Leasing of  Automobiles and Light Trucks) had 8 vendors while Schedule 70 (General  Purpose Commercial Information Technology Equipment, Software, and  Services) had 4,789 vendors. Each schedule is composed of categories,  called special item numbers, that group similar products, services, and  solutions together. A vendor with a schedule contract does not  necessarily offer all of these categories of goods and services available  within that schedule. Therefore, there may be fewer vendors within one  schedule depending on the specific category of goods or services being  purchased. For instance, while the schedule for human resources and  equal employment opportunity services has 276 vendors, only 4 vendors  provide the specific category of private shared service centers for core  human resources services.
We found that, although some schedules have a large pool of vendors,  most of the obligations on orders through those schedules go to a smaller  subset of vendors. For instance, 308 of the 4,789 vendors under  Schedule 70—or 6 percent—received 80 percent of all obligations  between fiscal years 2010 through 2014. Figure 5 shows the  concentration of work received for the three schedules with the highest  obligations in fiscal years 2010 through 2014.
section_title: Various Factors Influence the Extent of Competition for FSS Orders
subsections: section_title: Agencies Government- Wide Did Not Receive Three or More Quotes for Most Fiscal Year 2014 FSS Obligations
paragraphs: According to FPDS-NG data, 75 percent of FSS obligations were coded  as competitive in fiscal year 2014. However, only 40 percent of these  obligations were on orders for which the government received three or  more quotes while 35 percent of obligations were on orders with only one  or two quotes. FAR procedures generally emphasize reviewing three  pricelists, soliciting three quotes, or attempting to obtain at least three  quotes from vendors, and orders placed that follow these procedures are   The FAR also  considered to be issued using full and open competition.describes steps to take when awarding noncompetitive orders.  Twenty-five percent of obligations were coded as noncompetitive of which  49 percent were coded as orders where only one source could perform  the work (see figure 6).
section_title: Three or More Quotes Received for FSS Orders Using Various Methods
paragraphs: Our selected sample of 60 FSS orders included 23 competed orders— 8 below and 15 above the SAT—for which agencies received three or  more quotes or reviewed three pricelists—a number frequently mentioned  in the FAR. The agencies obtained three or more quotes from vendors  using a variety of approaches. For proposed orders below the SAT,  according to the FAR, the contracting officer must either review pricelists  from, request quotes from, or provide the solicitation to at least three  schedule contractors. For instance, we found:
A GSA contracting officer awarded a $10,000 order on behalf of the  Air Force for office file equipment by reviewing prices listed on GSA’s  website, requesting—and receiving—quotes from four vendors, and  then comparing the prices they offered to select the vendor with the  lowest price.
The Army placed a $23,000 order for steamers and fryers by posting  a solicitation on eBuy for 5 days. The contracting officer, who received  four quotes in response, selected the lowest-priced quote that was  technically acceptable.
Contracting officers used similar methods to obtain three or more quotes  above the SAT. For these orders, the government must either post a  request for quotation on eBuy—which provides all eligible vendors access  to the solicitation—or take measures to reasonably ensure that agencies  receive at least three quotes from contractors that can fulfill the  requirement—such as sending the solicitation directly to a subset of  vendors via email. Contracting officials posted solicitations on eBuy for  12 of the 15 orders in our sample where three or more quotes were  received and directly solicited vendors via email for only 3 orders.  Examples from our sample that illustrate these methods include:
The Army used eBuy to compete a $19.9 million order for  communications support and infrastructure in Kuwait and Afghanistan.  Nine vendors submitted quotes and the vendor with the lowest-priced  quote that was technically acceptable won the award.
To compete a $19.9 million order for technical and professional  information technology services at NIH, the contracting officer emailed  the solicitation to 22 potential vendors, 12 of which submitted quotes.
NIH found 4 of these technically acceptable, but 1 of these 4 did not  comply with the terms of the solicitation, leaving 3 competitors.  Competitors were evaluated on past performance, technical  capability, and price.
In some cases, although three or more quotes were received, after  preliminary evaluation, agencies actually considered fewer than three  quotes either because some of the quotes were not technically  acceptable or because they did not comply with the terms of the  solicitation. For example, GSA, on the behalf of the Army, received 10  quotes in response to a solicitation for a $66 million award for information  technology support. However, 9 quotes were deemed not technically  acceptable and only 1 quote was considered eligible for award.
section_title: Various Factors Influenced Why Agencies Received Only One or Two Quotes for Selected Orders
paragraphs: Agencies received only one or two quotes for 23 of the 60 FSS orders in  our sample. We identified various factors that may have influenced why  agencies received fewer quotes.
subsections: section_title: HHS Practice of Targeting Solicitations to Fewer Vendors May Result in Fewer Quotes
paragraphs: According to FPDS-NG data, in fiscal year 2014, HHS received only one  or two quotes for orders accounting for 51 percent of its total FSS  obligations. This compares with 35 percent government-wide. DOD and  GSA received one or two quotes for 35 and 32 percent of total FSS  obligations, respectively. The higher percentage of FSS obligations where  HHS received only one or two quotes suggests that HHS may be missing  opportunities to maximize competition, as specified in the FAR. Our  sample included nine orders for which HHS received only one or two  quotes.
For eight of these nine HHS orders, we found HHS officials narrowed the  pool of competitors by soliciting six or fewer selected vendors, in contrast  to the other agencies in our review that favored eBuy.award a $2.4 million order for logistical and administrative support,  contracting officials conducted market research to identify five vendors   For example, to  that were capable of performing the work and emailed the solicitation only  to these vendors rather than releasing it to over 100 potential vendors via  eBuy. The officials explained they could have potentially received  hundreds of responses which they would not have been able to  adequately review in a timely manner and they were fairly confident that  all five vendors would submit quotes. However, only one quote was  received in response to this solicitation. Other HHS officials told us that  narrowing the number of vendors solicited is a practice that they use to  compete common items or services. Although this practice is consistent  with FAR procedures, the relatively higher percentage of HHS obligations  on orders for which the government received only one or two quotes in  fiscal year 2014 suggests that HHS contracting officers may not be  putting enough emphasis on ensuring that three or more quotes are  received when competing orders.
Further, in two of these cases, officials missed an opportunity to evaluate  whether this practice of limiting the number of vendors solicited was a  reasonable approach before proceeding to award the orders. For  proposed orders above the SAT, if requests for quotations are not posted  to eBuy, agencies must write a determination explaining the efforts made  to obtain at least three quotes from contractors and that no additional  contractors capable of providing the necessary goods and services could  be identified despite reasonable efforts to do so. In two cases at HHS,  contracting officials did not prepare these determinations and told us they  were not aware of this requirement. Although this issue was not  widespread within HHS, it suggests that HHS officials may not be fully  aware of their responsibilities with respect to FSS ordering procedures.
section_title: Small Number of Potential Vendors and Other Factors Influenced Number of Quotes Received
paragraphs: Our sample also included another 14 orders for which agencies received  only one or two quotes, 8 awarded by the Army and 6 awarded by GSA.  In almost half of these cases, we found that one reason the government  received fewer quotes was because the goods and services needed by  the agency were only provided by a small number of vendors. For  example:
A $446,000 Army order to replace portions of a targeting system was  solicited on a brand name or equal basis—meaning that the agency  sought either a specific brand or items with the same features as the  brand name. According to a contracting official, typically only the  vendor that provided the system could perform repairs. However,  because in this instance larger portions were being replaced—rather  than just repaired—officials thought there was a possibility of  obtaining more than one quote. Therefore, they competed the order  rather than awarding it noncompetitively, but only the incumbent  submitted a quote.
In another case, GSA awarded a $123 million order to provide a  web-based human resources solution. According to the acquisition  plan, only four vendors offered this category of goods and services  under their schedule contracts, so at most four vendors could have  responded to the solicitation, which was posted for 45 days. However,  ultimately only two vendors responded. The contracting officials  selected the winning vendor based on technical approach,  management approach, past performance, and price, in accordance  with the solicitation.
We also found one example where the Army made errors in the  solicitation process, which may have limited competition. In this case, we  reviewed a $23,000 Army order for a filing system where the Army issued  the solicitation using a reverse auction process that did not solicit any  vendors that sold the type of item being purchased.mistakenly specified a brand name item only sold by one vendor that was  not included among the small businesses notified of the reverse auction.  Contracting officials stated this should not have been limited to the brand  name as they are aware of other vendors on the GSA schedule that sell  similar products. The Army received no bids in the reverse auction and  ultimately placed the order with the brand name manufacturer under the  vendor’s FSS contract.
In some cases, contracting officials told us that they did not know why  more vendors did not submit quotes. In 2014, we recommended that  DOD establish guidance for contracting officers to assess and document  the reasons only one offer was received on competitive solicitations to  enhance competition. DOD implemented this recommendation by requiring contracting officials to ask vendors who had expressed an  interest in the solicitation why they did not submit an offer.
section_title: Length of Solicitation Period Had Varied Effect on Number of Quotes Received
paragraphs: In the 60 FSS orders we reviewed, we found that the relationship  between the length of time vendors had to respond to competitive  solicitations and the number of quotes received varied depending on the  individual circumstances of each award. We identified examples where  three or more quotes were received even though only a short time was  allowed for responses. For example, an Army solicitation for a  $367,000 order for dining facilities equipment was open for 3 days and  five technically acceptable quotes were received. Conversely, for a  $90 million order associated with the Affordable Care Act, HHS sent a  solicitation to five vendors, initially giving them 19 days to submit quotes.  One vendor requested an extension to the solicitation period, which the  agency declined. Most of the vendors informed HHS they did not plan to  submit quotes, with three noting the short solicitation time period as a  reason. Near the end of the solicitation period, HHS extended the  solicitation by 17 days. Ultimately, two vendors submitted quotes, but the  vendor that had initially requested more time did not and informed HHS  that the extension was granted too late in the process to allow them  adequate time to prepare a quote.
To maximize savings that are obtained through competition, in 2010,  DOD directed that when only one offer is received in response to a  competitive solicitation that was open for fewer than 30 days, generally  contracting officials should take additional steps to promote competition.  These steps include readvertising solicitations for at least 30 additional  days. We found one Army solicitation that was open for fewer than  30 days but not resolicited, contrary to DOD regulation. Army contracting  officials attributed this lapse in proper procedure to customer pressure to  place the awards rather than resolicit and also to inexperienced staff. In  May 2014, we reported that contracting officers with whom we spoke  generally did not believe that the length of time a solicitation was open  was a factor in receiving only one offer, particularly because all of the   In that  contracts we reviewed for that report were open for 30 days.report, we found that acquisition planning activities could help encourage  multiple offers and we recommended that DOD ensure that existing  acquisition planning guidance promotes early vendor engagement and  allows both the government and vendors adequate time to complete their  respective processes to prepare for competition.
section_title: Most Justifications for Noncompetitive Orders Had a Variety of Errors
paragraphs: We reviewed 14 orders—5 each at Army and GSA and 4 at HHS—that  were awarded noncompetitively. We found that each of these  noncompetitive orders was based on reasons allowed by the FAR—only  one source is capable of meeting the need, urgency, or follow-on. For  example:
GSA awarded a $32.1 million award for the renewal of licenses for  imaging applications used in Air Force platforms on the basis of there  being only one source capable of meeting the need. According to the  justification, only one vendor makes the software and the pursuit of  alternatives would cause delays associated with testing and training,  as well as duplication in costs.
The Army awarded a $317,000 order on the basis of an urgent and  compelling need to provide support to soldiers deployed in Hurricane  Sandy relief efforts because the vendor was already on-site and  competitive procedures would have resulted in unacceptable delays.
GSA awarded an $18.6 million order on behalf of the Army as a  follow-on to a previously competed order to provide testing and  engineering support services. The Army intended to compete this  work but, after the competition was delayed, GSA awarded the order  noncompetitively to prevent a lapse in service.
For noncompetitive orders above the SAT, the FAR requires that  agencies prepare a written justification that includes specific content,  including an explanation of why the government could not compete the  award, and make the justification publicly available. We reviewed  13 noncompetitive orders above the SAT. In one case—a $505,000 HHS  order for maintenance of biological specimens—HHS officials did not  prepare the required justification. HHS officials told us this was an  oversight because they had prepared a justification for a related  procurement that they mistakenly applied to this order as well.
For the 12 remaining noncompetitive orders above the SAT, agencies  prepared justifications as required, yet we identified a variety of issues  with most of these justifications. Issues included: late approval, no  evidence that justifications were made publicly available, and citing of  incorrect FAR authorities. For example, the justification for a $360,000  Army noncompetitive order for a proprietary closed-circuit television  security system used the format for justifications for open market  procurements rather than for FSS orders and therefore did not use the  correct FAR citation and included a fair and reasonable price  determination instead of a best value determination. Further, officials  confirmed it was never made publicly available as required. When  interviewed, officials expressed confusion about the requirements for  noncompetitive schedule orders and stated that they are in the process of  developing new training to address this problem. The variety of issues we  found suggests that agency officials may not be fully familiar with the  ordering procedures for noncompetitive orders, which points to the need  for more training and guidance on the current regulations.
section_title: Agencies Are Paying Insufficient Attention to the Prices Paid under FSS Orders
paragraphs: Our analysis of how agencies assessed prices for the 60 orders in our  sample showed that agencies are not paying sufficient attention to prices  for goods and services under FSS orders. Although GSA makes a  determination that the prices established on FSS contracts are fair and  reasonable, prices for the same item or service can vary widely from one  schedule contract to the next, making it important that agencies  effectively assess prices when the orders are awarded. However, we  found that ordering agencies are not always paying sufficient attention.  For example, contracting officers did not consistently seek discounts from  schedule prices, even in situations when it was required. Although  vendors frequently offered discounts for competitive orders, they were  less likely to do so when contracting officers did not seek discounts for  noncompetitive orders.not on the schedule contract without performing a separate price or cost  analysis, as required by the FAR, or did not obtain sufficient information  to determine whether the item was on the schedule. Agency officials we  spoke with noted that some of these problems stem from inexperienced  staff who are unfamiliar with the schedule ordering procedures. GSA has  recognized that more needs to be done and is taking steps to increase  the information available on prices paid by proposing changes to the data  vendors are required to report.
subsections: section_title: FSS Contract Prices for Similar Items Vary
paragraphs: When establishing a FSS contract with a vendor, GSA must make a  determination that the prices under the contract are fair and reasonable,  but FSS prices can vary widely—as they do on the open market—for  certain products. For example, schedule prices for one brand of 8-ounce  foam cups we examined varied from $17.54 per box of 1000 cups to  $50.72 per box of 1000 cups. In the open market, we identified sources  selling this brand for $17.34 to $38.99 per box of 1000 cups, although  these prices did not account for shipping costs. This amount of variation  in prices, particularly for the schedule prices, underscores the need for  agencies to ensure that they are obtaining the best value when placing  orders under FSS contracts. In the case of the foam cups, which were  purchased through an order in our sample, GSA competed a purchase of  610 boxes of cups and received a low quote of $16.10 per box of  1000 cups, which included a discount from the vendor’s FSS price.
We also found that vendor practices vary when establishing FSS pricing  and discounts, enough so that one vendor may offer a larger percentage  discount than another, but the deeper discount does not always lead to  the lowest price. Contracting officers told us that some vendors set their  FSS price as a ceiling and routinely discount prices for orders, while  others offer their best price upfront on the FSS contract and do not offer  subsequent discounts. For one order in our sample, GSA issued a  solicitation for 200 brand name telephones which elicited two viable  quotes. While one vendor offered a higher percentage discount from its  FSS contract price than the other—35 percent versus 5 percent—the  heavily discounted price was still much higher than the less discounted  price. The vendor’s quote with only a 5 percent discount was lower by  approximately $100 per telephone.
section_title: Ordering Agencies Did Not Consistently Seek Discounts from Schedule Prices When Required
paragraphs: In our sample of FSS orders that were over the SAT, we found a  significant number of cases—16 out of 45 orders—in which contracting  officers did not seek discounts from FSS prices, as required per the  FAR. In all 16 cases the ordering activities may have missed  opportunities for savings. Contracting officers sought discounts for  26 orders, and we could not confirm whether discounts were sought in  3 cases.vendors offered a discount off the schedule prices for most orders in our  sample. (See table 1.)
section_title: Agencies’ Attention to Price Assessments Varied
paragraphs: Among the 60 FSS orders we reviewed, we found significant variation in  how contracting officials assessed prices. Of greatest concern are a  number of instances—9 out of 60—where agency officials paid  insufficient attention to pricing by not following procedures to assess the  prices for open market items or by not having sufficient information to  ensure they were paying schedule prices. Open market items are goods  and services that are not on the schedule. For administrative  convenience, a contracting officer may include open market items on a  schedule order; however, he or she must follow all applicable acquisition  regulations, including determining that the price for the open market items  is fair and reasonable, and items must be clearly labeled on the order as  not on the schedule. When prices for open market items are not  assessed, the government is at risk of paying more than it should, in part  because GSA has not made a fair and reasonable price determination for  these items. Some of the instances in our sample when open market  items were not assessed include the following:  In an HHS order for $409,000 in laboratory equipment, the contracting  officer bought $47,000 worth of open market items without conducting  a price analysis. The contracting officer was not aware that she had  purchased open market items because the first item listed in the quote  was marked as an FSS item so she assumed everything in the order  was under the FSS contract. The contracting officer told us she did  not compare the vendor’s quote to the vendor’s schedule contract for  this order. The vendor told us that they were not aware this order  would be awarded under their schedule contract which is why they  proposed some open market items.
For a $358,000 order for a security system, the Army purchased over  $80,000 in open market items without conducting a price analysis  even though the vendor clearly marked which items were open market  in its quote. Contracting officials stated that they should have  conducted more analysis including checking for open market items.  Due to a lack of training on procedures for open market items,  contracting officials assumed that every item offered was an FSS  item.
For a $388,000 order for firing range bleacher enclosures, the Army  did not assess prices for $114,000 of open market items because the  Army accepted a lump sum quote with no breakdown of the FSS and  open market components. The Army did not require the vendor to  provide sufficient information to identify which items were and were  not on the schedule so could not have known that they were  purchasing open market items.
Standards for Internal Control in the Federal Government state that  management needs to identify appropriate knowledge and skills needed  for various jobs, and provide needed training, as part of a commitment to  competence. Internal control activities—such as policies and  procedures—also help ensure that management directives are carried  out.
Further, the government is at risk of paying more than it should when  contracting officers do not ensure they are paying the prices established  by GSA. In a $150,000 HHS order to conduct a disease study abroad, the  vendor offered and the government accepted labor rates that were not on  the vendor’s FSS contract. The vendor told us that the solicitation did not  mention use of FSS, so its quote was not based on its FSS contract.  Seven months after the order was awarded, the vendor noticed the work  was issued under FSS and requested that HHS use the labor rates  established in its FSS contract, which were less expensive than the rates  offered previously.
In many of the orders we reviewed, contracting officers largely depended  on GSA’s previous determination that the prices on the vendor’s schedule  contract were fair and reasonable, as is described in the FAR. In one  instance—a $13.9 million Army award for testing a weapon system— contracting officials compared the one quote received to the vendor’s  schedule and noticed that the vendor did not use its schedule pricing. The  contracting official asked the vendor to revise and resubmit its quote  using schedule prices.
We also found instances where contracting officials conducted additional  price analysis beyond comparing offered prices to the schedule prices to  ensure they were getting the best value. Some contracting officials stated  that they conducted additional price analysis because they obtained only  one quote and did not have the benefit of multiple competitive quotes for  comparison. For example:  In a $408,000 GSA order for a docking system, the contracting officer  compared the quote to the schedule and found an item’s price was  $7,500 greater than the listed schedule price. The contracting officer  requested and was granted an adjustment to the price to reflect the  lower schedule price. After receiving only one quote, the contracting  officer conducted additional price analysis of the vendor’s quote by  requesting historical pricing information from previous government  contracts, and confirmed that the vendor’s quote was in line with its  historical pricing.
In a $1.1 million noncompetitive order for office furniture and  installation services, GSA contracting officials compared the vendor’s  rates against its FSS contract, and identified inclusion of work not  listed in the solicitation. At the request of GSA, the vendor corrected  this error. To determine whether the vendor’s prices were fair and  reasonable, the contracting officers conducted additional price  analysis by comparing prices from other FSS vendors for similar or  same products as the bidding vendor.
When only one offer is received for competitive solicitations, DOD  generally requires additional steps to establish that the prices of supplies  and services are fair and reasonable. In 2014, DOD established a new  requirement for contracting officers to make their own price  reasonableness determination for all FSS orders which DOD officials told  us was intended to encourage contracting officers to seek better prices.  DOD ordering activities may no longer rely only on GSA’s price  reasonableness determinations.
section_title: GSA Has Started to Take Steps to Increase Information Available on Prices Paid
paragraphs: Currently, ordering agencies generally do not have insight into prices  previously paid by other federal agencies for a similar product or service  under similar terms and conditions. This limits the government’s ability to  fully leverage its buying power. To address this problem, some agencies  have tools that provide pricing data for items they purchased previously.  For example, an Army contracting officer used the Federal Logistics  Information System as a source of information for prices previously paid.  However, this information is limited to certain agencies. Without greater  insights into past purchasing, agencies risk paying higher prices and  missing opportunities to obtain discounts.
GSA does not have access to prices being paid for schedule orders  because vendors do not currently report this information. Currently,  contracting officers must ensure that FSS contracts require vendors to  submit quarterly reports to GSA providing their FSS sales totals and the  associated fee that GSA is owed. In addition, the price reductions clause  requires vendors to provide the government the same price reductions  given to their most favored customer. In place of the quarterly reports and  the price reductions clause, GSA is proposing revisions to its regulations  that will include clauses that would require vendors to provide data on the  prices paid at the order level and plans to have agencies use this data to  compare prices for similar goods and services. GSA anticipates that the  data on prices paid would reduce the risk of agencies paying higher  prices; reduce price variation for similar products and services on FSS;  and allow agencies to conduct meaningful price analysis and more  effectively validate fair and reasonable pricing. For FSS vehicles, the new  data reporting requirement would be introduced in phases, beginning with  a pilot for select products and commoditized services. GSA officials told  us that creating comparable data for services will be challenging and is  part of their longer-term initiative. In April 2015, at a public meeting to  discuss the proposed regulation change, industry and some government  representatives expressed significant concerns about the feasibility of  GSA’s proposal and the impact of it on both vendors and the  government’s ability to manage risk. Other government representatives  expressed support for GSA’s proposed changes.
section_title: Conclusions
paragraphs: The FSS program is an important tool for agencies to obtain goods and  services through a simplified procurement method, but it must be used  properly to ensure that the government is obtaining a good price and  competition to the maximum extent possible. At the individual order level,  some contracting officers are using effective strategies to increase  competition or seek discounted prices. However, the extent of issues we  found as a result of contracting staff that are not aware of the  requirements—from errors in justifications for noncompetitive orders on  the schedule, to discounts not being sought when required, to open  market items purchased without assessing prices—suggests that more  guidance and training are necessary to ensure proper use of the program.  When contracting officers do not seek discounts for FSS orders, the  government may be missing opportunities for cost savings. When  contracting officers do not evaluate prices for open market items, the  government cannot be sure that items are being purchased at a fair and  reasonable price. Further, the high percentage of obligations on orders for  which HHS received only one or two quotes suggests more attention is  needed to ensure that that the practice of narrowing the pool of vendors  at HHS is not limiting the agency’s ability to receive the full benefits of  competition.
section_title: Recommendations for Executive Action
paragraphs: To help ensure contracting officers follow ordering procedures when  using FSS, and to enhance internal controls, we recommend that the  Secretaries of DOD and HHS and the Administrator of GSA take the  following three actions:  Issue guidance emphasizing the requirement to seek discounts and  outlining effective strategies for negotiating discounts when using the  FSS program;  Issue guidance reminding contracting officials of the procedures they  must follow with respect to purchasing open market items through the  FSS program, including the requirement to perform a separate  determination that the prices of these items are fair and reasonable;  and
Assess existing training programs to determine whether they are  adequate to ensure that contracting officials are aware of the ordering  procedures of the FSS program, including requirements to 1) properly  prepare justifications for noncompetitive awards, 2) seek discounts,  and 3) assess prices for open market items included in FSS orders.
To help foster competition for FSS orders consistent with the FAR, we  recommend that the Secretary of HHS take the following action:
Assess reasons that may be contributing to the high percentage of  orders with one or two quotes—including the practice of narrowing the  pool of potential vendors—and if necessary, depending on the results  of the assessment, provide guidance to help ensure contracting  officials are taking reasonable steps to obtain three or more quotes  above the SAT.
section_title: Agency Comments and our Evaluation
paragraphs: We provided a draft of this report to DOD, GSA and HHS. All three  agencies provided written comments and concurred with our  recommendations to issue guidance emphasizing the requirement to seek  discounts, issue guidance reminding contracting officials of procedures  for open market items, and assess the adequacy of training programs  related to FSS ordering procedures. In addition, HHS concurred with our  recommendation to assess the reasons contributing to the agency’s high  percentage of orders with one or two quotes. The agency comments are  discussed below and reproduced in appendixes IV, V, and VI. HHS also  provided technical comments, which we incorporated as appropriate.
In its written response, DOD stated that it will issue guidance by the end  of July 2015 emphasizing the requirement to seek discounts and  reminding contracting officials of the procedures to follow when  purchasing open market items. In addition, the agency said it will assess  existing training programs to determine whether they are adequate to  ensure awareness of FSS ordering procedures by October 2015. GSA  stated that it is developing a comprehensive plan to address our  recommendations. In addition, the agency described its recent and  planned efforts to reduce price variability of FSS contract prices for similar  or identical items.
Regarding our first two recommendations, HHS stated that it will issue  acquisition alerts emphasizing the requirement to seek discounts and the  procedures required when purchasing open market items. The agency  noted that information from available GSA guides, training and tools will  also be included in the alerts and that this information will be integrated  into its ePortal, which houses internal policies, guidance and instructions.  Regarding our recommendation to assess existing training programs,  HHS stated it will issue an acquisition alert reminding contracting officers  of the required procedures to comply with federal guidance. In response  to our fourth recommendation, HHS stated that it had already begun to  assess the reasons contributing to a high percentage of orders for which  the agency received two or fewer quotes and the practice of narrowing  the pool of vendors. Once the assessment is complete, the agency said it  will issue an acquisition alert providing guidance to ensure that  contracting officials are taking reasonable steps to obtain three or more  quotes.
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If you or your staff have any questions about this report, please contact  William T. Woods at (202) 512-4841 or woodsw@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this report. GAO staff who made key  contributions to this report are listed in appendix VII.
section_title: Appendix I: Objectives, Scope and Methodology
paragraphs: The objectives of this review were to address (1) how and to what extent  the government is using Federal Supply Schedule (FSS) contracts to  order goods and services; (2) factors influencing the degree of  competition for FSS orders; and (3) the extent to which agencies examine  prices to be paid for FSS orders.
To determine how the government is using the FSS program, we  analyzed data in the Federal Procurement Data System-Next Generation  (FPDS-NG), which is the government’s procurement database, to identify  total obligations through the FSS program for fiscal years 2010 through  2014, the most recent data available at the time of our review. We  adjusted all obligations for inflation using the Gross Domestic Product  price index and reported all data in fiscal year 2014 dollars. We included  orders off contracts coded as “FSS” and blanket purchase agreement  orders coded as FSS blanket purchase agreements to identify those that  were awarded through FSS. We compared FPDS-NG’s data on FSS  obligations to a list of FSS contracts, including contract numbers, from the  General Services Administration’s (GSA) eLibrary. In addition, we  compared FPDS-NG data to contract file documentation for a  nongeneralizable sample of orders and, based on this comparison,  determined that the FPDS-NG data were sufficiently reliable for our  purposes.
We analyzed data on total federal contracting obligations as well as  obligations awarded under the FSS program. Additionally, we reviewed  the obligations awarded under the FSS program to assess the obligations  on products compared with obligations on services. We did not  independently assess whether orders were correctly coded as either  product or service obligations. We also analyzed the product and service  obligations to determine which product and service categories accounted  for the most obligations in fiscal year 2014. We used GSA’s list of FSS  schedules and contracts as of April 2014 to determine the corresponding  schedule for each contract where possible. However, we were not able to  match all orders and calls to a particular schedule. Within each of the  three schedules that received the highest overall obligations in 2010  through 2014, we used FPDS-NG data to analyze the overall number of  vendors on the schedule, as well as how many vendors received at least  one award in the 5-year period and how many vendors received  80 percent of obligations. To assess the extent of competition for FSS  orders, we analyzed FPDS-NG data using the field titled “Fair  Opportunity/Limited Sources” to categorize obligations by competition  status. Competitive orders include those coded in FPDS-NG under  “competitive set aside” or “fair opportunity given”; and noncompetitive  orders include those coded under “urgency”, “only one source – other”,  and “follow-on action following competitive initial action”. In addition, we  categorized as noncompetitive orders coded under “minimum guarantee”,  “other statutory authority”, and “sole source”.
To assess the factors influencing competition and the extent to which  agencies examined prices to be paid for FSS orders, we selected a  nongeneralizable sample of 60 FSS orders under GSA schedules  awarded in fiscal year 2013, the most recent complete year of data when  we began our review. In order to allow comparability and price analysis  across our sample, we did not include orders under schedules awarded  by the Department of Veterans Affairs, which primarily offer medical and  health-related items. We also excluded blanket purchase agreements,  which do not obligate funding, and the calls upon them, which do not  follow the same ordering procedures as FSS orders. Using FPDS-NG  data, we identified the three agencies with the highest obligations on FSS  orders under GSA schedule contracts in fiscal year 2013: the Department  of Defense (DOD), GSA, and the Department of Health and Human  Services (HHS). We further identified the components within each of  these departments with the highest fiscal year 2013 obligations through  FSS orders: the Army at the DOD, the Federal Acquisition Service at  GSA, and the Centers for Medicaid and Medicare Services and the  National Institutes of Health (NIH) at HHS. Together, the Centers for  Medicaid and Medicare Services and NIH obligated approximately the  same amount as the Army or the Federal Acquisition Service in fiscal  year 2013, so we included both and selected an equal number of orders  at each. For logistical convenience and to obtain a variety of products and  services in our sample, within the Army, we selected orders at Army  Material Command and National Guard Bureau, which are two of the  largest Army users of the FSS program.
To assess the ordering practices for different types of orders, we selected  orders from four categories based on competition status and dollar value,  using coding in FPDS-NG. The four competition categories are: (1) orders  above $150,000, which is generally the simplified acquisition threshold  (SAT), that were competed and for which three or more quotes were  received; (2) those above the SAT that were competed and for which one  or two quotes were received; (3) those above the SAT that were  noncompetitive; and (4) competed orders below the SAT. We did not  include awards coded as noncompetitive with values below the SAT  because many of the requirements for noncompetitive awards do not  apply below the SAT, particularly the requirement for a justification and  approval document. We then selected our nongeneralizable sample of  60 contracts by using a combination of cluster and convenience sampling  to select 20 orders from each of the three agencies—with 5 orders in  each of the four competition categories. To do so, in each category, we  selected the two largest orders, using the “base and all options” field in  FPDS-NG, and three orders from the middle of the dollar value range by  dividing the list of orders into thirds and selecting from the middle third.  We selected orders to obtain a mix of product and service categories  purchased off a variety of schedules and to include the most heavily used  schedules, measured by number of orders and dollars obligated.
When reviews of contract files revealed miscodings, we included the  order under review in the appropriate category. However, our initial  selection included five awards that were blanket purchase agreement  calls, but not coded as such in FPDS-NG, and one that was a requisition  for which there was no contract file to review. We replaced these six  awards with new selections. While we selected 15 orders coded as  belonging to each competition category, upon review of contract file  documentation, our sample included totals as show in table 2.
To assess factors influencing competition for FSS orders, we reviewed  contract file documentation for the 60 selected orders and, in some  cases, interviewed contracting officials. We reviewed documentation  including acquisition plans, market research, award decision and price  negotiation memorandums and, where relevant, limited source  justification documentation. We also reviewed relevant sections of  Federal Acquisition Regulation, Department of Defense Federal  Acquisition Regulation Supplement, Department of Health and Human  Services Acquisition Regulation, General Services Acquisition Regulation,  FSS program guidance, and Standards for Internal Control in the Federal  Government to establish criteria for whether agencies took required steps  to achieve competition. We also interviewed contracting officials and  vendors to obtain perspectives on the degree of competition for the  orders, and whether officials had sufficient familiarity with FSS program  requirements and procedures to carry out their duties.
To determine the extent to which agencies examined prices to be paid for  FSS orders, we reviewed contract file documentation for the 60 selected  FSS orders, specifically: best value determinations, independent  government cost estimates, and award decision memorandums to assess  how best value determinations were made. In five cases, where the items  were readily available on the open market, we compared the FSS prices  paid to the cost of the items on the open market. For all 60 orders, we  obtained the GSA schedules that were in effect at the time of award.  When documentation allowed us to do so, we calculated the schedule  price and compared the established schedule prices to the prices paid for  the goods and services in our sample. Additionally, we reviewed  documentation on discounts sought and received and, as necessary,  interviewed contracting officials and vendors to determine whether the  government sought discounts as required by Federal Acquisition  Regulation for orders above the SAT. Finally, we interviewed officials at  DOD about its new requirement for contracting officers to independently  determine price reasonableness for items purchased on the schedule,  and at GSA about efforts to obtain new data on prices paid for items  purchased on the schedule.
We conducted this performance audit from June 2014 to July 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on audit objectives.
section_title: Appendix II: Ordering Procedures for Federal Supply Schedule Orders Valued at $150,000 or Above
section_title: Appendix III: Ordering Procedures for Federal Supply Schedule Orders Valued Below $150,000
section_title: Appendix IV: Department of Defense Comments
section_title: Appendix V: Department of Health and Human Services Comments
section_title: Appendix VI: General Services Administration Comments
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Tatiana Winger (Assistant  Director), Peter Anderson, Jessica Berkholtz, MacKenzie Cooper,  Alexandra Dew Silva, Julia Kennon, Jared Sippel, Roxanna Sun, Alyssa  Weir, and Carmen Yeung made key contributions to this report.