Comments on the Price Reductions Clause

On December 29,2011, the General Services Administration (GSA) issued a Federal Register notice entitled “General Services Administration Acquisition Regulation; Information Collection: Price Reductions Clause.” In accordance with the Paperwork Reduction Act the notice informs the public that GSA “will be submitting to the Office of Management and Budget (OMB) a request to review and approve an extension of a previously approved information collection requirement regarding the GSAR Price Reductions Clause (PRC).” In order to assess the paperwork burden of the clause before an extension, the notice seeks public comments on the following:

Whether this collection of information is necessary and whether it will have practical utility; whether our estimate of the public burden of this collection of information is accurate, and based on valid assumptions and methodology; ways to enhance the quality, utility, and clarity of the information to be collected.

With regard to the annual reporting burden associated with the PRC, the notice estimates the “Number of Respondents” at 4,500; the “Total Annual Responses” at 4,500; and “Average hours per response” at two hours, resulting in “Total Burden Hours” of 9,000. The notice does not provide further explanation regarding the analysis, assumptions and methodology used to estimate the annual burden.

The notice significantly understates the paperwork burden associated with the PRC. So maybe it is time to “bust some myths.” First, the notice puts the number of respondents at 4,500. In reality, the PRC is incorporated in approximately 17,000 MAS contracts with approximately 12,000 contractors (many MAS contractors have multiple contracts under the program). Each contractor is a respondent consistent with the reporting requirements of the PRC. Second, the two hour average per response does not appear to account for total contractor time and administrative costs incurred in complying with the PRC. The following contractor tasks associated with the PRC involve significantly more time than two hours per respondent:

• Preparation of the offer and negotiation of the contracts terms. This first step is vital to addressing the mechanics for triggering price reduction. Offerors analyze their commercial pricing practices and policies and the drafting language addressing the tracking customer for price reduction purposes.
• Contract administration. Establishing effective systems and designating responsible personnel are keys to maintaining compliance with the PRC. Contractors invest in systems and personnel to specifically monitor commercial transactions for purposes of PRC compliance. This is an ongoing effort through the life of the contract.
• Oversight and review. Contractors typically conduct periodic reviews of systems and personnel structures to better ensure compliance with the PRC. These efforts often involve counsel and/or accountants.
• Training. Contractors regularly train their sales force and senior executives responsible for contract compliance on the key compliance and reporting requirements of the PRC. This training is done on an ongoing basis throughout the year.

Ironically, the PRC, with its significant time and cost burdens, is no longer relevant or necessary under the current MAS competitive framework. FAR 8.4 now includes robust competition requirements for all MAS task or delivery orders exceeding $150,000. Ordering activities must provide notice and an opportunity to compete to all contractors capable of meeting the order requirement or, alternatively, as many as practicable to reasonably ensure receipt of at least two quotes. In turn, GSA’s electronic quote system, eBuy, provides an efficient, effective and transparent mechanism for providing notice to all MAS contractors. As a result, pricing is being driven by competition at the order level, not the PRC. If there ever was a candidate for reform consistent with President Obama’s Executive Order No. 13563, Improving Regulation and Regulatory Review, the PRC is it!

Public comments on the PRC paperwork burden are due on February 27, 2012. The Coalition will be submitting comments. This last week we sent a request to members seeking information regarding contractor time and cost burdens incurred as a result of the PRC for our comments. The same request is included below in this week’s Friday Flash. Thank you to firms who have already responded and we look forward to receiving additional information as the comments are prepared. It is also vital for companies to submit comments directly to GSA regarding the significant, costly burdens imposed by the PRC.

GSA has a long and excellent history of hosting public policy forums. Through the public comment process, GSA has an opportunity to fully engage the public in a “Myth-Busters” dialogue addressing the PRC and the myth of its “limited” paperwork burden. We look forward to that dialogue.

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