EMC and Canon have become the newest large IT venders to join Sun Microsystems in their decisions to discontinue their GSA Schedule contracts, despite tens of millions of dollars of quarterly GSA sales for each vendor.  Although all the contractors are notable due to the volume of business that they were conducting through the GSA, the circumstances and motivations for their terminations are quite different.   Sun was embroiled in a congressional investigation into the political motivations behind their contract award, and additional investigations into claims that they overcharged the government.   The latter two vendors seem to be leaving the GSA program due to alleged overzealous demands for discounts to the government.

Canon had submitted at least three proposals to renew its GSA Schedule, which expired on October 31, 2007, according to company spokesman Mike DeMeo.  “GSA demanded unreasonable prices,” he said. “As a result we couldn’t continue.”

There is widespread confusion about GSA’s discounting mandate.  Many vendors are under the misperception that they are required to offer GSA their lowest prices – a misunderstanding that is perpetuated by both poorly trained contracting officers, and smart and aggressive CO’s alike (to the benefit of the government – which results in a CO’s ability to demand greater discounts than those which are mandated, and contractors’ more likely acquiescence.

According to Evie Altman, Principal at the GSA Schedule consulting firm EZGSA, “The actual mandate is more nuanced.  GSA is to seek prices and discounts as good as or better than the prices and discounts offered to the vendors’ most favored customer (MFC), based upon similar quantities, terms and conditions.  In other words, a vendor need not sell individual units through its GSA Schedule at the same price that the vendor offers to customers who purchase millions of units at once, to distributors, resellers, or other parties who do not purchase in similar quantities, or upon different terms or conditions.”

The vendor must not only understand the more limited discount mandate, but must also be able to offer to the contracting officer (and maybe one day to an ambush team from Sixty Minutes) a compelling justification for charging the taxpayers more than their commercial customers.   “Armed with that justification, a contractor can successfully resist demands for unreasonable discounts” says Altman.

Inconsistent demands for excessive discounts by a few contracting officers is destructive and costly to the vendors (especially small vendors), the GSA, agency buyers, and ultimately the taxpayers.  Forcing large contractors out of the GSA schedule program does not cut off access to their customers, it just makes them harder to reach for some customers.  Often, large manufacturers can use their resellers or other contract vehicles can pick up the slack.   The same is not true for the small contractors without alternate options to get their products and services to federal agency end-users.  Smaller contractors wind up on the outside of the GSA marketplace, looking in.  Fewer contractors with GSA schedule result in less choice and competition for agency buyers, to the detriment of both agencies and taxpayers.   And less activity through GSA schedules hurts the GSA, which is funded by a small fee assessed upon every transaction that goes through every GSA schedule.  Fewer contractors, fewer schedules, fewer fees.

EZGSA’s Altman adds “The solution is simple.   Contractors must understand that they must give GSA a good deal, and must understand the limits of how good a deal is required, and contracting officers must negotiate for the best deal for the government within the limits of their mandate”.  Agencies will then have a critical mass of responsible vendors from whom they can select either the cheapest or the best value for  their requirements.