Authored by Jeffrey Clayton
On March 21, 2017, the Office of Audits of the General Services Administration, Office of Inspector General (GSA OIG) issued an audit report titled, “Audit of Price Evaluations and Negotiations for the Professional Services Schedule Contracts”. The report details the findings of GSA OIG’s audit of contracts that were “migrated” to the Professional Services Schedule (PSS), which is a contract vehicle launched in October 2015 by the Federal Acquisition Service (FAS) to consolidate seven preexisting professional services schedules.
Out of 322 migrated contracts, GSA OIG auditors reviewed 45, which accounted for 78 percent of fiscal year 2015 sales made under these contracts. The primary findings of the audit included:
- FAS’s process to consolidate preexisting services contracts into PSS resulted in the award of new contracts without establishing price reasonableness as required by federal regulations.
- The Pre and Price Negotiation Memorandum template used by PSS contracting officers did not conform to the FAR or to FAS policy.
- Contract file documentation lacked sufficient information to determine fair and reasonable pricing as required by federal regulation and FAS guidance.
For contractors, perhaps the most significant finding is that 44 of the 45 sampled contracts were “awarded without the required price analyses.” As a result, those contracts and others that were migrated had the potential to remain unevaluated for up to 10 years (if they were in the fifth year of an option period when they were migrated, and were awarded a new contract that would include a five-year base contract period).
Beyond the headline
Consolidating contracts into PSS
- FAS migrated preexisting contracts when a contractor held two or more services contracts and a new expiration date was awarded.
- FAS transitioned preexisting contracts when a contractor held only one services contract and the original expiration date was kept.
Why did OIG focus the audit on migrated contracts?
It appears that GSA OIG focused on migrated contracts because the lack of a proper review of a migrated contract’s pricing could have resulted in contracts where pricing would not have been evaluated for up to 10 years.
How it may affect you
In its response, GSA’s Federal Acquisition Service agreed with the “overall substance” of the findings. More importantly for contractors, FAS noted that it has directed a formal price analysis be performed on all migrated contracts to determine if pricing on the contract is fair and reasonable. This process began in February 2017 and involves:
- Verification that current Commercial Sales Practice (CSP) information was incorporated into awarded contracts.
- Verification that appropriate price analysis was conducted, and if not:
- Conduct a new price analysis, that could include price negotiations; and
- If rates are significantly overstated, and/or a contractor’s CSP disclosures were not current at the time of migration, post-award audits may be initiated.
- Preparation of fully-documented reevaluation findings.
PSS contractors: considerations and recommendations
If you are one of the 322 contractors who migrated their contracts to PSS, your contracting officers have been instructed to independently reevaluate the CSP disclosures and pricing analysis used to award your PSS contract.
There are several potential outcomes of this reevaluation. For example:
- If the contracting officer determines that the resulting PSS pricing is fair and reasonable and disclosures are current, accurate and complete, you may not hear anything from GSA.
- If it is determined that an appropriate price analysis was not conducted, you may be required to provide updated disclosures and pricing information.
- If contract pricing is not deemed fair and reasonable, you may be subject to price negotiations.
- If it is found that rates are significantly overstated, or contract CSPs were not current at the time of migration, a post-award audit could be initiated.
Consider reviewing your contract file to determine whether your CSPs were current, accurate and complete at the time of the migration.
While no action may be necessary at this time, this kind of review will better prepare you for the types of questions and requests you may receive. Additionally, if your migration award documents included a provision to update outdated pricing disclosures, this kind of review will inform decisions about whether to proactively submit a contract modification.
If you are a large PSS contractor who migrated or transitioned to PSS, it is likely that GSA OIG reviewed your contract during the course of this audit.
In and of itself, this is not a problem, but it is something to be aware of as there may be additional focus from GSA or GSA OIG on your contract and its pricing.
In standing up PSS, GSA migrated or transitioned more than 700 contracts over a relatively short period of time. GSA OIG’s audit report puts forth the notion that FAS did not complete the required price analysis on a large number of these contracts in order to complete such a large number of contact actions in a compressed timeframe.
Some of the steps FAS took to complete the migration in an efficient manner are coming under question. For example, FAS’s migration instructions did not allow for contractors to provide updated CSPs. In some cases, contractors who tried to provide updated CSPs were instructed not to do so. As a result, contractors who simply followed the instructions may now be required to respond to questions about their pricing, the currency of their CSP disclosures or even be subjected to post-award audits.
"As this action is a consolidation of existing contracts with previously negotiated terms and conditions, (company name) was not required to update/change its MFC and price discount information to ensure that its pricing disclosures were current, accurate and complete as of 14 days prior to the offer submission. If changes are necessary, and/or the information needs to be updated, the contractor is advised to submit a modification request after the migration action is complete.”
– GSA OIG’s audit report noted that 29 of the 45 sampled contracts included the language above in award documents.
Baker Tilly’s take
While we understand GSA’s desire to ensure that it has negotiated fair and reasonable pricing, GSA should be reasonable with the requests it makes of contractors.
- Understand the level of effort necessary to prepare an updated CSP and only request one in cases where it is absolutely necessary
- Allow contractors adequate time to respond (e.g., requiring a contractor to provide an updated CSP within a few days, or even in a week, is not a reasonable request)
Initiating a post-award audit as a result of an oversight that GSA made seems punitive and unnecessary. We would urge GSA to use restraint here, work with contractors to get updated information, and if necessary enter into negotiations before starting an audit.
As a GSA Schedule contractor, it is always important to understand your contract, its key terms and provisions, and the affirmative actions you may need to take to effectively manage your contract and mitigate risks. Preparing CSP disclosures that are current, accurate, and complete is just one of those requirements, and despite the level of effort required it is something that every contractor should make certain it is doing when proposing for a contract or completing other important contract actions. If you have done this in the past and are prepared to do so in the future, the findings from this audit should not be a major concern. If this is not something you have focused on previously, there is no time like the present.
For more information on this topic, or to learn how Baker Tilly government contractor specialists can help, contact our team.