[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
GSA'S PROPOSED TRANSACTIONAL DATA RULE
AND ITS EFFECT ON SMALL BUSINESSES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JUNE 25, 2015
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-017
Available via the GPO Website: www.fdsys.gov
___________
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
TOM RICE, South Carolina
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
MIKE BOST, Illinois
CRESENT HARDY, Nevada
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
MARK TAKAI, Hawaii
Kevin Fitzpatrick, Staff Director
Stephen Dennis, Deputy Staff Director for Policy
Jan Oliver, Deputy Staff Director for Operation
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Richard Hanna............................................... 1
Hon. Mark Takai.................................................. 2
WITNESSES
Ms. Sheila A. Armstrong, Partner, Morgan, Lewis & Bockius, LLP,
Dallas, TX..................................................... 3
Mr. John Stanford, Vice President, NextWin Services, Washington,
DC, testifying on behalf of Women Impacting Public Policy...... 5
Mr. Roger Waldron, President, The Coalition for Government
Procurement, Washington, DC.................................... 6
Mr. John Horan, Partner, McKenna Long & Aldridge, LLP,
Washington, DC................................................. 8
APPENDIX
Prepared Statements:
Ms. Sheila A. Armstrong, Partner, Morgan, Lewis & Bockius,
LLP, Dallas, TX............................................ 19
Mr. John Stanford, Vice President, NextWin Services,
Washington, DC, testifying on behalf of Women Impacting
Public Policy.............................................. 29
Mr. Roger Waldron, President, The Coalition for Government
Procurement, Washington, DC................................ 34
Mr. John Horan, Partner, McKenna Long & Aldridge, LLP,
Washington, DC............................................. 50
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
SIA - Security Industry Association.......................... 56
GSA'S PROPOSED TRANSACTIONAL DATA RULE AND ITS EFFECT ON SMALL
BUSINESSES
----------
THURSDAY, JUNE 25, 2015
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Richard Hanna
[chairman of the subcommittee] presiding.
Present: Representatives Hanna, Hardy, and Takai.
Chairman HANNA. We will be called to votes, but I am
confident that if they have not done it yet, they will do it in
about 15 minutes. But the way it works is you still have--it
takes quite a while to get through it, through the vote series,
and we will probably be able to get the testimony of all of
you, I think. We will certainly try, if that is all right with
Congressman Takai. We will try that and we will just see how it
goes.
I have an opening statement and a gavel that Emily is about
to remind me I have to hit.
I want to thank you all for being here, incidentally, and
apologize in advance for the nature of these meetings. We have
no control over when they call votes, and if we did, it would
not matter because everybody would have a different time.
So I will call this hearing to order, and I have an opening
statement.
Good morning. Every June since I have been chairman of this
Subcommittee, we have held a meeting of the General Services
Administration, the GSA. This has not been by design but
because every year they come out with a new idea that threatens
the viability of small contractors.
Unfortunately, 2015 is no exception. Today, we will talk
about the recent proposed rule to improve transparency into
federal contracting. While I fully support any effort to give
citizens and small business greater confidence in how their tax
dollars are spent, this is a case of the cure being worse than
the disease.
As one witness will testify, in its first year, this rule
will cost twice as much as the total value of the federal
contracts awarded. The price tag could be $800 billion. The
proposed rule could mean that small businesses would need to
have one employee spend three months a year just entering data.
Keep in mind, this is data the government already has but does
not collect centrally. While I am all in favor of creating
jobs, I do not think forcing small businesses to hire employees
to provide data a second time is a worthwhile use of their
dollars or tax dollars, because somebody has got to pay for
this.
Finally, despite what GSA says, we will end up paying for
this new rule. Data is not free. Businesses will decide it is
better to sell independently of GSA, which will improve the
government's cost to buy, or the small businesses will drop out
of the federal market altogether, decreasing competition. In
fact, we have already lost over 100 small contractors in the
past two years. We cannot afford to exacerbate the problem.
I look forward to hearing from our witnesses today about
the effects of GSA's proposed rule and any alternative they
would suggest to improve how the government buys whatever it
buys.
I now yield to the ranking member for his opening
statement.
Mr. TAKAI. Thank you, Mr. Chairman, and good morning.
The federal procurement marketplace provides an important
customer base for small businesses. For many firms, getting
listed on the GSA schedules provide an efficient way to ensure
their products and services are considered when agencies are
making purchases. Purchases made by these agencies off the
schedules account for more than $32 billion, or approximately
10 percent of all federal procurement dollars.
In Fiscal Year 2014, 35 percent, or $11 billion, went to
small businesses through these orders. That is a significant
infusion into the small business economy, helping entrepreneurs
grow their enterprises, retain staff, and even create new jobs.
The GSA schedules have a number of benefits for both
vendors and purchasing agencies. Most notably, it creates a
simpler system that allows contracting officers direct access
to the products and services of numerous firms without the need
of issuing multiple solicitations for every requirement.
For small businesses with limited resources, relative
inexperience navigating the procurement process, landing on a
GSA schedule can be an important first step towards securing
the federal government as a customer.
Despite these advantages, there are a number of concerns
from the small business perspective with how the GSA schedule
system functions and whether small businesses fully benefit
from how it operates. For instance, many entrepreneurs have
previously presented testimony to this Committee detailing how
the adoption of the federal strategic sourcing initiatives have
negatively harmed their sales and even caused some layoffs.
As this type of vehicle has expanded to additional
industries and products through the government's new category
management initiative, there are continued reservations among
small business. And likewise, small firms have expressed
similar concerns regarding GSA's proposed rules on
transactional data. The rule requires that firms that hold
schedule contracts while other government-wide acquisition
contracts report transactional data through an electronic
system. While it appears that much of this data is already
available to the GSA, the new rule increases the frequency of
reporting and expands what information firms are required to
provide. For small businesses, this could mean significant new
burdens and perhaps a decline in their GSA schedule
participation.
Mr. Chairman, Congress has long recognized that when small
businesses provide services or products to the federal
government, it results in a win-win. Agencies and taxpayers
benefit from quality products that are provided at competitive
pricing, while small businesses are afforded a chance to grow.
As GSA continues seeking efficiencies, it is important that
maintaining transparency in the procurement process is not
achieved at the expense of small business participation. I hope
we can all work together to ensure that these two factors are
properly balanced.
With that, I thank the witnesses for testifying today, and
I yield back.
Chairman HANNA. Thank you.
If Committee members have an opening statement, I ask that
they be submitted for the record. And as you know, you have
five minutes. We want to hear what you say, so we will be a
little bit--I will be a little bit flexible on that, or try to
be.
We have one panel today. Our first witness is Sheila
Armstrong, who is a partner with the law firm of Morgan Lewis
and Bockius LLP. Bockius, is that how you pronounce it?
Ms. ARMSTRONG. Bockius.
Chairman HANNA. Bockius. In Dallas, Texas. She also served
as co-chair of the Commercial Products and Services Committee,
one of the committees of the American Bar Association's Public
Contract Law Section.
Ms. Armstrong, you may begin. Thank you.
STATEMENTS OF SHEILA ARMSTRONG, PARTNER, MORGAN LEWIS AND
BOCKIUS LLP; JOHN STANFORD, VICE PRESIDENT, NEXTWIN SERVICES;
ROGER WALDRON, PRESIDENT, COALITION OF GOVERNMENT PROCUREMENT;
JOHN HORAN, PARTNER, MCKENNA LONG AND ALDRIDGE
STATEMENT OF SHEILA ARMSTRONG
Ms. ARMSTRONG. Good morning, Mr. Chairman, Mr. Takai.
As mentioned, I am a partner with the law firm of Morgan
Lewis and Bockius. I primarily counsel government contractors
on commercial item contracting. So I work with quite a few GSA
schedule contractors. And also as mentioned, I do serve as a
co-chair of the American Bar Association's Public Section of
Contract Law Commercial Products and Services Committee.
I would like to thank you for inviting me here today to
talk to you about GSA's proposed Transactional Data Rule. GSA
published this rule in March of this year. What the rule
requires is monthly reports from a variety of GSA contractors.
This includes both the schedule contractors, as well as those
who hold IDIQ, indefinite delivery, indefinite quantity
contractors, and what we call GWACs, Government-wide
Acquisition Contracts, to prepare these monthly reports of all
federal sales made during the prior month.
For GSA contracts, the rule will be implemented through a
pilot program, which will apply to a limited number of
schedules initially. For those contractors who participate in
the pilot program, they will be alleviated from a burden, what
we call the price reductions clause, which is another
compliance clause that is in GSA contracts.
In the public meeting that GSA held on April 17th, I
attended virtually. My perception of that meeting is that
everyone in the room had concerns about the rule, including
GSA's own inspector general. I think GSA was a little surprised
about the negative reaction to the rule. There is a transcript
that is supposed to be published of that hearing, but I have
not yet seen that transcript.
The proposed rule raises a variety of concerns. There are
four which I would like to address briefly today. The first,
which I am sure you will hear from all our panel members about,
is the cost of implementation and compliance. GSA has estimated
that it will take six hours for contractors to implement
systems to comply with this rule. I would suggest that for some
contractors, it will take six hours for them to figure out
which of their IT systems hold the various data elements that
GSA has required for this rule. That does not allow any time
for developing a report, ensuring that the report is accurate,
and training its personnel on how they will submit that report
on a monthly basis.
Likewise, the 31 minutes that GSA estimates it will take on
average to prepare the monthly reports is grossly
underestimated. This could not possibly allow any time for the
contractors to actually review the reports to ensure that the
data is correct. There is nothing in the proposed rule that
suggests what would happen if the contractors submit incorrect
data or if they simply remove data because it is obviously
incorrect. I think these factors will have a disproportionate
impact on small businesses who do not always have in-house
resources for things like IT systems, and so they will have to
go to vendors on an hourly basis to bring in expertise to help
write these reports and prepare the transactional data.
The second problematic area is the potential expansion of
what we call commercial sales practice requirements. GSA
contractors are required to submit commercial sales practices
prior to contract award and during contract performance when
certain things happen, like if they go to add products to a
contractor's increased prices. The proposed rule allows GSA to
ask for CSPs at any time.
GSA should, although I am not sure that it understands the
implications of preparing these CSPs, or even checking the box
to say that CSPs have not changed. This requires contractors to
go into their data systems and look at actual discounts on
transactions. I mean, we see press release after press release
from the Department of Justice stating that contractors have
fraudulently provided this information when in reality they
just have not checked. So this is a big concern.
The next concern is the cost benefit to collecting this
information. We know it is going to cost a lot to collect the
information, but what is not clear is what benefit GSA is going
to receive from the information.
And then finally, is the confidential and proprietary
nature of the information. Transactional data pricing has
always been protected by the courts under FOIA, and GSA does
not appear to appreciate based on comments made at the meeting
that this is the case.
So I want to thank you again for inviting me to speak, and
I am happy to answer any questions.
Chairman HANNA. Thank you.
Our second witness today is Mr. John Stanford, who is vice
president of NextWin Services. NextWin assists commercially
successful small businesses enter and grow into the federal
market.
You may begin, Mr. Stanford. Thank you.
STATEMENT OF JOHN STANFORD
Mr. STANFORD. Good morning, Chair Hanna, Ranking Member
Takai. Thank you for the opportunity to testify.
As noted, I am John Stanford, and vice president of NextWin
Services. Part of our work is monitoring procurement policy
changes, engaging their real world impact on businesses.
Today's topic, GSA's proposed transactional data regulation,
certainly gives us cause for concern. As noted, the rule would
require vendors to share their pricing information through a
new online reporting system. This pricing data in turn is a
critical part of a larger GSA effort to create a common
acquisition platform, an online marketplace with best in class
government-wide contracts, all reforms with impacts on the
small business community.
In our view, such impacts can be measured by three
criteria. Cost, complexity, and opportunity. When viewed
through these lenses, GSA's proposed transactional data
requirement fails to best serve small businesses. The first,
cost, considers how reforms will change the bottom lines of
contractors, either through changing compliance burdens,
pricing requirements, or altering resources needed to win work.
Simply put, business owners ask themselves, will a given change
increase or decrease the cost of doing business with the
federal government.
As written, small businesses would face increased costs
under the proposed rule. GSA recognizes the additional
reporting requirement will undoubtedly have a cost for affected
businesses. SBA's Office of Advocacy and GSA's own inspector
general noted that estimates in the proposed rule appear
drastically understated. I know others here today have
completed more comprehensive measurements of this cost, and I
will defer to them on providing those details. So estimates of
this cost requirement may vary, but nonetheless, there will
certainly be a cost.
Complexity, on the other hand, measures if a policy change
will make selling to the government harder or easier.
Essentially, will the federal market be more or less difficult
to understand? Or as I often hear from business owners, am I
going to need to hire someone for this?
While GSA contents its reporting solution will be user-
friendly, our experience is that government data systems are
anything but. After implementation, a successful GSA contractor
would be required to monitor and update five government
systems--GSA's eBuy Marketplace, the system for award
management, Fed Biz Ops, the 72(a) Quarterly Reporting System,
and now, the new Transactional Data Reporting System. For small
businesses, this may often be in addition to SBA systems or
certification requirements. All in all, a lot of government
systems, each with their own complexities.
The third criterion is whether a change expands or limits
opportunity to win contracts. When considering a policy,
business owners ask, ``Will I have more opportunity to compete
and win?'' In our view, small businesses may see fewer
opportunities from GSA contracts and vehicles in light of this
proposed rule. Horizontal pricing, whereby the government can
compare costs of similar items, makes price the critical factor
in awarding a contract. Often, however, small businesses offer
tailored and innovative solutions that in conjunction with
competitive pricing make for best value in procurement instead
of lowest price.
While GSA suggests that pricing will only be one factor in
determining best value, it lends significant weight. The words
``price'' or ``pricing'' appear 165 times in the regulation,
while ``best value'' only appears seven. Because it is unclear
how, if at all, GSA would differentiate similar products to
agencies seeking goods or services besides price, we are left
to assume that agencies will have to use price as the
determining factor. To the extent that this happens, especially
for services, small business will suffer.
We do applaud efforts to streamline the acquisition
process. The simplification of competition and removal of
unnecessary costs associated with managing duplicative
contracts benefits all parties. We believe, however, that the
responsibility for aggregating price-related data should fall
on GSA instead of the private sector.
Citing the cost of upgrading its data systems, GSA is
proposing to ask vendors to report to GSA the details of what
was purchased through GSA. This is like asking retailers
selling on Amazon to report to Amazon what it sold on Amazon.
This seems to be an inefficient way to collect data.
Finally, and speaking to the driver behind this regulation,
we continue to be concerned about a vision of government
procurement that seeks to categorize customized services into
narrow categories. Individual agencies and programs under them
have unique requirements. While the acquisition process is in
need of modernization, a rushed process of aggregating similar
but not identical purchases seems ill-advised.
It is our recommendation that GSA rethink its approach to
transactional data, putting the collection burden on the agency
rather than the vendor. One option, upgrading the systems to
automatically collect this data, seems to be a common-sense
solution that ultimately will have to be done. Why not now?
Thank you for holding this hearing today and shining light
on an important issue. I am happy to answer any questions.
Chairman HANNA. Thank you, Mr. Stanford.
Next, we have Mr. Roger Waldron, who is president of the
Coalition of Government Procurement. Believe it or not, we have
time. We can break now but I think we do have time to get
through. As you can see, there are 400 people who have not
shown up yet. So you may begin. Thank you.
STATEMENT OF ROGER WALDRON
Mr. WALDRON. Chairman Hanna, Ranking Member Takai, and
members of the Subcommittee, thank you for the opportunity to
appear before you today to address the effect of GSA's proposed
transactional data reporting rule on small businesses.
The Coalition for Government Procurement is pleased that
the Subcommittee is focusing on the role of GSA's multiple
awards schedule program and promoting strategic acquisition and
opportunities for small business concerns.
The Coalition is an association of small, medium, and large
firms selling commercial services and products to the federal
government. Our members hold contracts under the multiple
awards schedule program, ITG WAC, and major individual agency
contracts.
The multiple award schedule program is one of the most
successful government-wide contracting programs available, with
over 30 percent of the dollar volume of purchases going to
small business concerns. Our members support the program as a
valuable entre into the federal market, but they are
increasingly concerned with GSA initiatives that increase the
cost of contracting without corresponding value to customers
and the American people.
One such initiative is GSA's proposed rule requiring that
contractors collect and report transactional data on all sales
made through GSA schedules and ITG WAC contracts. Coalition
members oppose this rule for several reasons.
First, the reporting and compliance burden imposed upon
contractors will be enormous. GSA estimates this burden will be
six hours for initial setup and 31 minutes thereafter to
administer. A survey of our members indicated that the actual
burden greatly exceeds that amount. Respondents to the survey
overwhelmingly said that their existing systems do not
currently collect the data points GSA is seeking. In order to
implement transactional data reporting on a monthly basis,
systems would need to be built, or existing systems would have
to be customized to collect, consolidate, and report the
information to GSA.
Small business respondents to the survey reported that it
would take on average 230 hours for initial startup time. Large
and medium-size companies estimated that it would take on
average 1,190 hours to implement.
The monthly administrative compliance cost also greatly
exceeds GSA's estimate of 31 minutes. Small businesses reported
that it would take 38 hours per month on average to administer
the new requirement. Large and medium-size businesses estimated
that it would take on average 81 hours per month.
The actual burden of the proposed rule is significant and
cannot be absorbed without raising prices under multiple award
schedule contracts, resulting in increased prices and costs for
GSA customers. Moreover, and most fundamentally, this is data
the government already has in in its possession.
It is GSA's position that the rules compliance cost is
offset by changes to the price reduction clause. The price
reduction clause is one of the most costly provisions of MES
contracts, and our members would welcome a real change. The
coalition has long taken the position that the clause should be
eliminated as it has outlived its usefulness in ensuring that
awarded contract prices remain fair and reasonable throughout
the contract term.
GSA confirms this view in the proposed rule by noting that
only three percent of price reductions result from application
of the tracking customer provision of the price reduction
clause. Our written testimony addresses this matter in detail,
and we note that the changes to the price reduction clause
proposed by GSA are cosmetic and do not change the legal
liabilities or the burden on contractors. Continuous
competition at the taskor as required by the Federal
Acquisition Regulation, assures that prices remain reasonable
and eliminates the need for the costly and competitive price
reduction clause.
Second, the proposed rule does not achieve the objective of
providing GSA contracting officers information to negotiate
fair and reasonable prices. The federal acquisition regulation
provides that when conducting a price analysis using prior
prices, the prior price must be a valid basis for comparison.
If there has been a significant time lapse between the last
acquisition and the present one, if the terms and conditions of
the acquisition are significantly different, or if the
reasonableness of the prior price is uncertain, then the prior
price may not be a valid basis for a comparison.
In other words, the data has to be sufficient for a
contracting officer to make an apples to apples comparison. The
task order data to be collected is simply not comparable to
contract-level pricing. And I might add, there are over 7,500
different varieties of apples.
Finally, a system that seeks to drive down pricing through
constant comparison of individual and hypothetical transactions
leads to a downward spiral in pricing that is inconsistent with
the dynamics of the commercial marketplace and is not
sustainable by industry over the long term. Such an approach
will have a significant cost as it will compromise the
government's long-term strategic interests in fostering
competition, ensuring best value mission support, supporting
small business, and accessing priceless commercial innovation.
I want to thank you for your time, and I look forward to
answering your questions.
Chairman HANNA. Thank you. And I think because votes are
going on and Congressman Takai is going to introduce our next
witness, then we would like to get some questions in, it is
probably an appropriate time to break, adjourn for a few
minutes. It will probably be 20 minutes because this vote has
to go through, and as you can see, no one is quite there yet.
Almost no one. And there is one vote after this. So I would
guess 20 minutes will do it.
Thank you, and relax.
[Recess]
Mr. TAKAI. Thank you, Mr. Chairman.
It is my pleasure to introduce Mr. John Horan, partner at
the firm of McKenna Long and Aldridge here in Washington, D.C.
Mr. Horan works in the firm's Government Contracting,
Litigation, and White Collar Criminal Defense Practice Groups.
He has spent 25 years working in government contract law and
regularly assists clients selling commercial items on both the
GSA and the VA schedules. Additionally, Mr. Horan serves on
numerous American Bar Association Committees, including serving
as the co-chair for the Consumer Products and Service Committee
and the vice chair of the Procurement Fraud Committee.
Welcome, Mr. Horan.
STATEMENT OF JOHN HORAN
Mr. HORAN. Thank you.
Good morning, Chairman Hanna and Ranking Member Takai.
Thank you for inviting me to testify.
In my view, GSA's proposed transactional data rule is
afflicted with three of the most fundamental problems that a
procurement regulation can have. One, it creates a significant,
unnecessary, and underestimated burden on contractors, a burden
that will be felt more acutely by small businesses. Two, the
anticipated benefit to the government is poorly defined and is
not likely to be realized. Three, the proposed rule is subject
to misuse that can result in considerable harm to contractors,
particularly small business contractors.
As we have heard, GSA estimates that it will take six hours
to initially implement the procedures required to capture the
transactional data, and an average of 31 minutes per month for
ongoing reporting. GSA does not provide sufficient detail to
analyze how these estimates are flawed, but virtually every
informed party who has weighed in on these estimates believes
they are inaccurate, including such diverse parties as major
industry associations, such as the Coalition for Government
Procurement and GSA's own Office of Inspector General.
Based on my experience, the effort required by the proposed
rule will take significantly more time and expense than
estimated by GSA. A contractor cannot simply gather and report
the information but also must ensure that the information is
current, accurate, and complete. Otherwise, the contractor will
risk an allegation of fraud under the False Claims Act, as has
been the case with essentially every other form of cost report
submitted by contractors to the government.
Small businesses, which GSA estimates to be 80 percent of
the contracts affected by this rule, are especially vulnerable
to these added expenses because they often operate with fewer
internal resources and lower margins than larger businesses.
Industry also views the imposition of the burden as unnecessary
because the data, as we have heard, is already available within
the government. Ironically, GSA rejected modifications to its
own databases to fully capture this data as too costly and
unreliable and then imposed these requirements on contractors.
GSA anticipates that the transactional data will assist
government buyers in determining the best value to the
government when making a purchase. GSA also recognizes a point
very important to industry; that price itself is not the only
element of best value, but there are many other information
points in determining best value. According to GSA, important
considerations include total cost, desired performance levels,
delivery schedules, unique terms and conditions, time
considerations, and customer satisfaction.
The rule provides no means to obtain to connect this other
important information to the transactional pricing data.
Without this information, the transactional pricing data
required by the rule will be of little or no value in
determining the best value to the government, which is GSA's
purchase for the rule.
Perhaps the most fundamental concern of industry is that
GSA and government buyers will use this transactional data to
drive down prices without consideration of these other value-
added terms and conditions. Contractors that rely on the other
value-added terms and conditions will be unable to compete and
will eventually leave the government market.
This is not an unfounded concern. I have seen contracting
officers ignore these other considerations and focus primarily
on price repeatedly in contract negotiations. GSA itself
acknowledges that it has used transactional data under
strategically sourced contracts to drive down prices. Again,
small businesses are most vulnerable. Small businesses often
operate as value-added resellers or otherwise distinguish
themselves based on the value they add to a transaction that is
not captured by transaction price.
Another fundamental concern of industry shared by small
businesses is that the transactional data will not be
adequately protected from disclosure. The rule does not
describe the procedures that will be used to protect the data
submitted by contractors. Industry is concerned that sensitive
data will make its way into the hands of competitors, either
through Freedom of Information Act requests, disclosures during
negotiations, breeches of GSA systems, or other unintended
disclosures.
In my view, GSA should not proceed with implementation of
this rule until these fundamental issues have been addressed.
Thank you for hearing me on this important issue. And I am
happy to answer any questions.
Chairman HANNA. Thank you.
I am going to ask Ranking Member Takai if he would like to
ask the first questions since we have no other--okay, I will be
happy to.
It really seems like GSA and everyone else are living in
alternate universes. Often, you go to a hearing and you really
have questions. It seems like this is so, on its face, a bad
idea. I wish that GSA was here to defend this. It would be a
much more interesting conversation, but I do not think it would
be any more helpful since the preponderance of this is that
they do not want to do it because it is too expensive for them,
and yet they are asking you to do it, which clearly, even if
you took the numbers that are suggested and cut them in half,
you would have to say it is not worth it, particularly since
they already have the information and they simply have to use
it the way they want to use it.
In my time as chairman of the Subcommittee, I have seen GSA
demand based efficiency models, their strategic sourcing model,
the acquisition hallways and category management embraced by
GSA. Now, we are in transitional data.
Mr. Waldron, it seems that there is something bigger going
on at GSA. I know you monitor this agency. Maybe you can give
us some idea of what you think is driving this, what appears to
be counterproductive, harmful to small business, widely
expensive, and pointless.
Mr. WALDRON. I think----
Chairman HANNA. Not to put words in your mouth.
Mr. WALDRON. What do I say after that, right?
Well, you know, I mean, I think from GSA's perspective, and
I cannot really speak for them, they are searching for what
they believe and implementing what they believe will drive
lower prices. I think that is a huge focus of the leadership is
driving lower pricing on their contract vehicles. And as the
other panelists here have indicated and you have mentioned as
well, you know, best value in that context with regard to
procurement is vital to meeting customer needs. And I think
many of these things, whether it is the demand-based model, it
is data reporting, they also have brand part number reporting
requirements now and UPC code reporting requirements that
despite conversations with GSA about the costs imposed by
those, they are driving to a lower price model.
And in doing so, I do not know if it is counterintuitive or
contradictory because to get to where they want to go, they are
increasing costs for contractors. They are increasing--this
rule is a prime example of that. It is being asked as part of--
there is a new initiative, too, the competitive pricing
initiative that is going on where GSA is not doing its own
independent evaluation of the information with regard to
horizontal pricing; they are shooting it over the transom to
the contractor and asking the contractors to do the analysis to
try to explain why their price is not as low as some other
company's price, and there is issues whether it is unauthorized
resellers. You know, there are gray market items. There are all
kinds of other issues that GSA should be looking at as well.
And the increased complexity to try to drive to this lower
priced model fundamentally is making it harder for companies to
compete. They are increasing in complexity. Our members would
like to see a focus on streamlining the process; emphasizing
competition at the task order level; investing in the
electronic systems, whether it is GSA Advantage or eBuy to make
it more efficient, more effective, more transparent. That would
provide more opportunities for small businesses across GSA's
program.
And fundamentally, what we are seeing at the end of the
day--I like to put it in these terms. When you are performing
at a government contract, there are two types of costs. There
is a direct cost of performance that is actually accomplishing
the task or delivering the product that the government wants.
Then there is overhead cost, which is all the administrative
costs of compliance with government unique requirements. In the
context of the GSA Schedules program, that overhead cost is
becoming a larger and larger piece of the pie, and that is not
value-added to the government or the American people. And the
direct cost, the actual performance, is getting smaller. And
that is not a recipe for best value in the long run. So at the
same time you are seeing a drive to lower prices, you are
seeing increased complexity to try to get to those lower prices
and it just does not work together.
Chairman HANNA. So is it safe to say that all these reforms
cost money and push people out of the market, add to
bureaucracy but do not help the process, and at the end of the
day actually cost more?
Mr. WALDRON. I think that is a fair description of much of
what is with regard to the GSA Schedules program in particular.
Chairman HANNA. This is not anecdotal evidence. This is
something better than that.
Mr. WALDRON. Well, our members, for example, the
Transactional Data Reporting Survey that we did, our members
indicated clearly that it would significantly increase their
costs of doing business with GSA and, and we had over 10
percent, about 11 percent of our members, we did not ask this
question, but they indicated that they would seriously consider
leaving the GSA market as a result. They volunteered that
information. That was not a question we asked in our survey.
That they would seriously consider leaving the GSA market if
this rule went through.
Chairman HANNA. Thank you.
I yield to Ranking Member Takai.
Mr. TAKAI. Thank you, Mr. Chairman.
Mr. Horan, the initial implementation of this rule is
designed as a pilot program with other contracts being included
if, in fact, the pilot is successful. Given your conclusions
that the anticipated benefit of the rule to the government is
poorly defined and unlikely to be realized, how do you think
GSA is supposed to figure out if the pilot is successful?
Mr. HORAN. Well, the way I would like then to figure it out
is if it actually produces a better value, best value to the
government, considering the cost to the contractors. I do not
think they can do that based on the manner in which the
proposed rule is implemented here. What I think we will see
from GSA is some type of calculation of, in their view, of cost
savings that will be based entirely on prices and without
consideration of the complexity of that type of analysis where
you should be determining whether the prices would have lowered
based on a competition at an order level and also the offset to
those lower prices based on the loss of these other value-added
services. And the finally, the consequence of pushing all
contractors to lower prices regardless to the competition on
GSA schedules, because I think you will see businesses,
particularly small businesses, leaving the schedule as it
continues in this direction.
Mr. TAKAI. Thank you.
I have been in the state legislature for 20 years, so we
have dealt with these types of issues in regards to purchasing
from a certain vendor for the lowest price versus the best
value. And I know many of you had mentioned that this morning.
Small businesses are known for the added value they can provide
agencies with benefits such as customer service. Big
corporations or big companies cannot do that.
Mr. Horan, you stated in your testimony that the new rule
does not account for such added value. What could this omission
mean not only to small vendors but also to the agencies that
purchase their goods and services?
Mr. HORAN. I think those other terms that lead to best
value could be lost. Again, that it could be--the procurement
could be driven to low price only, and as a result of that, the
contractors who offer some of these other terms and services
that provide best value will lose sales at a minimum, perhaps
be driven out of the market. And the flipside of that is
eventually government purchasers will lose the opportunity to
purchase from those type of contractors that provide best value
in a manner that is not limited to price or low price.
Mr. TAKAI. Because they are out of the business or they are
just not bidding anymore?
Mr. HORAN. Because they are out of the business. I mean,
there are other issues as well. Because there is such pressure
on contracting officers to look at only low price that
sometimes they will exclude consideration of best value but
ultimately, I think they could be out of the business.
Mr. TAKAI. Okay, thank you.
The quotient for government procurement survey in its
survey, small businesses indicate that it would take on average
232 hours to comply with the GSA's proposed rule.
Mr. Stanford, has your business done its own estimate on
the hours it will take to comply with the new requirement, and
do you find the results of the survey to be more accurate than
GSA's own analysis?
Mr. STANFORD. We have not. And while we have looked at
their study and the ABA work, we are also encouraged in
accepting their conclusion because also SBA Office of Advocacy
and GSA's own inspector general determined that those costs
seem understated.
Mr. TAKAI. Their, meaning the coalition, not GSA's?
Mr. STANFORD. Yes; correct.
Mr. TAKAI. Okay.
Other than our spin on compliance, can you discuss some
other costs that companies like yours will have to face because
of this rule?
Mr. STANFORD. I will not speak to our company individually,
but speaking to the companies we work with as they enter the
federal market, the costs beyond compliance are--for small
businesses are initial costs up front. So if you are getting a
schedule, that is an enormous barrier for small businesses.
Actually getting into the GSA eBuy system can be a barrier. As
we make that more complicated, as we add additional systems,
what we hear from businesses is they simply do not have the
resources. I think one of the other panelists pointed to a
conclusion that this rule would require an extra employee. For
the case of a small business that has an innovative solution,
they do not have that extra employee. And one conversation we
often have with small businesses is whether or not they are
ready to take on working with the federal government as it is a
unique customer and this is just adding to the conversation
that they are not ready, which is a cost to the government.
Mr. TAKAI. Thank you. I yield back.
Chairman HANNA. Mr. Horan--Hardy? Excuse me.
Mr. HARDY. Thank you. I apologize for being late.
Mr. Stanford, in your testimony, you had talked about
Amazon as an example of how the GSA--and I hope somebody has
not asked this question already--would place the burden on
contractors and report contract information although the agency
already has the data awarded to the contract. To me this is
just another add-on of frustration to contractors. Being a
small business individual, I have had to deal with federal
contracts before. It appears to me that this is just another
way of government trying to solve their issue rather than take
care of the problems themselves that they have the information
at their hands.
Would you agree to that in somewhat of that fashion? I have
a little bit harder way of saying it, but that is----
Mr. STANFORD. Yes. And I think the chairman put it well. It
is data that the government already has, and it does seem
counterintuitive and there is consensus amongst the panel that
this does not make any sense. And there really--in the
commercial world, it really would not make sense for the person
who is acting as the platform to procure the goods, to then
need to be told what those goods and services cost.
Mr. HARDY. Does anybody believe that GSA has maybe
underestimated the real cost of what this is going to impact
the businesses? Does anybody care to address that?
Mr. WALDRON. Our members at the Coalition for Government
Procurement, we conducted a survey and I think that is one of
the biggest areas--it is the biggest area of disconnect between
government and industry on this particular rule, the burden
itself. And the burden goes to creating barriers to entry in
the federal marketplace, the GSA. The burden goes to increasing
costs for the taxpayer and for customer agencies who use GSA.
Looking at it, we have addressed it in our written testimony.
But at the end of the day, based on our estimates and our
feedback from our members, and we conducted a survey where we
were going to try to use GSA's language that they used in the
rule, in their formula to come up with the numbers based on
feedback from our members, it would cost over $800 million just
to implement this rule across the GSA Schedules program. And at
the same time, GSA estimated $24 million. And at the same time,
GSA indicated in the rule that it would be too costly for the
government or for it to adjust its systems.
I believe, if I recall, we were talking in the tens of
millions of dollars, and what they failed to, I think,
appreciate, or to their credit, having a public meeting and
asking comment on it, they failed to understand or appreciate
the hundreds of millions of dollars that it will cost industry
who participate in the GSA Schedules program to comply.
Mr. HARDY. I will take it another direction.
Being a business guy, you know, I work on bids. I was a
general engineering contractor, so I put out bids. Now they are
asking you to detail everything you got. All your information
that you have that might put you in the competitive motion,
they are wanting us to provide that information, which they ask
for line item bids. I do not have a problem with numbers
because my clients and the rest of the stuff, do you not see
that being a problem with the way that we are getting hacked
around here in this federal government of maybe those issues of
privacy out there? Anybody?
Mr. HORAN. I agree. I think it is a significant concern,
and my clients have essentially universally voiced that
concern. It is viewed, I think, in industry as competitively
sensitive information. The rule is not clear on how it can be
used, or more importantly, I think, how it will be protected.
So, and it will be in the hands of many, many folks according
to the GSA's plans. So I think I can say that generally,
industry is very concerned about that, that competitively
sensitive information will be out there for competitors to
obtain.
And I guess I would also add that this information could
cause harm if it is out there to contractors both in the
commercial marketplace and the government marketplace because
this type of pricing information would be valuable for
commercial competition as well.
Mr. HARDY. Thank you. My time is expired. I yield back.
Chairman HANNA. I yield to Ranking Member Takai.
Mr. TAKAI. Thank you, Mr. Chairman. I do appreciate the
extra time. I have three more questions.
We have heard from all of you about the problems associated
with this rule.
Ms. Armstrong, in your opinion, is there anything that can
be done to reduce the costs associated with this rule to make
compliance easier for small business, or should GSA start from
scratch?
Ms. ARMSTRONG. In my view, I think GSA should start from
scratch and look at its own federal internal resources for this
data. As we discussed, there is a great risk for contractors
providing information to GSA. If the information is not
correct, they can receive allegations that potentially would
subject them to False Claims Act liability. So there is a great
risk in contractors providing information to the government,
which means they have to assure that the information they
provide is correct. And that is one of the things that
substantially increases the costs. And we are talking here
about federal orders. We are not talking about commercial
orders. GSA is seeking information on federal orders. So that
information is within the government. I think GSA needs to look
at its own systems and develop a way that they can make use of
the information already in their possession.
Mr. TAKAI. Thank you.
Mr. Stanford, some have argued that the GSA will use this
new information to make businesses--force them to lower their
prices if they feel the vendor is no longer offering a
competitive price. However, small business margins, as many of
you mentioned, are extremely low and they, at times, cannot
afford bulk discounts like the big companies. Is it clear to
you what would happen if the GSA wanted to lower a price but a
small business was unable to do so?
Mr. STANFORD. I think you would have two options. Either
the small business would leave the federal market if they could
no longer bear the small margins to make sure they were
profitable. Or, as in the case for some small businesses that
rely 80-90 percent of revenue in the federal market, they would
go out of business.
Mr. TAKAI. Okay. Thank you.
And my last question, and I think many of you mentioned
this, has to do with the inability of GSA to really figure this
thing out themselves due to their antiquated computer system.
So I just wanted to dig a little deeper, and maybe, Mr. Horan,
you can spend some time talking about that comment you made in
your testimony about it would be just easier for them to
upgrade their system so that they can track and monitor the
information that they are requesting on their side, rather than
leave it to the burden of the small businesses.
Mr. HORAN. Yeah. I am not certain it will be easier, but it
will be certainly--they would have to face some of the same
complexities that they are willing to impose on contractors.
But the point I was trying to make is that GSA, likely
anticipating the criticism that they are imposing this
obligation on contractors, took a look at their system and
indicated in the role itself the preference to the rule changes
that their systems would require changes because all this data
is not contained in a single spot and they would have to
undergo the effort. And that is the same effort that concerns
contractors. So they were unwilling to take that expense
despite the data being equally available to GSA as the
contractors, and are willing to impose that on contractors.
GSA having access to this information though could readily
create a database or modify databases to do exactly what they
want to do. They could gather this information either directly
or through transactions from other agencies. They are just
unwilling to incur that expense.
Mr. TAKAI. Anybody have any more comments regarding this
particular question?
Mr. WALDRON. Yes. I do not know if it is the irony of the
situation or not, is that GSA is going to have to spend money
to build systems in any event. Because of the avalanche of data
that they would be receiving under this rule, they are going to
have to build systems. So why do they not take a look
internally and see what is most efficient for them, for the
government to try to figure out to manage its own data. Because
they are going to have to build systems. We are talking, when
you talk about monthly reporting across the GSA Schedules
program, you are talking of hundreds of thousands of
transactions, millions and millions of data elements to be
reported, accessed, collected. They are going to have to build
their own systems as well.
Just a couple other points. With regard to the access, the
question was great about, you know, with recent events,
security of the confidential information, you know, there is
even another area, and GSA did not--I think the public meeting
that was held on the rule, they gained an appreciation of the
level of concern across industry with regard to this issue, and
even in that context they have contractors supporting their
effort. And there have been questions that I have received of
what are the restrictions on those contractors with regard to
use of the information that they are already getting that may
be commercially proprietary information from other companies.
And lastly, just a thought on the question about whether
people would have to leave, you know, if they are told lower
your price, we get reports regularly of companies being asked
to either lower their price or remove the item from the
contract. And the GSA leadership is taking the position that
that is not, and they have, to their credit, have said that is
not the goal here from their perspective, but at the working
level and the operational level, contracting officers almost
daily are asking companies to either lower their price because
they found a lower price on a horizontal comparison. If you do
not lower that price, you need to delete the item from the
contract.
Mr. TAKAI. Thank you, Mr. Chairman.
Chairman HANNA. Do you mean to say--is that not in a
strange way collusion, knowing someone else's price and calling
someone else and saying--another bidder for the same item and
saying, ``You are too high, lower your price''? I mean, it is a
harsh word but----
Mr. WALDRON. I would say it is misguided. I think it is not
good procurement policy because in this issue, you get into the
relative terms and conditions, and is somebody an authorized
reseller; are they not an authorized reseller? Is it a gray
market product; is it not? These are things--due diligent
things that GSA needs to be looking at.
And ultimately, really what we all want for our customer
agencies and for the American people is a fair and reasonable
price, a good price to be paid. And it seems like GSA is
focusing so much on the contract level price at this level.
When the price is paid is at the task order level, which is the
level below competition under the contracts. And the focus is
more on this rather than let us get the best, you know, a good
price and a best value solution at the task order level. And
that is where, from our membership's perspective, the focus
needs to be. How do you enhance, streamline, and embrace
competition at the task order level so that the American
people, customer agencies get best value products and
solutions--commercial best products and solutions.
Chairman HANNA. So they are asking for something that they
are not prepared to take from a group of contractors who will
incur enormous expense and ultimately GSA would also incur an
enormous expense to accept this, and yet already admits it does
not have the capacity really to use it. Is that fair?
Mr. WALDRON. I think it is fair to say that a lot more
thought needs to go into the current approach. Our members
oppose this rule. We think GSA should start over from scratch
and look internally. Our written testimony includes several
different recommendations. I will point to one. GSA conducting
its own internal pilot of collecting its own information or
other information of other agencies and seeing how--first of
all, what data elements are really important? And much of what
is being collected ignores the best value context or the nexus
of it and terms and conditions that drive price. And most
fundamentally, you are talking about transactional price, that
task order pricing that is subject to competition. And to the
extent they are using it to compare to contract pricing, as I
said earlier in the testimony and we make clear in our written
testimony, that is apples and, I do not know, watermelons. It
is such a complete difference in terms of the terms and
conditions. And that focus it seems to me does not get to the
important thing--how do you get a better deal and a good
business deal for both sides at the task order level? Because
ultimately that is what leads to better government and better
performance on behalf of the American people.
Chairman HANNA. Well, we have unanimity here today
everywhere.
If there are no further questions for these witnesses, I
want to thank all of them for being here today, and thank you
for patience during votes.
When drafting this rule, GSA clearly did not understand the
burden it was creating for small contractors. I am going to
send a transcript of this hearing to GSA and to the Office of
Internal Government Regulatory Affairs. I hope the GSA will
either abandon this approach and start over or seriously rework
the rule before it becomes final. This is an issue the
Subcommittee will be monitoring and will continue to monitor,
and we look forward to having another opportunity to meet with
you if that is important.
I ask unanimous consent that members have five legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered.
This hearing is now adjourned. And thank you again.
[Whereupon, at 11:33 a.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
1. Introduction
Mr. Chairman and Members of the Committee, my name is
Sheila Armstrong. I am a partner with the law firm Morgan,
Lewis & Bockius, LLP. My primary practice area is government
contracts. I counsel a wide variety of businesses, both large
and small, regarding issues related to commercial item
contracts with the federal government. In particular, I counsel
clients regarding contract compliance requirements under the
General Services Administration Federal Supply Schedules (FSS)
program. I also serve as a Co-Chair of the Commercial Products
and Services Committee, one of the Committees of the American
Bar Association's Public Contracts Law Section.
I would like to thank you Mr. Chairman and the Committee
for inviting me here today to speak to you about GSA's proposed
Transactional Data Rule.\1\ GSA published its proposed
Transactional Data Rule on March 4, 2015. Upon publication, the
Proposed Rule immediately drew criticism from contractors, the
legal community and even the GSA's own Inspector General's
office. GSA also held a Public Meeting on the Transactional
Data Rule on April 17, 2015 which was widely attended both in
person and virtually through GSA's Internet meeting platform.
---------------------------------------------------------------------------
\1\ 80 Fed. Reg. 11619 (March 4, 2015).
The essence of the Proposed Rule is that GSA seeks to
implement a pilot program under which it will exchange a most
favored customer pricing provision found in all GSA Multiple
Award Schedule contracts known as the ``Price Reductions
Clause'' for a more burdensome transactional data reporting
requirement requiring contractors to report transactional data
relating to all federal sales made by the contractor. The
Proposed Rule also applies to both GSA's Federal Supply
Schedule (FSS) contracts, as well as its non-FSS Indefinite
Delivery Indefinite Quantity contracts and Governmentwide
Acquisition Contracts. The Proposed Rule does not apply to VA
---------------------------------------------------------------------------
FSS contracts in the pilot program.
The problems with the Proposed Rule are many. The four that
I am going to discuss today are particularly relevant to small
businesses. First, GSA grossly underestimates both
implementation costs and compliance costs of transactional data
reporting. These increased costs and burdens likely will have a
disproportionate effect on small businesses who often have
limited resources. Second, while GSA temporarily will suspend
Price Reductions Clause compliance obligations for those
contracts that are included in the Transactional Data Rule
pilot program, it does not propose to suspended, and in fact
potentially will expand Commercial Sales Practice (CSP)
disclosure requirements, another arguably more burdensome and
higher risk compliance requirement found in GSA Multiple Award
Schedule Contracts. Preparation of CSPs takes a considerable
amount of time and any increase in this requirement could have
a disproportionate effect on resource-strained small
businesses. Third, it does not appear that GSA is certain how
it will use the voluminous amount of data that it seeks to
collect under the Proposed Rule, but the potential for downward
pricing pressure that likely will result from transactional
data reporting may have a disproportionate effect on small
businesses who rarely win a ``race to the bottom'' on pricing.
Fourth and finally, it appears that GSA has not fully
considered the confidential and proprietary nature of the data
that it seeks to collect under the Proposed Rule. Line item
pricing has long been exempt from disclosure under the Freedom
of Information Act (FOIA) due to its confidential and
proprietary nature. This data also is protected from disclosure
under the Trade Secrets Act.
II. Select Congress Regarding the Proposed Transactional
Data Rule
A. Estimated Implementation and Reporting Costs of
the Transactional Data Rule
GSA estimates that the public reporting burden for its
contractors to initially set up systems for transactional data
reporting at six hours.\2\ This estimated six hours includes
``the time for reviewing instructions, searching existing data
sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information'' as
well as ``training, compliance systems, negotiations, and audit
preparation the new clause may require.''\3\ GSA estimates that
the monthly burden thereafter will average \4\ approximately
0.52 of an hour or 31 minutes per month.\5\ According to GSA:
``[t]his number takes into consideration the distribution of
contract values (i.e. sales) and assumes monthly reporting
burden rises with vendor sales based on the distribution of
sales and obligations within FSS contracts and non-FSS
contracts.'' \6\ What GSA allows no time for is system
enhancements that may be required should GSA elect to change
the fields of data to be reported as it would have the right to
do upon 60 days notice under the Proposed Rule.\7\ In addition,
these estimates of six hours for initial set-up and 31 minutes
per month for ongoing reporting are grossly underestimated.
---------------------------------------------------------------------------
\2\ 80 Fed. Reg. 11625.
\3\ Id.
\4\ GSA estimates a range of two minutes (for contractors with $0
in sales) and four hours (for contractors with greater than $50 million
in sales). See id.
\5\ Id.
\6\ Id.
\7\ Id. at 11628.
1. Initial Set-Up Likely Will Far Exceed Six
---------------------------------------------------------------------------
Hours
GSA estimates that its contractors will spend approximately
six hours to set up its systems to generate the monthly report
required by the Transactional Data Rule.\8\ This six-hour
estimate includes the time that GSA estimates will be required
for reviewing instructions, searching existing databases and
other sources of information, and gathering and reviewing the
collected information.\9\ This estimate also includes the
effort that GSA anticipates contractors will be required to
make to institute changes to contractor training, compliance
systems, negotiations, and audit preparation--and presumably
includes the time and expense required to modify data-
gathering, reporting, and information-technology (IT) systems
to accurately and efficiently report the data required by the
Proposed Rule.\10\ GSA's own Inspector General's office
acknowledges that contractors likely will spend far more than
six hours to set up business systems for transactional data
reporting.\11\ As the GSA Office of Inspector General notes in
its comments to the Proposed Rule:
---------------------------------------------------------------------------
\8\ Id. at 11625.
\9\ Id.
\10\ Id.
\11\ GSA Comments to GSAR Case 2013-G504: General Services
Administration Acquisition Regulation; Transactional Data Reporting, at
6. Available at: https://www.gsaig.gov/?LinkServID=6A41DF8F-063D-0652-
27F3AAF1F2F09E33&showMeta=0.
During GSA OIG preaward audits, Schedule
contractors are asked to provide a sales
database--including GSA transactional data--
with at least 21 specific data fields for the
contractor's last complete fiscal year. We
consistently find that contractors maintain
their transactional data in varying systems,
using multiple formats, and unique data fields.
Given this, we question whether GSA's estimate
of 6 hours per contractor to configure their
---------------------------------------------------------------------------
systems for reporting is accurate.\12\
\12\ Id.
This six hour estimate must assume that all data fields
reside in the same IT system and that the report can be set up
by one person without consultation with others inside or
outside the company. However, neither of these assumptions is
viable. As noted by the GSA Inspector General, contractors
frequently maintain data in various systems throughout the
company. Invoicing data, which will contain some of the field
required by the Transactional Data Rule, will include fields
such as line item price and contractor part number; however,
this system likely will not include manufacturer part number.
That field instead will reside in a purchasing database. In
many cases, the systems that house the various fields GSA is
requesting in its monthly report are not set up to communicate
with one another. Accordingly, some contractors will need to
manually compile the information required for transactional
data reporting, or may need to upgrade their IT systems in
---------------------------------------------------------------------------
order to comply.
In addition, the estimated six hours of set-up time cannot
possibly include time for company personnel to confer with
management and contract administrators regarding the data
fields required and the accuracy of reports generated. For some
contractors, particularly small businesses, setting up systems
to capture and report transactional data may involve
consultation with professionals outside the company at hourly
rates thereby increasing the costs to the contractor. These
estimated costs are not factored into GSA's six hour estimate
for set up.\13\
---------------------------------------------------------------------------
\13\ As noted in the ABA's Comments to the Transactional Data Rule:
The Section suggests that the hours required will in fact be much
higher. Typically, any new reporting requirement will require extensive
efforts to assess the availability of data, test the accuracy of the
data, and determine the system enhancements needed to accommodate the
new requirement. Many contractors may require substantial changes or
upgrades to business systems in order to provide the data sought by GSA
in a form that will allow for meaningful and accurate pricing
comparison as intended. For example, the fields required by GSA for
transactional-data reporting may not reside in the same IT system; few
accounting systems include both manufacturer part number and contractor
part number in the same system when those part numbers differ. Thus,
contractors may need custom development to merge data elements from
accounting and other systems (e.g., materials management) to meet the
requirements of the Proposed Rule. These and other needed changes would
require coordination among functions such as the contractors' IT
departments and change management teams as well as responsible
executives. The time needed just to search for, extract, review, and
test such data, and implement system modifications, will well exceed
six hours.
See ABA Public Contracts Law Section Comments on GSAR Case 2013-
G504, General Services Administration Acquisition Regulation (GSAR);
Transactional Data Reporting; 80 Fed. Reg. 11619 (March 4, 2015)
available at: http://apps.americanbar.org/webupload/commupload/
PC407500/sitesofinterest--files/GSAComment.pdf.
2. GSA's Estimated Monthly Compliance Burden
---------------------------------------------------------------------------
is Overly Optimistic
GSA's estimate that contractors will spend an average of 31
minutes per month to report transactional data is overly
optimistic. This estimated time cannot possibly include any
substantive review of the data to ensure its accuracy prior to
when the contractor reports the data to GSA. In addition,
should a contractor find any anomalies in the data (as is often
the case when reviewing raw data) the contractor will need to
review source documentation to verify whether the transaction
is accurately recorded in the contractors IT systems.
Furthermore, the estimated 31 minutes per month does not
include any time allowed for ongoing maintenance of data,
including but not limited to changes by GSA to the data fields
required as permitted by the Proposed Rule.\14\ Given the
unknown ramifications on a contractor should it provide data to
GSA that is inaccurate or incomplete, contractors will need to
review the transactional data prior to submission which could
take hours depending upon the size of the contract. When the
contractor identifies transactions that appear to be anomalies,
zero dollar transactions for example, it will be required to
perform additional research to determine whether the
transaction is properly recorded or whether revisions to the
transaction are required.
---------------------------------------------------------------------------
\14\ 80 Fed. Reg. 11628.
B. GSA's Proposed Expansion of Commercial Sales
---------------------------------------------------------------------------
Practice Disclosure Requirements is Unduly Burdensome
All GSA contractors must prepare and submit CSPs prior to
award and at certain key times during performance of a GSA
contract. For example, when a contractor seeks to increase
prices or add items to the contract GSA requires either new
CSPs, or a statement from the contractor that the CSPs have not
changed since the time they were last submitted. In CSP
submissions, GSA contractors must disclose current, accurate
and complete information. This is one of the most critical and
most burdensome requirements for all contractors participating
in the Federal Supply Schedule program. A contractor's failure
to submit current, accurate and complete CSPs open the
contractor to unnecessary risks including potential liability
under the Civil False Claims Act. Both the GSA Inspector
General and the Department of Justice have settled many matters
for hundreds of millions of dollars based on allegedly
inaccurate CSPs submitted by a FSS contractor under the
Multiple Award Schedules program. While GSA proposes to
temporarily suspended Price Reductions Clause compliance
requirement for those contracts that are included in the
Transactional Data Rule pilot program, it has not suspended,
and in fact potentially increases, CSP disclosure requirements.
GSA acknowledges in the Proposed Rule that ``contractors
continue to struggle to comply with the sales practice
disclosure requirements.'' \15\ A 2013 GSA OIG audit reports
also confirm this point and highlights that for the majority of
the contracts audited, CSP disclosures were not current,
accurate and/or complete.\16\ Yet, the Proposed Rule does not
remove contractors' obligations to prepare CSP disclosures,
and, instead potentially expands this requirement. The Proposed
Rule provides:
---------------------------------------------------------------------------
\15\ Id. at 11623.
\16\ See Major Issues from Multiple Award Schedules Audits, Audit
Memorandum Number A120050-3, Mar. 25, 2013. Available at: http://
www.gsaig.gov/?LinkServID=CBDFF5C2-B1C0-0A65-
5F7701BBDFA9CE5D&showMeta=0.
GSA would maintain the right throughout the
life of the FSS contract to ask a vendor for
updates to the disclosures on its commercial
sales format--which is used to negotiate
pricing on FSS vehicles--where commercial
benchmarks or other available data on
commercial pricing is insufficient to establish
price reasonableness.\17\
---------------------------------------------------------------------------
\17\ Id. at 11621.
Due to the potential financial risks created by inaccurate
CSP disclosures, contractors must spend considerable time
reviewing sales data and preparing current, accurate and
complete CSPs when they are required to do so. Even a statement
that the CSPs have not changed requires extensive review of
transactional sales data to confirm that this statement is
correct at the time that it is made. Many contractors engage
outside accounting and legal professionals at great expense to
assist in preparing CSPs. This is especially true for small
businesses who often do not have in-house resources available
to complete this burdensome task. GSA's potential expansion of
this requirement without any discussion of the estimated burden
---------------------------------------------------------------------------
this places on contractors is unreasonable.
C. Use of Transactional Data Collected
While GSA is proposing to collect voluminous amounts of
data under the Transactional Data Rule ``to improve GSA's
ability to conduct meaningful price analysis and more
efficiently and effectively validate fair and reasonable
pricing on both its non-FSS and FSS vehicles,'' \18\ it has not
clearly articulated, in either the Proposed Rule or at the
Public Meeting, how it intends to use this data once collected.
In addition, while ``GSA recognizes that use of prices paid
information must be done within the context of seeking to
obtain the best value for the taxpayer,'' \19\ GSA's focus
appears to be on driving prices down in the marketplace and the
savings that the Transactional Data Rule promises for GSA.\20\
However, as GSA also recognizes in the Proposed Rule, for most
commercial items, it is the commercial market and not the
government market that is the market driver.\21\ Accordingly,
GSA has not explained how collection of data on government
sales transactions from contractors will achieve this lower
pricing.
---------------------------------------------------------------------------
\18\ See Major issues from Multiple Award Schedules Audits, Audit
Memorandum Number A120050-3, Mar. 25, 2013. Available at: http://
www.gsaig.gov/?LinkServID=CBDFF5C2-B1CO-OA65-
5F7701BBDFA9CE5D&showMeta=O.
\19\ Id.
\20\ See id. at 11622 (``The availability of prices paid
information will lead to better prices for the taxpayer by improving
the agency's ability to conduct price analysis. It will also improve
the quality of both contract and order level competition because
vendors will know that their customers have greater market intelligence
on what other agencies have paid in similar situations.'').
\21\ Id. at 11622.
Based on GSA's recent activities with its GSA contractors,
it seems that GSA may use transactional data to attempt to
reduce GSA list price which is a ceiling price that can be, and
frequently is, discounted by contractors based on the terms and
conditions of a particular order and competition in the
marketplace. In recent weeks, GSA has been issuing
communications to its FSS contractors across various FSS
schedules. The sample text of these communications is attached
to this Statement as Exhibit A. I have had several clients who
have received similar communications that are transmitted with
a spreadsheet showing list prices offered by other GSA
contractors for what allegedly are the exact same contract
items. If GSA were to implement a similar exercise using the
transactional data it receives under its pilot program, which
notably does not include a field to identify the reason for any
additional discount that may have been granted, this downward
pricing pressure could have a detrimental effect on small
businesses. Small businesses often do not have the buying
capacity and/or overhead structure that allows them to compete
---------------------------------------------------------------------------
with this type of pricing pressure.
D. Protection of Confidential and Proprietary
Information
The transactional data that GSA seeks to obtain through the
Transactional Data Rule, in particular line item pricing
information, is recognized as confidential and proprietary
information under the Freedom of Information Act (FOIA) \22\
and the Trade Secrets Act.\23\ FOIA Exemption 4 protects
``matters that are . . . trade secrets and commercial or
financial information obtained from a person and privileged or
confidential.'' \24\ In addition, the Trade Secrets Act
prohibits unauthorized disclosure of ``practically any
commercial or financial data collected by any federal employee
from any source in performance of the duties of his or her
employment.'' \25\ At a minimum, the reporting of line-item
pricing contemplated by GSA under the Proposed Rule is
protected from disclosure by FOIA Exemption 4 and prohibited
from disclosure by the Trade Secrets Act.
---------------------------------------------------------------------------
\22\ 5 U.S.C. Sec. 552(b)(4).
\23\ 18 U.S.C. Sec. 1905.
\24\ See Canadian Comm'l Corp. v. Air Force, 514 F.3d 37, 39 (D.C.
Cir. 2008).
\25\ CNA Financial Corp. v. Donovan, 830 F.2d 1132, 1140 (D.C. Cir.
1987).
The Proposed Rule does not state how GSA will protect the
transactional data it receives from contractors from public
disclosure. In addition, based on comments made by GSA
personnel at the Public Meeting, it appears that GSA has not
fully considered the confidential and proprietary nature of the
data that it seeks to collect under the Proposed Rule. The type
of data required by the Proposed Rule frequently is provided by
contractors to the government with a legend identifying the
confidential and proprietary nature of the data. GSA should
consider how contractors can include such a legend when
reporting confidential and proprietary data through an
electronic transactional-data reporting system. GSA also should
explain how it intends to ensure that this confidential and
proprietary line item pricing is protected from disclosure
outside of the government. Finally, the proposed rule should
provide remedies for contractors in the event of improper
---------------------------------------------------------------------------
disclosure of this protected data by GSA.
III. Conclusion
As discussed in my statement, and as is evident from
reading the comments submitted on the Transactional Data Rule,
the Proposed Rule, as drafted, raises significant concerns for
all types of parties involved in GSA contracting. GSA should
refrain from issuing a final rule unless and until it is able
to address the concerns raised in the various comments
submitted. In addition, GSA should further analyze the actual
cost of compliance to contractors, as well as the additional
costs that will be incurred by GSA to manage the tremendous
amount of data that it would receive, and compare that to the
benefits that GSA believes it actually will receive from the
data collected under the Proposed Rule. As proposed, it appears
that the costs of the Proposed Rule will far outweigh any
perceived benefit that GSA will receive.
Mr. Chairman, I again thank you for inviting me to speak to
the Committee today and I am happy to answer any additional
questions.
Exhibit A
Subject: RESPONSE REQUIRED WITHIN [XX] DAYS - Addressing
Price Variability under the Federal Supply Schedules Program
The Federal Acquisition Service (FAS) is committed to
providing a Federal Supply Schedules (FSS) program that
continues to deliver to our customers a best-in-class contract
solution for commercial items that is adaptable and competitive
in the Federal marketplace.
Our customers tell us they turn to the FSS program for its
speed, compliance, and access to small businesses. They also
tell us that they want a more competitive pool of contractors
at the contract level to improve competition at the task order
level.
An analysis of the FSS program has revealed wide pricing
disparities across identical items. This has resulted in
customer confusion and decreased confidence in the ability of
the FSS program to provide best-value solutions. In response to
these customer concerns and changing market conditions, FAS
will be working with our FSS suppliers on an initiative to
review the wide range of prices for identical products that are
offered to our customers.
This competitive pricing initiative is aimed at identifying
and addressing price variability across the FSS program. This
will be accomplished with the help of a pricing tool that has
the ability to perform in-depth horizontal pricing analyses of
the more than 45 million awarded items on GSA Advantage! and
eMall. Horizontal pricing analysis simply means that offered
prices will be compared to other awarded FSS prices for the
exact same item. FAS recognizes that both price and nonprice
factors (such as contract terms, warranties, etc.) play an
important role in the determination of competitive pricing. The
horizontal pricing tool is a market research resource that aids
in the identification of potentially uncompetitive pricing. The
tool ``flags'' supplies in cases where an item has an awarded
price that greatly exceeds prices awarded for identical items.
This flag is cause for a further review, wherein the
contracting officer seeks additional information from the
contractor in order to determine the rational for the higher
price.
A recent pilot program making use of the pricing tool and
analysis demonstrated that some suppliers provided with
competitive pricing intelligence were able to make price
adjustments that increased their Federal revenue.
FAS needs your help to further improve and expand the FSS
program. By addressing price variability, the program will
better meet our customers' expectations and help you be more
competitive in the Federal marketplace.
You are receiving this letter because we have identified
supplies on the referenced contract with prices that are much
higher than other FSS partners for the same item. We recognize
that pricing is but one component of best value, and would like
to work with you to ensure that FSS pricing is competitive.
Please review the identified items and data in the attached
spreadsheet and consider what the pricing intelligence reveals
about your competitiveness in the marketplace. We are
undertaking this effort in partnership with our suppliers in
order to help the FSS program remain the go-to solution for our
Government customers and to help you grow your business through
increased sales and revenue.
If you feel there is additional information that supports
the competitiveness of the currently awarded price, you may
submit this information for consideration under the ``Comments/
Justification'' column. Alternatively, you may propose a
reduced price under the ``Revised Schedule Price'' column.
Responses should only be entered under these two columns - do
not alter the remainder of the spreadsheet. Please notify your
Schedule contracting officer if any identified items are
included under established Blanket Purchase Agreements (BPAs)
that would be affected by pricing changes.
I would appreciate a response to this request by [date] and
am happy to discuss and work through this process with you.
Thank you, in advance, for your cooperation, as we partner
to make the FSS program the obvious first-choice solution for
Government buyers. We are happy to answer any questions you may
have regarding this request - please contact [name] at [contact
information] for further assistance.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Good morning. Chair Hanna, Ranking Member Takai and
distinguished Members of the Subcommittee, thank you for the
opportunity to testify.
My name is John Stanford. I am the Vice President of
NextWin Services, a consulting firm designed to assist
commercially successful businesses enter and grow in the
federal market. Part of our work is monitoring procurement
policy changes and gauging their real-world impact on
businesses. We also work closely with entrepreneurial
organizations, like Women Impacting Public Policy (WIPP), that
actively participate in procurement dialogue and support many
of the small business procurement reforms initiated by this
Committee. Thank you for the many reforms over the last three
years that have enabled more small businesses to compete for
government contracts.
Today's topic, proposed transactional data regulation from
the General Services Administration (GSA), gives us cause for
concern. The proposed rule would require vendors to share their
pricing information for goods and services sold through GSA
contracts to other government agencies. It would also create an
online reporting system to enable the reporting of that pricing
data. This pricing data, in turn, is a critical part of a
larger GSA effort to create a Common Acquisition Platform--an
online marketplace to identify best-in-class contracts across
the government.
Specifically, contractors would be required to report
prices of goods and services delivered through Federal Supply
Schedule (FSS) contracts (with the exception of FSS contracts
at the Department of Veterans Affairs), GSA Governmentwide
Acquisition Contracts (GWACs) and GSA Governmentwide
Indefinite-Delivery Indefinite-Quantity (IDIQ) contracts.
Required transactional data includes unit measure, quantity of
items sold, Universal Product Code, price paid per unit, and
total price.\1\ Under the proposed rule, this data would be
reported monthly through an online portal. For non-FSS
contracts (GSA GWACs/IDIQs) the requirement would take effect
immediately. The FSS contracts, which already report some data
through the price reduction clause, would undergo a pilot
program in select schedules.
---------------------------------------------------------------------------
\1\ Transactional Data Reporting, 80 Fed. Reg. 11,619 (March 4,
2015)
These efforts are part of a broader acquisition reform
called ``category management,'' in which the government seeks
to unify purchases of goods and services in the same category
---------------------------------------------------------------------------
government-wide.
Evaluating GSA's Proposed Rule
In our view, the effect of most contracting reforms on
small businesses can be measured by three criteria: cost,
complexity, and opportunity. When viewed through these lenses,
GSA's proposed transactional data requirement fails to best
serve small businesses.
Cost
The first criterion, cost, considers how reforms will alter
the cost of doing business with the federal government--either
through changing compliance burdens, the impact of pricing
requirements, or altering the resources needed to win work.
Simply put, will a given change increase or decrease the cost
of doing business with the federal government?
Small businesses would face increased costs if the proposed
rule were implemented as written. In the proposed rule, GSA
recognizes the additional reporting requirement will
undoubtedly have a cost for affected businesses.\2\ The Small
Business Administration (SBA) Office of Advocacy and GSA's own
Inspector General noted that estimates in the proposed rule
appear understated.\3\ So, although estimates of this
requirement vary, there is a cost.
---------------------------------------------------------------------------
\2\ Id. at 11,625.
\3\ SBA Office of Advocacy, Comments on Transactional Data
Reporting, p. 3, available at http://www.regulations.gov/
#!documentDetail:D=GSA-GSAR-2014-0020-0022; GSA Office of Inspector
General, Transactional Data Reporting, p. 10, available at https://
www.gsaig.gov/?LinkServID=C82E3F6B-D054-1D53-
16D86346751A2527&showMeta=0.
Complexity
Complexity, similarly, measures if a policy change will
make selling to and working with the government harder or
easier for small businesses. It is important to note that
complexity and cost, while related, are not the same. Even
simple compliance charges can drive up cost. Essentially, will
the federal market be more or less difficult to understand? Or,
as we often hear from business owners, ``will I need to hire an
expert for this?''
While GSA contends its reporting solution will be user-
friendly, our experience is that government data systems are
anything but. Should this be implemented as is, a successful
GSA contractor would be required to monitor and regularly
update four government systems: the GSA eBuy marketplace for
schedule-related opportunities, the System for Award Management
(SAM) for registrations, FedBizOpps for additional
opportunities that could be procured through the schedule, and
either the 72A Quarterly Reporting System or the new
transactional data reporting system. For small businesses this
may often be in addition to SBA systems (e.g. Dynamic Small
Business Search) or certification requirements.
Another way to consider complexity for small businesses
approaching the federal market is to examine differences
between government contracting and the commercial sector. The
need to report data on what a customer buys through a platform
and at what price to the platform is a departure from standard
business practices and only adds to the complexity of an
already complex system.
Opportunity
Lastly, small businesses view reforms in the context of
expanding or shrinking opportunity to win business with the
government. Recent shifts in acquisition policy to focus on
limited-participant vehicles to award large contracts are
examples of policies that generally took away opportunities
from the bulk of small businesses (versus open competition for
such goods and services). Business owners are essentially
asking, does this mean more opportunity to compete?
Small businesses may see fewer opportunities from GSA
contracts and vehicles in light of this proposed rule. Simply
put, this implementation of ``horizontal pricing''--whereby the
government can compare costs of similar items--makes price the
critical factor in determining best value. Often, small
businesses offer tailored and innovative solutions that, in
conjunction with competitive pricing, make for best value in
procurement. It is the stated objective of the federal
government to seek best value in certain procurements, of which
pricing may be only one factor.
While GSA suggests that pricing will only be one factor in
determining best value, it lends significant weight; the words
``price'' or ``pricing'' appear 165 times in the regulation
while best value only appears 7 times.
Because it is unclear how, if at all, GSA would
differentiate similar products to agencies seeking goods or
services besides price, we are left to assume that agencies
will have to use price as the determining factor. To the extent
that this happens--especially for services--small business will
suffer.
Missed Opportunity for Automatic Data Collection
We applaud GSA's effort to streamline the acquisition
process. Indeed, the rule identifies how much can be gained by
both vendor and customer. The simplification of competition and
removal of unnecessary costs associated with managing
duplicative contracts would be beneficial to all parties.
We believe, however, that the aggregating of price-related
data responsibility falls on GSA instead of the private sector.
Citing the cost of upgrading its data systems, GSA is proposing
to ask vendors to report to GSA the details of what was
purchased through GSA. This is like asking retailers selling
through Amazon to report to Amazon what it sold, through
Amazon. To take this example one step further, Amazon would
then use that information to advertise pricing to other
consumers, on Amazon. This seems to be an inefficient way to
collect data.
While not a perfect comparison, GSA in many ways operates
as an Amazon-like part of the acquisition process. The intent
behind this rule is seeking to make a best-in-class contracting
marketplace. Yet, GSA has decided to pass on investing in a
data collection system that could gather this information
automatically.
Small Business Impact of Category Management
Speaking to the larger issue of which transactional data
reporting is one component, we are concerned about the impact
of larger acquisition reforms on the small business community.
What was formerly known as ``strategic sourcing'' has now
morphed into the term ``category management'' and poses threats
to a diverse industrial base complete with small business
participation.
While there are certainly benefits to procurement vehicles,
including federal supply schedules, GWACS and IDIQs, they all
constrain small business participation. Government acquisition
experts may consider them necessary for 21st century
procurement, but by their very definition, they limit
competition--inhibiting the ability of small businesses in
particular to pursue certain opportunities. The initial costs
of these contract vehicles are much harder for small businesses
to bear than their larger counterparts, both in terms of
resources and time (e.g. the nearly year long waiting period to
get on an FSS). This proposed rule does little to address this
concern, and even cements the use of such acquisition
mechanisms for decades to come.
Similarly, we continue to be concerned about a vision of
government procurement that seeks to categorize customized
services into narrow categories. Individual agencies, and
programs under them, have unique requirements. While the
acquisition process is in need of modernization, a rushed
process of aggregating similar (but not identical) purchases
seems ill advised.
It is our recommendation that GSA rethink its approach to
transactional data, putting the collection burden on the agency
rather than the vendor, especially smaller businesses. One
option--upgrading systems to automatically collect this data--
seems to be a common sense solution that ultimately will have
to be done. An automatic reporting solution gives the
government the best data to consider procurement strategies and
lessens the burden on businesses.
Thank you for holding this hearing today and shining light
on an important issue. I am happy to answer any questions.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
MCKENNA LONG & ALDRIDGE, LLP
STATEMENT OF JOHN G. HORAN, ESQ.
PARTNER, MCKENNA LONG & ALDRIDGE, LLP
BEFORE THE
COMMITTEE ON SMALL BUSINESS
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
UNITED STATES HOUSE OF REPRESENTATIVES
JUNE 25, 2015
1. Introduction
Mr. Chairman and distinguished members of the Committee,
thank you for inviting me to testify. My name is John G. Horan
and I am a partner at the law firm McKenna Long & Aldridge LLP.
I have over twenty-five years of experience in the practice of
government contracts law. My practice is focused on
representing companies, both large and small, selling
commercial items to the federal government, particularly
through the General Services Administration and Department of
Veterans Affairs Federal Supply Schedule (FSS) program. I
regularly assist companies in ensuring compliance with the
contract, regulatory, and statutory requirements applicable to
the FSS program. I also serve as a Co-Chair of the Commercial
Products and Services Committee, and as a Vice-Chair of the
Health Care Contracting and Procurement Fraud Committees of the
American Bar Association's Public Contracts Law Section.
In my view, GSA's proposed Rule to amend its acquisition
regulations to implement a pilot program to require contractors
to report transactional data of GSA FSS sales and other GSA
government-wide contract vehicles--which has become known as
the Transactional Data Rule--is afflicted with three of the
most fundament problems a procurement regulation can have.\1\
One, it creates a significant, unnecessary, and underestimated
burden on contractors--a burden that will be felt more acutely
by small businesses. Two, the anticipated benefit to the
government is poorly defined and is not likely to be realized.
Three, the proposed Rule is subject to misuse that could result
in considerable harm to contractors, particularly small
business contractors.
---------------------------------------------------------------------------
\1\ 80 Fed. Reg. 11619 (March 4, 2015).
While analyzing the proposed Rule, I reviewed many of the
comments prepared by both industry groups and government
agencies, and the concerns that I am expressing are shared by
many of these parties. This is a rare example of a proposed
Rule that is opposed by both the GSA Inspector General and
---------------------------------------------------------------------------
industry associations.
II. The Rule Imposes a Significant, Underestimated, and
Unnecessary Burden
GSA estimates that it will take six hours for a contractor
to accomplish all tasks required to understand the reporting
requirements, prepare its systems and personnel, and establish
the procedures necessary for creating the required reports, and
an average 31 minutes per month for ongoing reporting.\2\ GSA
does not provide sufficient detail to analyze how these
estimates are flawed, but virtually every informed party who
has weighed in on these estimates believes they are inaccurate.
---------------------------------------------------------------------------
\2\ 80 Fed. Reg. 11625.
The Small Business Administration's Office of Advocacy
reports that small businesses and their representatives are
concerned that GSA ``under estimates the burden and
resources.'' \3\ The Council of Defense and Space Industry
Associations views the estimates as ``grossly underestimated,''
as failing to ``account for costly modifications to information
systems that will be required to accurately and completely
capture the data elements required by the rule'' or to
``sufficiently account for the time required to perform quality
control on draft submissions and investigation into potential
data anomalies that frequently arise with transactional data
reporting.'' \4\ Based on its experience with pre-award audits
of contractor systems, the GSA Office of Inspector General
``question[s] whether GSA's estimate of 6 hours per contractor
to configure their systems for reporting is accurate'' and
``contend[s] the projected burden of monthly reporting as 0.52
hours per month is also understated.''
---------------------------------------------------------------------------
\3\ SBA Office of Advocacy Comments to GSAR Case 2013-G504: General
Services Administration Acquisition Regulation; Transactional Data
Reporting, at 3.
\4\ CODSIA Comments to GSAR Case 2013-G504: General Services
Administration Acquisition Regulation; Transactional Data Reporting, at
4.
Based on a survey of Coalition for Government Procurement's
members, ``small business respondents reported that it would
take on average 232 hours'' and ``[l]arge and medium size
contractors estimated that it would take on average 1192
hours'' for the initial setup.\5\ According to the Coalition,
``small businesses reported that it would take 38 hours per
month on average[,]'' and ``[l]arge and medium size businesses
estimated that it would take an average of 68 hours per month''
for the monthly reporting.
---------------------------------------------------------------------------
\5\ The Coalition for Government Procurement Comments to GSAR Case
2013-G504: General Services Administration Acquisition Regulation;
Transactional Data Reporting, at 8.
According to these comments, GSA likely failed to
---------------------------------------------------------------------------
adequately consider one or more of the following requirements:
the time to modify existing systems to
accurately and completely capture the data required by
the Rule;
the time required to establish written
procedures and protocols for the collection and
reporting of the data;
the time required for training company
employees on the Rule, protocols, and their
responsibilities in collecting and reporting the data;
the time required to review, investigate and
confirm the accuracy of the data.
GSA relies on a perceived offset of the burden by
elimination of the burden for complying with the Price
Reductions clause. GSA fails to recognize, however, the current
burden on contractors also arises out of complying with the
demands and obligations imposed by the submission of commercial
sales practices data, which will remain and is expanded under
the proposed Rule. GSA can require a contractor to submit
updates to its commercial sales practices at any time upon
request under the proposed Rule.\6\ Industry views the offset
as illusory in light of the continued commercial sales
practices burden.
---------------------------------------------------------------------------
\6\ 80 Fed. Reg. 11624.
Based on my experience, even without the benefit of knowing
precisely how and why, GSA's estimates are grossly inaccurate.
Having worked with companies gathering information for
commercial sales practices and other pricing disclosures,
gathering, producing and ensuring the accuracy of such data
will take significantly more time and expense than estimated by
GSA. In my view, a contractor cannot simply gather and report
the information, but is well advised to ensure that the
information gathered and reported is current, accurate and
complete. Otherwise, the contractor will risk an allegation of
fraud under the False Claims Act, as has been the case with
essentially every other form of price or cost reports submitted
by a contractor to the government. Importantly for this
hearing, small businesses will bear the largest part of this
burden--GSA estimated that out of 15,738 vendors holding
contracts that would be subject to this Rule, 12,590 are small
businesses. Small businesses are especially vulnerable to harm
from these added expenses given that they often operate with
fewer internal resources and lower margins than large
---------------------------------------------------------------------------
businesses.
Industry also views the imposition of the burden as
unnecessary because the data, or similar pricing data, is
already available within the government. The purchasing
agencies, of course, have access to the transaction data for
their own transactions and could report this data to GSA.
Existing GSA databases, such as GSA Advantage! permit price
comparisons and commercial databases that we are all familiar
with, provide commercial pricing data. Ironically, GSA rejected
modifications to its own databases to fully capture this data
as too costly and unreliable.\7\
---------------------------------------------------------------------------
\7\ ;80 Fed. Reg. 11625.
III. The Anticipated Benefit is Poorly Defined, and Not
---------------------------------------------------------------------------
Likely to be Realized
GSA anticipates that the transactional data will ``improve
GSA's ability to conduct meaningful price analysis and more
efficiently and effectively validate fair and reasonable
pricing'' on its contracts and will permit government
purchasers ``to compare prices prior to placing orders.'' \8\
GSA also recognizes a point very important to industry--that
price paid is only of many ``information points'' in
determining the best value to the government.\9\ Equally
important are other considerations, ``such as total cost,
desired performance levels, delivery schedule, unique terms and
conditions, time considerations, and customer satisfaction.''
\10\ We can also add customer service, product support
services, warranty, and other terms to this list. GSA
``envisions that this [price paid] information would be used as
one information point in conjunction with [these] other
considerations.\11\ GSA and the proposed Rule fail to define
how GSA or government purchasers will use the transactional
data in conjunction with these other considerations to
determine best value to the government.
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\8\ 80 Fed. Reg. 11621.
\9\ 80 Fed. Reg. 11623.
\10\ Id.
\11\ Id.
The proposed Transactional Data Rule is not structured to
permit buyers to fulfill GSA's ``vision.'' Despite GSA's
recognition of the importance of these other factors to
determining best value to the government and taxpayers, the
Rule provides no means to obtain this other equally important
information. GSA does not even suggest any basis for a
government purchaser to connect the prices obtained through
this Rule with this other equally important information and
industry does not see any basis. So, according to GSA's own
analysis, this burden imposed on contractors will provide the
government with only one of the necessary information points--
transactional price--without any means to obtain the other
information points necessary to evaluate price. Without access
to, and consideration of, this other important information, the
price information is of little value at best and can be very
misleading at worst. In short, the data required by this Rule
will be of little or no value in determining best value to the
government and taxpayers without these other terms and
conditions applicable to the transaction, and the Rule provides
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no means to obtain this other information.
In my view, the inability of the Rule to capture these
other non-price factors could be especially harmful to small
businesses. Small businesses often operate as value-added
resellers or otherwise distinguish themselves in the
competitive market based on the value they add to a
transaction, such as customer and product service capability,
that is not captured by transaction price. The Rule has no
means to capture or account for this value. Thus, small
businesses, as well as other contractors, are likely to
assessed only by the price they offer and not the other value
they bring to the transaction.
GSA attempts to gloss over this likely consequence to the
competitiveness of small business by stating that ``[t]he
reduction in duplicative and inefficient procurement
transactions removes barriers to entry into the Federal
marketplace,'' primarily by reducing the administrative costs
of holding multiple contracts.\12\ This benefit, if realized,
fails to consider that small businesses likely will be less
competitive under these fewer contracts if best value decisions
are based entirely on price.
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\12\ 80 Fed. Reg. 11622.
IV. The Rule is Subject to Misuse that Could Result in
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Considerable Harm
Perhaps the most fundamental concern of industry is that
the Rule is subject to misuse that could result in considerable
harm to contractors. Again, small businesses would be
especially vulnerable to this harm. Industry's fundamental
concern is that GSA and government buyers will use the
transactional data to drive down prices across all contractors
to the lowest transactional price without consideration of the
other terms and conditions that provide value to the government
purchaser. Armed with this pricing data and having no access to
the other value terms of the transaction--such as customer
service, product service, delivery speed, and warranty--GSA
will eliminate higher-priced, higher-value items and services
from the contracts, or buyers will refuse to purchase items or
services at a higher price regardless of the other value
offered by the contractor along with the higher prices.
Contractors that offer and rely on the other valuable terms and
conditions will be unable to compete and will eventually leave
the government market. In my view, small businesses are most
vulnerable to this consequence because they often find it more
difficult to compete purely on price.
This is not an unfounded concern. My colleagues and I have
seen government purchasers ignore these other considerations
and focus entirely on price repeatedly in contract
negotiations, and GSA acknowledges that it has used
transactional data, when available under strategically sourced
contracts, to drive down prices further from the fair and
reasonable prices established by competition.\13\
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\13\ 80 Fed. Reg. 11621.
A second fundamental concern of industry, shared by small
businesses, is whether the transactional data will be afforded
adequate protection from disclosure by GSA and government
buyers. Elements of the transactional data, including
transactional prices and customer lists, are fundamental
components of a contractor's business, pricing and proposal
strategies for both the government and commercial market. Not
surprisingly, industry views this information as competition
sensitive and is concerned that contractors will be harmed in
both the government and commercial market by disclosure to
competitors. The Rule does not describe the procedures that
will be used to obtain access to, disclose, or protect the data
submitted by contractors. In the absence of any description of
the protection of this highly sensitive data, industry is
concerned that it will make its way into the hands of
competitors either through Freedom of Information Act requests,
disclosure during negotiations, breach of GSA's systems, or
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other unintended disclosures.
V. Conclusion
In my view, GSA has failed to consider the burden the
proposed Rule will place on contractors, particularly small
business contractors, the benefit to GSA and government
purchasers of the proposed Rule, or the potential harm of
misuse of the proposed Rule, especially to small businesses.
Until GSA has addressed these fundamental issues, GSA should
withdraw the proposed Rule.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Good morning Chairman Hanna, Ranking Member Takai and
distinguished members of the Subcommittee. I am Lynn de Seve,
President of GSA Schedules Inc., a company that helps
manufacturers, resellers and service providers entering the
government marketplace understand and utilize the GSA Multiple
Award Schedule Contract Program.
Today I am testifying on behalf of the Security Industry
Association, where I chair the association's Procurement Policy
Working Group. SIA is a non-profit international trade
association representing nearly 600 companies that develop,
manufacture and integrate electronic and physical security
solutions.
We appreciate that the Committee is closely examining a
proposal from the General Services Administration (GSA) that
has been described as the most sweeping change to GSA policies
in nearly 30 years.
The proposal would amend the General Services
Administration Acquisition Regulation (GSAR) to include clauses
that requiring vendors to report all transactional data for
orders and prices paid by ordering activities through GSA
contracting vehicles, and begin phasing out requirements under
the price reduction clause (PRC).
We understand that for Federal Supply Schedules (FSS)
programs the initial pilot will not include schedule 84 (law
enforcement and security) and schedule 70 (IT programs), which
encompass most security solutions offered by our members on the
supply schedules. Under the proposal GSA would extend the new
data reporting requirements to other schedules if the pilot
results demonstrate that it is an ``effective pricing model.''
We share the agency's goal of providing products and
services at the best value possible for government customers
and the American people. However, we have significant concerns
whether analysis of item level pricing could be successfully
applied to complex engineered systems without compromising the
best value proposition. The key advantage to federal customers
for using GSA contracting vehicles is that contractors are
vetted to ensure they can provide quality products at
reasonable prices. In pursuit of that goal of ensuring that
quality products are provided at reasonable prices, the PRC
system currently in place does recognize the differences
between the complex systems provided by different vendors
because the comparison is to commercial customers of the same
vendor.
Because of those differences between the products and
systems provided by different vendors, comparisons between
vendors often result in an ``applies to oranges'' comparison.
For example, currently there are a multitude of GSA FSS
contractors with the same part numbers on their contracts at
different prices because of differing features, warranty
periods or other value-added services. By providing a vertical
price comparison the PRC system takes such differences into
account, while a horizontal comparison does not.
Ultimately, if the objective of the proposal is simply to
obtain lower pricing, and effectiveness is measured by the
extent prices can be pushed down based on differences between
offerors on individual items--there is a significant risk that
high quality providers of engineered systems may find it
untenable to continue supplying government customers under FSS
contracts. For example, it is important to differentiate
schedule 84 from other schedules in that schedule 84 solutions
are usually dealing with complex integrated life safety systems
and that the overall best cost of the whole functioning system
is more relevant than the individual price of the hundreds of
items making up a customized system.
How GSA will utilize the information collected is also a
key concern. In the proposal GSA states that the data will aid
staff in conducting horizontal price comparisons, and that
evaluation of prices paid information must be within the
context of seeking to obtain best value for the taxpayer. It is
intended to be ``one information point'' among others for
consideration by the contracting officer, including total cost,
performance level, delivery schedule, unique terms and
conditions, etc.
Our members report inconsistent treatment under current
horizontal price comparison methods, in some cases resulting in
price considerations overriding others. So we are concerned
whether the information would be evaluated properly in light of
current practices. Further, FSS contractors frequently offer
``spot pricing'' and special discounts to federal customers,
perhaps due to geographic location, ease of service or volume,
and under the PRC they have the ability to explain such
discounts. It is unclear from the proposal how such practices
would not be counterproductive to sustain under the reporting
requirements, unless special provisions or exceptions are
provided.
The transactional data required to be reported under the
proposal also appears to include a great deal of proprietary
price information. In implementing any reporting requirement,
GSA should provide a secure portal for transmission and storage
of the data and ensure contracting officers are trained and
equipped to handle their obligations to protect the
information.
Based on input from our members, we also believe the
administrative savings for contractors assumed in the proposed
rule are vastly overestimated. First, initiation of monthly
reporting of transactional data will require a significant
change in IT infrastructure and staff training, and changes in
staffing needs would be necessary in most cases to meet ongoing
requirements. The data elements GSA initially listed as
reportable are not necessarily collected by current contractor
IT systems, which vary widely based on unique needs and
business models, adding to the IT infrastructure changes
required.
Moreover, most complex solution security providers/
integrators financially measure their business on a project
level basis, therefore requiring transactional data (line item)
measurements in most cases would require significant and costly
changes to business practices and IT infrastructure. These
additional requirements could easily cost small businesses tens
of thousands of dollars depending on the existing systems in
place. Further, replacing the PRC's tracking customer
requirement with transactional data reporting will not relieve
schedule contract holders from the burden of maintaining
commercial sales format information, which under the proposed
rule could be required by GSA at any time during the life of
the contract. Ultimately, if transactional data reporting
proves to be more burdensome than the PRC in practice, this
could provide an incentive for small businesses to scale back
their GSA FSS offerings.
The 2009 Multiple Award Schedules (MAS) Advisory Panel, on
which SIA served, recommended replacing the PRC with a better
check on pricing. We support fostering greater price
competition at the contract and order level. However, due to
the multiple variables involved in the evaluation and purchase
of complex engineered systems, we question whether the GSA
proposal would in fact be an improvement over the PRC.
The Security Industry Association is committed to
supporting and improving GSA contract vehicles, to benefit U.S.
businesses and taxpayers alike. We stand ready to answer any
additional questions or provide any further information you may
need. Thank you.
[all]