[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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                   U.S. GOVERNMENT PUBLISHING OFFICE
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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 
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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 
---------------------------------------------------------------------------
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]