Contract Management: Opportunities to Improve Pricing of GSA	 
Multiple Award Schedules Contracts (11-FEB-05, GAO-05-229).	 
                                                                 
Federal agencies can directly purchase more than 8 million	 
commercial products and services through the General Services	 
Administration's (GSA) multiple award schedules (MAS) contracts. 
Over the past 10 years, MAS contract sales have increased	 
dramatically--with sales jumping from $4 billion to $32 billion. 
In addition to simplifying the procurement process, the MAS	 
program is designed to take advantage of the government's	 
significant aggregate buying power. While GSA seeks to negotiate 
best pricing for its MAS contracts by analyzing vendor-provided  
information--such as discounts given to other customers and	 
recent sales data for the same or similar items--past reports	 
have found that GSA has not always used pricing tools effectively
and that management controls for better ensuring fair and	 
reasonable pricing had been reduced. This report discusses GSA's 
process for negotiating most favored customer prices for MAS	 
contracts and its efforts to improve the overall quality of	 
negotiations.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-229 					        
    ACCNO:   A17556						        
  TITLE:     Contract Management: Opportunities to Improve Pricing of 
GSA Multiple Award Schedules Contracts				 
     DATE:   02/11/2005 
  SUBJECT:   Auditing procedures				 
	     Audits						 
	     Contract costs					 
	     Contract negotiations				 
	     Federal procurement				 
	     Internal controls					 
	     Multiple award procurement 			 
	     Prices and pricing 				 
	     Procurement planning				 
	     Procurement practices				 
	     Program evaluation 				 
	     Program management 				 
	     Quality improvement				 
	     GSA Acquisition Quality Measurement and		 
	     Improvement Program				 
                                                                 
	     Multiple Award Schedule Program			 
	     GSA Federal Supply Schedule			 

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GAO-05-229

United States Government Accountability Office

  GAO	Report to the Chairman, Committee on Homeland Security and Governmental
                              Affairs, U.S. Senate

February 2005

CONTRACT MANAGEMENT

Opportunities to Improve Pricing of GSA Multiple Award Schedules Contracts

                                       a

GAO-05-229

[IMG]

February 2005

CONTRACT MANAGEMENT

Opportunities to Improve Pricing of GSA Multiple Award Schedules Contracts

                                 What GAO Found

Contract negotiators at the four MAS acquisition centers that GAO reviewed
use a variety of tools for obtaining most favored customer pricing-that
is, the prices vendors offer their best customers. However, the GAO
analysis of GSA's review of selected fiscal year 2004 MAS contract files
found that nearly 60 percent lacked the documentation needed to establish
clearly that the prices were effectively negotiated. Specifically, the
contract documentation did not establish that negotiated prices were based
on accurate, complete, and current vendor information; adequate price
analyses; and reasonable price negotiations. GSA's efforts to ensure most
favored customer pricing have been hindered by the significant decline in
the use of pre-award and postaward audits of pre-award pricing
information, two independent pricing tools that have helped GSA avoid or
recover hundreds of millions of dollars in excessive pricing. In fiscal
year 1995, GSA conducted 154 pre-award audits; by 2004 the number of
pre-award audits fell to 40. Postaward audits-which resulted in an average
annual recovery of $18 million in the early 1990s-were discontinued in
1997 when GSA revised its MAS contract audit policies to increase the use
of pre-award audits-an increase that has not materialized.

MAS Pre-Award Audits, Fiscal Years 1992 through 2004

Number of MAS pre-award audits

160

120

80

40

0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Fiscal
year

Source: GSA Inspector General data.

In March 2003, GSA established the Acquisition Quality Measurement and
Improvement Program, initiating the use of prenegotiation panels and
postaward quality reviews of contracts. However, the effectiveness of
these initiatives has been limited due to insufficient oversight. For
example, three of the MAS acquisition centers that GAO visited had not
reported the results of their 2003 prenegotiation panels-information
needed by management to identify problems and make needed improvements.
Moreover, the fourth acquisition center-which accounted for about 56
percent of the fiscal year 2004 MAS sales-has yet to hold a panel. While
the postaward quality reviews-the second program initiative-have
identified deficiencies in contract file documentation, they did not
determine the underlying causes of these deficiencies or prescribe actions
needed to address them. As a result of these weaknesses, GSA cannot be
assured that fair and reasonable prices have been negotiated for its MAS
contracts.

                 United States Government Accountability Office

Contents 	

  Letter

Results in Brief	Background	Use of Price Negotiation Tools May Not Ensure
Best Pricing on 	

MAS Contracts Opportunities Exist to Improve Management Oversight of MAS

Price Negotiations Conclusions Recommendations for Executive Action Agency
Comments

                                       1

                                      3 4

12

18 23 23 23

Appendix I Scope and Methodology

Appendix II MAS Acquisition Centers' Products and Services

       Appendix III Comments from the General Services Administration 32

  Table

Table 1: Contract Documentation Weaknesses of MAS Contracts by Acquisition
Center

  Figures

Figure 1: MAS Sales, Fiscal Years 1992 through 2004 6 Figure 2: Fiscal
Year 2004 MAS Sales by Center 7 Figure 3: Increase in the Number of MAS
Contracts, Fiscal Years

1995 through 2004 8 Figure 4: Number of FSS Contract Specialists, Fiscal
Years 1997 through 2004 9 Figure 5: MAS Contract Price Negotiation Process
and Common

Tools 11 Figure 6: MAS Pre-Award Audits, Fiscal Years 1992 through 2004 15
Figure 7: Negotiated Cost Savings from Pre-Award Audits, Fiscal

Years 1992 through 2004. 16

Abbreviations

FSS Federal Supply Schedule	FAR Federal Acquisition Regulation	GAO
Government Accountability Office 	GSA General Services Administration 	MAS
Multiple Award Schedules	

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
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separately.

United States Government Accountability Office Washington, DC 20548

February 11, 2005

The Honorable Susan M. Collins
Chairman, Committee on Homeland Security and Governmental Affairs
United States Senate

Dear Madam Chairman:

Each year, the federal government spends billions of dollars to buy
commercial products and professional services through the General
Services Administration's (GSA) multiple award schedules (MAS)
program. The MAS program is designed to take advantage of the
government's significant aggregate buying power and to provide a
simplified method for procuring commonly used goods and services,
ranging from office supplies to technical support. Through more than
16,000 MAS contracts, federal agencies can directly purchase more than 8
million products from more than 10,000 commercial vendors.

To ensure the federal government is getting the most value for the
taxpayer's dollar, GSA seeks to obtain price discounts equal to those that
vendors offer their most favored customers.1 GSA's goal is to obtain most
favored customer pricing as measured against the vendor's commercial
customers who purchase in a manner similar to the government. After
GSA negotiates MAS contract prices, agencies compare prices, terms, and
conditions offered by various vendors and select those that best satisfy
their product or service requirements.

Between fiscal years 1992 and 2004, MAS program sales have increased
more than eightfold, from $4.0 billion to about $32.5 billion. Despite
this
dramatic increase, GSA and GSA's Inspector General have reported that
MAS contract negotiators had not consistently negotiated for most favored
customer pricing, in part because price negotiation tools were not being

1 Most favored customers are customers or categories of customers that
receive the best price from vendors. [48 C.F.R. 538.270a] The pursuit of
most favored customer pricing is consistent with the objective of
negotiating a fair and reasonable price. [Final rule, 62 Fed. Reg. 44,518,
44,519 (Aug. 21, 1997).]

used effectively and management controls had been reduced.2 Concerned that
GSA may be not be obtaining the best prices for its MAS contracts, you
asked us to assess how GSA (1) negotiates most favored customer prices for
MAS contract awards and extensions3 and (2) assesses the overall
effectiveness of price negotiations.

To conduct our work, we discussed implementation of GSA policies,
procedures, and management controls with agency officials at GSA's Office
of Acquisition Management, Office of Performance Improvement and the
Office of Government-wide Policy, and Office of Inspector General. We also
visited four of GSA's seven acquisition centers: the National Furniture
Acquisition Center, Services Acquisition Center and Information Technology
Center in Virginia, and the Office Supplies and Administrative Services
Acquisition Center in New York.4 To assess GSA's contract negotiation
process, we identified the tools used-such as checklists, invoices, price
analyses, and sales histories-to negotiate selected MAS contracts and
discussed price negotiations with management officials and contract
negotiators at the four GSA MAS acquisition centers we visited. To
determine GSA's efforts to assess the quality of MAS contract price
negotiations, we analyzed GSA's assessments of contract negotiation
quality and discussed these efforts with officials from GSA's federal
supply schedule office at GSA headquarters who are responsible for
managing the MAS program. We conducted our review from February 2004
through February 2005 in accordance with generally accepted government
auditing standards. See appendix I for a more detailed discussion of our
scope and methodology.

2 General Services Administration, GSA Annual Performance and
Accountability Report, Fiscal Year 2002 (Washington, D.C.: 2002) and MAS
Pricing Practices: Is FSS Observing Regulatory Provisions Regarding
Pricing? (Washington, D.C.: Aug. 24, 2001).

3 Extensions are 5-year options to renew the initial MAS contract.

4 GSA has nine acquisition centers. Of these, seven support the MAS
program-the National Furniture Center, Information Technology Center, and
the Services Acquisition Center in Arlington, Va.; the General Products
Acquisition Center in Fort Worth, Tex.; the Center for Facilities
Maintenance & Hardware located in Kansas City, Mo.; the Office Supplies &
Administrative Services Acquisition Center in New York, N.Y.; and the
Management Services Center in Auburn, Wash. We visited the centers in
Arlington and New York.

  Results in Brief

According to contract negotiators5 at the four MAS acquisition centers we
visited, they used a variety of tools to analyze vendor-provided
information and obtain most favored customer pricing. However, a June 2004
review by GSA of selected fiscal year 2003 MAS contract files found that
nearly 60 percent of the files lacked sufficient documentation to
establish clearly the prices were effectively negotiated. Specifically,
the contract files did not establish that negotiated prices were based on
accurate, complete, and current vendor information; adequate price
analyses; and reasonable price negotiations. GSA's efforts to ensure most
favored customer pricing has been hampered by the significant decline in
the number of pre-award and postaward audits of MAS contracts-two
independent pricing tools that have helped GSA avoid or recover hundreds
of millions of dollars in excessive pricing. Between fiscal years 1992 and
1996, GSA conducted an average of 125 pre-award audits per year; between
fiscal years 1998 and 2004, this average fell to about 21 per year.6
Postaward audits for price negotiations-which resulted in an average
annual recovery of $18 million in the early 1990s-were discontinued in
1997 when GSA revised its MAS contract audit policies to increase the use
of pre-award audits-an increase that has not materialized.

In March 2003, to oversee and improve the quality of MAS contract
negotiations, GSA established the Acquisition Quality Measurement and
Improvement Program, which includes assessing the effectiveness of price
negotiations. The program has two initiatives-prenegotiation clearance
panels, which aim to ensure that negotiators are fully prepared to
negotiate high dollar contracts, and quality reviews of contract
negotiation files for evaluating the overall quality of completed contract
negotiations. While this program represents a step in the right direction,
GSA's oversight of these initiatives has been limited. For example, three
of the four MAS acquisition centers we visited conducted a few panels in
fiscal year 2004, but they did not report the results of the panels to MAS
program management. Without such data, management cannot measure the
effectiveness of the initiative across the organization or make needed
improvements. Moreover, the fourth acquisition center, which accounted for
about 56 percent of the fiscal year 2004 MAS sales, did not hold any
panels. The quality reviews of contract files have also been limited. For

5 In this report, we refer to both contracting officers and specialists as
"negotiators."

6 In 1997, GSA reengineered its MAS program to implement commercial buying
practices and streamline purchasing for customers. Because MAS contracts
were negotiated under different rules during the year, we did not include
fiscal year 1997 in our comparison.

example, the first three reviews, which took place in 2003 and 2004, did
not determine the underlying causes of identified deficiencies or
prescribe actions needed to address the causes. As a result of the
weaknesses in its Quality Measurement and Improvement Program, GSA does
not have reasonable assurance that contracting officials are effectively
negotiating MAS contract prices.

GSA officials said they plan to implement changes during fiscal year 2005
to improve the Acquisition Quality Measurement and Improvement Program.
Key efforts include providing on-line training with a module on price
negotiation, making contract quality a performance measure to balance the
contract negotiator's focus on quality as well as timeliness, and
requiring each acquisition center to develop an individual improvement
plan. While these efforts appear to be positive steps, their effectiveness
is uncertain.

We are making two recommendations aimed at better ensuring that
appropriate tools are used effectively to negotiate MAS contract prices
and two recommendations aimed at increasing the effectiveness of GSA's
Acquisition Quality Measurement and Improvement Program. In commenting on
a draft of this report, GSA agreed with our recommendations. GSA also
provided a broad description of the MAS program, which covers topics
beyond the scope of our report. In addition, GSA provided technical
comments, which we incorporated as appropriate.

Background 	GSA, through its Federal Supply Schedule (FSS) program, makes
commonly used commercial items and services available to federal agencies.
MAS, the largest FSS program, is designed to provide federal agencies with
a simplified method for acquiring varying quantities of a wide range of
commercially available goods and services, such as office furniture and
supplies, personal computers, scientific equipment, library services,
network support, and laboratory testing services. The MAS program provides
several advantages to both federal agencies and vendors. Agencies can use
a simplified method of acquisition and avoid other procurement methods to
purchase these items, which can be timeconsuming and administratively
costly. Vendors can receive wider exposure of their commercial products
and expend less effort to sell their products.

In administering the MAS program, GSA is responsible for ensuring that all
procurement regulations are followed and MAS prices reflect the

government's aggregate buying power. GSA awards indefinite-quantity
contracts to multiple vendors supplying comparable commercial goods and
services and provides the contracts categorized under various schedules to
federal agencies. MAS contract awards are based on the results of price
negotiations between contract negotiators and individual vendors. GSA
negotiators seek to obtain discounts from a vendor's commercial price
list, which are equal to or greater than the vendor's most favored
customer's discounts. The most favored customer is a customer or category
of customers that receives the best discounts from the vendor's commercial
price list when purchasing quantities comparable to the government's under
similar terms and conditions.7 Vendors provide catalogs and price lists to
federal agencies, which in turn order the particular goods or services
directly from the vendors that best meet their needs.

                              MAS Program Changes

In August 1997, GSA revised its acquisition regulations to expand access
to commercial products and services and to implement greater use of
commercial buying practices and streamline purchasing for customers.8 GSA
believed that these changes would lead to more participation in the MAS
program by both large and small businesses-procedures more consistent with
commercial practice would increase competition and thereby provide federal
agencies a wider range of goods and services at competitive prices.
Beginning in the late 1990s, MAS program sales increased significantly
(see fig. 1).

7 Terms and conditions of sale can include such factors as delivery
requirements, warranty requirements, timing of price increases, and
functions performed for the government by the vendor.

8 Final Rule, 62 Fed. Reg. 44,518 (Aug. 21, 1997) to be codified at 48 CFR
Part 504, 507, 510, 511, 512, 514, 515, 538, 539, 543, 546, 552, and 570.

Figure 1: MAS Sales, Fiscal Years 1992 through 2004

Dollars in billions 35 30 25 20 15 10 5 0

32.5

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year Source: GSA data.

Note: MAS sales amounts include single award sales for each year of less
than $1 million.

In fiscal year 2004, the Information Technology Acquisition Center had the
largest MAS sales volume with more than $18 billion (about 56 percent) of
total MAS sales. Figure 2 shows the MAS sales for fiscal year 2004 by GSA
acquisition center. (See app. II for a description of the products and
services offered through each of the acquisition centers.)

Figure 2: Fiscal Year 2004 MAS Sales by Center

.5

Other (1.5%)

.6

Facilities Maintenance and Hardware (1.9%)

.9

Office Supplies and Administrative Services (2.8%)

National Furniture (7.7%)

Services Acquisition (9.6%)

Management Services (10.5%)

General Products (10.5%)

Information Technology (55.5%)

Dollars in billions

Source: GAO analysis of GSA data.

Note: The Other category includes MAS contracts administered by GSA
centers other than MAS acquisition centers.

As MAS sales volume skyrocketed over the last decade, the number of
contracts offering goods and services to federal agencies also increased.
For example, in the mid-1990s, GSA had about 5,200 MAS contracts. By
fiscal year 2004, this number had increased to over 16,000 MAS contracts
(see fig. 3).

Figure 3: Increase in the Number of MAS Contracts, Fiscal Years 1995
through 2004

Number of contracts

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Fiscal year

Source: GAO analysis of GSA data.

As the number of MAS contracts managed increased, the number of FSS
contract specialists9 remained relatively stable, ranging from 512 in
fiscal

year 1997 to 503 in fiscal year 2001. In the last 3 years, however, the
number of contracting specialists has risen from 540 in fiscal year 2002
to 593 in fiscal year 2004 (see fig. 4). As a result, more contract
negotiators are available to negotiate and administer an increasing
workload. Additionally, GSA has initiated some technology and process

9 The Office of Personnel Management defines the contract specialist
occupational group as positions that manage, supervise, perform, or
develop policies and procedures involving the procurement of supplies,
services, construction, or research and development using formal
advertising or negotiation procedures; the evaluation of contract price
proposals; and the administration or termination and close out of
contracts. Office of Personnel Management, Handbook of Occupational Groups
and Families; (Washington D.C.: August 2002).

improvements, such as E-Buy10 and E-Offer,11 to help contract negotiators
better manage the increasing workload.

Figure 4: Number of FSS Contract Specialists, Fiscal Years 1997 through
2004

                     Number of contracting specialists 600

                                      575

                                      550

                                      525

                                      500

                                      475

           450 0 1997 1998 1999 2000 2001 2002 2003 2004 Fiscal year

                       Source: GAO analysis of GSA data.

    Negotiating Fair and Reasonable Prices

GSA's goal is to obtain the offeror's best price (the best price given to
the most favored customer). However, the regulations recognize that there
may be legitimate reasons why the best price is not achieved. Thus, the
regulation permits an award at prices greater than the most favored
customer price so long as the award is in the best interest of the United
States and the price is fair and reasonable. To prepare for negotiations,
contract specialists conduct price analyses by comparing each vendor's
proposed prices to (1) other vendors' prices; (2) vendors' commercial
customer prices; (3) competitor price lists, discount terms, or rebates;
and

10 E-Buy is an on-line request for quotation tool designed to facilitate
the request for submission of quotations for commercial services and
products that are offered by schedule contractors. E-Buy was implemented
in fiscal year 2001.

11 E-Offer enables a company to become GSA-approved by preparing and
submitting its offer and interact with contract specialists
electronically. E-Offer was implemented in fiscal year 2004.

(4) market prices. In performing a price analysis, the contracting officer
or an authorized representative (the GSA Office of Inspector General) also
has the right to conduct a pre-award pricing audit, in which the vendor's
books, records, documents, papers, and other records are reviewed to
verify the pricing, sales, and other vendor-submitted data. Figure 5 shows
some of the tools that can be used by GSA during the MAS contract price
negotiation process.

       Figure 5: MAS Contract Price Negotiation Process and Common Tools

9. Vendor notified of award

Source: GAO analysis of GSA data.

Federal Acquisition Regulation (FAR) specifies that the complexity and
circumstances of each acquisition determine the level of analysis
required.12 For example, determining a fair and reasonable price for
professional services can be complex and would likely involve analyzing
labor rates for a variety of skill levels. Conversely, analyzing the price
of a ballpoint pen that is similar to many other pens already on a
schedule would, in most circumstances, be straightforward and require the
use of different tools such as catalogs. In addition, federal government
sales and performance histories are available to help evaluate prices when
contract extensions are considered.

  Use of Price Negotiation Tools May Not Ensure Best Pricing on MAS Contracts

According to negotiators at the four acquisition centers we visited, a
variety of tools are used to analyze vendor-supplied information and
negotiate contract prices that nearly always were at least equal to the
vendor's most favored customer prices. However, our analysis of a recent
GSA review of product and service contract files found that most lacked
sufficient and reliable documentation to establish clearly that prices
were effectively negotiated. In addition, we found that the use of
pre-award and postaward audits of pricing information-two key price
negotiation tools that, in the past, have helped GSA avoid or recover
hundreds of millions of dollars in excessive pricing-have declined
dramatically.

    Reviews Showed Effectiveness of Tools Used Is Unclear

The MAS contract negotiators at the four acquisition centers we visited
used a variety of tools, including checklists, invoices, sales histories,
and pre-award audits to help them analyze and negotiate prices. While
their selection of tools was generally determined by the type of product
or service being purchased and the type of proposal, other factors---such
as GSA policies and procedures, resource availability, and performance
metrics-also affected the use of certain pricing tools. For example,
contract negotiators at the Services Acquisition Center were required to
use numerous standardized tools such as checklists, letters,
prenegotiation memorandums, and price negotiation memorandums to help them
evaluate proposals, while contract negotiators at the National Furniture
Center had more flexibility in selecting pricing tools.

12 Analytical techniques and procedures may be used singly or in
combination with others to ensure that the final price is fair and
reasonable. The complexity and circumstances of each acquisition should
determine the level of detail of the analysis required. [FAR
15.4041(a)(1)]

Regardless of the pricing tools used, all of the contract negotiators whom
we spoke with stated that their negotiations nearly always resulted in
prices that were at least equal to vendors' most favored customer prices.
However, GSA's June 2004 file review of 62 MAS contracts awarded or
extended during 2003 at GSA's seven MAS acquisition centers found that 37
of the contracts-nearly 60 percent-lacked sufficient documentation to
clearly establish that the contracts were effectively negotiated. Roughly
40 percent of the contracts lacked adequate price analyses or price
negotiation documentation. We analyzed GSA's review of the 62 contracts
and developed a profile of the types of documentation weaknesses
identified in the review (see table 1).

Table 1: Contract Documentation Weaknesses of MAS Contracts by Acquisition
                           Center Acquisition center

Contracts reviewed

    Contracts that did not meet pricing documentation requirementsa Contracts
with inadequate price analysis Contracts that did not fully document price
     negotiations Contracts that did not identify most favored customer price

      Center for Facilities Maintenance                               
                 and Hardware                  2        2        0       0    
         General Products Acquisition                                 
                    Center                     10       5        5       0    
        Information Technology Center          10       8        5       7    
          Management Services Center           10       10       9       9    
          National Furniture Center            10       2        1       2    
      Office Supplies and Administrative                              
         Services Acquisition Center           10       9        6       6    
         Services Acquisition Center           10       1        0       0    
                    Totalb                     62       37      26      24    

Source: GAO analysis of GSA data.

a Contract file documentation is to clearly establish that the
vendor-supplied pricing information was accurate, complete, and current;
that the vendor information was relied upon during the negotiations;
adequate price analysis was conducted; reasonable negotiation objectives
were established; the leverage of the total government's requirements was
considered in negotiating prices; and the prices awarded were determined
fair and reasonable as required in GSA Manual 538.270. [FSS Acquisition
Letter FC-03-1: Acquisition Quality Measurement and Improvement Program;
Mar. 25, 2003 and FSS Acquisition Letter FX-03-1, Supplement 1;
Acquisition Quality Measurement and Improvement Program; March 2004.]

b Each contract could have all, some, or none of the weaknesses listed in
each of the columns.

While GSA's June 2004 file review revealed weaknesses in the MAS contract
negotiation process, it often did not identify the specific causes for the
weaknesses. For example, for some contracts, the reviewers reported that
the contract file documentation of the price analysis was

unacceptable, but did not report what made the documentation unacceptable.

In September 2004, GSA completed a review of 28 additional MAS contracts.
These contracts were awarded or extended between November 2003 and June
2004 at the seven MAS acquisition centers. Again, the preliminary results
found that the documentation for 27 of the 28 contracts was insufficient
to clearly establish that the most favored customer price objective was
used for contract negotiations. As of January 21, 2005, GSA had not issued
a final report on its fiscal year 2004 quality reviews.

    Use of Pre-Award and Postaward Audits of Negotiation Information Has
    Declined Dramatically

Pre-Award Audits

In addition to the pricing tools available to contract negotiators,
pre-award and postaward audits of negotiation information conducted by the
GSA Inspector General have been valuable tools for ensuring the government
is not overpaying for items purchased under MAS contracts. However, the
use of these audits has dramatically declined in recent years. As the
number of pre-award and postaward audits performed decreased, so too did
the amount of negotiated cost savings and recoveries reported from these
audits.

Pre-award audits enable contract negotiators to verify that vendorsupplied
pricing information is accurate, complete, and current before the contract
is awarded. Historically, pre-award audits have allowed GSA to identify
and avoid hundreds of millions of dollars in overpricing. For example, in
August 2001, the GSA Inspector General reported that a photocopier vendor
offered state and local governments a price that was $5,582 less than its
price to GSA for the same type copier; the Inspector General estimated
that the higher price paid by GSA customers could cost them nearly $4
million more in just one year. In another example, the Inspector General
found that a major distributor of information technology products sold its
top 10 GSA-selling computer models to commercial customers at an average
price that was 6 percent less that the price offered under the MAS
contract. The Inspector General projected that over the contract's term,
GSA customers would pay nearly $40 million more for these products than
they should have.

Despite the cost avoidance realized through pre-award audits, the number
of these audits decreased dramatically between fiscal years 1992 and
2003-from 130 to 14. Between fiscal years 1992 and 1996, the average
number of pre-award audits conducted annually was about 125; for fiscal
year 1998 through 2003, the average number of pre-award audits

conducted annually fell to 18. In 2004, pre-award audits rose slightly to
40 (see fig. 6).

Figure 6: MAS Pre-Award Audits, Fiscal Years 1992 through 2004

Number of MAS pre-award audits

180

160

140

120

100

80

60

40

20

0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Fiscal year

Source: GSA Inspector General data.

As the number of pre-award audits performed decreased, so did the amount
of the negotiated cost savings. Between fiscal years 1992 and 1997, the
GSA Inspector General reported a total of nearly $496 million in
savings-an average of nearly $83 million per year. Between fiscal years
1998 through 2004, the total savings reported had dropped to about $125.9
million-an average of nearly $18 million per year (see fig. 7).

Figure 7: Negotiated Cost Savings from Pre-Award Audits, Fiscal Years 1992
through 2004.

Savings in millions

200

180

160

140

120

100

80

60

40

20

0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Fiscal
year

Source: GSA Inspector General data.

According to Inspector General and MAS contracting officials, the decline
in pre-award audits was largely due to an organizational culture that
stressed making awards quickly and because pre-award audits were not
emphasized institutionally in GSA. For example, the performance goal for
negotiating and awarding MAS contracts for the Office Supply and
Administrative Services Acquisition Center is 79 days-a goal that would be
difficult to meet if pre-award audits, which take on average 90 or more
days to complete, were to be conducted. GSA management officials also
noted that extending the contract performance period from one year-the
contract period in the mid-1990s-to 5 years has reduced the number of
opportunities for conducting pre-award audits.

Recently, MAS program and Inspector General officials formed a work group
to address the decline in pre-award audits. In June 2003, GSA issued
guidance that recognized the importance of pre-award audits to the
evaluation of MAS price proposals and a clear determination regarding fair
and reasonable pricing.13 The guidance instructs contract negotiators to

13 General Services Administration, Procurement Information Bulletin (PIB)
03-4: Audit Assistance-Multiple Award Schedule (MAS) Contracts
(Washington, D.C.: June 20, 2003).

                                Postaward Audits

request audit assistance for new contract offers and extensions when the
dollar value for estimated sales exceeds $25 million for the 5-year
contract period. We applied the $25 million threshold to MAS contracts
awarded or extended in fiscal year 2003 and identified about 34 new
contracts and 37 contract extensions that were subject to pre-award
audits. However, only 14 pre-award audits-which identified about $4.1
million in negotiated savings-were completed in fiscal year 2003. For
fiscal year 2004, GSA management and GSA Inspector General officials
collaboratively selected about 55 MAS contracts for pre-award audits; by
the end of fiscal year, the Inspector General had completed 40. For fiscal
year 2005, the officials set a goal of completing 70 pre-award audits. To
help achieve this goal, the FSS program has provided the Inspector General
$2 million to hire more auditors.

From fiscal year 1990 through fiscal year 1994, the GSA Inspector General
reported that it recovered an average of $18 million each year in vendor
overcharges through postaward audits. Most of these recoveries were the
result of vendor failure to provide accurate, complete, or current
information in the negotiation of their MAS contracts and the vendors'
failure to report and offer price reductions. Inspector General officials
told us that they believe postaward audits of negotiation information are
a key pricing tool and a deterrent to vendor pricing abuse.14

Despite the significant recoveries, postaward audits of pre-award pricing
information have not been conducted since 1997-when GSA issued a final
rule, changing its policy. Specifically, GSA removed language from the
examination of records clause that automatically granted postaward audit
rights for pre-award pricing information in every MAS contract.15 GSA
expected the reduction in these postaward audits to be offset by an
increase in the number of pre-award audits. However, the anticipated
increased use of pre-award audits has not materialized.

14 The GSA Inspector General officials' comments are supported by the
Department of Veterans Affairs Inspector General officials who have found
postaward audits help protect against overcharging by vendors and often
result in recovery of vendor overcharges. See GAO, Contract Management:
Further Efforts Needed to Sustain VA's Progress in Purchasing Medical
Products and Services, GAO-04-718 (Washington, D.C.: June 22, 2004).

15 GSA, however, retained the right to conduct postaward audits for over
billing, billing errors, and compliance with the Price Reduction and
Industrial Funding Fee clauses. [GSAR 552.215-71].

  Opportunities Exist to Improve Management Oversight of MAS Price Negotiations

While the policy changes greatly limited the use of postaward audits of
pre-award pricing information, we found that it did not expressly
eliminate its use. Under GSA's revised regulations, the contracting
officer can modify the examination of records clause to provide for access
to preaward pricing information for 2 years after contract award or
modification. To modify the examination of records clause, the contracting
officer must, first, determine that there is a likelihood of significant
harm to the government without access to verify the information. Such
determination must be made on a schedule-by-schedule basis. Secondly, the
contracting officer must obtain the senior procurement executive's
approval to modify the examination of records clause of the contract.
However, according to GSA management and GSA Inspector General officials,
no contract clause modification requests have been sought or approved
since the policy changes were made. These officials said that GSA has not
issued guidance to help contracting officers determine the likelihood of
significant harm to the government.

In March 2003, GSA established the Acquisition Quality Measurement and
Improvement Program, a management control process for assessing and
improving the quality of contract negotiations. The program consists of
two initiatives-prenegotiation clearance panels16 and quality reviews of
contract files.17 While these initiatives are a good first step toward
establishing management controls for assessing the quality of MAS contract
price negotiations, opportunities exist to increase their effectiveness.

16 Prenegotiation clearance review panels provide advice and concurrence
to the contract negotiator and ensure that the negotiator is fully
prepared to negotiate the most significant contracts.

17 Quality reviews evaluate the overall quality of completed contract
negotiations.

    Use of Prenegotiation Clearance Panels Has Been Limited

GSA established prenegotiation clearance panels to help MAS acquisition
center management ensure the quality of its most significant contract
negotiations. Prior to initiating discussions with a vendor for a contract
award or modification that reaches a center's dollar threshold,18 the
contract negotiators are required to seek advice and concurrence from the
clearance panel. Panel procedures may also be applied to sensitive actions
such as the first contract negotiations under new programs and contract
extensions with problematic performance or sales reporting histories.
However, since the initiative was implemented, few panels had been
conducted at the acquisition centers we visited, and those that had been
conducted had not been assessed at the agency level.

The Information Technology Center-which administered contracts with more
than $18 billion, or 56 percent, of fiscal year 2004 MAS sales-has yet to
conduct a clearance panel. According to center management officials, no
panels have been held because no contract's estimated annual sales had
exceeded the center's $80 million threshold for conducting a panel.
However, we found five contracts that exceeded the threshold and,
therefore, were subject to a clearance panel. Specifically, in fiscal year
2003, GSA awarded four contracts with total estimated sales values ranging
from $102.5 million to $700 million and extended one contract with an
estimated sales value of $20.3 billion. Each of these met the threshold
for a panel.

Each of the remaining three centers-which, combined, administered $6.5
billion, or about 20.1 percent, of fiscal year 2004 MAS sales-had
conducted a small number of panels in the past year. The Office Supplies
and Administrative Services Center held 10 panels, the Services
Acquisition Center held 9 panels, and the National Furniture Center held 6
panels. According to the management officials and contract negotiators at
these centers, the panels helped prepare them to successfully negotiate
most significant MAS contracts. For example, officials at the Office
Supplies and Administrative Services Center stated that the panels helped
contract negotiators learn how to better negotiate large, sensitive, and

18 GSA policy gives acquisition centers the discretion to lower their
dollar thresholds for determining when a panel review should occur. In
fiscal year 2003, thresholds for each center were as follows: National
Furniture Center, $7 million; Information Technology Center, $80 million;
Services Acquisition Center, $9 million; General Products Acquisition
Center, $7 million; Hardware Superstore, $5 million; Office Supplies &
Administration Services Acquisition Center, $5 million; and the Management
Services Acquisition Center, $9 million. [FSS Acquisition Letter FC-03-1;
Acquisition Quality Measurement and Improvement Program, Mar. 25, 2003.]

controversial contracts. The officials at all three centers also stated
that clearance panels helped in identifying inconsistencies in the
documentation and analyses used to develop their negotiation objectives.
The officials further noted that because these reviews have been a
valuable prenegotiation technique, they lowered the dollar threshold
required for a panel review to increase the number of panel reviews. For
example, the Office Supplies and Administrative Services Center officials
reduced the center's threshold from $5 million to $2 million so that more
contracts would qualify for panel review.

While these efforts helped centers prepare for negotiating their most
significant MAS contracts, GSA officials responsible for overseeing the
MAS program were unaware of the effectiveness of the panels. GSA officials
acknowledged that they neither collected nor analyzed information on the
implementation of the panel initiative and did not require the acquisition
centers to report panel outcomes to MAS program management. However, they
stated that they would implement a procedure to collect panel information
by the end of calendar year 2004.

    Scope of Quality Reviews Limited Their Effectiveness

In the first 2 years of its quality reviews, GSA identified a number of
deficiencies in the documentation supporting price negotiations and price
reasonableness determinations. However, the scope of these reviews was
limited, minimizing their effectiveness. Moreover, GSA did not identify
the underlying causes of the deficiencies found or the specific actions to
address the causes-despite actions taken to improve the quality review
initiative.

Through its quality review initiative, GSA planned to select a
representative sample of MAS contracts at each of the acquisition
centers19

19 General Services Administration, Acquisition Quality Measurement
Improvement Program, Acquisition Letter FC-03-1 (Washington D.C.: Mar. 25,
2003).

and assess the pre-award documentation-rating it as excellent,
satisfactory, marginally acceptable, or unacceptable20---in the following
three pricing areas: 21

o  	Price negotiation documents are to clearly establish that the pricing
information provided by the vendor was accurate, complete, and current;
the information was relied upon during negotiations; adequate price
analyses were conducted; reasonable negotiation objectives were
established; the amount of the total government's requirements was
leveraged in negotiating prices; and the prices negotiated were fair and
reasonable considering the prices offered by the vendor to their most
favored customer.

o  	Contract modifications documentation should support the conclusion
that all contract modifications were adequately reviewed to establish that
the terms proposed were in the interest of the government and that prices
for newly awarded items were determined fair and reasonable considering
the prices offered by the vendor to their most favored customer.

o  	Contract extension decisions are to be fully documented in compliance
with regulations, and the prices for the option established as fair and
reasonable with consideration of the prices offered by the vendor to its
most favored customer.

For the fiscal year 2003 quality review, GSA did not meet these criteria-
largely because it had significantly reduced the scope of the review. For
example, GSA completed its review at only one of its seven centers-the
Services Acquisition Center. According to MAS program managers, a lack of
resources and reviewers and concerns about the independence of the
available reviewers prevented them from conducting more reviews. In
addition, in its one review, GSA assessed 19 fiscal year 2003 contracts,
which did not make up a representative sample. GSA found that the price

20A contract file that indicated that the negotiator used excellent skill
and initiative to resolve problems and establish pricing that fairly
represented the full value of the contract would be rated as excellent. A
contract that needed significant corrective action to meet regulatory
requirements or to establish fair and reasonable pricing, or both, would
be rated as unacceptable.

21 In 2003, the quality review included seven critical factors of which
only three were directly related to pricing.

negotiation documentation for 4 of the 19 contracts reviewed was
"unacceptable."

For fiscal year 2004, GSA planned to review 10 contracts each quarter at
each of its seven MAS acquisition centers-a total of 280 MAS contracts- to
improve the independence of the review team members, and refine the review
criteria and rating categories. However, GSA completed only two quarterly
reviews of a total of 90 MAS contracts and eliminated the rating
system-instead, contract reviewers identified only strengths and
weaknesses of each contract negotiation. Moreover, reviewers did not
determine the underlying causes for identified pricing deficiencies or
develop plans to address the causes. For example, the negotiation
documentation for a contract with a dollar value of $3.5 million lacked an
adequate price analysis and did not identify the vendor's most favored
customer price, but the cause of these deficiencies was not determined.
Similarly, the documentation of a contract with an estimated value of
$125,000 was insufficient in either the contract extension or the original
contract to determine if any of the pricing requirements had been met.
Again, however, the causes for these deficiencies were not identified.

In September 2004, GSA completed a review of 28 additional MAS contracts
that were awarded or extended between November 2003 and June 2004 at the
seven MAS acquisition centers. GSA's preliminary findings of these reviews
are inconsistent. For example, GSA reported that all 28 contracts
contained sufficient documentation to establish clearly that they met
pricing requirements. However, the most favored customer price was not
established clearly for 27 of the 28 contracts. In addition, GSA reported
that one contract's negotiation documents clearly showed that reasonable
negotiation objectives were established and an adequate price analysis was
conducted. However, the review also stated, "While the contract file
contains several pages where, for each item offered, the government price
and discount is listed, as well as the commercial price, the contract file
does not contain a commercial pricelist. Thus, there is no way to
substantiate that the commercial prices shown in the tables comparing
commercial and government prices are, in fact, the published commercial
prices." As of January 21, 2005, GSA had not issued a final report on its
fiscal year 2004 quality reviews.

According to GSA officials, several efforts to improve the quality review
process are to be implemented during fiscal year 2005. Key efforts
include, providing on-line training with a module on price negotiation for
contract specialists, making contract quality a performance measure to
balance the contract negotiator's focus on quality as well as timeliness,

  Conclusions

Recommendations for Executive Action

Agency Comments

and requiring each acquisition center to develop an individual improvement
plan. While these efforts appear to be positive steps, their effectiveness
is uncertain.

The MAS program has provided the government with a more flexible and
cost-effective approach to buying commercial items and services, and the
MAS's popularity has increased significantly in recent years. However, MAS
contract negotiators do not use the full range of tools to ensure that the
government is effectively negotiating prices. While GSA has taken steps to
establish a program to assess the quality of its MAS contract
negotiations, all acquisition centers are not fully participating, and the
scope of the program is limited. Moreover, the program has not yet
determined why deficiencies it has identified thus far are occurring.
Until GSA takes steps to ensure the appropriate use of available pricing
and negotiation tools, it will continue to miss opportunities to save the
government hundreds of millions of dollars in the procurement of goods and
services.

We are making four recommendations aimed at helping GSA ensure that prices
are effectively negotiated for MAS contracts. We recommend that the
Administrator of the General Services Administration

o  	ensure that pre-award audits are conducted when the threshold is met
for both new contract offers and contract extensions,

o  	develop guidance to help contracting officers determine when postaward
audits are needed,

o  	direct GSA program management to revise the Acquisition Quality
Measurement and Improvement Program to measure and report on the
performance of the prenegotiation clearance panels, and

o  	direct GSA program management to revise the Acquisition Quality
Measurement and Improvement Program to broaden the scope of quality review
initiative to (1) determine the underlying causes for contract pricing
deficiencies and (2) develop appropriate plans to implement corrective
actions.

GSA provided written comments on a draft of this report. GSA agreed with
our recommendations, and stated that it has already begun to take the
following actions:

o  	FSS will work with the GSA's Office of Inspector General to increase
and to improve the pre-award audit process.

o  	GSA will work with the acquisition community to generate a discussion
about the role that postaward reviews should play in the acquisition
process. To foster this discussion, GSA will have the Office of Chief
Acquisition Officer publish a Notice of Proposed Rulemaking.

o  	FSS has already revised its program operating procedures to require
reports on prenegotiation clearance panels.

o  	GSA is expanding an action plan to improve file documentation
pertaining to contract pricing and is placing strong emphasis on proper
negotiation.

While GSA agreed with our recommendations, it felt that our report fell
short in a few areas. First, GSA thought that our report should have
described in more detail the MAS program. We have provided the information
needed to understand the issues of concern in our review. GSA provided
additional details on the MAS program, which are reprinted in appendix
III.

Second, GSA asserted that the findings of its Acquisition Quality
Measurement and Improvement Program reviews should not be interpreted to
mean that FSS is not obtaining good pricing. To illustrate this point, GSA
noted that it reexamined 8 of the 62 contracts covered by the June 2004
quality review and now concludes that the contracts had "excellent"
pricing. It is unclear how GSA's examination of contract documentation
that was previously found to be inadequate supports such a determination.
More important, we are concerned that GSA's position understates the
seriousness of the problem it has in ensuring that GSA contracting
officials are effectively negotiating MAS contract prices. In addition to
its own quality reviews, our report shows the use of pre-award audits and
the millions of dollars in savings from such audits have declined
dramatically in recent years. We also reported that the use of
prenegotiation clearance panels, designed to ensure quality of significant
contract negotiations, has been limited. Such problems are not new. For
example, the GSA Inspector General reported in August 2001 that (1) GSA
contracting officials were not consistently negotiating most favored
customer prices, (2) contracts were being extended with little negotiation
or price analysis, and (3) pre-award audits had decreased significantly in
recent years. Clearly, these problems are serious, longstanding, and have
significant financial consequences. Thus, we believe GSA needs to place

priority attention on obtaining adequate documentation to ensure its
contracting officials are effectively negotiating MAS contract prices.

Third, GSA commented that while our report points to a significant decline
in the number of pre-award and postaward audits, it does not address the
factors that contributed to this decline. We disagree. As discussed in our
report, MAS contracting officials and Inspector General officials
identified a number of factors that in the past contributed to the
reduction of the number of pre-award audits. These factors include an
organizational culture that stresses making contract awards quickly and
performance measures that focus on timeliness. The reduction of the number
of opportunities for conducting pre-award audits caused by the extension
of contract performance period from 1 year-the contract period in the
mid1990s-to 5 years was also cited as a factor. However, according to GSA
it receives more than 3,000 new MAS contract offers each year. Despite
these opportunities to conduct pre-award audits, the number of pre-award
audits has only increased from 14 in fiscal year 2003 to 40 in fiscal year
2004.

Fourth, GSA expressed concern about our understanding of the regulatory
framework required for postaward audits of commercial contracts and that
we underestimated the risk and overestimated the savings associated with
these postaward audits. We are aware that the 1997 change to GSA's
regulations stimulated substantial disagreement and discussion concerning
the extent of GSA audit authority. GSA received numerous comments
asserting that the Clinger-Cohen Act (PL 104-106) eliminated its authority
to conduct postaward audits of pre-award pricing information. Similar
views were expressed in post enactment language by the House Armed
Services Committee in House Report 104-563. Although GSA concluded that it
retained authority for postaward audits, GSA's final rule restricted the
use of postaward audits. Specifically, the final rule allows the
contracting officer to modify the Examination of Records by GSA (Multiple
Award Schedule) clause to provide for postaward audits only "after the
contracting officer makes a determination that there is a likelihood of
significant harm to the Government without access to verify the
information and obtains the Senior Procurement Executive's approval." We
have not recommended that GSA change the postaward audit restriction.
Rather, we have noted that contracting officers do not understand the rule
and need guidance to fulfill their responsibilities under the rule.
Regarding the savings associated with postaward audits, the estimates were
produced and reported by GSA's Inspector General.

Fifth, GSA commented that because the Acquisition Quality Management and
Improvement Program has yet to be fully implemented, it is not reasonable
to evaluate the adequacy of the program in achieving improvements. This
misses the point. We believe that improvements should be made when the
need for them are identified regardless of the program's implementation
stage. For example, we found that the program when it was launched in
March 2003 was limited to two initiatives- prenegotiation panels and
quality reviews-and that other initiatives key to a successful improvement
program, such as training, were not formally included as an initiative
under the program. Coincident with our finding, GSA has initiated a
training program.

Finally, GSA commented that it had made a commitment to establishing a
culture of quality contracting and identified 12 improvement actions taken
since November 2001. Our report identifies five of these actions:
establishing the Acquisition Quality Measurement and Improvement Program;
implementing a contract quality measure in the individual performance plan
for each contracting associate; developing on-line and classroom training
courses and modules for FSS contracting professionals via FSS Center for
Acquisition Excellence; forming an IG Working Group to focus on the need
for pre-award audits; and increasing the number of contracting associates.
The remaining seven improvement actions either were not directly related
to the issues in our report or were implemented after we completed our
fieldwork. Therefore, we are not in a position to comment on these
improvement actions.

GSA also made a number of technical comments, which we respond to in
appendix III.

As agreed, unless you publicly announce its contents earlier, we plan no
further distribution of this report until 30 days from its issue date. At
that time, we will send copies of this report to the Honorable Stephen A.
Perry, Administrator of the General Services Administration; appropriate
congressional committees; and other interested parties. We will also
provide copies to others on request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have questions concerning this report, please contact
me at (202) 512-4841 or by e-mail at [email protected] or James Fuquay at
(937) 258-7963. Key contributors to this report were Sanford Reigle,
Elaine
Boudreau, Sameena Ismailjee, Mary Jo Lewnard, Sylvia Schatz, and Karen
Sloan.

Sincerely yours,

David E. Cooper
Director
Acquisition and Sourcing Management

                       Appendix I: Scope and Methodology

To determine how GSA negotiates most favored customer pricing objectives
for MAS program contract awards and extensions, we examined GSA policies
and procedures for contract negotiation, including information
requirements for price negotiation memorandums, periodic reviews focusing
on the quality of MAS price negotiations, specific guidance on contract
price negotiations, and training given to contracting officers and
contract specialists. We discussed implementation of GSA policies,
procedures, and management controls with agency officials at GSA's Office
of Acquisition Management in Arlington, Virginia; Office of Performance
Improvement and the Office of Government-wide Policy in Washington, D.C.;
and the GSA's Office of Inspector General in Washington, D.C. Also, we
visited the Office Supplies and Administrative Services Acquisition Center
in New York, New York; and the National Furniture Acquisition Center,
Services Acquisition Center, and Information Technology Center in
Arlington, Virginia. We obtained and analyzed GSA data on MAS contract
awards and sales volume as recorded in the Federal Supply Service
Automated Supply System FSS-19 used by GSA to procure and distribute
supplies across the federal government. To help ensure reliability of
FSS-19 data, we reviewed the results of the GSA Inspector General's audit
of the system's internal controls and tests of application controls
completed in support of GSA's fiscal year 2003 consolidate and combined
financial statements. Also, we reviewed GSA Inspector General reports,
analyzed cost avoidance and cost recovery estimates, and discussed these
data with GSA Inspector General officials.

Further, we reviewed contract files and discussed price negotiation
practices and tool use with management officials and contract negotiators
responsible for selected MAS contracts at four of GSA's seven MAS
acquisition centers. At these centers, we reviewed the contract files that
GSA had randomly selected for review under their Acquisition Quality
Measurement and Improvement Program. Based on our review of price
negotiation procedures and discussions with acquisition center management
officials concerning the GSA selected MAS contracts, we developed a
flowchart of the contract price negotiation process identifying tools used
and controls over their use.

To determine how GSA assesses the overall effectiveness of MAS contract
price negotiations, we reviewed GSA policies, procedures, and efforts to
evaluate the quality of MAS contract negotiations and awards, identify and
implement needed improvements, and communicate best practices throughout
the acquisition community. Also, we discussed management controls
established to assess the effectiveness of MAS contract negotiations to
obtain the most favored customer price objective with

Appendix I: Scope and Methodology

agency officials at GSA's Office of Acquisition Management in Arlington,
Virginia; and the Office of Inspector General in Washington, D.C. We
reviewed prior GAO and GSA Inspector General findings on GSA's MAS
contract price negotiations. Further, we analyzed the 2003 and 2004
results of GSA's Post Award Contract Reviews and for selected contracts,
interviewed responsible acquisition center and contract negotiation
officials to evaluate the quality of GSA's review, identify underlying
cause for unacceptable price negotiations, and document corrective actions
taken.

  Appendix II: MAS Acquisition Centers' Products and Services

                    Acquisition Center Products and Services

Center for Facilities Maintenance and Appliances Hardware Coatings

Lawn equipment Machining equipment Tools General Products Acquisition
Center Buildings and building materials

Industrial services and supplies

Total solutions for law enforcement, security, facilities management,
fire, rescue, clothing, marine craft, and emergency disaster response

Food service, hospitality, cleaning equipment and supplies, chemicals, and
services

Sports, promotional, outdoor, recreational, trophies, and signs

Temporary administrative and professional staffing

Laboratory testing and analysis services

Test and measurement equipment, avionics equipment, unmanned aerial
vehicles, and related services

Chemistry, biochemistry, clinical instruments, general purpose laboratory
instruments, and services

Geophysical, environmental analysis equipment, and services

Information Technology Center	General purpose commercial information
technology equipment, software, and test administration

Management Services Center	Energy services Environmental services and
products Language services Logistics worldwide Management, organizational,
and business improvement services

National Furniture Center 	Office, imaging, and document solution
Professional audio/video, telecommunications, and security solutions
Office furniture Household and quarters furniture Packaged furniture
Comprehensive furniture management services Special use furniture
Miscellaneous furniture Floor coverings Furnishings

Appendix II: MAS Acquisition Centers' Products and Services

                    Acquisition Center Products and Services

Office Supplies and Administrative Services Acquisition Center

Training aids and devices
Instructor-led training
Course development
Test administration
Office products/supplies and services
New products/technology
Publication media
Shipping, packaging, and packing supplies
Human resources and Equal Employment Opportunity services

Services Acquisition Center 	Financial and business solutions marketing
Media and public information services Professional engineering services

                               Source: GSA data.

  Appendix III: Comments from the General Services Administration

Appendix III: Comments from the General Services Administration

Appendix III: Comments from the General Services Administration

Appendix III: Comments from the General Services Administration

Appendix III: Comments from the General Services Administration

Appendix III: Comments from the General Services Administration

Appendix III: Comments from the General Services Administration

Appendix III: Comments from the General Services Administration

                                 See comment 1.

                                 See comment 2.

Appendix III: Comments from the General Services Administration

                                 See comment 3.

                                 See comment 4.

                         See comment 5. See comment 6.

                                 See comment 7.

                                 See comment 8.

Appendix III: Comments from the General Services Administration

See comment 9.

See comment 10. See comment 11. See comment 12.

Appendix III: Comments from the General Services Administration

                                See comment 13.

                                See comment 14.

                                See comment 15.

Appendix III: Comments from the General Services Administration

                                See comment 16.

                                See comment 17.

                                See comment 18.

Appendix III: Comments from the General Services Administration

                                See comment 19.

Appendix III: Comments from the General Services Administration

Appendix III: Comments from the General Services Administration

Appendix III: Comments from the General Services Administration

                                  GAO Comments

1. 	The language in our report is consistent with the language in the
General Services Administration Acquisition Manual (GSAM). Specifically,
GSAM 538.270 Evaluation of multiple award schedule (MAS) offers states
:"(a) The Government will seek to obtain the offeror's best price (the
best price given to the most favored customer). However, the Government
recognizes that the terms and conditions of commercial sales vary and
there may be legitimate reasons why the best price is not achieved."
Further, GSA states in the supplementary information to its final rule, 62
Fed. Reg. 44,518, 44,519 (August 21, 1997) that; "The pursuit of "most
favored customer" pricing as a goal is consistent with commercial practice
and totally consistent with the objective of negotiating a fair and
reasonable price."

2. Technical revision has been made.

3. Technical revision has been made.

4. 	The language in our report is consistent with the language cited in
comment 1; however, we added the language that notes GSA's pricing goals.
Also, while GSA encourages its customer agencies to negotiate further
discounts at the time they place an order, the focus of our work was on
how GSA negotiates MAS contract prices, not on the responsibilities of
GSA's customer agencies.

5. 	The language in our report is consistent with the language cited in
comment 1.

6. Technical revision has been made.

7. 	Without documentation that establishes clearly that the contract
negotiations were conducted using accurate, complete, and current pricing
information and adequate price analyses; GSA cannot ensure that
negotiation objectives were properly established and the prices were
effectively negotiated. Historically, pre-award audits have allowed GSA to
avoid hundreds of millions of dollars in overpricing. Between fiscal years
1992 and 1997 the GSA Inspector General averaged about 125 pre-award
audits each year and reported a total of nearly $496 million in savings-an
average of nearly $83 million per year. In August 2001, as pre-award
audits continued to decline, the Inspector General reported that
contracting officers were not consistently negotiating most favored
customer pricing because they often failed to evaluate and quantify
differences between commercial pricing and schedule terms and conditions.
As discussed in our report,

Appendix III: Comments from the General Services Administration

the Inspector General provided specific examples of overpricing with
millions of dollars in potential overpayments by GSA customers. While the
number of pre-award audits GSA completed increased from 14 to 40 between
fiscal years 2003 and 2004, we do not view this increase as
significant-especially given the skyrocketing MAS sales.

8. 	In fiscal year 2003, GSA was to complete quality reviews of 11 GSA
activities, including all 7 of the MAS acquisition centers. However, GSA
completed and reported on only one center-the Services Acquisition Center.
According to GSA officials, the results of its fiscal year 2004 review
would be issued in October 2004. This date slipped several times to
December 31, 2004, to January 7, 2005, and now to sometime in February
2005. We believe that better oversight early in the program's
implementation could have helped the program better meet its established
milestones.

9. 	Our review focused on how GSA negotiates most favored customer prices
for MAS contracts and assesses the overall effectiveness of these price
negotiations. We did not look at how GSA's customer agencies order items
and services from MAS contracts.

10. The language in our report is consistent with the language cited in
comment 1.

11. Technical revisions have been made.

12. We support the use of quality reviews and believe they are a good
first step to improved MAS contact negotiations, as we noted in our
report. However, we also believe that identifying specific causes of
documentation deficiencies and the requirement for action plans addressing
these causes would increase the effectiveness of GSA's quality reviews.

GSA asserts that the improvement in contract documentation at the Service
Acquisition Center is a direct result of their quality reviews. The
evidence we have been provided does not support this assertion. While
GSA's June 2004 quality review of the Service Acquisition Center found
that contract documentation had improved since its fiscal year 2003
review, we learned during the course of our review that the Service
Acquisition Center began a continuous improvement program about 4 years
ago and that one of the Center's divisions had been developing tools and
standardized documents to have an audit trail of the information that was
used and how decisions were made in

Appendix III: Comments from the General Services Administration

negotiating the contract. Because the Center's efforts pre-date GSA's
quality reviews, it is unclear to what extent the Center's improvement
efforts and the reviews had on the documentation improvements.

GAO recognizes that GSA has initiated a number of efforts to better ensure
contract quality, and our report identifies those that are relevant to our
review. However, because these efforts were recently implemented, we did
not assess and cannot comment on their effectiveness.

13. Our findings are based on the 28 contract reviews completed as of
September 2004. For these reviews, the GSA reviewers stated that most
favored customer pricing was not clearly established for 27. The
additional seven reviews and reexaminations were expected in October 2004,
they were not completed until February 2005. Therefore, we have no basis
to comment on either GSA's additional seven reviews or their reexamination
of the September 2004 consensus reports.

14. Our report describes the use of pre-award audits and their conduct by
the GSA Inspector General for contract negotiators.

15. As discussed in our report, MAS contracting officials and Inspector
General officials identified a number of factors that in the past
contributed to the reduction of the number of pre-award audits. These
factors include an organizational culture that stresses making contract
awards quickly and performance measures that focus on timeliness. The
reduction in the number of opportunities for conducting preaward audits
caused by the extension of contract performance period from 1 year-the
contract period in the mid-1990s-to 5 years was also cited as a factor.
However, despite the 5-year contract period, GSA increased the number of
pre-award audits from 14 in fiscal year 2003 to 40 in fiscal year 2004 and
plans to complete 70 in fiscal year 2005. Moreover, according to GSA, it
received more than 3,000 new MAS contract offers each year, presenting GSA
with numerous opportunities for pre-award audits. Therefore, we do not
believe that the extension of MAS contracts from 1 to 5 years was a major
underlying cause of the dramatic decline in pre-award audits over the last
decade.

16. We asked contract negotiators why they did not request pre-award
audits on new contract offers, as required by GSA. According to the
contract negotiators, the performance goal for awarding a new

Appendix III: Comments from the General Services Administration

contract did not allow enough time for pre-award audits. While we agree
that establishing a performance measure to reduce cycle times may be
warranted, it must be balanced with other measures of quality, as GSA
points out.

We also agree that increasing the number of pre-award audits from 14 to 40
shows progress; however, we do not believe that this increase can be
characterized as "significant"-especially when an average of 125 audits
were completed annually in the early 1990s and GSA receives more than
3,000 new schedule offers annually.

17. We agree with GSA's proposed actions.

18. Identifying underlying or "root" causes is essential for correcting
process deficiencies. While GSA notes that FSS management intends to
identify such causes, we believe GSA missed an opportunity to do so
through its formal review. Further, it is unclear how FSS management plans
to identify the underlying causes. Regardless, we believe that expending
resources to resolve deficiencies without first determining the causes of
the deficiencies unnecessarily increases the risk that improvement efforts
will not succeed and resources spent will be wasted.

19. The acquisition letter implementing the quality reviews identifies the
seven critical factors. While all of these critical factors could involve
contracting pricing in some manner, only three factors specifically
address pricing.

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