Transcript the presentation

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Current Pricing Challenges
& Strategies for GSA and
VA Schedule Contractors
Breakout Session #508
James S. Phillips, Esq.
July 20th, 2010
2:00 PM
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Overview
• Federal Supply Schedule (FSS) contracts provide
for streamlined contracting based on the
Government’s prior approval of Schedule vendor’s
prices/rates for products and/or services offered
through the Schedules program.
• Pricing is approved at the Schedule contract level
based on the vendor’s submission of a contract
pricing proposal complying with the Schedule
solicitation’s requirements, followed by price
negotiations.
Disclosure + Negotiation = Contract Award.
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Overview
• Successful pricing of FSS proposals is dependent upon the
vendor’s ability to competently communicate to GSA or VA
how it prices its products/services commercially.
• This is done through the Commercial Sales Practices (CSP)
Disclosure template contained in Schedules solicitations.
• An extremely high number of proposals are rejected (@45%)
due to pricing problems.
• Negligent or intentional omissions of required pricing
information may subject the vendor to significant legal and
contractual jeopardy!
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Overview
The Bottom Line
You are permitted/expected to negotiate hard but you
may not conceal information relevant to the pricing of
your offered products/services.
Therefore:
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Your first pricing “Challenge” is to ensure you have made the required
disclosures
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Your second pricing “Challenge” is to establish why your offered price is
“reasonable” based on your pricing disclosures
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Success is achieved by fulfilling your mandatory disclosure obligations and
successfully establishing a “reasonable” FSS price that allows you to profitably
compete for future orders, including providing additional discounts when
necessary or appropriate.
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Initial Questions to Ask
• Can you supply 2 years of financial
information?
• Do you have any commercial sales of the
proposed Schedule items?
• Do you have the ability to disclose why
different customers receive different
prices/rates for such items (i.e. standard
practices).
A “no” to any of the above is a definite
impediment to being able to succeed.
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Basic Strategic Questions to
Consider Before Submitting
1.
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Are you offering GSA/VA prices equal to or better
than your MFC prices?
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Most Favored Customer (MFC)
Disclosure/treatment.
Note if your offer encompasses multiple SINs you may
have different levels of MFC prices to disclose/evaluate
Ensure you understand the advantages/disadvantages of
proposing MFC pricing
If not, have you established why your MFC
customer(s) is not comparable to FSS customers?
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Basic Strategic Questions to
Consider Before Submitting
2.
Do you maintain a true commercial price list or
do you price based on the market?
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Price list based offers work better under the FSS CSP template because
GSA/VA assume vendors have clear price/discount levels they follow. The
key then becomes to map FSS customers to the most comparable
customer discount level.
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Offerors without true price lists need to investigate and understand what
market conditions result in lower prices/better discounts. This may be very
challenging if discounts vary widely.
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For service vendors without true commercial price lists a better alternative
may be to go with a “cost build” up pricing basis.
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Note: The outcome to this question will also dictate how you obtain future
Economic Price Adjustments (i.e. price increases)
Make sure you understand the advantages/disadvantages of each pricing model!
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Basic Strategic Questions to
Consider Before Submitting
3.
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Do Certain Sales Constitute Deviations from
Standard Commercial Sales Practices?
FSS Pricing is to be based on standard sales
practices
GSA & VA recognize that certain sales result from
non-standard sales transaction – i.e., deviations
Evaluate sales prices that deviate from the norm
to assess whether they are deviations
Note: Deviations must be disclosed but if
legitimate should not be the basis of GSA pricing
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Basic Strategic Questions to
Consider Before Submitting
4.
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Volume Drives Discounts
In most markets, the higher the value of a sales
transaction, the lower the unit price of the
good/service
Likewise high sales guarantees will impact pricing
GSA/VA recognize this – Schedule contracts
include maximum order thresholds above which
FSS customer are to request add’l discounts
Evaluate commercials sales practices in terms of
the volume of sales by customer and highlight
special discounts attributed to spec’l sales volume
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Basic Strategic Questions to
Consider Before Submitting
5.
Is Your Product/Service Bought
as a Commodity?
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Products/Services that possess special attributes are purchased
based on consideration of factors other than price – i.e. best value
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Vendors of such products/services are solicited for new work based
on factor other than price
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For vendors of these items, it is highly desirable to have schedule
prices that leave room for additional discounts as warranted by the
transaction
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Commodities sales are largely driven by price. Sellers of
commodities need to ensure that their Schedule prices are low
enough to ensure that they are solicited for new work.
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Basic Strategic Questions to
Consider Before Submitting
6. FSS Price = Basis of Award
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FSS prices are tied to prices charged commercial customers unless a
cost build up model is used
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The customers or class of customers on which FSS prices are based
are referred to as the Basis of Award or BOA
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Under the FSS Price Reductions Clause, the price/discount
relationship established between the FSS price and the BOA
customer price must be maintained throughout the contract. If BOA
customers later get lower prices or better discounts, that may trigger
an obligation to reduce FSS prices
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In considering your pricing strategy always think about the need to
designate a BOA customer category & the challenges of complying
with the Price Reductions Clause
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Basic Strategic Questions to
Consider Before Submitting
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Special Issues for Service Providers
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Cost build up may be easier to administer than CSP pricing
but then profit is specifically negotiated. Then have to
establish proposed profit is reasonable.
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Service Contract Act applies to non-professional labor
categories outside IT Schedule 70. Need to align your labor
categories to SCA labor categories and ensure SCA
compliance.
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FSS labor pricing is specific to unique labor categories.
Ensure personnel meet labor category qualifications to avoid
compliance issues.
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Basic Strategic Questions to
Consider Before Submitting
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Special Issues for Product Resellers
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Product resellers that have substantial commercial
sales of proposed FSS items may rely on their
own CSP disclosure to establish FSS prices.
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Resellers lacking substantial commercial sales of
these items must obtain a letter of supply from the
manufacturer of the products and supply
manufacturer commercial pricing information.
This is problematic.
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Special Pricing Challenges for
FSS Contract Renewals
Overview
• FSS contracts are subject to renewal every 5
years provided that the vendor has complied
with the contract & GSA/VA determines the
vendor’s FSS prices remain reasonable.
• Price Reasonableness is determined based
on a re-submittal of the vendor’s CSP
Disclosure as a part of its renewal package.
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Special Pricing Challenges for
FSS Contract Renewals
1. No Commercial Sales of Schedules
Items at Renewal
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This is a problem! Plan for it and try
to avoid it!
If it happens, evaluate alternative
pricing strategies – cost build up;
sales to non-FSS federal customers.
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Special Pricing Challenges for
FSS Contract Renewals
2. Failure to Monitor Price Reductions
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CSP at renewal may establish that BPA
customer prices/discounts have changed
without comparable reduction in FSS
prices. This is highly problematic because
it suggests failure to comply with the Price
Reductions Clause.
Be sure to review Price Reductions
compliance and report required price
reductions prior to submitting renewal
package!
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Special Pricing Challenges for
FSS Contract Renewals
3. FSS Pricing Have Not Kept Pace
with Commercial Pricing
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This is problematic because at renewal the price
discount relationship between the FSS price and
the BOA price will be revisited and reestablished.
You will then be obligated to maintain the
increased price discount relationship going
forward.
Make sure you obtain all available price increases
prior to submitting your renewal paperwork!
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Current Pricing Challenges &
Strategies for GSA and VA
Schedule Contractors
Questions?
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Current Pricing Challenges &
Strategies for GSA and VA
Schedule Contractors
Thank you!
James (Jim) Phillips
[email protected]
(703)288-2800