GSA is reevaluating price reasonableness for all new consolidated PSS schedules, which may result in requests for price reductions or even post-award audits for some contractors.
On March 21, the Office of Inspector General for the General Services Administration issued an audit report finding that the Federal Acquisition Service’s (FAS) migration and consolidation of pre-existing Multiple Award Schedule (MAS) contracts into the new Professional Services Schedule (PSS) resulted in the award of new PSS contracts without establishing price reasonableness, as required by the Federal Acquisition Regulation (FAR). Second, the GSA IG found that the Pre-Negotiation and Price Negotiation Memorandum template utilized by contracting officers to record contract negotiation actions was missing key information required by the FAR and FAS policy. And third, it concluded that the documentation in the contract files for the PSS contracts lacked sufficient detail to support the awarded labor category rates.
In one of several efforts at ongoing MAS reform, FAS established the PSS in 2015 by combining seven pre-existing professional services schedules. The consolidation was intended to increase program efficiency and reduce the administrative costs of managing the separate schedules, reportedly saving GSA an estimated $3.95 million over the first five years. FAS utilized two processes for transitioning existing contracts to the PSS. For contractors holding only one professional services contract, FAS transitioned those contracts to the PSS by issuing a contract modification that retained all existing contract terms and conditions, including pricing and period of performance. FAS migrated pre-existing contracts where contractors held two or more professional services contracts by requiring contractors to submit an offer under the PSS solicitation, resulting in the award of 322 new PSS contracts from 721 pre-existing professional services contracts.
The GSA IG sampled 45 contracts as part of the audit to determine if FAS complied with FAR and FAS policy requirements in awarding the new PSS contracts. The GSA IG found that in 44 of the 45 sampled contracts, contracting officers did not conduct the price analysis or hold negotiations with contractors as required by the FAR. The GSA IG report recommended that FAS perform a formal price analysis on PSS migrated contracts to determine if contract pricing is fair and reasonable.
GSA IG also found that the “Pre and Price Negotiation Memorandum” template used by FAS lacked key information required by the FAR and FAS Policy. FAS Policy requires the use of separate pre-negotiation and price negotiation templates, which are designed to satisfy the FAR requirements for documenting pre-negotiation objectives and the contracting officer’s negotiations with the contractor. GSA IG found that the combined template that the contracting officers used in administering the migrated PSS contracts did not indicate if negotiation objectives were established before entering negotiations. GSA IG recommended that FAS discontinue use of the combined “Pre and Price Negotiation Memorandum” template to ensure compliance with FAR and FAS policy.
Finally, GSA IG found that the contracting officers failed to sufficiently document the price analyses for the PSS contracts. GSA IG was unable to verify the contracting officers’ price reasonableness determinations for the awarded contracts because the contracting officer did not specifically identify the prices of compared labor categories in the price comparison database or provide any analysis of the source data, as required by the FAR. Thus, GSA IG recommended that FAS ensure that the contracting officers include sufficient detail in the contract file to support price reasonableness determinations.
FSA Commissioner Thomas Sharpe concurred with the report findings and recommendations and provided FAS’s proposed corrective action to address the audit findings, including that FAS will
PSS contractors should be aware FAS has begun to independently reevaluate each of the migrated contracts to verify that the appropriate price analysis was conducted. In those cases where a price analysis was not conducted, the contracting officer will complete a new price reasonableness analysis that may include negotiations with the contractor, and if rates are found to be significantly overstated or if the contractor’s Commercial Sales Practice disclosures were not current at the time of award, a post-award audit may be initiated. This may result in GSA seeking permanent price reductions for some rates going forward but should not impact pricing previously accepted by the contracting officer for completed orders.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Sheila A. Armstrong
Kirstin D. Dietel
 FAR 15.402, Pricing Policy, requires contracting officers to determine if offered prices are fair and reasonable and to price each contract separately and independently.
 See FAS Instructional Letter (IL) 2011-02, Mandating the Use of Pre-Negotiation, Price Negotiation and Final Proposal Revision Templates for the Federal Supply Schedules Program.
 FAR 15.406-1, Prenegotiation Objectives, requires that the contracting officer establish and document pre-negotiation objectives before the start of negotiations.
 FAR 15.406-3, Documenting the Negotiation, requires that the contracting officer document in the contracting file the principal elements of the negotiated agreement.
 Appendix B to GSA IG Audit Report A160037.