GSA Contractor: What Does “Fair and Reasonable” Mean?

TAA Compliance

GSA Contractor must be aware that the federal government is always after obtaining equal or better pricing in establishing a GSA Schedule contract than the contractor’s Most Favored Customer (MFC).

The GSA needs to determine the prices that contractors offer under the GSA Schedule are “Fair and Reasonable.” Throughout the GSA Schedule contract negotiations, if the assigned Contracting Officer does deem a contractor’s pricing proposal “Fair and Reasonable,” the offer can be rejected or negotiated further to arrive at a “Fair finally and Reasonable” pricing based on GSA standards.

What Does “Fair and Reasonable” Pricing Mean For GSA Contractor?

As established, the determination of whether a pricing proposal is “Fair and Reasonable” happens during GSA Schedule contract negotiations. In GSA Schedule contract negotiations, a Contracting Officer will be assigned to heavily screen, review, and evaluate the proposed pricing schemes and ultimately has the power to decide if the items are “Fair and Reasonable.” The Contracting Officer primarily bases their decision on already existing GSA Schedule “like and similar” products or services. Moreover, the decision Contracting Officer’s decision is also concerning a price point for agencies to purchase these products or services with taxpayer dollars.

More specifically, the following are the main principles in determining a “Fair and Reasonable” pricing:

  • The pricing for “like and similar” — similar in scope and price — products or services on competitor contracts
  • Market pricing background and history
  • Existing and available pricing in other contract vehicles

Among these factors, a Contracting Officer usually turns to previously awarded GSA Schedule contracts that have “like and similar” products and services the most. With this information, GSA contractors can research to determine and recon the existing market they will soon join before coming up with their price list proposal.

How is “Fair and Reasonable” Pricing Determined?

Whenever necessary, GSA Schedule Contract holders are required to present supporting evidence to request the addition of new products or services or to request increments in the pricing rates of their existing GSA Schedule Contract. GSA Schedule contract holders may do so via Mass Mod or through a new offer. When the request deals with modifying rates, the Contracting Officer usually requires that the GSA Schedule contractor provide pricing support evidence. This evidence is to verify that the rates they offer are “Fair and Reasonable,” or to put in on another perspective, have passed the test of the current market space.

Before, invoices, or pricing worksheets for firm-fixed-price offerings, were enough to exemplify “Fair and Reasonable” pricing. With invoices, contractors offer products or services, buyers purchase them, and voila, “Fair and Reasonable” pricing. This process is of significance as it not only proves contractors’ experience and commerciality but sets the initial position for pricing negotiations.

Recently, the Government Services Administration declared publicly that gone are the days when invoices were enough to prove “Fair and Reasonable” rates. Now, proof that contractors have sold something at a certain rate, no matter the number of sales, is not considered enough to establish that their rates are indeed “Fair and Reasonable.”

Presently, as part of their standard review, the Contracting Officer will determine whether a GSA Schedule contractor’s pricing is “Fair and Reasonable” based on their competitors on GSA Schedule, and at times, even competitors off-Schedule as well.

This practice is not new within the GSA, but it is vital. This practice is especially prevalent if a contractor’s pricing proposal was inadequate. Now, the difference lies in that rates found elsewhere are not deemed inferior to a contractor’s actual, fully-supported rates. Furthermore, when Contracting Officers find a GSA Schedule offering lower rates, they will treat those rates as equal or even more valid for setting the pricing starting point, irrespective of how a contractor can support their proposed rates.

Most GSA solicitations now include the following text: “To determine Fair and Reasonable pricing, the GSA Contracting Officer may consider many factors, including pricing on competitor contracts, historical pricing, and currently available pricing in other venues. Offers which provide Most Favored Customer pricing, but which are not highly competitive will not be found fair and reasonable and will not be accepted.”

How to Make Your Prices “Fair and Reasonable”

In addressing questions arising encompassing the “Fair and Reasonable” pricing of GSA Schedule contracts, GSA has launched efforts, such as Transactional Data Reporting and Horizontal Pricing Analysis, to establish “Fair and Reasonable” prices. To ease and expedite GSA Schedule contract negotiations, contractors can undertake these practices to come up with “Fair and Reasonable” pricing proposals to begin with:

Market Research

By conducting market research, contractors can have a clearer view of the market they plan to enter. However, contractors must put in mind that just because competitors have secured a GSA Schedule contract at specific pricing schemes, it does not mean that the GSA Schedule pricing proposals they come up with are final and non-negotiable. Pricing negotiations are part of the GSA Schedule process; thus, contractors need not feel like they must stick on the same price point as their competitors. Contractors must research and equip themselves with more knowledge of their market, region, and other factors supporting their price proposals.

Conducting Price Analysis

In conducting price analysis, contractors must examine and evaluate a proposed price to establish whether their pricing proposal is “Fair and Reasonable.” More specifically, with price analysis, contractors must compare the prices quoted with the following:

  • Prices of products or services received in other quotes in response to the same RFQ;
  • Commercial prices, such as published price lists or rebates;
  • Previously quoted prices and prices on contract for ”like and similar” items;
  • Various parametric estimates;
  • Independent government estimates; and
  • Market trends for the “like or similar” goods or services.

Whether conducting Market Research or a Price Analysis, the bottom line is contractors must prepare every necessary information that the Contracting Officer might ask to support their pricing proposals.

Conclusion

Ensuring that products and services adhere to “Fair and Reasonable” pricing is critical in securing a GSA Schedule Contract. Although ultimately at the hands of the Contracting Officer, GSA Schedule Contractors can already undertake steps on their own to guarantee a pricing proposal that is “Fair and Reasonable.”

 

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