DOCONEIT RBSRBE 01129 - [A10516701 Federal Supply Servtce multiple award Prograa Contracting Procedures. PSAD-77-87; B-114807. match 11, 1977. 5 pp. Report to Robert T. Griffin, Acting Adsinistrator, General Services Administration; by Richard g. Gutmann, Director, Procurement and Systems Acquisition Dev. Issue Area: Federal Procuremant of Goods and Services (1900), Federal Procurement of Goods and Services: Reasonableness of .PricesUnder Negotiated Contracts and Subcoutracts (1904). Contact: Procurement and 3ystess acluisition Div. Budget Function: General Government: General Property and Records eanageuent (S0). Organization Concerned: Federal Supply Service. The Federal Supply Service needs to improve its evaluations of contractors' proposal prices in the aartd of multiple award schedule contracts. There are doutts concerning the appropriateness of benchmarks established and whether the Service negotiates the best possible prices. Findings/Conclusions: A review of eight multiple award schedules showed 'that the contractor with the best offer often was not chosen as the benchmark contractor, and there was not adequate support to justify any other selection. Proctreaent files for the eight schedules did not include a mesorandum of price negotiations reqaired by Federal Procurement Regulations, so that the criteria need in negotiating contracts could not be ascertained. githout a formal record of negotiations, there is no assurance that all significant factors were considered or that the negotiated prices were fair and reasonable. Becommendations: The Federal Supfpl Service should: (1) docunent the procurement files with the factors that were considered in evaluating the reasonableness of contractors' proposed prices, including selection of the benchsark contractor; (2) prepare a statement of justification when other than the contractor offering the best price discount is selected as benchmark contractor; and (3) prepare a record of negotiations. This documentation should be reviewed by zuperviscry personnel. (RaS) UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON. D.C. 20548 ~r@COUftSMW47 A5QTVStUM ==~"'U~='"""i oavmao~MWAR 1 1 177 B-114807 The Honorable Robert T. Griffin Acting Administrator of General Services Dear Hr. Griffin: We completed a review of the Federal Supply Service practices in awarding multiple award schedule contracts with the objectives of ascertaining whether the Service negotiated fair and .easonable prices and identifying any weaknesses in the Lervice's contracting procedures and practices. In March 1977, our office issued a congressional report on the need for the Service to negotiate prices commensurate with the volume of Government purchases and to ensure con- tractors' submissions of accurate, current, and complete sales an& discount information. This letter addresses some additional administrative and procedural weaknesses we noted during our review. In summary, we found that the Service needs to improve its evaluations ef contractors' proposed prices. Our review centered on the Service's evaluations of eight multiple award schedules which had been performed in conjunction with the selection of a benchmark contractor as a target for use in negotiating catalog price discounts with other contractors. The procurement files showed that the contractor with the best offer often was not chosen as the benchmark contractor, nor was there adequate support to justify any other selection. Thus, there is doubt as to the appropriateness of the bench- mark established and that the Service negotiated the best possible price. The procurement files for the eight schedules did not include a memorandum of price negotiations required by the Federal Procurement Regulations. Thus, we were unable to ascertain what criteria Service officials used in negotiating contracts. Without a formal record of negotiations there is no assurance all significant factors were considered, or that the negotiated prices were fair and reasonable. PSAD-77-87 B-114807 As a first step toward improving the Service's in these areas, we recommend that the Federal performance (1) document the procurement files with the Supply Service factors that were considezrd in evaluating the reasonableness posed prices, including selection of the of contractors' pro- (2) prepare a statement of justification benchmark contractor; when other than the contractor offering the best price discount benchmark contractor; and, (3) prepare a is selected as record tions, or a statement why negotiations were of negotia- not considered necessary. Secondly, we recommend that this documentation by supervisory personnel with a view toward be reviewed scheduling appro- priate training for those needing it. The following are further details with respect discussed above. to points NEED TO IMPROVE EVALUATION OF REASCNABLENESS OF CONT-- ' T-O7;}ERS AND SELECTI ON OF BENCA_ ARK The Federal Procurement Regulations state Government's policy is to buy from responsible that the fait sources with and reasonable prices and at the lowest overall To ensure fair and reasonable prices the Regulations cost. some form of cost or price analysis in connection require with every negotiated Procurement. The Federal Supply Service satisfies the requirement for cost or price analysis through its benchmark discount negotia- tion technique. The benchmark guidelines provide contracting officer to identify the contractor for the the most acceptable offer for a product or a who submits The contracting officer compares discounts off group of products. commercial catalog price offered by the various the established prospective contractors, selects the beuchinark contractor the benchmark discount. Whetn negotiating the and negotiates particular attention is devoted to discounts discount, to the contractor's most favored customer. and terms extended The is to negotiate discounts that are commensurate ultimate goal .overnment's volume of purchases. with the We examined the Service's procurement files for eight multiple award schedules, under which 547 suppliers tracts, to ascertain how the benchmark contractors had con- selected were and if the selectnnos were adequately justified. 2 B-114807 Procurement files for three of the eight schedules contained sufficient information to identify the process followed in comparing contractors' offers, but did not contain the basis fo£ selecting the benchmark contractor. We traced the discount comparison process and used the same information available to the contracting officers at the time they selected the benchmark contractor. We noted contracting officers selected other than the contractor with the best offer as benchmark without documenting the justification for the selection. Furthermore, we noted instances of con- tractors, submitting more acceptable offers under the criteria contained in the Service's benchmark guidelines, who were not selected as benchmark contractors. The Service's con- tracting staff was unable to explain why contractors offering better discounts were not selected as benchmark. For one schedule, a contractor other than the one submit- ting the apparent best offer was often chosen as benchmark con- tractor. This occurred in four of the schedule's six commodity groupings reviewed, as demonstrated by the following chart. Product No. of Percent group suppliers Discount Apparent range a/ Benchmark best offer A 33 5-1/2 to 7-1/2 5-1/2 6 B 17 5-1/2 to 6-1/2 5-1/2 6 C 34 5 to 17 5 7 D 7 5-1/4 to 7-1/1 5-1/4 7-1/4 a/ Discount values arrived at by contrasting officer after consideration of cash discount, prompt payment discount, shipping arrangements and quantity discounts on individual orders for a combination of items. We could not determine what the actual overall fffect on prices would have been if contractors offering better discounts had been selected as benchmark. But sales to Government over a 3-year period in the four product groups referred to above totaled an estimated $86.4 million. If the four contractors with a better assigned discount value had been selected as benchmark, and comparable discount terms had been negotiated with the other contractors with offers below the resulting benchmark discount, the price of Government purchases of these products over the 3-year period would have been considerably less. 3 B-114807 For the remaining five schedules, we had to rely on contracting officers' memories Has to the basis for bench- mark selections. We were told :ty Service officials that under four of these five schedules, the dominant contractor with the greatest volume of sale!s was normally selected as the benchmark. NEED FOR IMPROVEMENT IN DOCUMEN¶'ATION Of NEGOTIATIONS The Federal Procurement Regulations provide that at the conclusion of negotiations the contracting officer should prepare a memorandum setting forth the principal price negoti- ation elements. This memorandum is to be included in the contract file for the use of reviewing authorities. The memorandum should contain (1) the name and position of con- ferees representing the contractor and the Government, (2) the purpose of the negotiations, (3) the basis for any determination that cost or pricing data was not required for contracts with a negotiated prict exceeding $100,000, (4) a summary of the contractor's proposal and recommendations of advisory audit performed, (5) the most significant facts or considerations supporting the reasonableness of the negotiated prices, and (6) an adequate explanation in those instances where the prices negotiated differed significantly from the price negotiation objective. Tne Service's benchmark guidelines recognize the need for meaningful negotiation of prices between the Service and its contractors. These guidelines specify that the bench- mark discount represents a minimum goal and state that a "vigorous attempt should be made to achieve even higher discounts and more favorable terms and conditions." Our review of ..e cor._ac ftiles and discussions with the Service's contracting staff disclosed that no record of negotiation was prepared for the contracts negotiated under any of the eight schedules reviewed. Furthermore, the files did not contain any documentation as to the extent of negotiations with a specific contractor. Other than an occasional reference to negotiations on the "Request for Approval of Award," which is prepared for each contract, the procurement files contained no information concerning the price negotiations held. 4 B-114807 Thne Service's contracting staff stated that they normally conducted negotiations with specific contractors, but that this is often accomplished over the telephone. They further stated a formal record of negotiations would be very tine consuming and is not prepared, but that comments concerning the negotiations are often recorded on the aforementioned "Request for Approval of Award." In our opinion, the Service's contract files should include basic information and documentation concerning negotiations. Without this information, there is no assurance that adequate negotiations were held, nor that fair and reasonable prices were obtained. This report contains recommendations to you., As you know, section 236 of the Legislative Reorganization Act of 1970 requires tne head of a Federal agency to submit a written statement on actions taken on our recommendations to the House and Senate Committees on Government Operations not later than 60 days after the date of the report and to the House and Senate Committees on Appropriations with the agency's first request for appropriations made more than 60 days after the date of the report. No further reporting of these matters is planned by us, however, we believe the implementation of stated procedures is needed. We would appreciate receiving copies of your statements on actions taken which will be submitted to the congressional committees. We are sending copies of the report to the Director, Office of Management and Budget, and the Chairmen, Senate and House Committees on Government Operations and Appropriations. We will be glad to discuss any questions you have on matters discussed in this letter. Sincerely yours, R. W. Gutmann Director 5
Federal Supply Service Multiple Award Program Contracting Procedures
Published by the Government Accountability Office on 1977-03-11.
Below is a raw (and likely hideous) rendition of the original report. (PDF)