A recent newsletter discussed that the General Service Administration (GSA) has encountered procurement problems and has initiated a "Get It Right" campaign to improve acquisition regulation compliance. The "Get It Right" campaign was necessitated by, among other things, GSA's near fanatical focus on getting "most favored customer (MFC)" pricing from vendors.

MFC pricing and its relationship to GSA prices is the heart of GSA price negotiation. GSA's new focus on obtaining MFC pricing frequently flies in the face of GSA's own regulations.

Part 538.2 of the General Services Administration Acquisition Manual (GSAM) provides as follows:

538.270 Evaluation of multiple award schedule (MAS) offers.

(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.

(b) Establish negotiation objectives based on a review of relevant data and determine price reasonableness.

(c) When establishing negotiation objectives and determining price reasonableness, compare the terms and conditions of the MAS solicitation with the terms and conditions of agreements with the offeror's commercial customers. When determining the Government's price negotiation objectives, consider the following factors:

(1) Aggregate volume of anticipated purchases.

(2) The purchase of a minimum quantity or a pattern of historic purchases.

(3) Prices taking into consideration any combination of discounts and concessions offered to commercial customers.

(4) Length of the contract period.

(5) Warranties, training, and/or maintenance included in the purchase price or provided at additional cost to the product prices.

(6) Ordering and delivery practices.

(7) Any other relevant information, including differences between the MAS solicitation and commercial terms and conditions that may warrant differentials between the offer and the discounts offered to the most favored commercial customer(s). For example, an offeror may incur more expense selling to the Government than to the customer who receives the offeror's best price, or the customer (e.g., dealer, distributor, original equipment manufacturer, other reseller) who receives the best price may perform certain value-added functions for the offeror that the Government does not perform. In such cases, some reduction in the discount given to the Government may be appropriate. If the best price is not offered to the Government, you should ask the offeror to identify and explain the reason for any differences. Do not require offerors to provide detailed cost breakdowns.

(d) You may award a contract containing pricing which is less favorable than the best price the offeror extends to any commercial customer for similar purchases if you make a determination that both of the following conditions exist:

(1) The prices offered to the Government are fair and reasonable, even though comparable discounts were not negotiated.

(2) Award is otherwise in the best interest of the Government.

A reasonable interpretation of the regulation quoted above is that the Contracting Officer should, among other things, compare the terms and conditions of the Vendor's commercial sales and compare them with the terms and conditions of the GSA schedule contract. The Contracting Officer should then use his best judgment in determining a fair and reasonable price for the offered product or service. In fact, there is a recognition in the provisions cited above that there may be a reason that the government is not entitled to best customer pricing. However, bureaucrats are uncomfortable with exercising judgment particularly if there are auditors looking over their shoulders. Auditors, in turn, are noted for viewing issues as either black or white. Subjective decisions, even when rational, create the opportunity to be second guessed and contracting officials do not like to be second guessed.

A quandary exists because many vendors cannot offer GSA their most favored customer pricing without losing money. Unfortunately, there isn't a good answer to this problem. We suggest building as strong an argument as possible using the exceptions outlined in GSAM Section 538.2 above. When challenged by GSA's Contracting Officer, stick to your guns and be prepared to fight the fight.