For a variety of reasons, product vendors may choose to become suppliers to another company that holds a GSA Schedule contract. In such cases, GSA requires that the GSA Schedule holder-who in this instance would be a reseller-obtain a Letter of Supply (LOS) from the supplier when the reseller does not have enough sales history to have established prices in the commercial marketplace.

For example, say Company AGW manufactures widgets and has a Schedule contract allowing them to sell widgets and gizmos to the federal government. Company SLM also manufactures gizmos, but doesn't have a Schedule contract. AGW strikes a deal with SLM to sell their gizmos to the feds. AGW is then in effect a reseller, and will need to get a Letter of Supply from SLM to document established prices in the commercial marketplace.

Each GSA Schedule solicitation contains a Commercial Sales Practice section that outlines the data a supplier must provide to the reseller. The reseller then plugs that information into its GSA Schedule proposal. Prior to finalizing the GSA Schedule proposal, the reseller and supplier agree upon a price for each product and the reseller then marks up the agreed-upon prices to establish a final GSA offering price. The final markup is based on a number of factors, including the value added by the reseller, the GSA-approved prices for the same product on competitors' Schedules, and commercial sales practice data.

The decision to obtain your own GSA Schedule or sell through resellers under a Letter of Supply is not always simple. Some of the factors to consider are the tradeoff between the anticipated volume of potential sales under a GSA Schedule versus the associated administrative costs, the company's past federal sales history, and whether the more traditional sales channels used by the supplier have been successful.

Suppliers often opt to sell under Letters of Supply when:

• The supplier does not intend to sell directly to federal customers.
• The supplier is new to the market and does not want to make a large initial investment in obtaining and administering a GSA Schedule.
• The auditing standards and requirements for a supplier under a LOS are less onerous than those for a direct GSA Schedule holder. This can be particularly helpful to a small business just starting up.
• The company intends to sell to only a limited number of resellers.

If a business issues Letters of Supply to a large number of resellers, the administrative burden associated with monitoring pricing and other administrative issues under each Letter of Supply becomes too great. To reduce that burden, consider establishing a uniform pricing strategy with all of your resellers. A uniform strategy can be more easily maintained and controlled, and is consistent with the value added by the resellers. Other drawbacks to Letters of Supply include:

• The supplier must pay a commission to the reseller for any GSA sales made to a federal customer.
• The supplier loses a degree of control over the federal sales process.
• GSA pricing can be difficult to maintain; any price increases need to be negotiated with the contracting officer and do not always keep pace with real world pricing.

In summary, product suppliers new to the federal market may want to initially sell to resellers under Letters of Supply and then later consider obtaining their own GSA Schedule, depending on the number of resellers the company uses and the overall federal sales volume.