If you’ve had the opportunity to work in the federal government or have to deal with navigating the complicated federal acquisition system, you probably know about Schedule 70. Schedule 70 is a General Services Administration (GSA) acquisition vehicle that streamlines the purchase of information technology (IT) solutions for government entities.
This indefinite delivery indefinite quantity (IDIQ) multiple award schedule allows federal agencies and other government organizations to access and purchase IT products from over 5,000 certified industry partners. Unfortunately, the process of qualifying for Schedule 70 is a long and arduous one. It could also be wasting taxpayer dollars.
As announced on its corporate Web site, Edaptive was recently granted its IT Schedule 70. This is great news for Edaptive and its customers since it will now be easier for them to purchase the company’s cost saving and productivity increasing services. However, the company also saw a problem that they, and other government contractors, faced when applying for their Schedule 70.
When applying for its Schedule 70, a company must work to establish labor categories and costs. These become the categories of employees that are available when a government entity hires the company and sets the price that the contractor can charge for each type of employee.
To set these labor categories, the GSA asks for invoices from existing contracts. The invoices serve the evidentiary purpose of establishing billed labor categories and associated burdened rates that include profit (fee). By comparing the categories and rates on those contracts to what the company is proposing to the GSA, the GSA can ensure that the agencies that utilize the Schedule 70 contractor are getting a better deal. Unfortunately, the GSA will only accept certain types of contracts as proof; established commercial price lists, time and materials (T&M) contracts, and/or fixed price contracts. And this is where the problems begin.
With T&M contracts, government agencies pay monthly for a contracted employee at an agreed upon rate proposed by the government contractor. There’s little transparency to the agency and they could be grossly overpaying for that individual’s services. However, government contractors prefer these kinds of contracts since they can generate larger profit margins since the fee component is hidden within the rate.
Fixed price contracts are better for government agencies, but still not perfect. Although the potential for cost overruns is eliminated since a firm price is established in advance, the price being charged to the government for each individual contractor can be inflated, costing the government more than it should.
By only accepting these kinds of contracts for establishing labor categories and costs in the Schedule 70 application process, the GSA is establishing its prices on potentially inflated costs. This means that agencies electing to release contracts via Schedule 70 may be overpaying for the services they receive.
This doesn’t have to be the case. The contract type not currently being accepted as evidence by the GSA is cost reimbursable contracts. These contracts offer the best value and most transparency because the government pays for the contracted employee at their base salary, plus a burden multiplier to recover indirect costs, and finally a small fee to compensate the contracting company. This is extremely transparent to the agency and ensures that they’re not paying inflated prices with huge profit margins to government contractors. Unfortunately, the GSA doesn’t utilize cost reimbursable contracts in the Schedule 70 application process.
Part of the argument against cost reimbursable contracts is that companies are selling a person, not a labor category. I argue companies are selling both. GSA should allow 3 cost reimbursable invoices as evidence that show the labor category being billed, and agree to a discount off of the lowest rate. Why can’t that be acceptable?
With cost reimbursable contracts being prevalent within some government agencies, it’s only going to become more difficult for small, innovative companies entering the marketplace to be granted their IT Schedule 70 if they only have cost reimbursable contracts. By not considering these contracts in the application process, GSA will ultimately hinder competition and waste taxpayer dollars via inflated contracting fees.
Considering today’s difficult budget situation and the Obama Administration’s executive order to cut government waste, it may be time to reconsider cost reimbursable contracts as legitimate supporting evidence when applying for the Schedule 70.
