The wording of the price reduction clause in the General Services Administration’s schedule contracts leaves some companies and procurement experts scratching their heads. Here is how it reads.
Price Reduction Clause
(c)(1) A price reduction shall apply to purchases under this contract if, after the date negotiations conclude, the contractor-
(i) Revises the commercial catalog, pricelist, schedule or other document upon which contract award was predicated to reduce prices;
(ii) Grants more favorable discounts or terms and conditions than those contained in the commercial catalog, pricelist, schedule or other documents upon which contract award was predicated; or
(iii) Grants special discounts to the customer (or category of customers) that formed the basis of award, and the change disturbs the price/discount relationship of the government to the customer (or category of customers) that was the basis of award.
Source: General Services Administration
What does the price reduction clause mean? Contractors and government procurement officials say they often are confused about what it means, which is why the General Services Administration created a panel to study that and other questions related to its schedule contracts.
The clause gives companies instructions about how they should price their products and services when they sell to the government.
Members of a Multiple Award Schedules Advisory Panel, which is reviewing the clause, listened last month to critics and defenders of the contract language. Mark Sims, section chief at GSA’s Greater Southwest Acquisition Center, told the panel he could answer questions about the clause only on the basis of how his office interprets it. GSA’s regional offices have differing interpretations, especially when they apply its language to services contracts, he said. GSA officials who manage services contracts say they often have a difficult time determining whether one service offering is comparable to another.
Those differences of interpretation aren’t necessarily to be avoided, said David Drabkin, acting chief acquisition officer at GSA and a member of the panel. Interpretations of contract language should change to fit evolutions in business, Drabkin said. The language should “recognize the commercial market it’s in and adapt to that market as it changes.”
However, some GSA contracting officials who work with schedule contracts for services said the price reduction clause hinders business. The clause was created when schedule contracts were used primarily to buy commodities, and it doesn’t fit today’s services market, said Kathleen Sewell, leading contracting officer at a management services center in GSA’s Northwest-Arctic Region.
“I don’t see how it adds value,” Sewell told the panel. Agencies get the lowest prices because of competition for task orders on schedule contracts, not because of the price reduction clause, Sewell said. If the clause were dropped and employees received more training in negotiation skills, the government could ensure that it buys at reasonable prices, she said.
The clause has been debated and scrutinized since it first appeared in schedule contracts in 1982 and was revised in 1994 and 2004. GSA officials and lawmakers have not let it die.
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