The schedules program provides  advantages to both federal agencies and vendors. In administering the multiple award schedules program, GSA is  responsible for ensuring that negotiated prices reflect the government’s  aggregate buying power. GSA contracting officials seek discounts from a  vendor’s price list that are equal to or greater than the vendor’s most  favored customer’s discounts. In the mid-1990s, GSA had about 5,200 schedules contracts. By fiscal year  2004, this number had increased to over 16,000 contracts. Historically, GSA Has Not Consistently Made Good Use of Pre-award and Postaward Audits

GSA’s use of pre-award audits and postaward audits of pre-award  information has been sporadic—a finding we have reported for more than  25 years. We found that sales and discount  information submitted on 6 of 15 contract proposals was not accurate,  complete, and current. In 1979, we again reported that price  information submitted by some vendors was unreliable. Moreover, of the 11 audits (1 pre-award and 10 postaward) that had been  done during fiscal years 1977 and 1978, all but 2 found inaccurate sales  information had been reported by vendors or the availability of better  discounts had not been disclosed. Pricing problems continued throughout the 1980s, and GSA’s use of pre- award audits and postaward audits of pre-award information was limited. These pre-award audits resulted in nearly $480 million in  negotiated cost savings for GSA’s customers. Additionally, from fiscal  years 1990 through fiscal year 1994, the GSA Inspector General reported  that it recovered an average of $18 million each year in vendor  overcharges. Despite Skyrocketing Sales, Pricing Problems and the Overall Decline in the Use of Pre-award Audits Have Continued

In August 1997, GSA revised its acquisition regulations to expand access to  commercial products and services and implement greater use of  commercial buying practices. The Inspector General projected that over the contract’s term,  GSA customers would pay nearly $40 million more for these products than  they should. In February 2005, we completed our most recent review of the multiple  awards schedules program and found that contract pricing continues to be  a problem. GSA management officials agreed with our recommendations, and stated  that GSA would    continue to work with the Inspector General to increase and improve the  number of pre-award audits,   publish an advance notice of proposed rulemaking in the Federal Register  to request comments on the role of postaward audit reviews in the  acquisition process, and   evaluate the results of the fiscal year 2004 contract file review and that this  evaluation would involve a discussion and identification of the underlying  reasons for any weaknesses. Historically, pre-award and postaward  audits have proven their value in deterring overpricing and recovering  vendor overcharges. Until GSA takes steps to ensure the appropriate use  of available pricing and negotiation tools, it will continue to miss  opportunities to save the government hundreds of millions of dollars in the  procurement of goods and services.
Why GAO Did This Study

Each year, federal agencies spend billions of dollars to buy commercial products and services through the General Service Administration's (GSA) Multiple Award Schedules program. The program has grown significantly over the past several years. Currently, federal agencies can directly purchase, through more than 16,000 schedule contracts, over 8 million products from more than 10,000 commercial vendors. In fiscal year 2004, purchases from these contracts totaled more than $32 billion. The multiple award schedules program is designed to take advantage of the government's significant buying power. To maximize savings, GSA negotiates discounts that are equal to or greater than those given to the vendor's most favored customers. This testimony focuses on GSA's historic use of two proven negotiation tools to improve the pricing of schedules contracts--pre-award audits and postaward audits of pre-award information. Pre-award audits allow GSA to avoid potential overpricing by verifying vendor pricing information before contracts are awarded. Postaward audits allow GSA to identify overpricing of awarded contracts and recover overcharges.

What GAO Found

Historically, GSA has used pre-award and postaward audits sporadically, thereby minimizing its ability to avoid excessive pricing and recover overcharges and potentially save millions of federal dollars. For more than 25 years, GAO has reported on GSA's multiple award schedules program pricing problems. In March 1977, we reported that pre-award information on 6 of 15 contract proposals was not accurate, complete, or current. In 1979, we again reported that pricing information submitted by some vendors was unreliable. Moreover, only 1 pre-award audit and 10 postaward audits had been conducted during fiscal years 1977 and 1978 of which 9 found inaccurate sales information had been reported by vendors or the availability of better discounts had not been disclosed. These problems continued throughout the 1980s. In the early 1990s, GSA made good use of pre-award and postaward audits, negotiating nearly $480 million in cost savings and recovering about $90 million in vendor overcharges over 5 years. However, in August 1997, GSA revised its acquisition regulations and effectively eliminated the use of postaward audits. While GSA expected pre-award audits to increase, this increase never materialized. In August 2001, the GSA Inspector General reported that GSA was not consistently negotiating most favored customer pricing. For just one contract, the Inspector General projected that over the contract's term, GSA customers would pay nearly $40 million more than they should have. In February 2005, we completed our most recent review of the multiple award schedules program and found that pricing problems persist and that the number of pre-award audits continued to decline. We concluded that GSA was continuing to miss opportunities to save hundreds of millions of dollars.