The MAS  program provides several advantages to both federal agencies and  vendors. For example, in the mid-1990s, GSA had about 5,200 MAS contracts. Use of Price Negotiation Tools May Not Ensure Best Pricing on MAS Contracts

According to negotiators at the four acquisition centers we visited, a  variety of tools are used to analyze vendor-supplied information and  negotiate contract prices that nearly always were at least equal to the  vendor’s most favored customer prices. However, our analysis of a recent  GSA review of product and service contract files found that most lacked  sufficient and reliable documentation to establish clearly that prices were  effectively negotiated. In addition, we found that the use of pre-award and  postaward audits of pricing information—two key price negotiation tools  that, in the past, have helped GSA avoid or recover hundreds of millions of  dollars in excessive pricing—have declined dramatically. However, GSA’s June 2004 file review of 62 MAS contracts awarded or  extended during 2003 at GSA’s seven MAS acquisition centers found that  37 of the contracts—nearly 60 percent—lacked sufficient documentation  to clearly establish that the contracts were effectively negotiated. While GSA’s June 2004 file review revealed weaknesses in the MAS  contract negotiation process, it often did not identify the specific causes  for the weaknesses. However, the  use of these audits has dramatically declined in recent years. Despite the significant recoveries, postaward audits of pre-award pricing  information have not been conducted since 1997—when GSA issued a  final rule, changing its policy. However, the anticipated  increased use of pre-award audits has not materialized. The Information Technology Center—which administered contracts with  more than $18 billion, or 56 percent, of fiscal year 2004 MAS sales—has yet  to conduct a clearance panel. Through its quality review initiative, GSA planned to select a  representative sample of MAS contracts at each of the acquisition centers   and assess the pre-award documentation—rating it as excellent,  satisfactory, marginally acceptable, or unacceptable---in the following  three pricing areas:     Price negotiation documents are to clearly establish that the pricing  information provided by the vendor was accurate, complete, and  current; the information was relied upon during negotiations; adequate  price analyses were conducted; reasonable negotiation objectives were  established; the amount of the total government’s requirements was  leveraged in negotiating prices; and the prices negotiated were fair and  reasonable considering the prices offered by the vendor to their most  favored customer. Moreover, reviewers did not  determine the underlying causes for identified pricing deficiencies or  develop plans to address the causes. We recommend that  the Administrator of the General Services Administration    ensure that pre-award audits are conducted when the threshold is met  for both new contract offers and contract extensions,    develop guidance to help contracting officers determine when  postaward audits are needed,     direct GSA program management to revise the Acquisition Quality  Measurement and Improvement Program to measure and report on the  performance of the prenegotiation clearance panels, and    direct GSA program management to revise the Acquisition Quality  Measurement and Improvement Program to broaden the scope of  quality review initiative to (1) determine the underlying causes for  contract pricing deficiencies and (2) develop appropriate plans to  implement corrective actions. We also reported that the use of  prenegotiation clearance panels, designed to ensure quality of significant  contract negotiations, has been limited. Despite  these opportunities to conduct pre-award audits, the number of pre-award  audits has only increased from 14 in fiscal year 2003 to 40 in fiscal year  2004. 4. 8. Our review focused on how GSA negotiates most favored customer  prices for MAS contracts and assesses the overall effectiveness of  these price negotiations. 10. Technical revisions have been made.
Why GAO Did This Study

Federal agencies can directly purchase more than 8 million commercial products and services through the General Services Administration's (GSA) multiple award schedules (MAS) contracts. Over the past 10 years, MAS contract sales have increased dramatically--with sales jumping from $4 billion to $32 billion. In addition to simplifying the procurement process, the MAS program is designed to take advantage of the government's significant aggregate buying power. While GSA seeks to negotiate best pricing for its MAS contracts by analyzing vendor-provided information--such as discounts given to other customers and recent sales data for the same or similar items--past reports have found that GSA has not always used pricing tools effectively and that management controls for better ensuring fair and reasonable pricing had been reduced. This report discusses GSA's process for negotiating most favored customer prices for MAS contracts and its efforts to improve the overall quality of negotiations.

What GAO Found

Contract negotiators at the four MAS acquisition centers that GAO reviewed use a variety of tools for obtaining most favored customer pricing--that is, the prices vendors offer their best customers. However, the GAO analysis of GSA's review of selected fiscal year 2004 MAS contract files found that nearly 60 percent lacked the documentation needed to establish clearly that the prices were effectively negotiated. Specifically, the contract documentation did not establish that negotiated prices were based on accurate, complete, and current vendor information; adequate price analyses; and reasonable price negotiations. GSA's efforts to ensure most favored customer pricing have been hindered by the significant decline in the use of pre-award and postaward audits of pre-award pricing information, two independent pricing tools that have helped GSA avoid or recover hundreds of millions of dollars in excessive pricing. In fiscal year 1995, GSA conducted 154 pre-award audits; by 2004 the number of pre-award audits fell to 40. Postaward audits--which resulted in an average annual recovery of $18 million in the early 1990s--were discontinued in 1997 when GSA revised its MAS contract audit policies to increase the use of pre-award audits--an increase that has not materialized. In March 2003, GSA established the Acquisition Quality Measurement and Improvement Program, initiating the use of prenegotiation panels and postaward quality reviews of contracts. However, the effectiveness of these initiatives has been limited due to insufficient oversight. For example, three of the MAS acquisition centers that GAO visited had not reported the results of their 2003 prenegotiation panels--information needed by management to identify problems and make needed improvements. Moreover, the fourth acquisition center--which accounted for about 56 percent of the fiscal year 2004 MAS sales--has yet to hold a panel. While the postaward quality reviews--the second program initiative--have identified deficiencies in contract file documentation, they did not determine the underlying causes of these deficiencies or prescribe actions needed to address them. As a result of these weaknesses, GSA cannot be assured that fair and reasonable prices have been negotiated for its MAS contracts.