Every year, the General Services Administration (GSA) Office of Inspector General (OIG) conducts around 40-50 GSA schedule pre-award audits. The OIG selects companies to audit from a small group of high-volume contracts with an upcoming option. If you review the historical list of pre-award audits from the OIG’s Semiannual Reports to the Congress, many of the names should look familiar – they are generally the 800-pound gorillas in the federal marketplace.
It only makes sense that, when limited to a finite number of audits, the OIG would seek the most “bang for its buck.” Over that last year, however, Aronson has noticed a striking change in companies selected for audit. The annual GSA sales threshold for selection has decreased significantly, and the percentage of small businesses and professional services providers has increased. The reason for the switch is clear – GSA’s Transactional Data Reporting (TDR) program.
GSA rolled out the TDR pilot on eight Multiple Award Schedules (MAS) in June 2016. Under the final rule, contractors electing to participate in the TDR pilot were no longer required to submit Commercial Sales Practices (CSP) disclosures or be subject to the Price Reductions Clause (PRC). Instead, they agreed to provide GSA with monthly, itemized sales reporting at the line-item level. GSA planned to analyze this prices-paid data and distribute it to GSA and beyond to facilitate better price negotiations.
We are now almost three years in to the pilot program and it does not appear that any pricing data has been released. A 2018 OIG audit of the program found that GSA was not able “to objectively measure or evaluate whether the TDR pilot is improving the value of the [MAS] Program.” Instead, we now have a large population of schedule holders who are exempt from the PRC and from pre-award audit. Since a primary objective of a pre-award audit is determining whether a contractor’s CSP is “current, accurate, and complete,” in the absence of a CSP, there really isn’t much to audit.
This is a bigger issue than it may appear to be to a casual observer. An analysis of GSA’s Schedule Sales Query (SSQ+) shows that FY 2018 sales under TDR-covered contracts and Special Item Numbers (SINs) totaled $10.7B (see Appendix A below). If you include total sales for all contracts that contain at least one TDR-covered SIN, the total increases to $14.7B! This means up to 50.6% of schedule sales are not currently subject to OIG audit. Additionally, because the software and hardware SINs on Schedule 70 are part of the pilot, an area specifically noted by the OIG as a significant challenge in adequate pricing negotiation has even less oversight.
Appendix A: FY2018 Sales for TDR-Covered Contracts and SINs
|58 I||ALL||$ 162,557,036.00|
|GRAND TOTAL||$ 10,700,782,953.00|
Under the TDR pilot, the population of auditable contracts has ostensibly been cut in half. When you remove the major resellers and integrators, what remains are largely professional service contractors and products companies under Schedules 84 (Law Enforcement), 71 (Furniture), and 66 (Scientific). The audit threshold for annual sales is also reduced due to the smaller pool of contracts from which the OIG is selecting. Small businesses who would have never been a blip on the OIG’s radar are now at much higher risk of pre-award audit.
The impact of TDR on pre-award audits is especially salient as we approach the end of the three-year pilot period. GSA is required to conduct periodic reviews of the pilot and “make a holistic assessment of progress before deciding whether to continue, expand, adjust, or discontinue the pilot.” At this point, it seems that GSA’s systems are not capable of producing the “dynamic market driven pricing model” envisioned in the final rule.
Whether GSA will forge ahead with TDR is uncertain. Based on the huge investment GSA has made in TDR, I would expect the pilot to continue for the foreseeable future. In the meantime, contractors with upcoming options that do not participate in TDR would be well advised to look at your annual schedule sales and see how you stack up against similarly situated companies. You may be surprised to find that you could fall in the pool for a pre-award audit!
For more information on this topic or to assess your company’s risk of an OIG audit, please contact Jennifer Aubel at 301.231.6253.