As a GSA Multiple Award Schedule (MAS) contractor, it can sometimes seem like a mystery how the “fair and reasonable” pricing determination can be reached. The Federal Acquisition Regulation (FAR) outlines parameters for how the federal government analyzes and makes these determinations, but the guidance does allow a certain amount of discretion.
GSA Contracting Officers and Specialists have been utilizing what’s referred to as the “market threshold” in review of pricing offered by MAS contractors for a while, but how the threshold is derived and what goes into its calculation has changed, especially over the past several years as the implementation of Transactional Data Reporting (TDR) grows more prevalent with contractors and the government’s data becomes more refined in the calculation of this metric. GSA recently announced via Interact an update to how the market threshold is calculated for contractors who offer Commercial Off the Shelf (COTS) products that utilizes a new model that better represents the commercial marketplace, and seeks to “ensure the best value for federal partners.”
Improving the way the threshold is calculated to better represent the commercial marketplace is undoubtedly a step in the right direction, but let’s take a step back for a moment and evaluate what the “threshold” actually is, how it’s used, and changes you can expect as a MAS contractor.
What is the Market Threshold?
When proposing pricing for products (or services) on a GSA MAS contract, it’s important to understand that in addition to validating the pricing relationship established between commercial customers and federal customers under the Commercial Sales Practice (CSP) disclosure, it’s also under GSA’s purview to ensure that the proposed pricing fits within the GSA marketplace, especially for COTS items.
COTS items tend to have more resellers in the GSA marketplace, and thus a larger pool of competition and examples of previously awarded pricing for other contractors. In addition to providing pricing support for these items, the pricing awarded by your Contracting Officer has to be validated as “fair and reasonable,” and the evaluation of the existing market data to calculate an average value that becomes the market threshold. GSA then utilizes this threshold as a baseline price that will be used to compare with a contractor’s proposed pricing to ensure that the awarded pricing ends up within a fair and reasonable range in the marketplace.
How does the Market Threshold Impact your GSA Schedule Contract?
The market threshold is generally used when evaluating proposed pricing on all GSA contracts for COTS items. However, the threshold is even more important for contractors who have opted into TDR, or those that are already using in the FAS Catalog Platform (FCP).
Under TDR, the responsibility of the contractor to provide detailed pricing support in the form of invoices to support a modification or offer is removed, if there is significant research available for the COTS products they are providing. The threshold’s presence is nothing new for TDR contractors, as GSA has been utilizing GSA’s 4P tool for pricing analysis for several years, which provides Contracting Officers and Specialists with detailed market data, including the market threshold for consideration when evaluating addition and Economic Price Adjustment (EPA) modifications.
Once that threshold is calculated and available for each line item, GSA then will utilize that figure to negotiate pricing with contractors as per their discretion. Line items in each modification may be below the threshold, or over. For those items that are above the threshold, GSA will likely seek a larger discount or lower pricing to keep it within the “fair and reasonable” range.
What Tools Does GSA Use to Calculate the Threshold?
One of the most common questions we receive as consultants, and that we see asked of GSA is “What data goes into calculating the threshold?” After all, if GSA is going to point to a figure for contractors that their items are being compared to for negotiation, wouldn’t it be important to understand how that number is calculated and where the data that’s used comes from? The good news is that GSA has been working to improve the data available for the review and calculation of the market threshold since the implementation of the 4P pricing tool.
The pricing analysis tools that GSA utilizes to calculate the threshold for each item comes from a combination of the following:
- GSA Advantage! pricing data
- Open market pricing sources for COTS items
- Transactional Data Reporting (TDR) data from the FAS SRP which shows actual price paid by government customers
- Consumer Price Index (CPI) data considerations to address inflationary concerns
GSA is able to pull a report that combs through all of the data above that matches the products in each contractor’s modification package to arrive at a market threshold figure for negotiation. This figure is then used to review the items and make a determination of whether the proposed pricing is fair and reasonable, or if further negotiation is required. It’s important for contractors to understand that competitor pricing data in GSA Advantage is a good measure of pricing reasonability, but it is NOT the only factor or data point that GSA considers when analyzing your pricing against the market threshold.
What Changes Are Being Made Now for GSA Schedule Pricing?
With the implementation of the FAS Catalog Platform FCP, GSA is working to streamline the pricing analysis process in modifications for a more efficient review. Improvement of the market threshold calculation is one way to work toward this. Important changes to the way the threshold is calculated as of December 2023 include:
- Moving away from using just the lowest price; the new benchmark will more heavily weight centricity, or the median price
- Introduction of a new inflation adjustment component to respond to market conditions
- Addition of Transactional Data Reporting (TDR) data to the calculation when high quality, comparable data is available.
- Addition of Commercial Pricing data from major websites to the calculation
- Introduction new demand weighted ceilings where pricing targets are more aggressive for high demand products
Each of these improvements should help provide more accurate data results for COTS items and will streamline the process for contractors awaiting pricing review for additions and EPA modifications. Improvements in the data source pool for this analysis will hopefully result in a more realistic pricing landscape in GSA, meaning quicker, better results in modification review for contractors, more realistic and fair pricing for government agencies purchasing through GSA, and ultimately savings for all of us as taxpayers without too much constraint on the bottom line of small businesses across the country.
For additional information or assistance with EPA and addition modifications and other aspects of managing your GSA Schedule, our consulting team is standing by to assist you.
