How to build your GSA pricing strategies
The GSA pricing policy implies that a vendor must offer its best price to the government. Specifically, You should offer the GSA at least the same or better prices that you do to your Most Favored Customer (MFC). Unfortunately, this clause is often interpreted as “the lowest possible price.” Wrong.
The problem with just providing a bigger discount to GSA is that you can easily render your entire business with the government non-profitable. Hundreds of companies have fallen victims to this Catch-22: you must offer low prices to win the bid, but by offering low prices you undermine your own business, thereby making the whole bid-and-win process pointless. Surely, lower prices for federal agencies mean savings for the American taxpayer, but chasing the lowest bid only for the sake of staying the lowest, is not efficient.
In fact, the proper approach to setting your GSA contract rates is… to not look at the others’ prices! Well, not from the beginning. The fact is: you don’t know the structure of your competitor’s prices. You do not know their direct and indirect costs, including labour, materials, transport, and other expenditures. Hence, trying to beat their bids straight forward has no chance to succeed.
GSA pricing schedule
The better option to complete your GSA price list is to evaluate your own rates, costs, and surplus your desirable profits. Then, you can research for current or past bids, using GSA Advantage, USASpending.gov or govspend.com tools, see if you can compete without going broke, and meet the requirements of GSA at the same time. You can also use the GSA Integrated Competition Tool for that.
Also, remember that bidding the lowest is only halfway to securing a contract. Whenever you respond to an RFQ, you will eventually have to provide evidence in the form of Price Narrative and Price Proposal documents.
Q: What is “Fair and Reasonable” Pricing?
A: Fair and reasonable pricing is an important concept you need to understand in order to successfully sell to the government. The idea behind this notion is that the government gives preference to the lowest price as soon as all other factors are equal. Then, the lowest prices must not exceed the company’s prices on the commercial market, because the government is a special client. Hence, when you pursue a GSA Schedule, you must preliminarily disclose your commercial price list, and offer the same or better price to the government. Such an offering is considered “fair and reasonable”. You can negotiate higher prices, but there must be a substantial reason for you to ask more from the government than you do from your commercial clients. That’s what “reasonable” is about, in this context. And the contracting officer will determine the fairness and reasonableness of your offer, based on similar and analogous offers awarded in the past.
Q: Why is Market Research Important to GSA Pricing?
A: Above we talked about fair and reasonable pricing. Now, how does GSA determine what prices are reasonable for your product? It analyzes historical commercial market prices and previously awarded contracts, and compares your pricing with those. This means that you can perform some preliminary market research too, to find out what prices the government expects, and adapt accordingly. Please note that there are no fixed “best” prices. They depend on the type of product, its characteristics, the region of sales, the particular agency you sell the product to, and other factors. So, use your market research figures as an estimate only, because the actual price is negotiable. Also, make sure to keep an eye on competitors, regularly monitor their prices using market research instruments, and see if you can do better. The GSA also offers a number of tools to research the federal market, so don’t hesitate to use them.
Q: What is the Price Reductions Clause?
A: The Price Reduction Clause comes into effect when the price you offer to your Basis of Award customer becomes lower than the price you offer to the government.
The Basis of Award (BOA) customer is a standardized average customer you typically sell to. You define what BOA is in the CSP-1 form upon entering into the contractship with the GSA, and later you should continue using this benchmark as a basis for your government pricing. However, it may be that at some moment you decide to lower prices to your BOA customers, by offering them a higher discount. The Price Reduction Clause is then triggered. You are forced to lower the price you offer to the government, as well to maintain the previously set price delta.
Note that unlike the concept of the Most Favored Customer, the Basis of Award Customer does not necessarily get the lowest price. It is crucial to define both types in your Commercial Sales Practices form.
There are a number of exceptions from the Price Reduction Clause (like discounting damaged or discontinued products, or if you opt into Transactional Data Reporting (TDR) over CSP), but in general you should always be careful when offering discounts to your commercial clients as long as your GSA Schedule contract is still active.
By opting into the Commercial Sales Practices (CSP), your adherence to the Price Reductions Clause becomes obligatory. This clause ensures a consistent correlation between the discounts provided by a contractor to GSA and the discounts extended to their “Basis of Award customer.” The Basis of Award (BOA) customer represents a specific customer or customer category that serves as a benchmark for your commercial practices.
When initially submitting your proposal for a GSA Schedule, it is necessary to disclose a customer or category of customers that will serve as your Basis of Award (BOA). Typically, your BOA consists of those customers who receive your most favorable combined discounts or concessions. While similar to the concept of a Most Favored Customer (MFC), your BOA and MFC can differ, thus requiring accurate identification of both entities.
Establishing your BOA is accomplished through the completion of the Commercial Sales Practices (CSP) form, which accompanies your proposal. The CSP outlines the discount relationship between your BOA and the government. Any changes to this discount relationship trigger the implementation of the Price Reduction Clause (GSAR 552.238-81).
Should your company decide to offer greater discounts to your BOA, it is essential to maintain that discount delta and adjust your prices on your GSA Schedule accordingly to avoid violating the Price Reductions Clause. Certain exceptions to the clause exist when considering variations in standard and non-standard discounts, but it is always prudent to consult with your advisor or Contracting Officer before implementing such changes.
It is noteworthy that if you choose to participate in Transactional Data Reporting (TDR) instead of Commercial Sales Practices, concerns related to the Price Reductions Clause become irrelevant.
Q: How Can I Increase My GSA Schedule Pricing?
A: A normal GSA contract’s lifetime is 5 years. And it can be prolonged up to 20 years in total. It would be naive to think that you will be able to maintain the same prices for 20 years without increasing them. Good news is that the government does allow GSA contractors to change prices. The process is not trivial, and prices still must remain fair and reasonable no matter what, which means your commercial prices will also increase, at the same time.
Increasing your contract pricing can be accomplished using the Economic Price Adjustment mechanism. This modification allows a GSA contractor to submit changes in the pricelist, as long as the change in prices does not exceed a certain limitation allowed by the GSA.
Also, the GSA allows annual price increases, typically by 3-5% per year. Needless to say, that your commercial prices must also increase by that amount, every year.
Finally, as your suppliers increase prices, you can use this as a reason to increase your own prices, as long as you can provide a confirmation letter from the supplier.
