On March 13, 2014, the Department of Defense issued a memorandum titled “Class Deviation – Determination of Fair and Reasonable Prices When Using Federal Supply Schedule Contracts.”  This memorandum directs DoD contracting officers to make their own determination of fair and reasonable pricing when using Federal Supply Schedules (also known as GSA or VA Schedule contracts), rather than rely on the fair and reasonable price determination made by GSA when GSA awards Schedule contracts.    Specifically, the memorandum establishes a class deviation to FAR 8.404(d) that will be applicable to DoD entities buying off Schedule contracts.  This deviation provides that “GSA has determined the prices of supplies and fixed-price services, and rates for services offered at hourly rates, to be fair and reasonable for the purpose of establishing the schedule contract.”  But then it states:

GSA’s determination does not relieve the [DoD] ordering activity contracting officer from the responsibility of making a determination of fair and reasonable pricing for individual orders, BPAs, and orders under BPAs, using the proposal analysis techniques at [FAR] 15.404-1.   The complexity and circumstances of each acquisition should determine the level of detail of the analysis required.

What does this mean for Schedule contractors and for DoD ordering activities?  It is clear that DoD ordering activities will need to do more work than perhaps they used to do when issuing orders or blanket purchase agreements (“BPAs”) to Schedule contractors. The direction to use proposal analysis techniques at FAR 15.404-1 could mean that DoD contracting officers will (a) compare proposed prices received in response to an RFQ; (b) compare proposed prices to historical prices paid for the same or similar items; (c) use parametric estimating methods/application of rough yardsticks (e.g., dollars per pound); (d) compare proposed prices with competitive published price lists; (e) compare proposed prices with independent government cost estimates; (f) compare proposed prices with prices obtained through market research for the same or similar items; or (g) request and analyze “data other than certified cost or pricing data.” Because “data other than certified cost or pricing data” is defined at FAR 2.101 as “pricing data, cost data, and judgmental information” and can include “the identical types of data as certified cost or pricing data [required pursuant to the Truth in Negotiations Act] . . . but without the certification,” it is possible that Schedule contractors will need to disclose their cost information in order to perform work for DoD.  This adds complexity and risk to Schedule contract performance and moves Schedule buys even further from the intent that the Schedule program mirror commercial buying practices. While we will need to see how DoD implements this new requirement to perform its own price reasonableness determination, it is possible that Schedule buys will become more burdensome for both DoD and contractors selling to DoD customers, and could drive procurement efforts to other multiple-award vehicles.