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I agree that if you're looking for the best design you should conduct a design competition, not a qualifications competition.The problem in many system acquisitions is that you don't really have a design competition, you have a concepts competition. The designs are developed after contract award, and the concepts don't always work out. Either way, it would be good to be able to negotiate contract terms one-on-one with the winner instead of soliciting complete proposals and trying to conduct discussions with everyone in the competitive range.

By the way, the all time classic design competition was conducted in 15th Century Florence, Italy, to produce doors for the Bastistry next to the Duomo. Each of the two doors was to have five relief panels illustrating biblical scenes. The winner was Lorenzo Ghiberti, and two of the competitors were Filippo Brunelleschi and Donatello. Each competitor had to produce two full-scale panels. You can still see the Ghiberti and Brunelleschi panels of the Sacrifice of Issac in the Bargello museum. Here is an excerpt from James Fenton's account in The New York Review of Books, March 23, 1995:

Quote

Since your work, standing, and honor were all bound together, the award of a grand commission to a friend or rival would be a devastating blow. It would make you rethink your life, as… Brunelleschi and Donatello were forced to do when Ghiberti won the famous competition for the Florence Baptistry doors. The contest had taken a year. When the entries were exhibited, it was clear to the two friends that Ghiberti’s work was better than theirs, and so they went to the consuls and argued that Ghiberti should get the commission. And for this, [Giorgio] Vasari says, “they deserved more praise than if they had done the work perfectly themselves. What happy men they were! They helped each other, and found pleasure in praising the work of others...”

[T]he consuls asked Brunelleschi, who had clearly come a very good second, whether he would cooperate with Ghiberti on the doors, but Brunelleschi said no, since “he was determined to be supreme in some other art rather than merely be a partner or take second place…” Nor was this a passing fit of pique, although both artists eventually did return to Florence and did help Ghiberti. Perhaps the strength of their sense of failure may be gauged from the fact that Donatello, who had not done so well, took a year away from Florence, whereas Brunelleschi, the honorable runner-up, took at least five, and when he did return, he did so principally as an architect.

*       *       *

It’s not enough to fail. You have to come to feel your failure, to live it through, to turn it over in your hand, like a stone with strange markings. You have to wake up in the middle of the night and hear it whistling around the roof, or chomping in the field below, like some loyal horse—My failure, my very own failure… , I thought I’d left it behind in Florence, but look, it’s followed me here to Rome. And the horse looks up at you in the moonlight and you feel its melancholy reproach. This is after all the failure for which you were responsible. Why are you neglecting your failure?

*       *       *

The judgment on Donatello’s competition entry was: good design, poor execution. Donatello could decipher from that a message saying: You are not yet fully formed as an artist; you must study. But the message received by Brunelleschi was: You will never be as good as Ghiberti. This was a hard blow. Brunelleschi did what he felt necessary—sold a small farm and, with Donatello, walked down to Rome. And there something happened to them which I hope will happen to any poet reading this. Failure rewarded them a thousandfold.

That part about failure gets to me every time.

If you ever get a chance to see those doors, and the second set, "The Gates of Paradise," do yourself a favor and do it. (The ones on the Baptistry now are replicas, the real ones are in the nearby museum.) And read the Fenton article, "A Lesson From Michelangelo."

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On April 18, 2016 at 4:12 PM, Vern Edwards said:

What does "fairness within the acquisition system" mean, and why should fairness be public policy? That question may seem absurd at first, but only because the words "fair" and "fairness" are so widely used and heavily freighted in our society that we rarely ask people who use those terms what they mean by them. And if we did, few could answer clearly and definitely.

I don't think the questions are absurd at all, but at the same time a day of thinking on the issue probably won't result in an adequate answer.  Still, I'll try to provide some thoughts to hopefully move the discussion forward.

First, "fairness within the acquisition system" from a practical standpoint likely depends on the acquisition situation (competitive versus sole source), but from a broad standpoint I'd define it as evenhandedness in business dealings and limiting discrimination/providing maximum practicable opportunity (I say limiting discrimination because I think there are some situations where discrimination may/can result in a more fair outcome, i.e. small business set-a-sides).  Do you have a definition or concept of fairness that you'd like to share?

To answer the second question, I'd argue fairness should be public policy not merely because as a democratic republic the nation has decided as much (what is doesn't necessarily mean that it should be), but rather because participation in financing/supporting government acquisitions is not voluntary in our society.  Unlike corporations, where members of society can influence or show support for the activities of firms through economic behavior, citizens cannot do that when it comes to our government and paying taxes (some try to unsuccessfully, i.e. tax-resistors).  This means that unlike corporations, a government, by its very nature, has social obligations and to fulfill those obligations a just government does so in a fair manner (some of my thoughts regarding this position remind me of John Rawls' work in A Theory of Justice).  It's rather interesting that not just on this forum, but on the political landscape there are a plethora of calls to make government run more like a business (I can just hear Donald Trump shouting now).  So it's obvious that many others believe a government should be as efficient or as effective as possible and that fairness (as well as other principles) should take a backseat, but I guess I believe in a principled/bounded approach that tries to maximize our operating capabilities within that construct.  Essentially, that's the heart of the issue here - what do we believe is the function of government

On April 18, 2016 at 4:12 PM, Vern Edwards said:

I can't help but think that what you call "fairness" is nothing but a political sop that has little if anything to do with good business practice and outcomes. Consider this. GSA just reported in the Federal Register that:

  • 5.6% of all FSS contractors received 80% of all sales;
  • the top 20% of FSS contractors accounted for 92.5% of FSS sales; and
  • only 2.6% of FSS contractors reported more than $1 million in FSS sales.

81 FR 21346, 48; April 11, 2016. Is that evidence of unfairness, or does it indicate that the FSS system is a sump of "fairness" waste? Think what it cost to award and maintain those 20,094 active FSS contracts. What price "fairness"?

This isn't an indictment of "fairness" as much as it is an indictment of execution.  I'll never forget the first time I came across my first wasteful GSA pricelist where I saw the XBOX 360 listed on multiple GSA Schedules for $800 (market price at the time was approximately $300).  Some GSA Contracting Officer made that determination of price reasonableness and I'm fairly certain (or hopeful) that no one purchased that item (or the others with inflated prices) for the $800 it was listed at.  I think it is fair to assume that those contractors likely fell into the bottom 80% that received only 7.5% of all sales, but was that because of fairness or because or poor procurement practices on behalf of GSA Contracting Officers?  I don't think we have to shirk the concept of fairness to improve the GSA outcomes listed above.

On April 19, 2016 at 5:38 PM, Vern Edwards said:

For instance, assuming that competition is a good thing, is it always best to allow all responsible offerors an opportunity to compete, instead of, say, three firms prequalified through market research? Allowing all to compete might be the appropriate when buying commodities at the lowest proposed price, but it might not be appropriate when seeking proposals to fulfill a complex requirement.

Is it always best to rely on the competitive bids or proposals processes when selecting a contractor, with their complex and restrictive rules about proposal evaluation and business communications, or might it sometimes be better to select the contractor based on qualifications and then negotiate contract terms one-on-one with the selectee, as in architect-engineer contracting?

Ever since I read about the second approach (I believe this is the same approach you advocated for performance-based services in the Defense Acquisition Review Journal from 2007) I've been intrigued by it (As an aside, a pilot of this or similar procedures could be done through the competitive 8(a) process if they were revised to allow it).  Still, I don't see how the either approach requires less fairness in the process, they just requires different processes.  Would/should we not ensure fairness during the qualifications phases of these alternative acquisition approaches?

This discussion essentially comes down to a matter of priorities.  I want a more efficient and effective acquisition system as much as the next person, but not at the expense of comprising fairness.

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So, you are curious about using a qualifications based selection process, then negotiating the contract terms, including price with a selectee? And you think that this will "simplify" or "streamline" the acquisition process? And this negotiation process would be led by or performed by KO's ?  And you think that the competitive 8( a ) process could be a good program on which to try this out?

I am extremely glad that Congress recently headed off attempts to allow expanding the use of qualifications based acquisition approaches, such as was advocated by certain Design-Build construction industry advocates.  

From my observation of the general reluctance of many government acquisition personnel to even engage in detailed discussions during competitively negotiated acquisitions, let alone the often mediocre quality of detailed one on one cost/price negotiations on new contracts or modifications , I don't think that that there is adequate capability within the government workforce to due this on a wide scale.

I definitely see widespread reliance on price analysis techniques to determine reasonableness of pricing for such negotiations, even though we would supposedly also negotiate the technical terms and approaches, which might well mean comparing the price of apples to the database price of oranges or pears. 

One shouldn't have to wonder much why the DoD acquisition policy makers have said that DoD is not to merely rely on the GSA or any agency determinations that established Schedule prices are fair and reasonable. 

When I was assigned to Germany in the 1980's, our Command (and I suspect most of the US military and other US government agencies) relied almost totally on price analysis, comparing proposed prices with historical unit-prices. Almost all construction used unit pricing based upon the German DIN standards for each construction activity.  Reliance on price analysis couldn't detect that there was allegedly widespread price fixing, collusion and kickbacks to certain government officials going on at that time.  The German Government eventually was able to arrest some of their employees and punish some contractors (after I left Germany).  A close German National associate once told me that there was an internal German Government investigation concerning bid rigging and kickbacks and that there was supposedly at least 3% added to all prices in collusion in order to "pay to play".

Deep and meaningful negotiations based upon price analysis only for construction is challenging even for standardized unit price items that the Germans used and was often a joke. 

Shay Assad says that DOD already pays too much. Expanding the use of one on one price or cost negotiations won't improve the situation, in my opinion.  And EXPANDING the use of one on one price or cost negotiations under the 8 ( a)  program and adding negotiation of the technical scope? Whoa, Nellie!  And...Katybar the door! 

 

 

 

 

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On April 20, 2016 at 10:38 PM, Matthew Fleharty said:

First, "fairness within the acquisition system" from a practical standpoint likely depends on the acquisition situation (competitive versus sole source), but from a broad standpoint I'd define it as evenhandedness in business dealings and limiting discrimination/providing maximum practicable opportunity (I say limiting discrimination because I think there are some situations where discrimination may/can result in a more fair outcome, i.e. small business set-a-sides).  Do you have a definition or concept of fairness that you'd like to share?

Well, if you're going to argue for fairness, either in the contractor selection process or in contract pricing, then the assessment of your argument depends on what you mean by fairness. You've traded one vague term for another: "evenhandedness." We all know what those things mean generally. What we don't always know is what they mean to particular people in specific circumstances. 

Do I have a definition of fairness? No, which is why I rarely use the word and why I don't think it makes sense to talk of fairness in the context of government contracting. It's a political word, not a business word. If the government wants to do politics when it buys things, well, I'll go along with the program. But why not do business, instead?

I know what the rules require, and I presume that those rules are the government's standard for fairness, whatever it is: full and open competition unless otherwise permitted; equally meaningful discussions with all offerors within a competive range; decisions based solely on the stated evaluation factors, etc. I object to particular rules for particular reasons. If someone says that fairness is adherence to rules to which I object, then I object to fairness.

What I want to know is why the rules should be based on something as vague as "fairness." Consider this: The Bonneville Power Administration (BPA), which is part of the Department of Energy, is not subject to the FAR and to most of the statutes in Title 41 of the United States Code. It follows the Bonneville Purchasing Instructions (BPI) instead of the FAR, and in so doing It takes a different approach to contract formation in a competitive procurement. See BPI 12.6, Source Selection:

Quote

(a) The CO’s award decision shall be based on an assessment of the proposals against the evaluation factors identified in the solicitation. While the CO may utilize information and analyses provided by the evaluation team or others, the award decision shall represent the CO’s independent judgment. The award decision will be documented in the official file as identified in BPI 12.8.2, and shall include the justification for any business judgements and tradeoffs made or relied upon by the CO.

 

(b) The CO will generally select only the top-ranked firm for final negotiations. For award decisions based on lowest price technically acceptable offers, BPA shall negotiate only with the offeror which, after evaluation of all offers, represents the lowest price technically acceptable offer. For award decisions based on a tradeoff analysis, the CO may communicate with more than one firm in order to obtain enough information to narrow the field of competition. In the case of closely ranked offers, BPA may negotiate with more than one firm concurrently. However, this practice is generally discouraged in order to minimize administrative costs for offerors and BPA.

 

(c) Based on the quality of offers received and BPA's objectives, the evaluation team may develop different source selection strategies prior to the selection of the final source(s) for negotiation.

 

(d) If negotiations with the selected firm are unsuccessful, the CO may close negotiations and initiate negotiations with one or more other offerors.  

Here is the rule about negotiations, BPI 12.7:

Quote

Negotiation is the process of discussing with offerors their proposals, terms, conditions, price, BPA specifications, and other requirements. The objective of negotiations is to establish a clear understanding of both parties' positions and reach contractual agreement. 

12.7.1 Policy 

(a) Emphasis shall be placed on person-to-person negotiations which lead to close understanding between BPA and the offeror. This does not preclude written agendas for discussions or written questions and answers to items of negotiation. Following negotiations, the CO shall ensure that the written contract accurately reflects the agreement between the parties. 

 

(b) Although detailed negotiations will typically be concentrated after source selection, the CO may negotiate, resolve mistakes, or obtain clarifying information at any time. For example, selected offerors may be asked to provide an oral presentation at any time the CO feels it would be helpful. BPA has no obligation to negotiate with all firms. 

 

(c) Under no circumstances will BPA: 

(1) Favor one offeror over another; 

(2) Reveal an offeror’s technical solution, unique or innovative approach, or any information that would compromise an offeror’s intellectual property; or 

(3) Reveal an offeror’s price information without that offeror’s permission.

 

(d) Auctioning techniques (i.e. creating an auction-like atmosphere which encourages a price “bidding war” between competing contracts) are allowed only when a Strategy Panel or the Tier II Purchasing Manager (or designee), and the HCA have determined that business conditions exist such that a reverse auction is the optimum means for acquiring pricing information from the identified technically acceptable offerors. A reverse auction shall not be used to acquire technical, performance, or other business information. See BPI 11.11.1.1.1.

 

Those strike me as much more sensible and businesslike policies and procedures than what we find in FAR 15.306 and 15.307. No clarifications/communications/discussions distinction. No competitive range. No weaknesses and deficiencies and all that other hoorah. But if government agencies under the FAR wanted to do something like that, they'd have to resort to establishing a competitive range of one, which some of them are afraid to do. Even if they did it, they'd be very limited in how much negotiating they could do without amending the RFP and going back out in accordance with FAR 15.206. BPA has not established any such limitations on the conduct of negotiations after source selection. Here is BPI 12.3, Changes in Requirements After Receipt of Offers, 12.3.1, Policy, paragraph (a):

 

Quote

If there are substantial changes in BPA's requirements after offers are received, the CO may reconsider any offers previously eliminated. The CO shall notify such offerors of the changes only if the changes would materially improve their potential for award. The solicitation need not be canceled. 

 

The BPI gives BPA's COs a lot more discretion than FAR gives other government COs. It's not clear whether the notification requirement applies after source selection. I would say that, reading the BPI as a whole, it doesn't. The GAO does handle protests against BPA procurements, but applies the standards of the BPI. GAO has not decided a BPA protest since 2003, and has never decided a BPA protest on this issue. The COFC has not handled a BPA bid protest since 1983, which was before the BPI was adopted.

Now, instead of arguing whether a procedure is "fair," why don't Congress and the FAR councils ask themselves whether the procedure makes good sense to prudent businesspersons and, if it does, why don't they authorize its use by all COs?

Our competitive contractor selection/contract formation procedures are still grounded in 19th Century "competitive bidding."

Kudos on the mention of Rawls, by the way. I'm seriously impressed!

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1 hour ago, joel hoffman said:

From my observation of the general reluctance of many government acquisition personnel to even engage in detailed discussions during competitively negotiated acquisitions, let alone the often mediocre quality of detailed one on one cost/price negotiations on new contracts or modifications , I don't think that that there is adequate capability within the government workforce to due this on a wide scale.

Joel, I agree with your concluding remark. But indications are that there is not "adequate" capability within the government workforce for the conduct of many contracting procedures to a high standard. There are, however, solutions that involve training and work assignments. If a procedure is inherently sound, then we should not reject it because we do not currently have adequate capability. 

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Vern, thank you for engaging in the discussion and for the design competition article.

You're right to an extent and I knew a day of thinking about the issue and my limited remarks would make it difficult (if not impossible) to establish a sound definition of fairness because there are inherent complications in doing, such as different beliefs regarding fairness.  For example, does one care more about fairness as a process or as an outcome (I think this is the distinction you drew when you asked about fairness to the taxpayers)?  Philosophers have tried to address the concept of fairness with much more time and brainpower than I have dedicated to it over the past few days and yet I still do not believe we have an agreed upon standard for "fairness" (otherwise I would cite it here); however, one thing I do believe is that fairness should not be defined as adherence to the rules because a rule can be unfair/discriminatory/exclusionary.

I'm also curious that if the vagueness of the term "fairness" is a concern, all things considered, how is business judgment any less nebulous?

3 hours ago, joel hoffman said:

So, you are curious about using a qualifications based selection process, then negotiating the contract terms, including price with a selectee? And you think that this will "simplify" or "streamline" the acquisition process? And this negotiation process would be led by or performed by KO's ?  And you think that the competitive 8( a ) process could be a good program on which to try this out?

I am extremely glad that Congress recently headed off attempts to allow expanding the use of qualifications based acquisition approaches, such as was advocated by certain Design-Build construction industry advocates.  

From my observation of the general reluctance of many government acquisition personnel to even engage in detailed discussions during competitively negotiated acquisitions, let alone the often mediocre quality of detailed one on one cost/price negotiations on new contracts or modifications , I don't think that that there is adequate capability within the government workforce to due this on a wide scale.

Shay Assad says that DOD already pays too much. Expanding the use of one on one price or cost negotiations won't improve the situation, in my opinion.  And EXPANDING the use of one on one price or cost negotiations under the 8 ( a)  program and adding negotiation of the technical scope? Whoa, Nellie!  And...Katybar the door! 

Joel, I don't recall ever using the words "simplify" or "streamline" in my remarks.  I'm curious about a number of acquisition methods/proposals and the one espoused by Vern in his 2007 article is quite interesting (I assume you've read it).  I only offer the idea of testing it under the 8(a) program on the competitive side because we already do something similar for sole source 8(a) awards so it wouldn't be a total culture shock to apply his concept to the competitive side of the 8(a) process as a test program of sorts.  Do you propose an alternative way to test the procedures?  I agree with Vern's response that "if a procedure is inherently sound, then we should not reject it because we do not currently have adequate capability."  Such concerns (though I don't entirely agree with you), is also why I advocated the use of it on a test basis first.

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Matthew:

I think business judgment gives us a reasonably clear and almost universal standard:

What a similarly situated and honest businessperson would do to survive and to achieve long term growth and profitability.

The achievement of those objectives depend on the prudent management of customer relations, worker relations, supplier relations, community relations, competitive strategy and its execution, capital management, and operational efficiency, the demands of which must be kept in balance. And all of those require ever better knowledge and skill.

The standard for "fairness" is much more sketchy and elusive, at least to me.

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11 hours ago, Matthew Fleharty said:

 I'll never forget the first time I came across my first wasteful GSA pricelist where I saw the XBOX 360 listed on multiple GSA Schedules for $800 (market price at the time was approximately $300).  Some GSA Contracting Officer made that determination of price reasonableness and I'm fairly certain (or hopeful) that no one purchased that item (or the others with inflated prices) for the $800 it was listed at.  I think it is fair to assume that those contractors likely fell into the bottom 80% that received only 7.5% of all sales, but was that because of fairness or because or poor procurement practices on behalf of GSA Contracting Officers?  I don't think we have to shirk the concept of fairness to improve the GSA outcomes listed above.

This statement alone indicates to me that you really don't know what you are talking about, at least as it pertains to Schedules, pricing, and FAR Part 8.  That this was listed at this price is only an indication that the market rate for the item was that at a particular time.  Prices for IT decrease over time.  The CO at GSA established the fair price for that item at a time when that was the market rate of $800 (which it was when it was initially released).  That price point decreased over time, as it typically does for consumer electronics.  You characterize this as the fault of a GSA CO, whereas this is nothing more than the market at work.  Your cell phone that you pay $600-$700 today will be worth .99 in 12 months.  This is not the fault of a CO that sets a market price at a particular point in time, it is simply the way that the IT market works, and has nothing to do with your "fairness" argument.

You are correct that nobody pays this anymore, just like nobody pays $600 for an iPhone 4.  Market research will bore this out, just as it did in your example above.  When you use schedules, you still do your research, and negotiate a price.

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57 minutes ago, Matthew Fleharty said:

Joel, I don't recall ever using the words "simplify" or "streamline" in my remarks.  I'm curious about a number of acquisition methods/proposals and the one espoused by Vern in his 2007 article is quite interesting (I assume you've read it).  I only offer the idea of testing it under the 8(a) program on the competitive side because we already do something similar for sole source 8(a) awards so it wouldn't be a total culture shock to apply his concept to the competitive side of the 8(a) process as a test program of sorts.  Do you propose an alternative way to test the procedures?  I agree with Vern's response that "if a procedure is inherently sound, then we should not reject it because we do not currently have adequate capability."  Such concerns (though I don't entirely agree with you), is also why I advocated the use of it on a test basis first.

What would be your objective is using a qualifications based 8( a ) selection procedure then negotiating the contract price, similar to the A-E acquisition method?  Lower cost than competitively negotiated?  Not from my experience over the years. Faster award process?  Not from my experience with both.

My staff and I personally negotiated numerous sole source, 8 ( a ) construction contracts and conducted negotiated 8 ( a ) set-aside and Disadvantaged Business set-asides, during an assignment in the early to mid 1990's.  We had to hold many developing firms' hands throughout the acquisition process, then throughout the contract execution. 

Perhaps negotiating 8(a) service contracts is simple.

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27 minutes ago, jonmjohnson said:

This statement alone indicates to me that you really don't know what you are talking about, at least as it pertains to Schedules, pricing, and FAR Part 8.  That this was listed at this price is only an indication that the market rate for the item was that at a particular time.  Prices for IT decrease over time.  The CO at GSA established the fair price for that item at a time when that was the market rate of $800 (which it was when it was initially released).  That price point decreased over time, as it typically does for consumer electronics.  You characterize this as the fault of a GSA CO, whereas this is nothing more than the market at work.  Your cell phone that you pay $600-$700 today will be worth .99 in 12 months.  This is not the fault of a CO that sets a market price at a particular point in time, it is simply the way that the IT market works, and has nothing to do with your "fairness" argument.

Jon, at no time did the cost of an XBOX 360 ever reach $800 for the market (http://money.cnn.com/2005/08/17/commentary/game_over/column_gaming/).  Provide me evidence of such and then maybe you can tell me that I don't know what I'm talking about.  I understand how markets work, but I don't understand how you can make the assumptions you do in your post and claim I'm being ignorant or naïve in my remarks.  Sure it may be only one example (one that has stuck with me), but I think you would find a number of additional examples of inflated or unreasonable prices on GSA schedules if you took just a small amount of time to research the issue before posting (http://www.rjo.com/PDF/law360_12182013.pdf or https://www.justice.gov/usao-md/pr/axway-inc-agrees-pay-62-million-resolve-false-claims-act-allegations-related-gsa-multiple or even http://www.law360.com/articles/219983/fastenal-to-pay-6-25m-after-inflating-fastener-prices and those only took me a few minutes).

29 minutes ago, jonmjohnson said:

You are correct that nobody pays this anymore, just like nobody pays $600 for an iPhone 4.  Market research will bore this out, just as it did in your example above.  When you use schedules, you still do your research, and negotiate a price.

Are you sure?  You're telling me that the thousands of "buyers" with GPCs who order off of GSA Schedules do precisely that (especially under the micropurchase threshold)?  I doubt it because I've seen evidence to the contrary and advised my customers on how they can do better.  But that is besides the point here....even if buyers do what you state, that doesn't disprove that at some point in time a GSA CO determined the inflated price on the pricelist to be fair and reasonable.  Having not worked at GSA, I hesitate to presume why, but I have my thoughts on how it occurs.  Still, the inflated GSA Schedule prices, combined with laziness by purchasing officials, buyers, and even contracting officers likely resulted in the following deviation to 8.404(d):

Quote

(d) Pricing. Supplies offered on the schedule are listed at fixed prices. Services offered on the schedule are priced either at hourly rates, or at a fixed price for performance of a specific task (e.g., installation, maintenance, and repair). GSA has already determined the prices of supplies and fixed-price services, and rates for services offered at hourly rates, under schedule contracts to be fair and reasonable. Therefore, ordering activities are not required to make a separate determination of fair and reasonable pricing, except for a price evaluation as required by 8.405-2(d). By placing an order against a schedule contract using the procedures in 8.405, the ordering activity has concluded that the order represents the best value (as defined in FAR 2.101) and results in the lowest overall cost alternative (considering price, special features, administrative costs, etc.) to meet the Government's needs. Although GSA has already negotiated fair and reasonable pricing, ordering activities may seek additional discounts before placing an order (see 8.405-4).

(d) Pricing. (DEVIATION) Supplies offered on the schedule are listed at fixed prices. Services offered on the schedule are priced either at hourly rates, or at a fixed price for performance of a specific task (e.g., installation, maintenance, and repair). 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. GSA's determination does not relieve the 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 15.404-1. The complexity and circumstances of each acquisition should determine the level of detail of the analysis required.

 

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1 hour ago, Vern Edwards said:

I think business judgment gives us a reasonably clear and almost universal standard:

What a similarly situated and honest businessperson would do to survive and to achieve long term growth and profitability.

I have some thoughts here, but before I respond, would you apply this definition to Government activities (where profitability is not a concern) or do you have an alternate definition specific to business judgment for Government officials?

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2 hours ago, Matthew Fleharty said:

I have some thoughts here, but before I respond, would you apply this definition to Government activities (where profitability is not a concern) or do you have an alternate definition specific to business judgment for Government officials?

I would apply those criteria in judging the conduct of government activities, yes. Although the government does not seek profit or business growth, the behavior that leads to profit and growth includes consideration for the interests of the owners of the business (the taxpayers), consideration for those receiving your service, consideration for those who supply and service your operations, prudent capital investment and expenditure, work efficiency, economic consumption of resources, planning, strategizing, etc., etc. Those values are equally beneficial in government contracting ops. Or think of it this way: every time an agency satisfies a government requirement at a marginal avoidance in the expenditure of another tax dollar, it has made a buck in "profit."

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Availability of gaming consoles, during launch (initial release), is scarce, which drives prices up. $800 for an XBOX 360 was fair and reasonable for a time.

http://www.gamespot.com/articles/xbox-360-scalpers-clean-up-on-ebay/1100-6140373/

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4 hours ago, joel hoffman said:

What would be your objective is using a qualifications based 8( a ) selection procedure then negotiating the contract price, similar to the A-E acquisition method?  Lower cost than competitively negotiated?  Not from my experience over the years. Faster award process?  Not from my experience with both.

My staff and I personally negotiated numerous sole source, 8 ( a ) construction contracts and conducted negotiated 8 ( a ) set-aside and Disadvantaged Business set-asides, during an assignment in the early to mid 1990's.  We had to hold many developing firms' hands throughout the acquisition process, then throughout the contract execution. 

Perhaps negotiating 8(a) service contracts is simple.

Joel:

You need some context for Matthew's remarks. Have you read that article in Defense ARJ that prompted Matthew's comments? It's "A Proposal For A New Approach to Performance-Based Services Acquisition"? It's here:

http://www.dau.mil/pubscats/pubscats/arj45/ARJ45_Edwards.pdf

I think it will provide the answers to many of your questions. Please take a pause and read it carefully and with an open mind.

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24 minutes ago, Jamaal Valentine said:

Availability of gaming consoles, during launch (initial release), is scarce, which drives prices up. $800 for an XBOX 360 was fair and reasonable for a time.

http://www.gamespot.com/articles/xbox-360-scalpers-clean-up-on-ebay/1100-6140373/

Maybe the GSA buyer/CO were provided that article (or one similar) and the subsequent eBay sales data when they made their determination.  A common definition of fair and reasonable price includes the term prudent which is defined as "acting with or showing care and thought for the future."  Even with the early release demand during a holiday season, I'd argue that the determination was made inappropriately by such a standard.

Edit: Still, thanks Jamaal for actually providing evidence that could serve as the basis for why the price might have been listed on those GSA Schedules as it was.

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Matthew:

Seems as though the GSA CO is being measured against an objective standard, without having regards to the circumstances and to the discretion that would reasonably be expected of a prudent person in similar circumstances. A prudent person given the facts and circumstances, acting with or showing care and thought for the future, could find a range of prices fair and reasonable.

At launch, would it have been appropriate to make a schedule at MSRP? Would that be fair to suppliers who had to fill any and all orders at that price? I'm not really looking for an answer, just saying. Maybe delaying a schedule contract until prices normalized would have been better ... who knows? I think you can make your argument stick and I agree with a lot if not most of what you have to say on GSA. I just don't think its "fair" to Monday morning quarterback CO's decisions without adequate information regarding the situation or how they arrived at their decision. Only reason I knew of the inflated prices is because, over the years, I've purchased several consoles through the madness of launch and worked at a video game store once upon a time (best job ever)!

Anybody have a definition for 'prudent person'? I came across a really good one before, but cant recall where - it included a requirement to have a reasonable knowledge of the marketplace.

For discussion, what is a CO's standard of care, if any?

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1 hour ago, Matthew Fleharty said:

Maybe the GSA buyer/CO were provided that article

Here is exactly where you go wrong.  GSA is not the buyer of anything.  You are the buyer.  GSA just established a structure whereby you can do as Vern suggested earlier:  1) do you homework, 2) pick 3 vendor, 3) compete the pricing, and 4) make an award.

Here is how pricing under schedules is established.

A vendor provides the pricing information needed for a contracting officer to make a determination that that entity is selling a particular product.  It could be a direct manufacturer, but more often than not we are talking resellers, particularly in federal IT.  The basis of pricing cannot include pricing given to universities, state or local govermnent, or other federal agencies.  Also, although a GSA CO can ask, a supplier is required to give the government pricing equal or better than their "most favored customer" pricing.  This absent of spot discounts, credits, or any other mechanism a supplier can use to lower the total commercial price.  A CO may try to elicit significant discounts, but a vendor is not required to give them.  Why?  There is no work associated with the schedule award.  How much of a discount would you provide someone for no work?  Where does the discounting happen then?  At the task order level, and the level of discounting is affected by the task order term and conditions.

The GSA CO determines a fair and reasonable price, based on the commercial entities commercial practices that they justify and provide evidence for, in order to allow for an item to be placed on their schedule contract.  These are ceiling prices that are established, or MSRP for government.  They are not, nor have they ever claimed to be, floor pricing as would be given to a buyer who has money and is ready to make a buy.

GSA from my understanding has been involved in an effort to try and scrub their systems of the pricing scenarios that you describe above, so they appear aware of this.  That being said, if any government-wide purchase holder is spending current generation prices for a 2nd or 3rd generation technology, then that agency deserves exactly what they get.  As much as folks try, you cannot legislate or regulate carelessness, laziness, or stupidity.

 

On another note, when is the government going to start accounting for transaction costs, transition costs, and opportunity costs associated with federal contracting?  Are we spending 8 to save 5 and calling that a victory?  If that is the case, have we really gone away from the $200 toilet seats and $90 hammers of the 1980's?  Start adding up the costs, and with contracting penchant for making complex the essentially simple, we are no better off now than we were then.

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5 hours ago, jonmjohnson said:

Here is exactly where you go wrong.  GSA is not the buyer of anything.  You are the buyer.  GSA just established a structure whereby you can do as Vern suggested earlier:  1) do you homework, 2) pick 3 vendor, 3) compete the pricing, and 4) make an award.

The GSA CO determines a fair and reasonable price, based on the commercial entities commercial practices that they justify and provide evidence for, in order to allow for an item to be placed on their schedule contract.  These are ceiling prices that are established, or MSRP for government.  They are not, nor have they ever claimed to be, floor pricing as would be given to a buyer who has money and is ready to make a buy.

Jon, I never said that a buyer shouldn't do the things you say - what I do say, and you once again ignore, is that GSA COs have a responsibility when making fair and reasonable determinations on price lists and I've seen first hand (and provided additional examples) where that was done poorly or improperly.  Call it what you want, even if it is a "ceiling" the GSA CO should make sure that "ceiling" is fair and reasonable.  I'm done discussing this matter with you because you once again conveniently ignore what I've said and the examples I provided.

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Matthew:

It appears that your interest has shifted from the question of whether contracting policy and operations should be grounded in fairness or business judgment to your squabble with Jon and Jamal about X-Box pricing under GSA FSS contracts. I'm leaving the thread.

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1 hour ago, Vern Edwards said:

Matthew:

It appears that your interest has shifted from the question of whether contracting policy and operations should be grounded in fairness or business judgment to your squabble with Jon and Jamal about X-Box pricing under GSA FSS contracts. I'm leaving the thread.

It hasn't - my thoughts regarding our discussion are not yet complete.  The squabbling doesn't require the critical thought that our discussion takes - I'll respond sometime today.

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I think Vern hit on something in talking about government business and what that means for contracting ops.

Our Government's business goals and objectives are similar to not-for-profit organizations. Where for-profit organizations are largely driving by money, namely profit, the Government should measure success, in part, by how well it satisfies its internal and external customers and how well it advances the causes it champions. All organizations have to consider sustainability and/or growth.

Still seems the acquisition process could gain efficiencies by dropping "fairness" and adopting affordable. Affordable can be clearly and easily defined for any requirement.

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Jamaal:

Nonprofit organizations are very much driven by money. They are some of the most money-driven organizations I know. In any case, I'm not sure that they operate much differently than profit making organizations. See Lee, "The Business Judgement Rule: Should It Protect Nonprofit Directors?" Columbia Law Review, (May 2003).

Quote

Historically, nonprofit directors were regarded as trustees with a correspondingly strict standard of care in their management of a public trust. Trustees, as remains the case today, were expected to exercise rea- sonable care and skill, whereby findings of ordinary negligence resulted in personal liability. As the nonprofit landscape changed over the years, however, legislatures and courts began replacing trustee precepts with corporate governance principles, often with little or no alteration.

Through this process, nonprofit directors in some jurisdictions gradually came to benefit from the substantial leeway courts allow corporate directors in their management decisions, which enjoy the protection of the common law business judgment rule.9 For a variety of reasons justifiable in the business context, the rule precludes courts from second-guessing directors' decisions as long as they are rational, not self-interested, and made in good faith on an informed basis." In essence, the business judg- ment rule only punishes instances of gross negligence, as opposed to the trustee standard, which attaches liability for ordinary negligence.

 

It is highly questionable whether nonprofit directors warrant the extraordinary latitude bestowed upon for-profit directors when, in theory at least, the mission statements of their respective organizations lie at opposite ends of the spectrum. Despite this fact, courts have inched toward the rule's acceptance in the nonprofit context, but still have not defini- tively determined whether the rule should apply or, alternatively, whether ordinary negligence should suffice to constitute a breach of the nonprofit director's duty of care.

 

The courts have moved even further since that article was written. There are more than one hundred law review articles that discuss expanding application of "the business judgement rule" to nonprofits. As used in those articles, "the business judgement rule" is a legal standard and not exactly what I've been talking about, but the ideas are related.

 

In order to make your case, you'll have to make a clearer and more relevant distinction between for-profits and nonprofits and their standards of operation than the rather vague one you made in your last post. Do you think for-profits aren't interested in satisfying customers and furthering causes?

 

 

 

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Poor execution on my part - I agree that some nonprofits are money-driven, especially with regard to certain compensation and benefits packages. I have some personal feelings toward The Wounded Warrior Project and others like it. I was mainly talking about the business operations goals and objectives (not to include excessive employee or executive compensation per se). If the goals and objectives differ maybe the processes and approaches to fulfilling them should differ?

To answer your question - I think for-profits are interested in satisfying customers and furthering causes, albeit for different reasons with different goals and objectives.

Thanks for the share - off to do more thinking.

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16 minutes ago, Jamaal Valentine said:

I agree that some nonprofits are money-driven, especially with regard to certain compensation and benefits packages. I have some personal feelings toward The Wounded Warrior Project and others like it. I was mainly talking about the business operations goals and objectives (not to include excessive employee or executive compensation per se).

Jamaal:

I think that nonprofits work to make money. They make it through donations, dues, and sales. Some nonprofits sell stuff, you know. That's one of their operational goals. My wife and I are members and volunteers for the Audubon Society, and I can tell you that they sell all kinds of stuff to make money. They just put what they make back into their operations instead of distributing it to their owners. Read up on nonprofits.

Vern

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