contractshelp Posted July 28, 2011 Report Share Posted July 28, 2011 Frequently, our PMs work with resellers to obtain baseline pricing for various IT equipment. They reach out to resellers to figure configurations for computers, or what additional connections they will need for a large system of servers. This reseller is then able to obtain "special pricing" from the manufacturer. One of my colleagues argues that this is restricting competition since the manufacturer only offers special pricing to one reseller. I would agree except for the fact that that reseller will probably just tack on an additional markup to the price that they received, making their offer competitive, but not always the lowest. In my mind, this is not restricting competition since the free market allows resellers to obtain requested products from any source. For instance, I recently put out an RFQ for HP specific hard drives. The end user had worked with a particular reseller to price these drives. When I made an award the reseller came forward and asked me who won, I let him know who had won, and that the difference was by almost 1k per drive. He immediately said, they must be grey market - I had registered pricing. Turns out, the reseller that won had been sitting on these hard drives for a couple years, hence the low pricing. To me, this is the same concept - by circumstances outside of the contracting offices control, there is a difference in pricing between resellers. Isn't that what competition is? It is not about who is willing to make the least amount of profit, but instead who can provide the best product for the best price? Link to comment Share on other sites More sharing options...
contractshelp Posted July 28, 2011 Author Report Share Posted July 28, 2011 I am replying to my own post after noticing the error of my logic. The two situations are different, our agency reached out to a vendor in one, and our agency did nothing to impact the fact that a reseller had these hard drives in another. Link to comment Share on other sites More sharing options...
formerfed Posted July 28, 2011 Report Share Posted July 28, 2011 What you dscribe is very common in the IT marketplace with both resellers (integrators) and dealers. The reseller works with the customer to do things like help configure the system, lay out the space and facilities, design work, etc. Because the resller spent their own resources, manufacturers offer discounts for their work. Link to comment Share on other sites More sharing options...
contractshelp Posted July 29, 2011 Author Report Share Posted July 29, 2011 Formerfed - I agree totally. The issue that is being raised in our office is this: If the PM reaches out to one business to help him configure the system, then that business will register pricing which yes, does compensate them for the additional work that they put in. But, has our PM negated competition by choosing a vendor (most likely someone that he already has a relationship with) and allowing that vendor access to information that the rest of the community will not have access to until the RFQ is posted? Link to comment Share on other sites More sharing options...
formerfed Posted July 29, 2011 Report Share Posted July 29, 2011 contractshelp, Now I see the issue. I think as long as the PM is doing the contacts (perhaps "market research") legitimally, it's fine. Realistically PMs need that information in order to finalize their requirement and a vendor is the only practical way to get it. Now that may set that vendor up with the most favorable pricing or it may not. That's between them and the manufacturer and not you or the PMs concern. Link to comment Share on other sites More sharing options...
styrene Posted August 2, 2011 Report Share Posted August 2, 2011 Isn't the acquisition of a brand name item restricting competition? And, if the PM is going to do "market research" by asking a reseller to configure a system, wouldn't the PM still need to provide to the acquisition office the salient characteristics of the system so the competition wouldn't be limited to brand name? (unless, of course, you have the proper brand name justification documentation supporting the limited competition) Link to comment Share on other sites More sharing options...
contractshelp Posted August 3, 2011 Author Report Share Posted August 3, 2011 absolutely. but not quite my point. if i recieve specifications from a PM that requires a brand name justification (which they already provided) they have restricted competition to a single manufacturer, but not a single reseller. if, in order to build those specifications, they involved a reseller who then registered pricing with the manufacturer, did they also pre-select the reseller who will win because they recieved the opportunity ahead of time to get registered pricing from the manufacturer? just FYI - I found a partial answer to my question under FAR 9.505-2(a)(1)(ii) after a member of our group suggested that anyone who recieves registered pricing by working with a PM before an RFQ is published not be allowed to submit a quote. 9.505-2 Preparing specifications or work statements. (a)(1) If a contractor prepares and furnishes complete specifications covering nondevelopmental items, to be used in a competitive acquisition, that contractor shall not be allowed to furnish these items, either as a prime contractor or as a subcontractor, for a reasonable period of time including, at least, the duration of the initial production contract. This rule shall not apply to? (i) Contractors that furnish at Government request specifications or data regarding a product they provide, even though the specifications or data may have been paid for separately or in the price of the product; or (ii) Situations in which contractors, acting as industry representatives, help Government agencies prepare, refine, or coordinate specifications, regardless of source, provided this assistance is supervised and controlled by Government representatives. i am still convinced that registered pricing does not restrict competition - most of my office argues the other direction. hence why I am trying to find some validation here. Link to comment Share on other sites More sharing options...
Don Mansfield Posted August 4, 2011 Report Share Posted August 4, 2011 contractshelp, You do realize that "This rule shall not apply to--" precedes what you have highlighted in red. Link to comment Share on other sites More sharing options...
outsidelegalguy Posted August 5, 2011 Report Share Posted August 5, 2011 And note that it says "contractors" -- plural -- and they have to be acting as industry "representatives" -- plural. It doesn't speak of one contractor acting in its own interest. Link to comment Share on other sites More sharing options...
contractshelp Posted August 7, 2011 Author Report Share Posted August 7, 2011 don - yes, that is why I stated that it helped to answer my question, kind of. although they are not exempt from the competitive process it still does not explain if their ability to register pricing is assumed to impact competition, therefore changing the outcome of an RFQ. outsidelegalguy - maybe I am missing something, but the fact that it says "contractors" just means it is applicable to any contractor. again, I could be wrong here, but if you read the first part it clearly uses "contractor" in the singular form, before moving on to say, "that contractor" and then moving on to "shall not apply to:" which in my mind cannot be followed by a singular noun because that would denote that there is a specific party in place instead of the language being applicable to any "contractors" that participate. Link to comment Share on other sites More sharing options...
outsidelegalguy Posted August 9, 2011 Report Share Posted August 9, 2011 The regulation you cite is an OCI regulation, saying that someone who helps prepare specifications should not be allowed to compete to provide the items specified. What's in red is an exception to the rule. I read the exception as allowing a group of contractors to comment and provide input on specifications -- they're acting as industry representatives, not in their individual company's interest. The factual situation you described seemed to be one contractor helping to set the specs and then bidding on what has been specified. That strikes me as an OCI. Link to comment Share on other sites More sharing options...
Jacques Posted August 10, 2011 Report Share Posted August 10, 2011 The regulation you cite is an OCI regulation, saying that someone who helps prepare specifications should not be allowed to compete to provide the items specified.... The factual situation you described seemed to be one contractor helping to set the specs and then bidding on what has been specified. That strikes me as an OCI. Even though the OP first raised the issue of biased ground rules, I don't think that the OP has provided enough facts to provide any meaningful advice. For instance, it isn't obvious the contractor prepared and furnished complete specifications. Additionally, I assumed that the vendor that provided this information wasn't under contract. If the vendor was not under contract to provide its design, and the PM was just doing "market research," you might want to take a look at Viereck Co., B-237726, 90-1 CPD ? 309 (an offeror may not be excluded simply by providing information describing its product to the government that the government then incorporates into its specifications). I appreciate that this decision may be controversial. See John Thrasher, Government Exchanges With Industry Before Receipt of Proposals, 99-04 BRIEFING PAPERS 1, 11 (Mar. 1999) (?Although organizational conflicts of interest are more likely to arise from prior contractual relationships with the Government, a prior contractual relationship is not a prerequisite. Theoretically, an organizational conflict of interest could exist in a particular acquisition scenario because a contractor assisted or contributed in a noncontractual capacity in defining the Government?s requirements by drafting the specifications or statement of work.?) I'm not convinced that John got it right. Link to comment Share on other sites More sharing options...
contractshelp Posted August 11, 2011 Author Report Share Posted August 11, 2011 Jacques - Thank you! Both references are extremely helpful. outsidelegalguy - I see your point, but I think we may just have to a agree to disagree. I see the exemption applying to any situation in which a contractor (yes, even just one) provides input. What if I had a sole source acquisition, and had reasonably determined it was sole source through market research. The contractor that it must be awarded to participated as an industry representative in the determination of my specifications which later led me to determine that they were the only responsible source - according to your logic, since they were the only one to participate in the determination, not part of a group, they should not be allowed to submit a bid? Link to comment Share on other sites More sharing options...
outsidelegalguy Posted August 11, 2011 Report Share Posted August 11, 2011 If it's a legitimate sole source situation, then that contractor would constitute the entirety of the relevant industry and I would agree that there's no OCI. But, this started with a discussion of hard drives. Although I don't know all the details -- and thus should not say whether it is or is not an OCI -- I would want to look closely at any justification saying that only one hard drive manufacturer's product satisfies the agency's needs, when that manufacturer (or that manufacturer's reseller) was involved in specifying that those hard drives needed to be used. If that's not at least a potential OCI, it would seem that the "industry representative" exception swallows the rule -- anyone could claim that they're an industry representative and write a spec that says their product must be used. Saying you're an industry representative don't make it so. Link to comment Share on other sites More sharing options...
contractshelp Posted August 11, 2011 Author Report Share Posted August 11, 2011 Maybe I am reaching here - but it seems to me that you are saying anytime I interact with a vendor in a one on one context, there is an OCI. Even though the FAR allows me and encourages me to seek input from industry when in the planning phases of any project, I should not do so for fear of an OCI? That does not make sense and is not at all in line with what is coming down from both the Federal CIO and OFPP. In regards to the hard drives, that was an example that I had given, which I later retracted, stating that my logic in using that example was off. The actual questions that I was asking was: Does registered pricing, an accepted practice in the IT arena, hinder competition? My example is: I have a PM who knows what kind of system he needs, but, in order to clearly define his need, get actual part numbers and maybe receive a budgetary estimate, he works with a reseller (maybe multiple resellers) - this reseller will then take the information, go to the manufacturer and obtain "registered pricing." This pricing is the lowest that the manufacturer will offer to any reseller. Even if I solicit this as brand name or equal, the reseller bidding with registered pricing will be the lowest from that manufacturer. Other manufacturers may be a much more that the initial company, knocking them totally out of the competition - leaving only resellers that have bid with equipment from the initially specified manufacturer. The reseller may choose to pass this savings onto the government, or may choose to keep this as profit. Does this practice impact competition, should we be policing this practice, if so, why and how? Link to comment Share on other sites More sharing options...
Jacques Posted August 12, 2011 Report Share Posted August 12, 2011 The actual questions that I was asking was: Does registered pricing, an accepted practice in the IT arena, hinder competition? My example is: I have a PM who knows what kind of system he needs, but, in order to clearly define his need, get actual part numbers and maybe receive a budgetary estimate, he works with a reseller (maybe multiple resellers) - this reseller will then take the information, go to the manufacturer and obtain "registered pricing." This pricing is the lowest that the manufacturer will offer to any reseller. I don't understand how what you've called "registered pricing" differs from "most favored customer" pricing. On the potential antitrust implications of "most favored customer" clauses between private parties, do a search of the FTC website or look at this. As the decentralized party (in your case, the resellers) are not promising the centralized party (in your case, the manufacturer) most favored pricing, it isn't obvious to me how the arrangement implicates antitrust concerns. It sounds like offerors can provide independent pricing. Styrene's post, though, is key. Link to comment Share on other sites More sharing options...
contractshelp Posted August 12, 2011 Author Report Share Posted August 12, 2011 I don't understand how what you've called "registered pricing" differs from "most favored customer" pricing. They are the same. I was just using the only terminology I know for this practice, which is "registered pricing" in the IT world. THANK YOU!! This information is EXTREMELY helpful! Link to comment Share on other sites More sharing options...
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