Agency Could Not Accept Price Above Awardee’s FSS Price, GAO Says

If you feel like prices for just about everything are going up, you’re not alone. I recently got my annual property tax bill, and the first thing I did (after recovering from a brief fainting spell) was to start Googling to find out how much I could get for one of my kidneys on the black market.

I get the feeling that my county tax assessor would consider anything less than a double digit increase to be an embarrassing professional failure. In federal government contracting, however, a contractor may not have the same leeway to raise its prices. In a recent bid protest decision, the GAO held that when an agency sought to procure services using the Federal Supply Schedule, the agency could not agree to pay a price higher than the price set forth in the offeror’s underlying FSS contract.

The GAO’s decision in Kauffman & Associates, Inc., B-421917.2, B-421917.3 (2024) involved a request for quotations issued by the Centers for Medicare and Medicaid Services seeking in-person and virtual training services. CMS issued the RFQ to five GSA Schedule vendors under the procedures of FAR Subpart 8.4, which governs FSS acquisitions.

Two of the five vendors submitted quotations. After evaluating the quotations, CMS announced that the order would be awarded to Octane Public Relations. The other vendor, Kauffman and Associates, Inc., then filed a bid protest with the GAO, challenging various aspects of CMS’s evaluation.

Among its challenges, Kauffman argued that the agency “failed to evaluate discrepancies between the awardee’s proposed pricing and its FSS pricing.” Kauffman pointed out that Octane’s proposed price for the Events Coordinator labor category exceeded Octane’s price for the same category in its underlying FSS contract.

The GAO explained:

[W]hile discounts to FSS prices are permissible, a vendor may not propose prices higher than their FSS prices, as the higher prices have not been determined to be fair and reasonable by the General Services Administration (GSA) and are therefore not FSS prices. . . Accordingly, issuing an order based on non-FSS pricing under an FSS acquisition would be improper.

In this case, the GAO wrote, “[w]e find the agency’s determination that the awardee’s pricing was fair and reasonable to be flawed.” Because Octane proposed a price that was higher than its FSS price, “it would not be proper to issue the order to that vendor.”

The GAO sustained the protest.

Contractors often negotiate FSS prices that are higher than they expect to actually charge, knowing that agencies may expect discounts. Per GAO, that tried-and-true strategy is viable. But as the Kauffman and Associates, Inc. case shows, a contractor’s FSS prices may effectively be a ceiling. When bidding on an FSS order, proposing a price higher than the underlying FSS contract price may make it improper for the agency to award the order.

Oh, one more thing: if you know someone who is looking for a lightly-used kidney, could you let me know? Asking for a friend.

This article was originally published by Steven Koprince on LinkedIn and is reprinted with permission. Steve is the founder of Koprince McCall Pottroff LLC but has retired from the practice of law to focus on other endeavors. His views do not necessarily represent those of the firm or its attorneys. To read more of Steve’s current government contracting writing, follow him on LinkedIn and subscribe to his LinkedIn newsletter.

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