GSA has announced that the newly implemented TDR rule, which was previously mandatory under certain Schedules, is to become fully voluntary. Contractors who were previously required to participate in TDR will be offered the chance to modify their contracts.
The GSA Schedules program is designed to ensure that buyers who use the contract vehicle always receive a vendor’s lowest rate. Historically, this has been accomplished through the combination of Commercial Sales Practices (CSP) reporting and the Price Reduction Clause (PRC). Vendors on Schedule must identify their Most Favored Customer (MFC), that customer or type of customer that receives the best rate for a given product or service. A discount relationship is then established at the time of award based on that information. If a vendor later sells that item off-Schedule for less than the awarded Schedule price, they are required to offer GSA a similar discount to maintain that relationship.
These rules can quickly lead to headaches—and even lawsuits—for contractors who do not fully understand them. Imagine a vendor who sells their product to their MFC for $100, and establishes a discount relationship with GSA of 10% discount ($90). If that company were to offer their MFC a one-time discount to $95, they would have to offer GSA a 10% discount from the new $95 MFC rate. Their new GSA rate would become—and would permanently remain—$95 minus 10%, or $85.50. In other words, that one-time discount would force a mandatory discount on all future Schedule sales of that item. As a result, contractors must meticulously track and report their rates to ensure they do not violate the PRC.
In June 2016, GSA began a pilot of a new mechanism, TDR, designed to reduce compliance burdens, especially for small businesses. TDR allows GSA to collect transactional-level data on Schedule purchases, thereby eliminating the need for CSP/PRC. Participation was mandatory for new Schedule holders under the affected Special Item Numbers (SINs), and optional for others.
Some have warned, however, that TDR may actually increase contractors’ reporting costs without providing any real relief from compliance burdens, as contractors would still be required in practice to provide CSP-like information in addition to TDR information, resulting in “the worst of both worlds”. Additionally, itemized reporting is required monthly as opposed to total sales reporting quarterly. One analyst urged contractors to “run, don’t walk” from TDR.
Nonetheless, GSA reports that voluntary participation in TDR has been so high that the program can now be made fully optional. Moreover, vendors who were previously required to participate in the pilot will be allowed a one-time contract mod to transition their contract off of TDR and onto the traditional CSP/PRC requirements.
GSA is offering a webinar to provide contractors with more information on TDR options. The webinar takes place at 1:00PM EDT on September 12, 2017; registration is available here.
Does TDR make sense for your organization, or would you be better served by the traditional CSP/PRC system? Contact Global Services today to learn more about your options and your best path forward!