B-163971, MAY 21, 1969

B-163971, MAY 21, 1969

TO WESTERN ELECTRONIC MANUFACTURERS ASSOCIATION:

FURTHER REFERENCE IS MADE TO YOUR PROTEST AGAINST THE GENERAL SERVICES ADMINISTRATION'S (GSA) POLICY OF REQUIRING PREFERENTIAL DISCOUNTS ON EQUIPMENT SOLD BY WESTERN ELECTRONIC MANUFACTURERS ASSOCIATION (WEMA) MEMBERS AS A CONDITION TO RECEIVING AWARD OF FEDERAL SUPPLY SCHEDULE (FSS) CONTRACTS.

THE GSA PRESENTLY PROCURES CERTAIN WIDELY-USED COMMODITIES, SUCH AS AUTOMOBILE TIRES AND ELECTRIC LIGHT BULBS, AS WELL AS MORE SOPHISTICATED ITEMS SUCH AS SCIENTIFIC INSTRUMENTS AND LABORATORY EQUIPMENT, BY ESTABLISHING SCHEDULES UNDER WHICH A NUMBER OF MANUFACTURERS AGREE TO SELL ESSENTIALLY SIMILAR ITEMS AND FROM WHICH THE VARIOUS GOVERNMENT AGENCIES MAKE PURCHASES OF THE SPECIFIC BRAND WHICH WILL BEST FULFILL THEIR PARTICULAR REQUIREMENTS. THE MULTIPLE AWARD CONTRACTS UNDERLYING THE SCHEDULES ARE AWARDED THROUGH NEGOTIATION.

WITH REGARD TO PRICING SCIENTIFIC INSTRUMENTS, WHICH ARE OF PARTICULAR INTEREST TO YOU, GSA STATES THAT SINCE PRODUCTS OF THE VARIOUS MANUFACTURERS IN THE SAME CATEGORY OFTEN DIFFER MATERIALLY, THERE IS NO OBJECTIVE STANDARD BY WHICH THEIR VALUE MAY BE ESTABLISHED. IN THE ABSENCE OF AN OBJECTIVE STANDARD, GSA USES THE COMMERCIAL SELLING PRICE AS THE MEASURE OF THEIR VALUE. HOWEVER, IT IS GSA'S VIEW THAT THE GOVERNMENT SHOULD BE ABLE TO OBTAIN BETTER-THAN COMMERCIAL PRICES ON THIS EQUIPMENT FOR THE FOLLOWING REASONS: "1. THE FACT THAT MEASURABLE SAVINGS AND BENEFITS INURE TO FIRMS HAVING A FEDERAL SUPPLY SCHEDULE CONTRACT, SUCH AS THE ELIMINATION OF THE NEED FOR CASE-BY-CASE NEGOTIATION BY INDIVIDUAL AGENCIES, THE OBTAINING OF SALES PUBLICITY BY DISTRIBUTION OF THE SCHEDULE AT GOVERNMENT EXPENSE AND THE CUSTOMARY SAVINGS ASSOCIATED WITH VOLUME SALES; AND "2. THE FACT THAT MANY ITEMS OF COST SUCH AS ADVERTISING AND SALES PROMOTION, LOSSES ON BAD DEBTS AND UNPROFITABLE INVESTMENTS AND OTHERS, ARE NOT PROPERLY CHARGEABLE TO THE GOVERNMENT.'

IT IS, THEREFORE, GSA'S POLICY TO OBTAIN DISCOUNTS ABOVE THOSE OFFERED COMMERCIAL CUSTOMERS WHEN NEGOTIATING FSS CONTRACTS. GENERALLY, IT IS GSA'S PRACTICE TO OBTAIN THE MOST FAVORABLE DISCOUNT POSSIBLE FROM AMONG THE MANUFACTURERS OF A PARTICULAR CATEGORY OF PRODUCTS AND TO THEN SEEK A SIMILAR DISCOUNT FROM THE OTHER MANUFACTURERS HAVING SIMILAR MARKETING PRACTICES.

IT IS THIS POLICY AND PRACTICE TO WHICH YOU OBJECT, AND YOU CONTEND THAT THE TWO PRIMARY REASONS (QUOTED ABOVE) ADVANCED BY THE GSA AS JUSTIFICATION FOR SUCH POLICY ARE WITHOUT FOUNDATION. YOU CONTEND THAT YOUR STUDIES INDICATE THERE ARE NO SAVINGS AND BENEFITS TO COMPANIES SELLING THROUGH THE SCHEDULE CONTRACTS. YOU SPECIFICALLY REFER TO THE EXPERIENCE OF FOUR COMPANIES IN SUPPORT OF THIS PROPOSITION. YOU ATTRIBUTE THIS FAILURE TO REALIZE ANY SAVINGS AND BENEFITS TO THE LACK OF VOLUME SALES AND TO SALES COSTS COMPARABLE TO THOSE INCURRED IN COMMERCIAL SALES. YOU ALSO DISAGREE WITH THE GSA POSITION THAT SUCH COSTS AS ADVERTISING, SALES PROMOTION, AND BAD DEBTS ARE NOT PROPERLY CHARGEABLE TO THE GOVERNMENT, AND CONTEND THEY ARE LEGITIMATE EXPENSES OF DOING BUSINESS WITH THE GOVERNMENT AND SHOULD BE CONSIDERED IN ESTABLISHING THE COST OF A PRODUCT. YOU ALSO REFER TO OTHER AREAS OF DISAGREEMENT WITH GSA'S IMPLEMENTATION OF ITS DISCOUNT POLICY AND QUESTION ITS STATEMENT THAT VIGOROUS NEGOTIATION OF FSS REQUIREMENTS CONTRACTS RESULTS IN ANNUAL SAVINGS TO THE GOVERNMENT OF $40 - $60 MILLION. HOWEVER, YOU HAVE FURNISHED LITTLE OR NO EVIDENCE IN SUPPORT OF YOUR POSITION. IF GSA CONTINUES TO PURSUE THE PRESENT DISCOUNT POLICY, IT IS YOUR CONTENTION THAT IT WILL "ULTIMATELY SERVE TO LIMIT COMPETITION, BRING ABOUT NEW AND HIGHER PRICES, HAMPER GOVERNMENT LABORATORIES WHICH WILL NOT BE ABLE TO BUY AND USE READILY-AVAILABLE, REASONABLY-PRICED COMMERCIAL PRODUCTS, AND MILITATE IN THE LONG RUN AGAINST GOVERNMENT INTERESTS.'

THE BASIC AUTHORITY FOR THE PROCUREMENT AND SUPPLY OF PERSONAL PROPERTY AND NONPERSONAL SERVICES BY THE GSA IS THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED, PUBLIC LAW 152, 63 STAT. 377, 40 U.S.C. 471, AND PARTICULARLY TITLES I, II, AND III THEREOF. PURSUANT TO SECTION 201 (A) OF TITLE II, THE ADMINISTRATOR OF GSA IS REQUIRED, TO THE EXTENT THAT HE FINDS IT ADVANTAGEOUS TO THE GOVERNMENT IN TERMS OF ECONOMY, EFFICIENCY, OR SERVICE, TO PRESCRIBE POLICIES AND METHODS OF PROCUREMENT AND SUPPLY OF PERSONAL PROPERTY AND NONPERSONAL SERVICES, AND TO PROCURE AND SUPPLY SUCH PROPERTY AND SERVICES FOR THE USE OF EXECUTIVE AGENCIES IN THE PROPER DISCHARGE OF THEIR RESPONSIBILITIES. 40 U.S.C. 481. TITLE III OF THE ACT, 41 U.S.C. 251, ET SEQ., PRESCRIBES THE PROCUREMENT PROCEDURES APPLICABLE TO PURCHASES AND CONTRACTS FOR PROPERTY OR SERVICES MADE BY GSA FOR THE USE OF SUCH AGENCY OR OTHERWISE. IT IS UNDER AUTHORITY OF THESE PROVISIONS, AS IMPLEMENTED BY THE FEDERAL PROCUREMENT REGULATIONS, THAT THE FSS HAS BEEN ESTABLISHED.

SINCE UNDER THE FOREGOING STATUTORY PROVISIONS THE ADMINISTRATOR OF GSA IS VESTED WITH THE AUTHORITY AND RESPONSIBILITY FOR DETERMINING POLICY AND METHODS OF PROCUREMENT, THERE IS NO BASIS FOR OUR OFFICE TO SUBSTITUTE OUR JUDGMENT FOR THAT OF THE ADMINISTRATOR IN DETERMINING GSA'S POLICY WITH RESPECT TO PREFERENTIAL DISCOUNTS.

ACCORDINGLY, IN THE ABSENCE OF EVIDENCE THAT SUCH POLICY IS CONTRARY TO LAW OR OTHERWISE DETRIMENTAL TO THE INTERESTS OF THE GOVERNMENT, THERE IS NO BASIS FOR OUR OFFICE TO TAKE ANY FURTHER ACTION WITH RESPECT TO YOUR PROTEST.

HOWEVER, OUR OFFICE IS CURRENTLY INVESTIGATING CERTAIN ASPECTS OF GSA'S DISCOUNT POLICY PURSUANT TO RECOMMENDATIONS 24 AND 25 OF HOUSE REPORT NO. 1975, ENTITLED "THE POSITION OF SMALL BUSINESS IN GOVERNMENT PROCUREMENT.' THE RESULTS OF OUR INVESTIGATION WILL BE REPORTED TO THE SELECT COMMITTEE ON SMALL BUSINESS, HOUSE OF REPRESENTATIVES.