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At Long Last – GSA Issues Final Rule on Purchasing “Order-Level Materials” on Schedule Orders

Few issues have bedeviled the GSA Schedules program as much as the provision of incidental supplies and services under Schedule orders.  For years, it has been unclear how such supplies and services are to be purchased and priced, since they are not themselves on Schedule.

But now, with GSA’s new Order-Level Materials (“OLM”) rule, GSA has resolved this issue by expressly permitting the government to easily and quickly obtain incidental supplies and services through the Schedules program.

How the Rule Works

The OLM rule, codified at General Services Acquisition Regulation System (“GSAR”) 552.238-82, permits Government customers to order off-Schedule supplies or services from a Federal Supply Schedule (“FSS”) contractor if (1) the supplies or services are “in direct support” of a task order under a FSS contract or blanket purchase agreement (“BPA”) and (2) the supplies or services “are not known at the time of” Schedule contract or BPA award.  See GSAR 552.238-82(a).  In addition, order-level materials cannot be “the primary basis or purpose of the order.”  GSAR 552.238-82(d)(3).

GSA’s regulations and notice of rulemaking do not explain what “direct support” means, but the OLM rule does provide that the “cumulative value” of the order-level materials may not exceed “33.33 percent” of the underlying task order.  GSAR 552.238-82(d)(4).

Order-level materials will generally be included in task order solicitations. However, GSA’s notice indicates that order-level materials can be added to task orders even if not contemplated at the time of task order award.  See 83 Fed. Reg. 3276 (Jan. 24, 2018) (noting that OLMs may be included in task order solicitations).  Notably, the general ordering procedures in FAR Subpart 8.4 do not apply to order-level materials. GSAR 552.238-82(c).

Pricing

Under the OLM rule, a Schedule contract or BPA would not provide for the price of order-level materials.  Instead, the contractor would be free to propose prices at the order level.  See GSAR 552.238-82(d)(7)-(9).

To this end, the OLM rule requires contractors to obtain at least three quotes when offering order-level materials above the simplified acquisition threshold.  GSAR 552.238-82(d)(7)(i).  If the contractor cannot obtain three quotes, then it must document its inability to do so.  GSAR 552.238-82(d)(7)(i)(B).  Contractors with an approved purchasing system under FAR Subpart 44.3 need not obtain three quotes, but can instead follow their purchasing system requirements.  GSAR 552.238-82(d)(7)(i)(C).

In this context, contracting officers will evaluate price reasonableness by either (1) comparing the contractor’s quotes to the quotes received in response to a solicitation or (2) evaluating “other relevant pricing information available.”  GSAR 552.238-82(d)(7)(ii).  In addition, if indirect costs are approved under FAR 52.212-4(i)(1)(ii)(D)(2) (Alt. I) for labor-hour or time-and-materials contracts, then the contracting officer must separately evaluate the price reasonableness of such costs.  GSAR 552.238-82(d)(7)(iii).

Modification of Preexisting Schedule Contracts to Include OLM Rule

Although not included in the final regulation, GSA’s notice of rulemaking states that there will be a “Government-initiated bilateral modification” to add a new OLM Special Item Number (“SIN”) to existing Schedule contracts and BPAs.  Future Schedule solicitations will also include the OLM SIN.

Reduced Compliance Burden

Order-level materials are exempted from several of the most significant compliance obligations associated with Schedule contracting.  On this point, order-level materials are exempt from:

  • The Economic Price Reduction clause of GSAR 552.216-70.

  • The Price Reduction clause of GSAR 552.238-75

  • The requirement to provide price lists in GSAR 552.238-71.

GSAR 552.238-82(d)(10).  Despite these reduced compliance burdens, order-level materials are still subject to GSA’s Industrial Funding Fee and transactional data reporting requirements.

Conclusion

This long-awaited rule represents a significant step forward for the Schedule program.  And it should open up new opportunities to both government purchasers and Schedule holders to provide comprehensive solutions under the Schedules.

© 2019 Covington & Burling LLP

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About this Author

Jason Workmaster, Litigation attorney, Covington
Of Counsel

Jason Workmaster focuses his practice on government contracts-related litigation, including civil False Claims Act (FCA) cases, contract disputes, and bid protests. He has represented a host of clients in these types of cases in U.S. District Court, the U.S. Court of Federal Claims (COFC), and the Government Accountability Office (GAO).

A nationally recognized leader on FCA issues, Mr. Workmaster has appeared on NBC’s The TODAY Show and Canadian TV’s National News to discuss the highly publicized FCA case against the cyclist Lance Armstrong. Mr....

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Evan Sherwood, Covington Burling Law Firm, Government Contracts Attorney
Associate

Mr. Sherwood helps clients solve problems arising from government contracts. He advises government contractors on a wide range of matters, such as compliance with procurement regulations, contract formation, and government investigations. Mr. Sherwood also represents clients in bringing and defending bid protests, including challenges to the terms of competitions.

Representative Matters

  • Successfully protested award of multiple civilian IDIQ contracts.
  • Advised contractor on responding to a solicitation for therapeutics issued by the Department of Health and Human Services.
  • Counseled life sciences contractor on drafting government subcontracts.
  • Successfully defended protest challenging award of a Navy task order.
  • Represented client during agency inquiry regarding organizational conflict of interest, resulting in favorable outcome.
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