DATE: March 18, 2003

SUBJECT: General Services Administration Acquisition Regulation (GSAR); Consolidation of Industrial Funding Fee (IFF) and Sales Reporting Clauses, and Reduction in Amount of IFF

SOURCE: Federal Register; March 18, 2003, Vol. 68, No. 52, page 13211

AGENCIES: Office of Acquisition Policy, General Services Administration (GSA)

ACTION: Proposed Rule

SYNOPSIS: GSA is proposing to combine GSAR 552.238-74, Contractor's Report of Sales, and GSAR 552.238-76, Industrial Funding Fee, into a single clause -- GSAR 552.238-74, Industrial Funding Fee and Sales Reporting. This new clause would give GSA the right to change the percentage rate of the IFF in Federal Supply Schedule (FSS) contracts. Also, GSA provides notice that it intends to reduce the IFF rate from 1.0% to 0.75%, effective January 1, 2004.

EDITOR'S NOTE The GSAR is the shaded part of the GSA Acquisition Manual, which is available on the Internet at http://www.acqnet.gov/GSAM/gsam.html.

DATES: Submit comments on or before April 17, 2003.

ADDRESSES: Send comments to General Services Administration, Regulatory Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405, or by e-mail to: gsarcase.2002-g507@gsa.gov. Cite "GSAR case 2002-G507" in all correspondence related to this proposed rule.

FOR FURTHER INFORMATION CONTACT: Vonda J. Sines at 703-305-7542, or Linda Nelson at 202-501-1900.

SUPPLEMENTAL INFORMATION: In 1995, GSA imposed an IFF on all FSS contracts. GSA has utilized the IFF to fund the cost of providing supplies and services through the Federal Supply Schedule program, thus eliminating operating expenses formerly funded with appropriated monies. Fees are included in the schedule prices charged to ordering activities; all contract award prices include the total amounts charged. Schedule contractors remit the collected fees to GSA based on quarterly contract sales. GSA recoups its costs from the ordering activities through the contractor's quarterly remittance to FSS. The GSAR does not specify the percentage rate of the IFF. The initial 1.0% IFF rate was set by an acquisition letter and has not changed since its inception.

In July 2002, the General Accounting Office (GAO) issued report GAO-02-734, "Interagency Contract Program Fees Need More Oversight." In the report, GAO wrote that its review of the FSS program found "from fiscal year 1999 to 2001, the revenue generated by [IFF] fees exceeded [FSS] program costs by 53.8%, or $151.3 million. Program customers are, in effect, being overcharged for the contract services they are buying. Nevertheless, program officials have not adjusted the fee."

The report went on to state, "The [FSS] program has generated hefty earnings, largely because of the rapid growth of information technology sales. Rather than adjust the fee, however, GSA has used the earnings primarily to support GSA's stock program and fleet program. Both of these uses are permitted by the revolving fund in which the schedules program resides. However, the significant amount of earnings means that schedules program customers are, in effect, being consistently overcharged for the contract services they are buying. GSA officials stated that adjusting the fee would be burdensome for the schedules contractors, in part because the fee is embedded in the unit costs, rather than charged as an add-on where it could be adjusted more easily. However, GSA is now considering options for adjusting the fee and plans to discuss the issue with OMB in the development of the President's fiscal year 2004 budget request." Members of Congress expressed their intention to conduct hearings on the FSS and the 1.0% IFF, and GSA suddenly announced its intention to reduce the IFF from 1.0% to 0.75%. This proposed rule is a direct result of GAO's report and GSA's reaction/announcement.

This proposed rule could combine current GSAR 552.238-74 and GSAR 552.238-76, both of which are included in each FSS contract, into a new GSAR 552.238-74, Industrial Funding Fee and Sales Reporting. The new clause would eliminate duplicative information in the two current clauses, clarify sales reporting procedures, and describe the procedures GSA will use to make unilateral changes in future IFF rates. According to the proposed rule, GSA may make changes at any time but not more than once per year, will provide reasonable notice prior to the effective date of the change, and will post a notice of the current IFF at http://72a.fss.gsa.gov/ or a successor website.

Finally, the introduction to the proposed rule states, "GSA proposes to implement this change by means of a bilateral contract modification to be executed electronically. As consideration to Federal Supply Schedule contractors for any potential costs incurred as the direct result of this change, GSA proposes to allow these vendors to continue to include the 1.0% IFF in their contract prices until December 31, 2003, but to forward to FSS an IFF of 0.75% for reported sales for the period of October 1, 2003, through December 31, 2003. Examples of the type of costs GSA anticipates contractors could incur include reprinting price lists and modifying accounting systems."

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2003 by Panoptic Enterprises. All Rights Reserved.

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