States Slow to Move on GSA Schedule

It's been more than two years since state and local governments first got the green light to purchase off the General Services Administration's (GSA) Schedule 70; and yet, few are. Just 1 percent of total state and local IT purchases were made through the GSA as of spring 2004, according to IDC. That may actually be good news for government VARs, because state participation in GSA schedules can lead to manufacturers' picking unqualified partners as regional players.

The ability for state and local governments to purchase from the GSA Schedule was originally proposed in 1993, in conjunction with the Federal Acquisition Streamlining Act, but the U.S. Chamber of Commerce lobbied to get it squashed, thinking local providers wouldn't be able to compete against the big players. "If states bought off GSA schedules, a regional supplier wouldn't be able to compete," says Robert Deitz, president and CEO of Shingle Springs, Calif.-based Government Technology Solutions. "There was a big effort by the smaller businesses across the country to keep the big guys out of their market."

What states opted to do instead was piggyback--essentially taking an existing GSA Schedule contract and adding state-specific legislation. California was the first to do this with the California Multiple Award Schedule (CMAS), and others quickly followed, with some states even combining forces to develop a single contract vehicle that covered entire regions.

"The benefit to the state is benchmarking off a very public and easy-to-understand pricing baseline," says Ronald Smith, vice president of corporate contracts at Rockville, Md.-based GovConnection, which exercises piggyback contracts in Ohio and California. "They have great fidelity and accuracy in pricing, so they know exactly what they're getting. It's an administrative convenience for the customer who gets the benefit of GSA pricing without all of the work, and for the VAR who can leverage one set of products and one set of pricing across multiple customers."

Then, at the end of 2002, the prospect of actually buying off the GSA Schedule was again plunked on the table--this time successfully. But given the alternative route taken by many states, who needed it? "When the GSA authorized states to buy off of Schedule 70 through cooperative purchasing, many already had their own schedules that made the GSA a competitor," Deitz says. State-procurement offices knew that each contract to the GSA took money out of their own coffers. Specifically, the GSA charges three-quarters of a percent as an industrial funding fee for any sale made through its schedule; most states do the same. If agencies decide to go with the GSA, theoretically for a wider selection, Deitz says, the state misses out on dollars.

Really though, nominal fees act as less of a deterrent for participating in the GSA Schedule than state legislation. Agencies in Alabama can award contracts only under sealed bid, for example; since the federal GSA is a multiple-award schedule that calls for three quotes, it's not sealed and, therefore, not an option. Other states say that all governing law must be included in state-procurement regulations--that agencies can't have terms and conditions that are not authorized by state-procurement regulations, incidentally eliminating the Federal Acquisition Regulations associated with the GSA Schedule. Still, other states allow agencies to participate on any cooperative purchasing deal so long as they're the host.

"Every state has to have its own rules and regulations in the contract because there are certain things that are legislatively required," says Donald Greene, assistant director of IT purchasing for the state of New York, which is among the states that piggyback when the associated pricing and product matches requirements, but can't participate in the GSA Schedule because of conflicting laws. Of the more unique varieties are the McBride Principles, which penalize U.S. firms doing business in Northern Ireland unless they adhere to certain nondiscriminatory practices toward the Catholic minority. That's a hard law to enforce with the GSA's IT contracts. "There are all sorts of issues local to each state," Greene says. "I don't think we'll ever be able to have one set of terms and conditions that will meet all state requirements."

Perhaps, but participation in the GSA Schedule is picking up a bit of steam--albeit slowly. Cooperative purchasing led to $5 million in state and local sales in 2003, $75 million in 2004, and $65 million to date in 2005, according to McLean, Va.-based Federal Sources Inc. (FSI), a government IT market intelligence firm.

"Over the next three to five years, we'll see a big increase in state and local governments using the GSA Schedule program," says FSI president and CEO Bill Gormley.

Regardless, access to the GSA Schedule was never meant as a be-all and end-all procurement alternative for local and state government --or for federal agencies, for that matter. "The question becomes, 'How can each state and local government maximize investment dollars?' The GSA Schedule is an alternative source for them. That's how I look at it," Gormley says.

The issue has its pros and cons specific to VARs as well. No question--one contracting vehicle is simpler to juggle than a multitude at the state and local levels. The danger, however, is that a scramble by manufacturers to accommodate states with local providers could throw some sour apples into the mix. "The GSA is saying that every state can buy from this schedule, while the states, individually, are trying to build local participation," Deitz says. That has created a scenario where big manufacturers qualify VARs according to region and not necessarily by government expertise. "It used to be Compaq, IBM, Microsoft, Lotus, Cisco, etc. had a few contractors who knew their products and represented them well," Deitz adds. "But all of these people started saying, 'We want our local guys to do it.' There's pressure on these larger manufacturers to accommodate with partners, and, unfortunately, many don't know the market."