Incidental Procurement

Anyone who conducts business with the federal government to any significant degree is undoubtedly aware of GSA Schedules. Unlike more cumbersome procurement processes, GSA Schedules provide agencies with a quick, efficient and simple method of procuring commercially available supplies and services. The General Services Administration (“GSA”), which acts as the government’s central procurement official, negotiates each GSA Schedule to obtain a discount from the contractor’s commercial list price or most-favored-customer pricing to arrive at a fair and reasonable price for the government. The agencies can then place purchase orders for goods or services listed in a contractor’s GSA Schedule with little or no hassle.

listed in a contractor’s GSA Schedule with little or no hassle.

It had long been common practice to add non-Schedule or “open market” items to GSA Schedule orders so that an ordering agency could procure a complete solution with one order and one contractor. For example, if an agency was buying a CCTV system and also wanted accompanying software or installation services that were not separately listed on the vendor’s GSA Schedule, the agency, to avoid having to issue a separate order, could include the software and services by listing these items under the heading of “open market items” on the face of the order somewhere below the list of GSA Schedule items.

While the practice of adding open market items was tacitly tolerated by GSA in order to expand the use of its Schedules program, it was unclear whether the addition of non-Schedule, open market items was really legal. The General Accounting Office (“GAO”) held in several cases that this practice was permissible as long as the non-Schedule goods and services were “incidental” to the goods and services that were purchased under the Schedule contract. What precisely was meant by “incidental” was never very clear. Finally, in 1999 the GAO reversed course and definitively held that an agency must still follow applicable acquisition regulations when purchasing open market items.

Though the informal incidental items exception was gone, the need for agencies to buy non-Schedule items was not. Accordingly, in an attempt to clarify the open market issue for Schedule users, GSA now includes the following statement in all GSA Schedule solicitations:

NOTE: Open Market Items are also known as incidental items, noncontract items, non-Schedule items, and items not on a Federal Supply Schedule contract. ODCs (Other Direct Costs) are not part of this contract and should be treated as open market purchases. Ordering Activities procuring open market items must follow FAR 8.402(f).

For administrative convenience, an ordering activity contracting officer may add items not on the Federal Supply Multiple Award Schedule (MAS) — referred to as open market items — to a Federal Supply Schedule blanket purchase agreement (BPA) or an individual task or delivery order, only if

1. All applicable acquisition regulations pertaining to the purchase of the items not on the Federal Supply Schedule have been followed [e.g., publicizing (Part 5), competition requirements (Part 6), acquisition of commercial items (Part 12), contracting methods (Parts 13, 14, and 15), and small business programs (Part 19)];

2. The ordering activity contracting officer has determined the price for the items not on the Federal Supply Schedule is fair and reasonable;

3. The items are clearly labeled on the order as items not on the Federal Supply Schedule; and

4. All clauses applicable to items not on the Federal Supply Schedule are included in the order.

While making it now clear that GSA considers open market purchases legal, the added provision does little to clarify when an open market purchase was allowable under a GSA Schedule.

So what are the applicable regulations governing the procurement of non-Schedule, open market items? What dollar limit, if any, of non-Schedule items can be included on a GSA Schedule order? Do the applicable requirements vary depending on the dollar amount of the open market items? Does it matter what percentage of the total order the non-Schedule items comprise?

It all boils down to this: Since there is no separate legal authority for including incidental, open market items on a GSA Schedule order, an agency must comply with whatever provisions of the Federal Acquisition Regulations (“FAR”) that apply to procure the dollar amount value of the open market, non-Schedule products. This runs from almost no requirements for “micropurchases” under $3,000 (used to be $2,500), to full-blown Request for Proposals for products over $5,500,000. Simply stated, the application of the FAR depends on the dollar amount of the incidental items.

Here, in brief, are the dollar amount thresholds for the purchase of open market items:

Publication Thresholds: Agencies are required to synopsize in the Government Point of Entry (“GPE”) at www.fedbizopps.gov all proposed contract actions expected to exceed $25,000 [FAR 5.101(a)(1)]. For proposed contract actions expected to exceed $10,000 but not expected to exceed $25,000, a contracting officer may post the action in a public place or on an electronic bulletin board [FAR 5.101(a)(2)]. In addition, a contracting officer does not have to synopsize a contract action at the GPE if FACNET is used.

Competition Thresholds: There are several important dollar amount thresholds governing competition procedures:

Under $3,000: The micropurchase threshold is $3,000 for most procurements although this threshold has been recently enlarged for procurements by the Department of Defense and for acquisitions of supplies or services that are used to facilitate defense against or recovery from terrorism or other such attacks. Micropurchases may be awarded without soliciting competitive quotations if the contracting officer considers the price to be reasonable [FAR 13.202(a)(2)]. Accordingly, the placement of non-Schedule items under $3,000 on a Schedule order complies with the applicable law. This is important to note that this is an aggregate amount for the total value of all open market items under the order, not an individual line-item dollar threshold.

Over $3,000 But Under $100,000: The simplified acquisition threshold is $100,000 in most cases, although again this threshold has been enlarged for procurements in support of contingency operations and the like. Contracting actions at or under $100,000 can be done under the Simplified Acquisition Procedures at FAR Part 13. The contracting officer is required, among other things, to solicit three quotes, evaluate the offers and document the basis for award. Also, per the FAR, the purchase of goods or services with an anticipated dollar value of more than $3,000 but not exceeding $100,000 is reserved exclusively for small business concerns and must be set aside, with some exceptions [FAR 13.003(b)(1)]. When combined with the Publication thresholds, the Simplified Acquisition Procedures present three important dollar amount thresholds: (1) Over $3,000 but under $10,000; (2) Over $10,000 but under $25,000; and (3) Over $25,000 but under $100,000.

1. Over $3,000 but under $10,000: Non-Schedule items exceeding $3,000 but less than $10,000 require the agency to solicit and evaluate three sources, but do not require publication. As long as the agency can document its solicitation and evaluation of three sources, the purchase of non-Schedule items applies with applicable law. The contract file should also show the agency’s attempt to solicit small business sources.

2. Over $10,000 but under $25,000: Non-Schedule items exceeding $10,000 but less than $25,000 require the agency to solicit and evaluate three sources and require informal publication. To comply with applicable law, the agency must be able to document its posting of the procurement and solicitation and evaluation of three sources. The contract file should also show the agency’s attempt to solicit small business sources.

3. Over $25,000 but under $100,000: Non-Schedule items exceeding $25,000 but less than $100,000 require the agency to solicit and evaluate three sources and require formal publication in the GPE or FACNET. To comply with applicable law, the agency must be able to document its publication of the procurement in the GPE or FACNET and solicitation and evaluation of three sources. The contract file should also show the agency’s attempt to solicit small business sources.

Theoretically, there is no dollar limit to the open market, non-Schedule items included on a Schedule order as long as the FAR provisions applicable to the dollar amount of the open market items are followed.

In practice, however, a contracting official will rarely be open to the idea of adding open market items to a GSA Schedule order if it will mean conducting a complex procurement that the contracting official was undoubtedly seeking to avoid by using GSA Schedules in the first place.

About the Author

Andrew Mohr is a partner in the law firm of Cohen Mohr LLP. E-mail him at [email protected].