The Trump administration’s move to cap the fees charged by value-added resellers seems to be slowing down.
A recent request for information released by the General Services Administration seeking further insight from the reseller market is giving some vendors a sense of relief that the agency is taking more time to better understand the market.
“I think they are at an inflection point with this effort. The best thing GSA could do to satisfy its OneGov strategy is to take the time to talk to industry and understand what being a reseller means,” said one industry executive who works for a reseller. The executive requested anonymity for fear of impacting their company’s federal work. “They need to better understand how the ecosystem works and why it works this way. They need to know how best to ask for feedback on how they can get good prices. I really hope they learn you can ask for additional discounts and do OneGov pricing agreements with original equipment manufacturers, but you don’t have to fundamentally change how software and hardware vendors go to market. The commercial approach works this way for a reason.”
An industry observer, who also requested anonymity for fear of retaliation, said the RFI’s goal is to diffuse an increasingly controversial issue.
“I think it shows they are being thoughtful and engaging with industry and not trying to be prescriptive,” the source said.
The RFI, released Jan. 22, is GSA’s attempt to obtain a clearer “understanding of the value added by resellers, and the resulting impact of these services on pricing and the ability to meet the government’s requirements.” GSA says there are four main goals of the RFI, which is only focused on IT hardware acquired through VARs under SIN 33411:
Enhance the government’s understanding of the reseller marketplace
Align contracting operations with commercial practices and standards to boost efficiency and effectiveness
Enable industry to clearly propose and communicate the value of their offerings
Provide contracting officers with the necessary information and tools to more accurately and efficiently evaluate proposed pricing, ensuring the government secures fair and reasonable pricing for this substantial category of spending.
In the RFI, GSA asks industry for feedback around a series of questions, including what is a widely accepted definition of a reseller, what is the typical range of markups vendors apply to IT hardware products in the commercial market, and how do backend incentives and rebates passed from OEMs to resellers impact pricing?
Another industry executive, who also works for a reseller, said GSA’s questions seem reasonable.
“The fact they asked if transparency would be harmful is a good thing,” the executive said. “The scope seems pretty narrow and consistent with other reports about focusing only on IT hardware VARs.”
The first industry executive added they appreciated the candor of GSA questions, especially asking about how concerned the government should be about pass-throughs. At the same time, the executive said, GSA’s concerns about pass-throughs, which happen when the reseller acts as a middleman between the government customer and OEM without adding any real value to the technology, should be addressed by training contracting officers to recognize and mitigate these risks.
RFI is a follow up from summer data call
Meanwhile, the executive said concerns about markups, and any attempts to limit them, would be short-sighted.
“The focus should be at competitive price level and not markups. We are negotiating at the task-order level on final price where industry knows what the government is trying to buy, including the quantity, the timeline and other factors that drive up or down the final price,” the source said. “I hope they will see, for the most part, that VARs exist to do several things. They exist to get the product up and running at the customer site, including installations and implementations. They exist to get the product implemented within larger systems and they exist to provide ongoing support.”
Responses to the RFI are due by Feb. 9. GSA says it anticipates using the feedback to inform potential follow-on activities, including potential individual follow-up meetings and amendments to the schedule solicitation.
“I’m glad to see GSA is starting to ask questions to industry on what is a highly complex set of variables that it intends to look at when it comes to the commercial marketplace,” Roger Waldron, president of the Coalition for Common Sense in Government Procurement, said in a statement to Federal News Network. “We hope that the dialogue continues and GSA will share its thought process on how it will analyze this information to the extent it will consider creating thresholds or controls.”
GSA first floated the prospect of capping reseller fees last fall after collecting data from 10 VARs in June. The idea was to review the VAR model, with a goal of moving toward a more direct relationship with OEMs. According to GSA in June, the government must move away from bespoke solutions, sourcing more commercial off-the-shelf products and services while also building trust in internal agency capabilities, which means decreasing dependency on outside vendors.
The second vendor, whose company provided GSA with information in response to the May data call, said they haven’t heard from the agency since the summer.
But that data collection led to GSA moving closer to issuing a new policy that would cap the markup for value-added resellers at 5%. Later in the fall, the Defense Department actually drafted such a policy, which Federal News Network obtained, that would place a 5% cap on most reseller fees charged by resellers starting with a specific special item number (SIN) for IT products. This cap would only apply to IT products sold through the General Services Administration’s schedule contract.
Inconsistent with FAR rewrite
Neither GSA or DoD issued final policies, and vendors and other experts believe the RFI is a good sign that the administration is rethinking this approach altogether.
“What I’m hoping is Ed Forst comes in as the new administrator and he and the OneGov team within the Federal Acquisition Service really reviews this idea of capping reseller fees,” the first executive said. “I hope they are genuinely interested in gathering data and metrics to help make a better decision. I’ve heard Forst is a guy that looks at numbers and wants to evaluate things objectively and do what’s right for government and industry. I hope they look at the responses and evaluate the data objectively. I hope it’s not just for show.”
The industry observer said the move to cap reseller fees flies in the face of the rewrite of the Federal Acquisition Regulations and President Donald Trump’s April executive order emphasizing the requirement for agencies to buy commercial items.
“The administration has been pretty consistent around procurement so far, but then they come up with something like this and it’s [antithetical] to the FAR overhaul,” the source said. “There are a lot of questions that GSA really needs to answer for industry. What data do they have that demonstrates this is a huge pricing concern for the market generally? Has the government considered that this could limit competition and promote vendor lock-in? How are they taking into account the added cost no matter who does the work, OEMs or VARs? What about those OEMs who don’t want to work directly with the government, and are those folks going to be shut out? What expertise does the government even have to establish what the value of a service is and create some sort of price control trigger?”
The first source said they hope the feedback helps GSA understand that shifting to a business model that only buys directly from OEMS will cost them more in the long run.
“We’ve talked to an OEM who has a OneGov agreement and they did an analysis and determined it would cost them $30 million to do what GSA wants them to do and contract directly with the government. That includes all the people they would need to hire and all the systems they would have to put in place. It also would include all the compliance requirements that they would need to ensure they are doing this right,” the source said. “That is huge number and what GSA doesn’t seem to realize is to pay for that infrastructure, the OEM will add it to the price of product that the government pays.”
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