Back Door Schedules

You know that GSA Schedules are the best thing since sliced bread, but you're not sure that you want to jump in the pond with the big boys. You're concerned about the expense of getting and administering a GSA Schedule and you're worried about having to comply with government regulations. Mainly, you're unsure whether the estimated volume of GSA Schedule business justifies the money and management costs. What's a poor supplier to do?

How about a back door Schedule? It's not a term that you'll find in the Federal Acquisition Regulations (FAR), in the GSA Schedule solicitation document, or on GSA's Web site. It's my own coinage, but it's descriptive.

Rather than getting a GSA Schedule in you own name, a supplier instead places its products or services on an existing GSA Schedule contract and at the same time is appointed a participating dealer on that GSA Schedule contract. As a "participating" dealer, a supplier can market its products or services under the contractor's GSA Schedule, accept purchase orders, fill the orders, invoice, collect, and cash agency payments.

That is, instead of going through the front door to get a GSA Schedule on its own, a supplier goes through the back door of an existing GSA Schedule contract to offer its products and services to agencies.

How is a back door Schedule really different from a supplier agreeing to place its products on a dealer's GSA Schedule? With a straight supply arrangement, the supplier gives a letter of supply to a dealer who is also a GSA Schedule contractor, and the GSA Schedule contractor adds those products to its GSA Pricelist through an addition modification.

Only the GSA Schedule contractor, and not the supplier, then markets and sells the vendor's products to government agencies and other authorized customers. The supplier has very little control over the sale of its products on GSA Schedule; if sales are poor, at most the supplier can do is to try and pull its letter of supply and place its products on the GSA Schedule of a different contractor.

With a back door Schedule, the supplier gets its products placed on a GSA Schedule, but also gets appointed as a participating dealer under that GSA Schedule contract. The supplier, and not just the GSA Schedule contractor, is now the party that actively markets and sells its products to agencies, fills the orders, invoices, and collects. Not too shabby.

Is it legal? Why not? Nothing in the GSA Schedule solicitation prevents a party that supplies goods or services to a GSA Schedule contractor from being appointed a dealer under that same GSA Schedule contract. Nor should there be, since nothing about the arrangement is against public policy or the FAR. The supplier gets to market and sell its products and services to the government; the GSA Schedule contractor expands its business to the government and may sell even more of its other products; and the agency gets better service and support from the supplier rather than from a dealer who doesn't know as much as the supplier about its own product line.

What is absolutely necessary, both from a legal and management perspective, is a formal, written contract between the supplier and the GSA Schedule contractor. Among other terms and conditions, the contact needs to state that the GSA Schedule contractor will attempt to place the supplier's products on the Schedule and negotiate the best possible price, although there is no guarantee ever of getting GSA to accept an addition modification or pricing. The contract must also require the GSA Schedule contractor to appoint the supplier as a participating dealer under its GSA Schedule.

For the GSA Schedule contractor's benefit, the contract with the supplier should state that the supplier is responsible for marketing and supporting its products to agencies, and that there is no guarantee that any sales will be made. The contract must also comply with the participating dealer's clause, which obligates a participating dealer to document and report all of its sales under the GSA Schedule and make its books available for an audit of orders placed under the Schedule.

There are several other very significant points for the GSA Schedule contractor's protection. First, the contract must require the supplier to pay at least quarterly the Industrial Funding Fee (IFF) applicable to its sales made under the GSA Schedule contract. Remember, a GSA Schedule contractor is responsible for the IFF arising from sales made by its participating dealers.

Second, the contract must require the supplier to indemnify the GSA Schedule contractor from any liability that arises from the supplier's activities under the GSA Schedule contractor. This is significant because no matter what a dealer does under a GSA Schedule contractor, it's the GSA Schedule contractor, and not the dealer, who is ultimately liable to the government.

Last but not least is the matter of how much, if any, will the GSA Schedule contractor charge the supplier for placing the supplier's products on its GSA Schedule contract and taking the risks involved with this venture. If the GSA Schedule contractor wouldn't have cared less to place the supplier's products on its GSA Schedule contract, the GSA Schedule contractor may require the supplier to make an up front payment, or a percentage or flat payment per transaction.

On the other hand, if the GSA Schedule contractor would very much like to have the supplier's products on its GSA Schedule because it wants to sell them, too, or the GSA Schedule contractor thinks that those new products will allow it to better market more of its existing product line, or it wants to be more of a one stop shop to its agency customers, then the GSA Schedule contractor may not require any fee or charge at all. It's all up to the negotiation of the parties.

Are there any downsides to a back door Schedule? Yes, there are several, and a supplier needs to weigh them against the cost and benefits of getting a GSA Schedule on its own.

For one, the supplier has no control over the price the GSA Schedule contractor negotiates to get the supplier's products on Schedule. Also, unless the GSA Schedule contractor already sells the supplier's products, the GSA Schedule contractor will almost certainly negotiate the price of the supplier's products from a "bottom up" basis, marking up the GSA Schedule contractor's disclosed cost to arrive at the GSA Schedule price. If the supplier were to negotiate its own GSA Schedule, it might be able to negotiate from a "top down" basis by discounting its end user price. A top down approach could result in a better margin to the supplier.

So there's your back door Schedule. Perhaps not as elegant as the front door, with its marble foyer and chandelier, but certainly effective. For "tweeners" that aren't ready for a primetime GSA Schedule but can't afford to let a multi-billion dollar market pass them by, it's a viable alternative.

As GSA Schedule sales continues to escalate at astronomical rates, GSA is forced to turn out new and innovative programs just to keep pace with the incredible growth of the GSA Schedule market.