OPEN MARKET OR INCIDENTAL ITEMS
UNDER GSA SCHEDULES
 

  1. Introduction

    Products and services included in a vendor's GSA Schedule are statutorily defined as items that may be acquired by an agency under a competitive procedure pursuant to the Competition in Contracting Act of 1984, P.L. 98-369 (CICA)1. Products and services that are not on a vendor's GSA Schedule are deemed to be “open market items” or occasionally called “incidental items" (hereafter referred to collectively as the “items”). These non-Schedule items are frequently treated as “incidental” to the Schedule items that are being acquired by the agency. The question that has arisen is whether, and to what extent, an agency may acquire these items without going through the normal competitive procedures mandated by the Federal Acquisition Regulations (FAR) and CICA.

    If one or more items are included in a quote to an agency that are contained in a Team Arrangement between two (2) GSA Schedule holders, then they are not non-Schedule items and are excluded from this review.

  2. Definitions

    “Open Market Items” are defined as products and services that are not included in a vendor's approved GSA Schedule contract. “Incidental” refers to something that is related to and is small and relatively unimportant or minor (as of expense) that are not particularized.

    These items can be any type or form of non-Schedule item, but they are not commercial units that have been approved by the GSA for use in a vendor's Schedule. These “Open Market Items” are frequently identified in quotes to agencies as “materials” or “other direct costs” (ODC). There is no limit to what these items can represent, and they frequently include travel and per diem expenses, since including these expenses in a Schedule is not feasible. Notwithstanding the definition of these items, an agency may acquire such items only under limited circumstances.

  3. Background

    CICA requires agencies to use competitive procedures and obtain full and open competition when procuring products and services unless an exemption applies2. CICA allows agencies to depart from full and open competition only in certain prescribed circumstances3. As mentioned above, CICA defines a “competitive procedure” as entering into a contract pursuant to full and open competition. This term also includes procedures established by the Administrator of the General Services for the multiple award schedule program4.

    For many years, agencies acquired open market items under a purchase order contract if they were deemed to be “incidental” to the overall acquisition. Apparently, these items were procured along with the Schedule items in order to fulfill a particular agency requirement from one source without having to engage in two or more acquisitions to fulfill the requirement. Evidently, agencies ignored the obligations set forth in CICA.

    In fact, this acquisition methodology was approved by the Comptroller General in ViON Corp., B-275063.25, in which the Comptroller General authorized agencies to procure Federal Supply Schedule (“FSS”) items and “incidental” non-FSS items provided that the non-FSS (“open market”) items meet the needs of the ordering agency and offer the lowest aggregate price, and if the cost of the non-FSS items is small compared to the total cost of the procurement6. The Comptroller General approved the acquisition of non-Schedule items in a purchase order contract issued under a GSA Schedule if they satisfy the agency requirements and are an insignificant portion of the total requirement6.

  4. Enforcement of CICA

    The United States Court of Federal Claims (the “Court” or the COFC) filed their opinion, number 97-382C, on June 27, 2997 in the matter of ATA Defense Industries, Inc. (ATA) v United States. ATA sought an injunction ordering the United States Army to suspend performance of and to terminate a purchase order contract issued to Caswell International, Inc. (Caswell) under the Caswell GSA Schedule. The total dollar value of the contract was $673,376, of which 65% of the products ordered were included in the awardee's GSA Schedule, and the remaining 35% were non-FSS open market items. The Contracting Officer had justified the sole-source award of the non-FSS Items to Caswell by stating they were the only responsible source7. The Army amended the justification only after ATA filed its suit and claimed that its needs were unusual and compelling urgency8. The Court rejected both justifications. The Court stated that “It is fundamentally inconsistent with Congress' unambiguous statutory mandate in the CICA to allow a contracting officer, when purchasing products against the FSS, to include in the purchase order “incidental" products that are competitively available, unless the prices charged for these “incidental" products are the product of full and open competition.” The Court went on to state that “The authority of an agency to purchase products against the FSS does not extend to incidentals.”

    The Court states that “Congress classified the procedures established by the Administrator of General Services for the multiple award schedule program as “competitive procedures” and thereby authorized agencies to purchase thereunder without the benefit of competition only if (i) participation in the program is open to all responsible sources; and (ii) orders and contracts under such program result in the lowest overall cost alternative to meet the needs of the United States. According to the Court, “GSA apparently does not make any effort to negotiate or evaluate prices for products and services that are not listed on the FSS but could be classified as “incidental” to those listed products. This being the case, there is no basis for concluding that the price negotiated between the contracting officer and the FSS contractors for “incidentals” is the product of full and open competition.” If a product or service falls within the exception contained in Section 2304 or can be classified as “de minimus,” products and services must be purchased using competitive procedures. The court did not define de minimus, and the Court issued the injunction.

    Based on this decision, the Comptroller General issued a decision in the Matter of Pyxis Corporation9 in which the GAO reversed its prior decision in the Matter of ViON Corporation and, following the lead of the Court of Federal Claims, stated “that there is no statutory authority for the ‘incidentals’ test as enunciated in ViON.” In Pyxis, the non-FSS items were between 4% and 6% of the total contract value of the purchase orders awarded. Nevertheless, the GAO stated that “it is clear that the agency did not follow applicable acquisition regulations, as the non-FSS items orders exceeded the $2,500 micro-purchase threshold.” Therefore, and agency may not use the “incidentals” test as a justification for the purchase of non-FSS items that are included in a purchase order contract issued under a GSA Schedule contract; the acquisition of non-FSS items must be conducted under applicable competitive procedures.

  5. New Standard for Incidental Items.

    The Comptroller General has evidently decided that incidental items with a value of less than the micro-purchase threshold can be acquired without competition. In the Matter of SMS System Maintenance Services, Inc.,10 GAO denied a protest where the protester was not awarded a contract because a number of line items in the quote were not in the SMS FSS Schedule. The Comptroller General stated that “where the price of non-FSS products or services is at or below the $2,500 micro-purchase threshold, these products or services can be acquired without additional competition.” The decision also states that the price for the non-FSS items must extend over the base and the option periods for the purpose of determining if the non-FSS services or products are at or below the micro-purchase threshold.

    In the Matter of T-L-C Systems11 the GAO further expanded its implementation of the CICA through the prior decisions by stating that, when agencies decide to purchase products and services from the FSS, they may limit their consideration to the best value provided by the goods and services on the FSS; they do not need to evaluate items not on the offeror's GSA Schedule contract, i.e., open market items. The GAO reiterated that “an agency may not select an FSS vendor for an order of items on the vendor's schedule and then include in the order items not included in that vendor's FSS contract.” The Comptroller General is enforcing the rule iterated by the COFC that iterated in its ATA decision.

  6. Conclusion

    The COFC overturned the practice of agencies issuing purchase order contracts to holders of GSA Schedule contracts that included non-Schedule incidental items, but then failed to provide a “bright-line” benchmark beyond which open market items can be priced. Evidently, the GAO seems to have defined de minimus as at or below the micro purchase threshold over the entirety of the purchase order contract, including any option periods. The decisions reviewed, however, included incidental products; there was no mention of services such as travel. Presumably, if an agency has to order incidental services that are not included in any offeror's FSS Schedule, then the requirement for competition will be satisfied by the agency obtaining competitive quotes. If there is full and open competition for these incidental services, then the micro-purchase threshold will not be applicable.

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  1. 10 U.S.C. §2302 (2)
  2. 10 U.S.C. §2304
  3. 10 U.S.C. §2304 (c)
  4. 10 U.S.C. §2302(2)
  5. Dictaphone Corp., B-254920; American Body Armor & Equipment, Inc. B-238860
  6. Raymond Corp., B-246410 (incidental items amounted to 17% of total contract value)
  7. FAR 6.302-1 (c) (1)
  8. FAR 6.302-1 (c) (2)
  9. B-282469; B-282469.2, July 15, 1999.
  10. B-284550.2, August 4, 2000
  11. B-285687.2, September 28, 2000