GSA Introduces New Horizontal Pricing Initiative That Will Impact Contractor Pricing

The General Services Administration (GSA) recently analyzed the Federal Supply Schedule (FSS) program and determined that large price disparities exist across similar or identical products and services.  GSA believes that these price discrepancies jeopardize their ability to provide best-value contract solutions to Government agencies. In response, GSA is introducing a “Horizontal Pricing” initiative aimed at narrowing pricing disparities between contractors’ products and services.

What is Horizontal Pricing?

Inconsistent pricing appears to reduce GSA’s market share relative to other competitive contracting vehicles.   Essentially, Horizontal Pricing is a comparison-based model that analyzes a given price in relation to other vendors on schedule and other contracts.  GSA intends to use this information to reduce and standardize vendor prices to what the Government believes will be “fair and reasonable” pricing.

What is the Impact of Horizontal Pricing?

This has raised vendors’ concerns.  Many Contracting Officers haven’t worked in industry and may not have the same industry expertise as vendors themselves. These Contracting Officers may not fully appreciate a vendor’s commercial sales practices or costs, even when backed up with the invoices and evidence previously sufficient to establish a “fair and reasonable” price.  In other words, some vendors are alarmed that what a Contracting Officer considers to be “fair and reasonable” based on a competitor’s price is not fair and reasonable in context.  Horizontal Pricing could profoundly change the definition of “fair and reasonable” at the expense of Federal contractors.  This “lower price at any cost” mentality has already taken its toll on some vendors, and more may follow as Horizontal Pricing forces contractors to reconsider if they can afford further discounts, or even continue to offer the products or services at all.  This could have exactly the opposite effect of what GSA is hoping for, and would erode the FSS program rather than strengthen it.

GSA Schedules were always the one contract vehicle that best represented the competitive commercial market in that it allowed competition in the market to set pricing. That started changing several years ago when GSA began renegotiating a contractor’s price during contract modifications and renewals. Contracting Officers would demand that a contractor’s price be within a competitive range of other’s contract pricing and would remove the product or service from the GSA Schedule if the contractor wouldn’t agree to lower their price. Rather than allowing the Government marketplace to set pricing based on best value as defined by the customer and negotiated with the contractor, GSA plans to essentially dictate contractor pricing based on their analysis of what is fair and reasonable using Horizontal Pricing analysis.

What to Watch For in the GSA Pricing Analysis

GSA Contracting Officers are providing Vendors with their analysis, but are not requiring vendors to reduce pricing based on the results. Instead, GSA Contracting Officers are only requesting that vendors provide a comment of what, if any, actions will be taken based on the analysis received.

In our validation of pricing analyses received from GSA, we have identified several problems with the price comparison tool data; namely that the price comparisons may include pricing from cancelled contracts and from previous iterations of your own product pricing prior to an awarded EPA.  This is a serious flaw of the comparison tool and can substantially understate your products actual competitiveness and motivate you to lower your prices when in fact a price reduction isn’t necessary.  When the Government provides you with a pricing comparison and indicates your prices are out of the competitive range, be sure to complete your own due diligence and identify the source of the competitive pricing. Inform your Contracting Officer of this issue and ask them to address your concerns.

The Hidden Value for Vendors

Although most of the benefits of Horizontal Pricing values the Government, the silver lining is that when the Government performs an analysis of your pricing, you will be told which of your products are outside of the “competitive range” i.e., higher than your competitors’.  When you are quoting pricing on a task order basis you will be able to use the analysis to determine which items should be discounted…and which items don’t need to be discounted.

How to Prepare

If you are a Federal contractor, you need to increase your focus on market research and competitor pricing even more when formulating your pricing and negotiating strategy. Having support from an experienced advisor can help you remain competitive and profitable in this new, more stringent environment. At Coley, our advisors can perform a thorough review of prices and make recommendations. Our experience with GSA Schedules combined with access to pricing databases allows us to help you craft successful pricing strategies that keep you in the game.

Contact Coley at 210-402-6766  or by email at hello@coleygsa.com so we can start crafting successful pricing strategies that accelerate and sustain your government contracting success.

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