Order Level Material (OLMs): understanding GSA’s latest tool to optimizing schedule purchases

In June, GSA began the rollout of one of the most important regulatory changes in recent memory for Federal Supply Schedule (FSS) contractors.  Seven GSA Schedule contracts were updated to incorporate the Order Level Materials (OLMs) authority, allowing FSS contractors to offer incidental products or services at the order level through the schedules program.

Previously, FSS contractors found themselves left with few options if they did not have the required incidental items for a particular procurement already awarded on their GSA Schedule contracts.  In some cases, contractor teaming arrangements (CTAs) could be used, though they came with their own set of challenges, and added time and expense for contractors as they worked through the process of setting up a CTA with one or more partners.  Other contractors would resort to work-arounds utilizing open market ordering procedures, which often slowed the acquisition process or were met with resistance from government procurement officials, or they simply directed the Federal buyer to a different contract vehicle.  The implementation of the OLM rule is intended to avoid some of these issues by harmonizing the schedules program with other major IDIQ contract vehicles that have long had the advantage of allowing vendors to scope OLMs at the task order level. 

What exactly are Order Level Materials (OLMs)?

OLMs are a type of Other Direct Cost (ODC) for incidental supplies and services that are unknown at the time of FSS contract or BPA award.  Since these kinds of incidental items are not routinely offered, vendors are required to specify and price them at the task order level in order to meet a specific customer’s unique requirements. 

While the schedules program currently has Special Item Numbers (SINs) dedicated to offering agencies Ancillary Supplies and Services, contractors are only able to price the most commonly offered ODCs at the FSS contract level.  The additional OLM authority gives FSS contractors maximum flexibility over agency opportunities requiring an ODC not typically offered by the vendor.  This means ordering activity contracting officers will be responsible for evaluating the offered OLMs and determining whether prices are fair and reasonable.

How the OLM rule is being implemented

In mid-June a select group of GSA Schedule contracts were refreshed to add the OLM authority.  This was done as an initial sweep through the schedules program, covering two-thirds of all GSA Schedule program sales, and GSA has stated that it will consider rolling out the authority to additional GSA Schedule contracts in the future.  The refresh establishes an OLM SIN on each contract and adds GSAR Clause 552.238-82, Special Ordering Procedures for the Acquisition of Order-Level Materials, which defines how OLMs are to be procured.   The seven GSA Schedule contracts selected for OLM functionality include:

Existing contractors on these schedules should have received an optional mass modification (mass mod #A653) that, if accepted, automatically adds the OLM SIN and related terms and conditions to their contract. Thus far, GSA has reported that nearly 4,000 vendors have accepted the OLM mass modification.

FSS contractors should note that GSA’s systems will not issue the optional OLM mass modification until the vendor has accepted a separate mass modification related to Commercial Supplier Agreement (CSA) Terms.  The CSA modification identifies unenforceable terms and conditions common in CSA’s where Federal law takes precedence.  Without accepting both mass modifications, vendors will not be authorized to specify OLMs on a task order basis.

Finally, organizations NOT currently awarded on these contracts will simply need to include the SIN in their GSA Schedule proposal.  Since OLMs are identified at the order level, traditional administrative, technical, and price proposal requirements indicated in each schedule solicitation have been waived.  The OLM SIN is intended to complement existing SINs and cannot be the primary purpose of, or only SIN awarded on, an FSS contract or BPA (or resulting task orders).

Special Considerations

Exceptions to FSS Terms and Conditions

All GSA Schedule Terms and Conditions are applicable to the OLM SIN except for the following three GSAR clauses:

1. Economic Price Adjustment (EPA) Clause 552.216-70 - FSS contractors will not be required to adhere to EPA clause requirements surrounding price increases and decreases since OLMs will be specified at the order level.
2. Submission and Distribution of Authorized FSS Schedule Pricelists Clause 552.238-71 – FSS contractors will not need to continually update their FSS Pricelists as OLMs are sold for specific tasks.
3. Price Reductions Clause (PRC) 552.238-75 - Most importantly, FSS contractors will not have to provide pre-award Commercial Sales Practices disclosures and engage in post-award compliance with the PRC for items sold under the OLM SIN since, again, OLMs will undergo a fair and reasonable pricing determination and become FSS items at the order level. This means FSS contractors will need to be prepared to help ordering contracting officers in making their pricing determinations, which will occur in accordance with FAR 15.404 and GSAR Clause 552.238-82(7).  The ordering contracting officer may rely on a comparison of quotes received in response to the agency RFQ in making their pricing determination.

Applicable Order Types

OLMs are only authorized for inclusion in Time and Materials (T&M) or Labor Hours orders and Contract Line Item Numbers (CLINs).  This does not mean that Firm Fixed Price (FFP) orders are out of the question.  GSA has stated that ordering activities are encouraged to use “hybrid” orders, where an order can be classified as Firm Fixed Price but has a T&M or Labor Hours CLIN which is used to price out any required OLMs.  

Order Limitation on OLMs

As stated earlier, OLMs are not to be the primary purpose of an FSS or BPA order. In fact, the OLM rule states that OLMs may not exceed 33.33% (one-third) of the total cost of the order, exclusive of travel, freight, and open market items.  FSS contractors should note that the total cost of the order includes the Industrial Funding Fee (IFF) and the value of any option periods.

OLMs valued above the Simplified Acquisition Threshold (SAT)

If an FSS Contractor proposes an OLM that exceeds the SAT, it is required to obtain three quotes to support the ordering contracting officer’s fair and reasonable pricing determination.  The ordering contracting officer should not request the three quotes from the contractor except as a last resort when all other attempts at determining price reasonableness have failed.  These quotes are to be kept on file since they are subject to audit and, when quotes cannot be retrieved, contractors must document a rationale for why this is the case.  FSS Contractors that have approved purchasing systems per FAR 44.3 are exempt from the three quote requirement.

Recovery of Indirect Costs

Notably, customer agencies may now allow for indirect costs associated with acquiring OLMs to be included as an OLM line item at the task order level.  This means that FSS contractors who routinely recover indirect costs may also recover these expenses when proposing OLMs.  Examples of such expenses include material handling charges (order execution, order tracking, supplier payment, etc.) and subcontract administration costs.  If an FSS contractor is interested in proposing indirect costs, the OLM rule states they must be proposed in fixed amounts, so traditional indirect cost percentages are not allowed.  However, such percentages can still be used in calculating the fixed amount to be proposed.  Keep in mind that ordering contracting officers will still be tasked with determining that these indirect costs are fair and reasonable.  FSS contractors with approved indirect rates (through DCAA or other cognizant agencies) are expected to have a “leg-up” on contractors without approved indirect rates, since their indirect rates should presumably be fully vetted.  For those without approved indirect rates, GSA has provided limited guidance on how these vendors might support a pricing determination other than to say that vendors will need to work with the ordering contracting officer to show them how they arrived at the proposed indirect costs.  

Contractor Assistance Visits (CAVs)

It remains to be seen if the inclusion of OLMs will represent any kind of fundamental shift in how GSA approaches its periodic compliance visits.  Contractors should be prepared for these sessions in several key areas:

1. Sales Reporting and IFF remittance: Since OLMs become FSS items at the order level through the new OLM SIN, contractors should be applying the IFF to these items and including them in their sales reports on the 72a or Transactional Data Reporting (TDR) sales reporting systems.  FSS contractors should assess their ability to submit accurate reports, flag irregularities, and verify if their systems can easily distinguish between FSS items (inclusive of OLMs) and non-FSS items (open market items).  Internal control and standard operating procedures should be updated to account for the inclusion of OLMs and to help ensure consistency between reporting periods.  This is especially important if manual efforts have been put in place in order to verify the accuracy of sales reporting documentation. 
2. Trade Agreements Act (TAA): TAA compliance continues to be an area of vigorous enforcement in the schedules program.  Under TAA, government agencies may only acquire US-made or designated country end products or US or designated country services.  This could present challenges to FSS contracts if the production points of items included as OLMs are poorly understood.   FSS contractors should expect GSA to focus on the country of origin of items being specified as OLMs during CAVs.  Before arranging for an OLM, FSS contractors should carefully consider where the item was sourced and those organizations involved in fabricating the item / bringing it to market. 
3. Applicable Quality / Technical Standards: Existing technical standards that apply at the FSS contract level will also apply to items sold as an OLM.  This is particularly relevant to furniture vendors under Schedule 71, which requires items to meet or exceed rigorous ANSI/BIFMA standards before they are to be listed on schedule. 
4. OLMs valued above the SAT: FSS contractors should expect scrutiny on OLMs valued above the SAT and the three quote documentation that is required to be kept on file (as discussed above).

Conclusion

Industry associations have long advocated for FSS contractors to have the additional flexibility presented by the new OLM rule.  The rule is expected to even the playing field between the GSA’s Federal Supply Schedule program and other major IDIQ/GWAC vehicles, and help contractors propose a total commercial solution to agencies at the order level.  While many perceive the additional OLM functionality as a boon to the Schedules program and a reliable way to expand business opportunities, the vendor community would be wise to familiarize itself with the rule and understand the implications for ongoing compliance.  Systems, policies, and procedures should be calibrated quickly to help meet these new requirements. 

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.