FAR 51 Deviation
By: Bob Steger
From time to time I get a call where someone asks me what the big deal is about FAR 51 Deviation? My response is always the same, for those who know how to use it, it can be a real game changer. FAR 51 Deviation remains a relatively unknown feature of a GSA Schedule that provides some level of confusion. In simplest terms the FAR 51 Deviation is that it gives a federal vendor the ability to go look through GSA Schedules, and purchase off those schedule at the schedule pricing in order to achieve a total solutions to the federal government on a contract.
The motivation for FAR 51 Deviation is to level the playing field for small federal vendors that are trying to compete with large multinational corporations. This is because in general a multinational corporation with their large purchasing departments can procure the same widget, pencil, paperclip, 2×4 at a substantial discount over a small business due to buying power. The federal government has therefore stepped into the ring on behalf of small businesses and taken the position that small business can use the federal governments buying power for the items that the government already procures. Now if the larger businesses are not careful a smaller more nimble business who is more adept at performing search quarries in GSA Advantage can beat them at their own game.
Advantages for Small Business
- Levels the playing field when responding to RFPs and RFQs on EBuy and other Purchase Contracts by allowing a small business to procure needed items at the lowest possible price. Allows small business to get in the ring with large businesses.
- Skill in compiling a “total solution” will win firms more contracts, meaning make sure your firm checks GSA Advantage against all your existing suppliers when bidding on a federal contract, and the firm that are better at this will inevitable end up with a better “total solution” for the federal government.
- Allows for greater profit on a given contract because the procurement officer can keep various elements together on a contract and still have a reasonable expectation that small business can be price competitive with large business.
- Give GSA Schedule holders more market exposure as federal prime contractors are added to the ranks of GSA buyers with federal procurement officers.
- Places more work on small business when bidding on a contract, as the bid does not have to be broken down for smaller bites for small business to digest.
- Places some additional price over price/quality (total value) pressure on GSA Schedule holders as a prime contractor in a competitive bid situation is less likely to care about exceeding the specifications of the bid they are entering.
- Overall the FAR 51 Deviation allows for small business who are skilled at the bidding process to compete with large business in ways that might actually shock their large business rivals.
1.0 Introduction of the FAR 51 Deviation
1.0 Introduction of the FAR 51 Deviation
Federal Acquisition Regulation (FAR) 51.1, Contractor Use of Government Supply Sources, prescribes policies and procedures under which contractors may use government supply sources. Currently, contracting officers may authorize contractors to use General Services Administration (GSA) sources of supply in the performance of cost-reimbursement contracts and under other limited scenarios when determined to be in the best interest of the Government.
In order to better meet the needs of GSA’s customer agencies, a deviation to FAR Part 51.1 has been approved to expand the authority of contractors to use GSA sources of supply. Specifically, Federal Government contracting officers are now authorized to give all GSA contractors access to the Federal Supply Schedule (FSS) and GSA Global Supply Programs when deemed appropriate for fulfillment of their agency requirements. Please note that the FSS Program is inclusive of those Schedules managed by the Department of Veterans Affairs. This authority is limited to contracts/orders:
- Placed on a time-and-materials (T&M)/labor-hour (LH) basis—a contract awarded or an order placed by the Federal Government to the buying contractor can be partially fixed price, but the portion of the contract/order for the items to be procured using the FAR 51 deviation must be T&M/LH
- For ancillary supplies/services that are in support of the overall contract/order such that the items are not the primary purpose of the work ordered, but are an integral part of the total solution offered
- Issued in accordance with the procedures in FAR 8.405-1, Ordering Procedures for supplies, and services not requiring a statement of work (applicable only to orders placed against Schedule contracts)
- Placed by the Federal Government. The authorization is NOT available to state and local governments.
The ability for GSA contractors to purchase from the FSS and Global Supply Programs benefits our customers and contractor community.
- Allows GSA contractors to provide a total contract solution to meet customers’ needs.
- Expands upon existing benefits of GSA vehicles, such as streamlining of procurements, ease of ordering, leveraged pricing, time savings, and responsible contractors.
- Meets customer needs expeditiously because the ancillary supplies nd services are readily available from the FSS Program or Global Supply Program.
- Reduces agency procurement and contract administration costs.
- Provides agencies opportunities to increase utilization of small businesses.
- Reduces the necessity for government furnished equipment (GFE), which is labor intensive to properly administer.
- Simplifies market research via existing GSA eTools.
- Encourages competition among contractors to seek the best solution, resulting in cost savings to the Government.
- Enables use of supply funds by contractors, which is the preferred payment method for some agencies.
- Federal Government: The eligible user of the FAR Part 51 deviation.
- Buying Contractor: The contractor who receives the primary contract/order from the Federal Government and subsequently acts as the Federal Government’s agent when placing an order to the selling Schedule contractor or GSA Global Supply. The buying contractor can be any GSA contractor (Schedule contractors, Global Supply vendors, PBS contractors, etc.)
- Selling Contractor: The contractor who receives the secondary order placed under the FAR Part 51 deviation authority from the buying contractor. The selling contractor must be a Schedule contractor or GSA Global Supply.
- Authorization: Written approval from the Federal Government for a contractor to use a Government supply source.
2.0 Criteria for Use
When utilizing the authority granted under the FAR Part 51 deviation, all of the following criteria must be met
2.1 Primary Awards/Orders Are Issued on a Time-and-Materials (T&M)/Labor-Hour (LH) Basis
Items on the contract/order issued to the buying contractor from the Federal Government must be T&M/LH. The overall contract/order can be fixed price, but the items to be purchased under the FAR Part 51 authority must be structured on a T&M/LH basis. Commonly, this is accomplished by including an optional line item in the Request for Quote (RFQ)/proposal and a corresponding line item on the subsequent contract/order.
When GSA contractors place orders with MAS and GSA Global Supply under the FAR Part 51 deviation authority, the buying contractor who is purchasing the items is not permitted to add a fee or markup to the items. Items must be invoiced at the price for which they were procured from the selling contractor.
2.2 Supplies and/or Services are Ancillary to the Primary Purpose of the Contract/Order
Supplies and/or services procured under the FAR Part 51 deviation authority must be ancillary in nature. The supplies and services shall not be the primary purpose of the work ordered, but an integral part of the total solution that is offered. Please note that there are different and additional requirements associated with Special Item Numbers (SINs) on numerous Schedules that contain Ancillary Repair and Alternations (R&A).
2.3 For Orders Placed Against Schedule Contracts, Orders Are Limited to FAR 8.405-1, Ordering Procedures for Supplies, and Services Not Requiring a Statement of Work
Buying contractors must follow the procedures outlined in FAR 8.405-1 when purchasing items from a Schedule contract. The procedures are used when ordering supplies and services that are listed in the Schedule contract at a fixed price for the performance of a specific task, where a statement of work is not required (e.g., installation, maintenance, and repair)
2.4 Use of Deviation is Not Available to State and Local Governments
The authority does not extend to state and local ordering activities and is intended for use only by Federal Government contracting officers.
3.1 Federal Government
The Federal Government Must:
- Use the FAR Part 51 deviation appropriately and in accordance with applicable FAR Parts, including FAR Part 51 and the guidance contained in this ordering guide.
- Include Clause 52.251-1 Government Supply Sources, in RFQs/solicitations. The RFQ/solicitation should also specifically state that items offered that may be procured using the FAR Part 51 deviation authority must be proposed on a T&M/LH basis. However, the Federal Government should not mandate that the quote/proposal include such items.
- Issue a written authorization to the buying contractor in accordance with FAR Subpart 51.102. An authorization template that contains additional information specific to the FAR Part 51 deviation is provided in Section 6.0.
- Ensure that the buying contractor is in compliance with the written authorization. If utilizing the Schedules Program, ensure that the buying contractor has followed the ordering procedures in FAR 8.405-1 to promote competition. Compliance with FAR 8.405-1 can be verified by requesting evidence from the buying contractor that competition has been conducted, e.g. RFQ, quotes received, etc.
- Include the supplies and services ordered by the buying contractor in the dollar amount reported to Federal Procurement Data System (FPDS-NG) in accordance with FAR 4.606. Orders from the GSA Global Supply Program do not need to be reported in FPDS-NG because they are automatically reported by GSA systems.
- If the buying contractor is using the Global Supply Program, ensure that the sponsoring agency’s authorized Point of Contact (POC) requests assignment of an Activity Address Code (AAC) or Department of Defense Activity Address Code (DoDAAC) from GSA or DoD.
3.2 Buying Contractor
Contractors Placing Orders Must:
- Identify and separate those ancillary items that are proposed to be purchased under the FAR Part 51 deviation authority on the quote/proposal submitted to the Federal Government and on the subsequent invoice.
- When purchasing from a Schedule contract, purchase items at the Schedule contract price (or lower) with no fee/surcharge/markup. If items are provided by the selling contractor at lower than the contract price, the buying contractor must pass on the savings by invoicing the Federal Government accordingly.
- Ensure that the items procured under FAR 51 deviation authority are ancillary to the overall order/contract.
- Provide a copy of the written authorization from the Federal Government with each applicable order to the selling contractor. When purchasing from GSA Global Supply, the written authorization only needs to be submitted with the request for assignment of the AAC or DoDACC and not with each order.
- If the buying contractor is a Schedule contractor, ensure that the buying contractor’s Schedule contract number is on each order issued to the selling contractor.
- Remit full payment to the selling contractor.
- Submit documentation of the transmittal of full payment to the selling contractor when invoicing the Federal Government.
- Follow any applicable Schedule (FAR 8.405-1) or GSA Global Supply Program ordering procedures. For more information on placing orders with GSA Global Supply, please visit gsaglobalsupply.gsa.gov
3.3 Selling Contractor
Contractors Accepting Orders Must:
- Have the ability to accept or reject orders from the buying contractor.
- Ensure that a copy of the written authorization from the Federal Government is included in the order issued by the buying contractor.
- If the buying contractor is a Schedule contractor, ensure that the buying contractor’s contract number is shown on each order.
- For Schedule orders, sell to the buying contractor at the MAS contract price or lower pursuant to FAR 8.4.
- For Schedule orders, understand that a purchase made under the authority of FAR Part 51 deviation does not trigger a price reduction under GSAR clause 552.238-75, Price Reductions.
- Include on each invoice the language, “in care of ‘[name of government agency]’ under written authorization from ______ dated ______”
- Assume the financial risk and other risks of selling directly to another contractor. Any dispute involving the distribution of payment between the buying and selling contractor will be resolved without any involvement by the Federal Government. Since each contractor has a Schedule or Global Supply contract, each contractor is held accountable under the terms and conditions of its contract for any problems, such as warranty or performance issues.
- For Schedule orders, track and report sales as Schedules contract sales, and remit the Industrial Funding Fee (IFF) accordingly.
3.4 Global Supply
GSA Global Supply will:
- Accept all orders from buying contractors, provided the contractor has been assigned an AAC or DoDACC. The buying contractor will provide evidence of proper authorization to GSA or DoD at time of request for AAC/DoDAAC.
- Charge the standard price.
- Follow normal requisition processes using assigned AAC or DoDAAC.
5.0 Questions and Answers
DFARS 208.405-70 and GSA Multiple Award Schedules
There is a lot of information in the ordering guide on Schedule orders. Is it true that the deviation only applies to Schedule contractors?
No. The deviation permits ALL GSA contractors to purchase from Schedules or GSA Global Supply. The requisition process for GSA Global Supply is relatively simple. For Schedule orders, the guidance is more elaborative because there are more process steps and acquisition regulations to consider.
Is the deviation only available for T&M/LH contract types?
No. One of the primary purposes of the deviation itself is to expand the FAR Part 51 authority to fixed price contracts. Only the items procured under the FAR Part 51 deviation authority need to be structured as T&M/LH.
Can the Federal Government tailor the authorization?
Yes. FAR Part 51.102(4) permits the authorization to be tailored. The Federal Government may limit the scope and purchasing authority by customizing the authorization to limit the scope to specific supplies or services, specific schedules, dollar thresholds, socioeconomic requirements, etc.
Does the selling contractor have to accept an order placed by the buying contractor?
No. For Schedule orders, the selling contractor can reject the order from the buying contractor.
When the buying contractor is a Schedule contractor who is procuring Schedule items from another Schedule contractor, does the buying contractor have to report the sales to GSA and pay the IFF?
No. The selling contractor is responsible for reporting sales and remitting the IFF.
When acting under the authority granted by the FAR 51 deviation, the buying contractor is an authorized user of GSA’s FSS and Global Supply Programs. The products/services procured under this authority are not considered to be MAS sales because these items are not on the buying contractor’s Schedule contract and are therefore not subject to sales reporting and IFF remittance. To ensure that the sales are segregated appropriately, adjustments to the buying contractor’s sales tracking system may be necessary.
In the scenario above, the selling contractor is selling its Schedule items to another Schedule contractor. The sales are still considered to be Schedule sales?
Yes. Schedule contractors accepting orders report sales and remit IFF on items procured under FAR Part 51. When accepting orders from the buying contractor with a valid authorization, selling contractors are making MAS contract sales to an authorized user of the FSS Program pursuant to the FAR 51 deviation. As such, the products/services procured under the authority are considered to be MAS contract sales. All contract requirements for sales reporting and IFF remittance apply. To ensure that the sales are segregated appropriately, adjustments to the selling contractor’s sales tracking system may be necessary.
Does the Price Reduction clause apply to FAR Part 51 sales.
No. In the normal course of business, FSS contractors are contractually obligated to notify the GSA Contracting Officer of price reductions in accordance with GSAM clause 552.238-75 Price Reductions. However, GSA contractors purchasing from the FSS Program and/or Global Supply Program in accordance with FAR 51.101 are authorized users; therefore, pursuant to GSAM clause 552.238-75(d)(2) Price Reductions, there is no price reduction for sales to eligible ordering activities under a Schedule contract.
Does the Contractor Assistance Visit (CAV) cover the FAR 51 deviation?
The Industrial Operations Analyst (IOA) conducts Contractor Assistance Visits (CAVs) with Schedule contractors periodically throughout the contract term. The CAV is a review of the contractor’s processes to meet Federal Supply Schedule contract requirements. If the selling contractor has made sales to a buying contractor under the FAR Part 51 deviation authority, the IOA will verify that a written authorization(s) is in place for applicable sales. The IOA will report accordingly to the GSA Contracting Officer for the Schedule contract. Please note that compliance with the written authorization for orders and any necessary actions will remain the Federal Government’s responsibility.
Can the Federal Government modify an existing contract/order to incorporate the FAR 51 authority?
No. The authorization needs to be issued with the original contract/order.
Can the Federal Government modify an existing Blanket Purchase Agreement (BPA) to incorporate the FAR 51 authority?
No. The authorization needs to be incorporated when the BPA is
Can the buying contractor add any additional markup/fee onto the items procured under the FAR 51 authority, even if the fee is associated with a legitimate cost like a material handling charge?
No. The items procured under the authority must be passed through to the Federal Government at the price paid. No markup of any kind is permitted on this portion of the order.
Are there plans to modify the deviation in the future to allow for a markup?
GSA understands the concerns of its industry partners in regard to this particular restriction. However, the authority granted by the deviation is a significant change to current regulations and the way that we normally conduct fixed-price procurements. For the time being, restrictions and guidelines for use are necessary to ensure that the authority is used appropriately.
For Schedule orders, can the buying contractor use GSA e-Buy to satisfy the requirements of FAR 8.405-1?
Not yet. GSA intends to make the necessary modifications to e-Buy to permit use by contractors in the near future. It’s also possible that GSA will mandate e-Buy or other electronic tools; however, at the moment, these tools are not available for contractor use.
If the buying contractor chooses not to use the FAR 51 authority, what other options are available to satisfy the Federal Government’s overall requirement?
There are other options available. Refer to www.gsa.gov for more information. For example, if permitted by the order, Schedule contractors may use contractor team arrangements (www.gsa.gov/cta), subcontracts, and open market items in accordance with FAR 8.402(f).
What is the difference between subcontracting, contractor team arrangements, and the authority granted by the FAR 51 deviation?
For formal definitions, refer to the links provided above. When the buying contractor is a Schedule contractor, the primary drawback of subcontracting is that the subcontractor is limited to providing only those items on the prime contractor’s Schedule contract. This doesn’t usually solve the need for ancillary items. Team arrangements as defined is FAR Part 8 only apply when both contractors are Schedule contractors. Although teaming arrangements are valuable tools, customers sometimes prefer other solutions due to administration costs. The authority granted by the deviation allows GSA contractors to procure ancillary items to provide the customer with a total solution, but it has drawbacks as well. Subcontracting, teaming, and the deviation authority should be thought of as tools that can be used depending on a variety of factors.