Until recently, GSA has been prohibited from divulging one offeror’s price to another during real estate procurements. This practice typically meant that offerors did not have the proper data to formulate accurate, detailed pricing. Consequently, they ended up padding their prices to cover any unknowns, and GSA’s customers ended up paying much higher rents.
After changes to the regulation removed the limitation, GSA decided to implement an innovative practice designed to spur market competition and secure best-value rates for its customers. The basic premise is to show the price of each offeror to the other offerors during negotiations, without showing names or other project identifiers, and to show each offeror GSA’s understanding of their offer, exclusive of ranking. The practice allows each offeror to see exactly what the competition is, where the offeror stands among the competition, and what the offeror must do in order to win the procurement. The result is market competition that becomes much more intensified, culminating in significantly lower rental rates for the Government.
To beef up the negotiation process even more, the team decided to develop an extensive Program of Requirements (POR) prior to negotiations. Past POR’s were a few pages and generally generic, so that prospective offerors had to essentially “guess” what their requirements were. As a result, they weren’t able to accurately tabulate their costs and ended up inflating their prices.
The new practice gave way to a highly detailed POR that spanned several hundred pages. Because offerors now had the luxury of seeing exactly what they were required to build, they could more accurately determine the cost of these requirements. This allowed them to provide a competitive offer, which again meant lower rental rates for the Government.
GSA has used these innovative practices twice on behalf of its Department of Health and Human Services customers. The first procurement was for the Agency for Healthcare and Research Quality (AHRQ) and the second was for the Substance Abuse and Mental Health Services Agency (SMAHSA). While the AHRQ procurement was successful, the SAMHSA negotiations proved to be even more effective. GSA was able to negotiate a rate of $21.90 per rentable square feet, more than $12 per square foot below the authorized prospectus amount. This translates into savings of $25 million over the next ten years.
The process also gave GSA additional leverage in negotiating the combined lessor’s fee, general contractor’s fee, and overhead and profit markups. While recent leases have markups as high as 28 percent, GSA was able to negotiate SAMHSA’s fees at 10.3 percent, allowing for nearly $1 million in an additional tenant improvement allowance for this 228,000 square foot project.
For more information, contact Ms. Mary L. Hewson at (202) 219-2497 or via e-mail at mary.hewson@gsa.gov
