Discounts

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Draft policy on page 3 states, “The strategy must include threshold discounts at the contract level based on volume to maximize savings for agencies.”

Comment: Navy non-concurs on the double underlined word “must.” Smaller Federal agencies are going to benefit from contracts established that include threshold discounts at the contract level based on volume. Although "threshold discounts at the contract level based on volume" lower costs for smaller agencies, there is no additional value to large volume users such as the Navy. Using "tiered credits" or "threshold discounts at the contract level based on volume" from awarded contract pricing adds complexity, creates an additional administrative cost on both parties, and provides no additional benefit to high volume user agencies that optimize at the task order level.

While "tiered credits" or "threshold discounts at the contract level based on volume" may initially appear to be beneficial, it is important to recognize discounts at the contract level help smaller agencies, but are not cost effective for agencies with large volume competitive task orders that drive economic profits to zero. This is also why it is important for agencies to aggregate and manage their requirements on task orders as much as feasible - to provide a larger firm requirement.

With market research and years of usage data, Navy focused on service plans and devices actually used; then simplified, standardized and limited contract offered service plans and devices. As a result, immediate cost reductions or discounts were received from carriers in awarded contract pricing for individual task orders based on the firm requirements. Actual efficiencies and cost-savings are obtained via the ordering process at the task order level. Ordering process efficiencies save both contractual parties’ time and effort which generates real saving. Any competitive task order that aggregates requirements in a standardized fashion will drive discounts from awarded contract pricing. Competition will drive the price of the task order to the lowest price the vendor is able to provide for the specific firm requirement at that specific time. A contract volume discount only forces awarded contract pricing lower, which is then negated through competition of high volume quantities at the task order level. Optimal savings exists at the task order level, because the awarded contract pricing point can be lowered for each task order based on the firm requirement when competition occurs. To optimize efficiencies of the contract, demand management practices need to be implemented. Further efficiencies can be realized by managing utilization to ensure appropriate plan selection. A Navy Echelon 2 command, following the aggregation of 6,945 devices with service in accordance with the process at the Task Order level described above, achieved a unit price more than 30% below the FSSI published unit cost.

It is recognized that vendors may not be excited about providing discounts on task order(s) for one or a relatively small number of lines.