GSA and Consumption-Based Cloud Pricing … Stay Tuned!

By Tara Franzonello, GSA Programs Consultant

The consumption-based approach is already widely used in the private sector and GSA hopes to leverage a similar model to recognize the same efficiencies, increase cyber security, foster competition and provide cost savings and transparency — benefits that are being realized today by commercial companies.

Cloud computing is offered in various models (i.e. consumption-based with not to exceed ceiling, subscription based, on-demand, per-use-based, tier-based) as well as pay-as-you go and fixed price combinations in the private sector. Each has its own advantages based on the customer’s specific needs (environment, consumption usage, usage term, etc.). The ideal procurement path for consumption-based cloud computing would provide agencies with a flexibility across both funding and consumption models that promotes cost efficiency and private sector best practices. 

GSA Moving Ahead

Last month, the General Service Administration’s Senior Procurement Executive, Jeffrey Koses in the Office of Acquisition Policy, issued a draft Acquisition Letter (AL) for industry comments establishing special ordering procedures for the purchase of cloud computing on a “consumption basis” under GSA’s Federal Supply Schedule program. The AL’s definition requires that the offering is:

1. Measured and billed on a “predetermined periodic basis”
2. Billed based on what was actually used during an elapsed period of time
3. Charged based on predetermined pricing/rates.

While using a consumption basis model is already allowed under GSA’s Federal Supply Schedule program, in the letter Koses highlights some key requirements that he believes will further support this effort. Under these new procedures:

• The Price Reduction Clause (PRC) will be waived
• Offerings on a consumption-basis will be fixed-price at the Schedule and order level
• The Economic Price Adjustment Clauses will not apply for these items

With the waiver of the PRC, GSA hopes to increase competition and reduce compliance burden to the contractor.

Pricing and Funding

How will this new model work? A fixed discount against a market price list or index will be negotiated and remain constant as the price list or index changes. The contracting officer will also establish a ceiling price for estimated cloud computing, and orders may not exceed 50% percent of the initial quantity ordered at the line item level.

There is also a restriction when it comes to funding. According to the draft AL, GSA is proposing to limit funds to no-year or multi-year funds with more than one year remaining. These funding restrictions raise big red flags with industry who is concerned about an undesired consequence of withholding critical cloud offerings to those agencies that do not have multi-year and no-year funds available.

Industry Response

The Coalition for Government Procurement has done a great job in putting together comments from industry in response to GSA’s draft letter. Comments range from approving of the waiving of the Price Reduction Clause to concerns over potentially burdensome tracking and reporting requirements as well as apprehension around GSA’s ability to handle the number of price modifications this model would require. The main theme from the feedback, however, is the request for flexibility when it comes to procurement of consumption-based cloud.

Now that industry has provided comments, the ball is in GSA’s court to take the requested feedback and shape policy that will allow the government to take advantage of private sector best practices and cost savings when procuring cloud computing.

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