GSA stops McKinsey's contract, claims fees were too high

27 May 2020 3 min. read

The General Services Administration (GSA), the contracting and property management arm of the federal government, has terminated a multiple award schedule (MAS) contract with consulting firm McKinsey & Company. GSA schedule contracts are indefinite delivery, indefinite quantity, long-term contracts that contain pre-negotiated prices and delivery terms.

The contract termination comes 10 months after a scathing report from the agency’s inspector general (IG), which was launched after McKinsey refused to provide records, found that the firm’s prices were 10% higher than initially proposed. This would have resulted in up to $69 million in additional costs for taxpayers, according to the report. The IG also found that a division director at the GSA’s Federal Acquisition Service took improper actions, which resulted in the more lucrative contract for McKinsey.

“McKinsey refused to provide the records required to complete the preaward audit; therefore, the audit report advised the contracting officer to obtain the necessary information or cancel the contract. However, instead of addressing the contractor’s lack of cooperation during the preaward audit, a Federal Acquisition Service (FAS) division director (Division Director) removed the contracting officer from the contract negotiations and awarded the contract pricing with rates that were at least 10 percent higher than those originally proposed. As a result, we had concerns about how the contract pricing was awarded and how pricing was determined to be fair and reasonable,” stated the IG report.

GSA stops McKinsey's contract claiming its fees were too high

The report further asserted that the division director “used invalid price comparisons, relied on unsupported information, and performed insufficient analyses to justify the awarded contract pricing. We also found that the Division Director violated standards of conduct by advocating for McKinsey to other procurement officials.”

The division director was no longer working for the GSA as of July 2019, according to the Federal News Network (FNN).

The IG at the time recommended canceling McKinsey’s schedule contract. The FAS opted to attempt bilateral contract negotiations in order to not interrupt the consultants’ work. The renegotiation initiative failed, however.

“Since our attempts to renegotiate the contracts did not yield acceptable prices, we cancelled the contracts. We are working closely with customer agencies to identify alternative solutions to carry out mission-critical work,” a GSA spokesperson told FNN.

The schedule contract termination is the first of its kind for the GSA since 2012, when Oracle was kicked off an IT schedule.

According to a source familiar with the situation who spoke to FNN, GSA officials have been concerned that McKinsey’s prices are higher than those offered by similar schedule companies.

The prestigious consulting firm commands among the highest fees in the commercial world, and appears to have been unwilling to slash its premium prices in the negotiation process.

The contract termination will sting McKinsey, however, as the schedule contract accounted for most of its federal business. The firm won nearly $500 million in contracts since 2016, according to the GSA’s Sales Query database.