What You Need to Know

Resellers in the federal market may soon find themselves under new constraints that could fundamentally change the way they do business. Recent reports indicate that the General Services Administration (GSA) is preparing a policy memo that would cap resellers’ markup at 5% under GSA MAS Schedule and related contracts. While not yet official, this potential move has the attention of the entire industry and it should have yours too. This was first reported by Federal News Network, and you can read their coverage here.

KEY POINTS

What’s on the Horizon?

According to industry sources, GSA intends to limit markups to 5%, with only narrow exceptions available through senior-level approval and additional justification. On the surface, this might sound like a straightforward cost-control measure, but the reality is much more complex.

The big unanswered question is how GSA will define “markup.”

• If it means profit alone, the policy is still restrictive but possibly manageable.

• If it sweeps in overhead, indirect costs, and general expenses, it could be devastating for resellers who already operate on tight margins.

Why This Matters

Resellers provide more than just pass-through pricing. They manage logistics, support agencies with technical expertise, ensure compliance, and absorb risks that government buyers would otherwise have to shoulder. Margins vary dramatically depending on the complexity of the deal, sometimes a few percent, but in value-added or highly technical projects, margins can run closer to 15 to 20 percent.

A flat 5% ceiling effectively ignores the diversity of the reseller market and risks reducing competition to only those firms large enough to survive on razor-thin margins.

Legal and Practical Questions

There is also a debate over whether GSA even has the authority to impose this kind of profit control. Federal acquisition law generally protects vendors from having to disclose or cap profit margins. And practically speaking, enforcing a one-size-fits-all limit could discourage innovation, reduce investment in value-added services, and ultimately leave government buyers with fewer choices.

What Resellers Should Do Now

Even though the policy is not finalized, smart resellers should treat this as an early warning signal. Here are some steps worth considering:

• Review your cost structure: Understand exactly how much of your markup is profit versus overhead and support costs.

• Prepare your data: If the cap moves forward, having clear numbers and a defensible explanation will be critical.

• Stay informed and vocal: Keep an eye out for the official memo, and be ready to engage in industry discussions or formal responses.

• Reassess your portfolio: Some contracts may remain attractive, while others may not be sustainable under tighter margins.

The Bottom Line

For now, this policy is still developing. But if GSA does proceed with a hard markup cap, it could be one of the most significant shifts in the reseller space in years. Agencies may claim cost savings, but the real risk is that both resellers and government buyers end up worse off with less flexibility, fewer choices, and a less resilient supply base.

Resellers should be proactive: watch closely, prepare your case, and do not wait until the memo drops to start thinking about how your business will adapt.