It’s Not the 5%. It’s the Blind Spot.
On January 22, 2026, the General Services Administration issued a Request for Information asking IT hardware value added resellers (VARs) to explain their markups. A few weeks earlier, the Pentagon leaked a memo proposing a 5% cap on reseller fees for purchases off the GSA Schedule.
VARs, it would seem, are having a moment.
Officially, the concern is, ahem, about “significant variances” in pricing. Unofficially, if I were a betting man, I’d guess that when GSA says it may consider "additional controls to ensure the government receives fair and reasonable pricing when markups exceed a certain percentage threshold," it already has some controls in mind.
And hey, who can blame them? GSA wants to do its job in ensuring that prices are fair and reasonable. And to do that, they just need a little transparency into reseller markup practices, right?
You might ask yourself, though: doesn’t GSA already have this information? After all, you might think: aren’t prime contractors generally required to report their subcontracts? And, then, you might wonder: if you have the prime award amount and the subcontract amount, isn’t that just subtraction?
Well, dear reader… Yes, prime contractors are generally required to report their subcontracts! And yes, it is simply subtraction! But no, GSA doesn’t already have this information for VARs.
Why not? Because, under a carveout in the FAR, VARs don’t have to report their subcontracts.
Allow me to explain. Under FAR Clause 52.204-10 (as recently overhauled), entitled “Reporting Executive Compensation and First-Tier Subcontract Awards,” if a subcontract is greater than $40,000, a prime contractor must report all first-tier subcontract information to SAM.gov. But that same FAR clause has an "exclusion": a first-tier subcontract is defined as excluding a contractor's “supplier agreements with vendors, such as long-term arrangements for materials or supplies that benefit multiple contracts and/or the costs of which are normally applied to a Contractor’s general and administrative expenses or indirect costs.”
In a way, this "supplier-agreement exclusion" makes intuitive sense: if a prime contractor has a standing relationship with an accountant across multiple jobs, the accountant isn’t a subcontractor in any reasonable definition. Or if a prime contractor buys laptops that are going to be used across many projects, it’s reasonable to treat those laptop costs as overhead rather than as subcontracts.
The problem is that the entire VAR business model is largely structured around the exclusion.
When a VAR buys laptops, routers, or servers for resale, it doesn’t treat that purchase as a subcontract associated with a specific government order. It treats it as a supplier agreement: a long-term vendor relationship that benefits multiple contracts. The result, though, is that VARs don't report who their suppliers are, or the terms of their agreements. And, therefore, the fundamental economics of the transaction are opaque to the government buyer.
In other words, the government’s own rules allow for VARs to act with less oversight and transparency than other vendors.
To be clear, I'm not saying VARs are all terrible middlemen and evil passthroughs. In fact, I find the whole "direct with the OEM" discourse that is endemic to category management to be rather exhausting.
When I buy cereal for my kids, I don't get mad at the grocery store because I don't have a direct relationship with General Mills. I’m not up in arms over my bookstore for marking up a book’s price. In many cases, I love my middlemen! I need my passthroughs. I delight in the relationship with my reseller.
Even in healthcare, where intermediary pricing is genuinely a national embarrassment, the core problem isn't the existence of intermediaries; it's that the incentives are hidden or misaligned, and that fees are opaque and there's a lack of meaningful competition.
What I'm saying is that VARs have a valuable role in a healthy marketplace. There’s genuine value in having a trusted partner who can efficiently handle high-volume transactions and understands the products it re-sells and can provide support and services related to those products. That kind of value can justify a real margin.
But sometimes middlemen are just... there? Collecting a fee because they can.
Which is why the real question isn’t whether resellers should exist or how much they charge. It’s whether they’re earning their margin. Imposing a 5% cap on resellers doesn’t ensure the government gets 5% value. It just guarantees the government can’t get more than a 5% value-add — regardless of whether a reseller is doing something genuinely useful or merely passing a box through the system.
It’s possible that, as part of GSA’s RFI, the government will get some useful point-in-time data and put together better policies. But a better solution, a more durable one, is closer to having better transparency around pricing on an ongoing basis. Under the status quo, resellers aren't hiding anything: the FAR says they don't have to disclose it.
Here's the thing, though. As part of the FAR Overhaul that occupied our attention over the past year, GSA already rewrote FAR 52.204-10 and chose to leave the supplier-agreement exclusion intact.
If GSA wants lasting VAR reform, it can do better than an RFI. GSA can require the data, establish baseline prices, and do the math.
The FAR clause is right there. They just revised it.
Maybe next time.
GAO Snippets
- Preference Pecking Order - Redux. Similar to a decision a few weeks ago (Preference Pecking Order), with very minor factual differences, GAO reaffirms that Javits-Wagner-O'Day (JWOD) has preference over Rule of Two. Magellan Solutions USA, Inc., B-424079 (Jan 29, 2026)
- Page limits are not suggestions. A solicitation for "hazardous waste services" had a two-page limit for a "safety narrative." During proposal revisions, the protestor's safety narrative ended up being four pages, and the agency ignored the new content. As a result, the proposal was deemed unacceptable. On protest, the vendor claimed that the agency made numerous errors that were largely attributable from the proposal going over the limit. Still, GAO found that, while the protestor's "error may have been inadvertent, it does not reflect, as the protester claims, that the firm was misled or confused by the 'evaluation notice.'" And because the proposal went over the page limit, the protest was denied. Landscape Management System, Inc., B-423523.5,B-423523.6 (Jan 23, 2026)
- Oral presentation? GAO will check the tape. The Defense Intelligence Agency issued a task order proposal request against an IDIQ and indicated that DIA would make an award to the vendor with the "highest technically evaluated proposal with a fair and reasonable price." The entirety of the technical proposal, however, was to be done via an oral presentation. Based on the presentations, DIA made the award to GDIT.
Two other vendors — Amentum Technology Inc. and SOS International LLC (SOSi) — protested the decision. In both cases, the protestors argued that DIA gave GDIT strengths and the protestors weaknesses that were not supported by the audio recording of the oral presentations. For example, DIA dinged SOSi for mentioning a legacy network called CENTRIXS, but GAO couldn't find any mention of CENTRIXS in the recording. Similarly, DIA gave GDIT strengths for its inclusion of "upskilling" but dinged Amentum even though it used the same phrase.
Because GAO concluded that the technical evaluation was not supported by the record, GAO sustained the protest. Amentum Technology Inc.; SOS International LLC, B-423898,B-423898.2,B-423898.3,B-423898.4 (Jan 27, 2026) - The protest window passed. On September 22, the contracting officer denied an agency-level protest for a FAR Part 8 purchase order. After some back and forth, on September 30, the CO said "[i]f there is no shutdown [he would] further debrief consistent with [FAR] Part 15.” Except there was a shutdown. Then, on December 1, the CO sent a written debriefing. On December 4, the protestor went to GAO. But, in bad news for the protestor, GAO's view was that, because no formal debrief was actually required under FAR Part 8, the protest window started to run on September 22 (and tolled through the shutdown), not on December 1. And because the protest was untimely, the protest was dismissed. The JAAW Group, LLC, B-424133 (Feb 02, 2026)
- Unstated Evaluation Criteria? Then pay the costs. Empower AI challenged a decision by HHS to award to Booz Allen Hamilton. On protest, HHS agreed to corrective action. Empower AI requested protest costs, and GAO agreed that HHS should reimburse protest costs because HHS "failed to disclose the agency's preference for an AWS solution" and "the agency unduly delayed taking corrective action in response to a clearly meritorious protest allegation," though GAO did not agree with Empower AI's other challenges. Empower AI, Inc.--Costs, B-422971.5 (Sep 15, 2025)
- A product can still be commercial even if modified. GSA sought to purchase "security containers," like it had done for more than 20 years, using commercial procedures under FAR Part 12. But protestor claimed that the product it sold was not commercially available because of some government-specific modifications. GSA's market research suggested otherwise and GAO agreed with the agency, noting that the products were "'of a type' of product sold commercially." Protestor also challenged GSA's inclusion of a liquidated damages clause, but GAO agreed with GSA that the clause was not punitive. Protestor also alleged that the solicitation contained erroneous information (though corrected by the agency), and had ambiguous or conflicting clauses related to hazardous waste and price adjustments. GAO disagreed and said that the clauses were just fine. Alpha Safe and Vault, Inc., B-423834.2 (Feb 04, 2026)
- Documentation didn't depend on candidates' employment status. Agency found protestor's proposal to be non-responsive because the protestor did not include the required documentation for its personnel as part of the offer. Protestor claimed that the proposed personnel was a contractor, not a current employee, so no documentation was required. But the agency and GAO disagreed based on the plain language of the solicitation.
GAO also rejected protestor's claim that the agency needed to refer the protestor's disqualification to the SBA for a Certificate of Competency. But, GAO noted that the agency disqualification was based on the proposal's deficiencies, not on a non-responsibility determination.
Protest denied. Salvadorini Consulting, LLC, B-423897 (Jan 22, 2026)
SBA Snippets
- SBA OHA lays down the hammer. Previously, Veteran Elevated Solutions appealed the determination of the Small Business Administration that Pelican was a small business and OHA granted the appeal, vacated the decision, and remanded to SBA. Nine months later, SBA still hasn't acted on the remand and Pelican may be performing on a contract it's not even eligible for. Finding that "this matter raises serious concerns," Judge Holleman himself declared Pelican ineligible for award. SIZE APPEAL OF: VETERAN ELEVATED SOLUTIONS, LLC, APPELLANT, RE: PELICAN RESIDENCES, LLC, SBA No. SIZ-6376 (Jan 27, 2026)
- No specific allegations, no protest. Protestor argued, without any evidence, that an awardee was not a SDVOSB. SBA found that the protestor "utterly fail[ed] to make any specific allegations that [the awardee] is not in compliance with the regulations." Protest denied. VSBC PROTEST OF: FAIRFIELD REFRIGERATION & COOLING EQUIPMENT, PROTESTOR RE: J&J MECHANICAL AND CONSTRUCTION GROUP, LLC, SBA No. VSBC-463-P (Jan 28, 2026)
Other GovCon Updates
- CIO-SP4 is canceled. According to its status update, HHS has informed the Court of Federal Claims that CIO-SP4 is expected to be canceled.
As a result of these efforts, HHS has shifted its focus away from re-evaluation of existing offers, which was the focus of the remand because it anticipates canceling the Chief Information Officer – Solutions and Partners (CIO-SP4) solicitation #75N98121R00001NIH in its entirety.
The agency anticipates that it will complete this process within the next thirty days. The agency further anticipates that the bridge contracts on the current CIO-SP3 contracts will be extended for a period of one year. The United States will update the Court and the parties when this process is completed.