Although sales to the Federal government via General Services Administration multiple-award, Federal supply, or government-wide Schedule are considerably less risky than other contract vehicles, they are not without their risks.

GSA Schedule sales are typically considered to be “commercial” sales, in that the companies providing the goods or services are considered to be commercial entities and the prices are negotiated based on a commercial sales history. But although the GSA Schedules website claims: “The Schedules program mirrors commercial buying practices, so customers can easily comply with federal procurement rules and regulations,” that is not entirely true. Compliance risks exist and many companies have run afoul of them. This website has several articles on settlements (very large dollar value settlements) entered into by companies that either failed to properly disclose their commercial pricing history prior to award, or failed to comply with the Trade Agreements Act (as the GSA interprets it).

Or failed to comply with the Price Reductions Clause.

See, the Price Reductions Clause is something that exists only in GSA Schedule-land. You don’t find it in contracts awarded under FAR Part 13, Part 14, or Part 15 procedures. You don’t find it in commercial sales practices. Thus, because of its existence, it gives lie to the GSA claims that its Schedules mirror commercial buying practices. It’s a big risky compliance area and many otherwise reputable companies have been tripped-up by its requirements.

Such as Deloitte Consulting, to name one recent victim of the Price Reductions Clause.

But before we get into that story, let’s make sure we all understand what the PRC requires of a GSA Schedule contractor. GSA Supplemental Acquisition Regulation contract clause 552.238-75 (“Price Reductions,” May 2004) states:

(a) Before award of a contract, the Contracting Officer and the Offeror will agree upon (1) the customer (or category of customers) which will be the basis of award, and (2) the Government’s price or discount relationship to the identified customer (or category of customers). This relationship shall be maintained throughout the contract period. Any change in the Contractor’s commercial pricing or discount arrangement applicable to the identified customer (or category of customers) which disturbs this relationship shall constitute a price reduction.

(b) During the contract period, the Contractor shall report to the Contracting Officer all price reductions to the customer (or category of customers) that was the basis of award. The Contractor’s report shall include an explanation of the conditions under which the reductions were made.

(c)

(1) A price reduction shall apply to purchases under this contract if, after the date negotiations conclude, the Contractor—

(i) Revises the commercial catalog, pricelist, schedule or other document upon which contract award was predicated to reduce prices;

(ii) Grants more favorable discounts or terms and conditions than those contained in the commercial catalog, pricelist, schedule or other documents upon which contract award was predicated; or

(iii) Grants special discounts to the customer (or category of customers) that formed the basis of award, and the change disturbs the price/discount relationship of the Government to the customer (or category of customers) that was the basis of award.

(2) The Contractor shall offer the price reduction to the Government with the same effective date, and for the same time period, as extended to the commercial customer (or category of customers).

(d) There shall be no price reduction for sales—

(1) To commercial customers under firm, fixed-price definite quantity contracts with specified delivery in excess of the maximum order threshold specified in this contract;

(2) To Federal agencies;

(3) Made to State and local government entities when the order is placed under this contract (and the State and local government entity is the agreed upon customer or category of customer that is the basis of award); or

(4) Caused by an error in quotation or billing, provided adequate documentation is furnished by the Contractor to the Contracting Officer.

(e) The Contractor may offer the Contracting Officer a voluntary Governmentwide price reduction at any time during the contract period.

(f) The Contractor shall notify the Contracting Officer of any price reduction subject to this clause as soon as possible, but not later than 15 calendar days after its effective date.

(g) The contract will be modified to reflect any price reduction which becomes applicable in accordance with this clause.

All those words above basically boil down to the GSA contractor identifying its Basis of Award customers, the prices (and other terms) paid by those BOA customers, and the relationship between those BOA prices and the GSA Schedule prices offered to the Federal government buyers. If the price paid by the BOA customers drops, there is supposed to be a corresponding drop in the GSA Schedule prices. The contractor has 15 days to notify the GSA of a required pricing change driven by the change in the BOA customer prices. If the contractor fails to notify GSA in accordance with the clause requirements, it has to refund any overpayments made by the Federal government (i.e., the difference between the price paid and the price that would have been paid had the contractor complied with the notification requirement).

But if the contractor knowingly reduced its BOA customer prices and knowingly withheld that information from the GSA, then it might be subject to allegations that it had submitted False Claims and then things can get really expensive.

See: Deloitte Consulting, LLP.

According to the DOJ announcement (link above the GSA clause)—

The Department of Justice announced today that Deloitte Consulting LLP (Deloitte) has agreed to pay $11.38 million to resolve allegations under the False Claims Act that it submitted false claims under a General Services Administration (GSA) contract. Deloitte is a nationwide consulting company headquartered in New York City. …

In 2000, GSA awarded Deloitte a contract for the provision of information technology services. The contract required Deloitte to reduce the prices it charged the government if it offered lower prices to specific commercial customers during the course of the contract. This settlement resolves allegations that between 2006 and 2012, Deloitte failed to comply with the price reductions clause in its contract, resulting in government customers paying more for Deloitte’s services than comparable commercial customers. 

Deloitte Consulting paid more than $11 million to settle allegations that it had knowingly failed to comply with the GSA Price Reductions Clause. For those few who may not know, Deloitte is a very respected professional services firm—an affiliated entity of one of the “Big 4” accounting firms. The entity has access to whatever compliance expertise and resources it may need; and yet it failed to comply with the PRC in its GSA Schedules.

In fairness, Deloitte is a partnership and, if our experience with the Big 4 is anything to go on, project cost accounting and pricing is an extremely complicated exercise. It may have been difficult to monitor and report on BOA customer pricing. Indeed, it may have been nearly impossible to keep track of pricing offered to its BOA customers, given the number of projects, the number of partners, and the vagaries of the partnership’s accounting system.

And yet, that is what the firm signed up to when it entered into its GSA Schedules.

And that is what all GSA Schedule holders sign up to.

If you want a GSA Schedule, you must realize the compliance requirements that come with the deal, and be prepared to meet them. If you don’t exercise diligence, you too may find yourself the subject of a DOJ press release one day.