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Using General Services

Administration Schedule Contracts to

Sell to the Federal Government

February 5, 2008

Association of Corporate Counsel

www.acc.com

3

Panel

John G. Horan (Moderator)

John A. Burkholder

Disclosure Requirements for your Proposal

Alison L. Doyle

The Workings of the Price ReductionClause and Industrial Funding Fee

Jason A. Carey

Audits and the Liability for Non-Compliance

4

Background on GSA Schedule Program

GSA Schedule Program Offers Tremendous

Opportunity

11 Million Commercial Products and Services

Available under the Program from

Approximately 19,000 GSA Schedule

Contractors.

The Government Spends over $30 billion

Annually Through the Program.

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Background on GSA Schedule Program

GSA Schedule Program Offers Tremendous

Risk

Severe Sanctions -- Loss of Revenue, Civil

Suit, Criminal Investigations

Widespread Misunderstanding of GSA’s

Requirements -- GSA’s Office of Inspector

General Uncovered Defective Pricing on 84%

of Contractor Audits

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DISCLOSURE OBLIGATIONS OF A GSASOLICITATION

Significant difference between GSA schedules and othergovernment or commercial contracts

Historical sales data, other information for “best” price

“Commercial Sales Practices Format” (“CSP-1”)

Establish “commerciality”: dollar value of sales of items togeneral public, “established catalog or market price,”previous 12 months

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DISCLOSURE OBLIGATIONS OF A GSA SOLICITATION

Next, state whether discounts and concessions offered are

“equal to or better than best price offered to any customer”

for same item(s) “regardless of quantity or terms and

conditions

“Most favored customer” price – Government’s price

negotiation objective

If “Yes,” in next section offeror completes chart with

information on MFC(s)

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DISCLOSURE OBLIGATIONS OF A GSA SOLICITATION

If “No,” in next section offeror completes chart for allcustomers that get a price equal to or lower than priceoffered to Government

Information: name of each customer or category ofcustomers; discount received, with terms and conditions;quantity or volume to be eligible for discount; FOBdelivery term; concessions

Must disclose deviations from written policies or standardcommercial sales practices, with explanation

9

DISCLOSURE OBLIGATIONS OF A GSA SOLICITATION

Typical deviations: one-time goodwill discounts (charity or

disgruntled customers); limited sales of obsolete or

damaged goods; sales of samples to new customers; sales

of prototypes for testing

If deviations “so significant and/or frequent” as to bring

into question fairness, reasonableness of offered prices,

contracting officer may require more clarifying

information

10

DISCLOSURE OBLIGATIONS OF A GSA SOLICITATION

Government uses disclosures of prices, discounts,concessions and deviations for advantage in pricenegotiations – one of two significant differentiators fromcommercial contracting (along with Price Reductionsclause)

No requirement to certify information disclosed on CSP-1,but GSA says up front it expects offeror to providerequired information that is “to the best of [offeror’s]knowledge and belief, current, accurate and complete as of14 calendar days prior to its submission.”

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DISCLOSURE OBLIGATIONS OF A GSA SOLICITATION

Offeror must also disclose any changes in price lists,

discounts or discounting policies that occur after

submission of offer, but before close of negotiations.

All information disclosures are “matters” within

jurisdiction of a branch of U.S. Government – subject to

False Statements Act, 18 USC 1001

Best practices: disclose current, accurate, complete

information, and when in doubt, disclose

12

DISCLOSURE OBLIGATIONS OF A GSA SOLICITATION

CSP-1 information subject to pre-award audit (discussion

below)

All GSA schedules incorporate by reference GSAR

552.215-72, “PRICE ADJUSTMENT-FAILURE TO

PROVIDE ACCURATE INFORMATION” (“defective

pricing clause”: prospective and retroactive; T/D)

Danger of False Claims Act prosecution (deliberate

ignorance; reckless disregard)

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Ongoing Compliance Obligations Postaward:

The Price Reductions Clause

Mandatory for GSA schedule contracts

Implements the agreement between vendor and GSA on

an “identified customer (or category of customers),” also

referred to as a “most favored customer” or “basis of

award customer”

Maintains the relationship between GSA and MFC price

or discount over the life of the contract

14

Ongoing Compliance Obligations Postaward:

The Price Reductions Clause

Price reductions are any change to your

sales practices that disturbs the relationship

between the GSA and MFC pricing

Requires common agreement on ‘the

relationship’ and how it is to be maintained

Requires internal controls to ensure triggering

transactions are only made when approved

15

Ongoing Compliance Obligations Postaward:

The Price Reductions Clause

Triggers price reductions at the same timeand for the same period:

Price reduction/discount increase to MFC

Price reduction caused by revision of thecommercial pricelist you disclosed duringnegotiations

Price reduction caused by grant of morefavorable terms and conditions than thosedisclosed during negotiations

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Ongoing Compliance Obligations Postaward:

The Price Reductions Clause

Does not trigger a price reduction:Price reductions to federal customers – encouragesfurther discounting on federal sales

Firm fixed price definite-quantity sales to the MFCover the Maximum Order Threshold

If state/local customers are the MFC, their purchases ofIT through GSA under special schedule authority willnot trigger a price reduction

Errors in quotation or billing if fully documented to thecontracting officer

Temporary price reductions (i.e. sales)

17

Ongoing Compliance Obligations Postaward:

The Price Reductions Clause

Contractors must report price reductions

within 15 days

Price reductions that are not reported (or not

timely reported) risk permanent application

18

Ongoing Compliance Obligations Postaward:

The Industrial Funding Fee

Contractor must collect .75% IFF on all schedule

sales – part of the original price negotiation

Contractor must submit quarterly reports and

remit IFF collected

Requires ability to capture schedule contract

orders separate from commercial sales and careful

review of all government orders for possible

inclusion

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Ongoing Compliance Obligations Postaward:

Other Obligations

Ability to timely confirm orders are from authorized usersof schedules

Process to identify and address orders that include itemsnot available on schedule contracts

Adopt and adhere to a plan to seek small businesssubcontracting opportunities

Implement equal opportunity and affirmative action laws

Flow down at certain mandatory clauses to subcontractors

Maintain compliance of schedule products with TradeAgreements Act requirements

20

Ongoing Compliance Obligations Postaward:

Other Obligations

Issue approved price list which includes pricing

and mandatory terms and conditions

Post product and price information on

GSAAdvantage!, the GSA online resource

Add/delete product offerings to keep up with

marketplace

Record retention – three years from final payment

on each five year performance period

21

GSA AUDITS

Three Kinds of Audits:

Pre-Award Audits – FAR § 52.215-20 (Alt. IV)

Post-Award Audits – FAR § 552.215-71

“Contractor Assistance Visits” (CAVs)

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Pre-Award Audits

GSA Has Increased the Number of Pre-Award Audits

GSA reviews materials related to commercial pricing and

discount practices

Ensure disclosures are accurate, complete, and current

GSA has no right to obtain cost or pricing data or

information used to set commercial pricing and discounts

Request a copy of the pre-award audit report, though GSA

is not required to provide it

23

Post-Award Audits

Covers over-billings, billing errors, and compliance withPrice Reduction and IFF clauses

Generally does not cover pricing, but GSA can usually getinformation relevant to pricing

Duty to maintain records; usually for three years after lastpayment

CAVs should be viewed as audits, and can include reviewof:

products to ensure they fall within scope

pricing and IFF

Trade Agreements Act compliance

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The Importance of Audit Procedures

Identify and develop responses to any existing fraudconcerns

Prevent claims of fraud or obstruction based on the audit

Protect your rights

Bases of liability:

Criminal: False Claims Act; False Statements Act;Obstruction of a Federal Audit; Conspiracy

Civil: False Claims Act (treble damages)

Administrative: Disallowances & Penalties

25

Audit Procedures

Preparation for the Audit:

Obtain the audit request in writing

Conduct an internal pre-audit review

Establish a primary point of contact

Establish a workplace for the audit team

Make a copy of each document provided

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Audit Procedures

The Entrance Conference:

Identify the point of contact

Discuss procedures for requests documents andinformation

Discuss procedures for copies

Request an Exit Conference and a copy of the draft AuditReport

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Audit Procedures

The Audit:

Use the Point of Contact

Respond within a reasonable period

Ensure that requests are within the scope of the audit

Negotiate the request if outside the scope, burdensome, orunreasonable

Identify potential issues and begin preparation of aresponse

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Audit Procedures

Exit Conference:

Auditors should summarize results and inform thecontractor of procedures for issuance of the final report

Contractor should express its position on issues

Contractor should request a copy of draft report

Contractor should request an opportunity to respond inwriting

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Recognizing When an Audit

Has Become an Investigation

Shift in Focus of the Audit

Unusual Focus on a Particular Aspect of the Audit

Failure to Discuss an Aspect of the Audit

Failure to Provide an Exit Conference

Refusal to Discuss Findings on a Particular Issue

Failure to Include an Aspect of the Audit in an AuditReport

Failure to Issue an Audit Report

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