GSA Price Reductions Clause Settlement Largest Ever
On April 6, 2009, the U.S. Government settled a claim for $128 million dollars against Network Appliance Federal Systems, Inc. ("NetApp") that was based in part on the company’s purported non-compliance with the Price Reductions Clause under two GSA Schedule contracts. This represents the largest settlement reached by the U.S. Government in a Price Reductions Clause non-compliance case. According to the settlement agreement, the claim originated as a qui tam action filed by a former employee of NetApp who will receive $19.2 million dollars of the settlement amount.
This case represents yet another reminder to GSA Schedule holders that a robust compliance program is essential to successfully managing a GSA Schedule contract. GSA Schedule contracts contain numerous terms and conditions that have no commercial equivalent and are frequently overlooked by contractors more focused on obtaining new business and successfully performing than on managing contract compliance risk. Unique GSA contract terms include, for example, provisions that require current, accurate and complete disclosure of pricing information, sourcing restrictions under the Trade Agreements Act, accurately accounting for administrative fees called Industrial Funding Fees, and the price maintenance obligations under the Price Reductions Clause.
The Price Reductions Clause is found in every GSA Schedule contract. It is sometimes compared to a most favored customer clause, but it can be much more complicated to manage in practice. Typically, the Price Reductions Clause requires that a contractor monitor its commercial pricing practices and guarantee to GSA that the relationship established at time of award between the prices negotiated with GSA and the prices reflected in the contractor’s then current commercial price list, as well as in relation to the prices offered to its commercial customers, must remain constant throughout the life of the GSA Schedule contract. Any price reduction in the contractor’s commercial price list or to commercial customers after award of the GSA Schedule contract frequently must be reported to GSA and a comparable reduction is expected to be extended to GSA immediately. In application, the Price Reductions Clause is fraught with ambiguity, and the nuances associated with complying with it can be untenable. It is particularly difficult to manage risks associated with the Price Reductions Clause for companies with a large volume of non-GSA business or that do not maintain stringent pricing controls for their non-GSA business. A best practice is to carefully negotiate the requirements of the Price Reductions Clause up-front at time of award or modification, so that it is understood and manageable in the context of the contractor’s business practices. Otherwise, even the most conscientious contractor may run afoul of this clause.
If you have questions or concerns regarding the Price Reductions Clause or GSA Schedule compliance generally, you may contact Jeffrey S. Robinette of the Robinette Group PLC at 703.887.2036 or email firstname.lastname@example.org.