GSA Schedule Obligations

The General Services Administration’s Multiple Award Schedule is one of the government’s primary contract vehicles for purchasing commercial products and services.  Although the Schedule is intended to mirror commercial practices, there are significant obligations that a would-be contractor should consider when deciding whether or not to seek a Schedule contract. 

Applying for a Schedule contract requires a company to fully disclose its commercial pricing and practices.  The government will use the information to attempt to negotiate pricing and other terms (such as warranty and shipping) that are as good as or better than those offered to a company’s most favored customer.  There may be circumstances that make providing a company’s products or services to a particular customer less expensive than providing them to the government. In such a case, during negotiations the company should articulate to the government why the pricing to a particular customer should not be considered. 

The customer or category of customers that are relied upon by the company and the government to establish pricing will become the “basis of award” for the contract.  It is in a company’s best interest to keep the basis of award as narrow as possible.  In other words, the basis of award should contain as few customers as possible.  Additionally, naming actual customers is preferable to a category of customers, since categories tend to be broad and grow over time. 

All Schedule contracts include a price reduction clause (See GSAR 552.238-75).  This clause maintains the pricing relationship between the government and the customers that form the basis of award (e.g. the government receives 20% off list and customers receive 10% off list would be a 2:1 relationship).  So if a company decreases the price to a company that forms the basis of award, the company will have to provide a decrease in price to the government that maintains the relationship.  Any price reductions must be reported to the government no later than 15 days after its effective date, and the price reduction will apply to the government retroactively to that effective date. 

It is crucial that prior to receiving a Schedule contract a company establish adequate controls and procedures to ensure it complies with the price reduction clause.  Sales personnel must be trained and incentivized to pay close attention to changes in prices to customers that form the basis of award.  Otherwise, a company may be obligated to lower its Schedule contract price. 

Failure to fully disclose commercial pricing during negotiations and maintain pricing in accordance with the price reduction clause can have a devastating impact on a company.  The government regularly performs audits of Schedule contracts.  Any discrepancies can lead to a wide array of consequences, including price adjustments, contract termination, debarment, and criminal/civil penalties.