Infotech and the law: Federal IT schedule opens to state, local governments

Every year, federal agencies spend billions of dollars on commercially available IT products and services through the Federal Supply Schedule program. Now state and local governments have the same opportunity under a law that took effect May 7.Cooperative purchasing, as it is known, potentially could open an enormous market for IT schedule contractors. While there are procedural and practical hurdles that will discourage some state and local buyers from participating, the sheer magnitude of the possible market is compelling.Look at the numbers: 50 states, 3,139 counties, 19,365 incorporated municipalities, 30,386 minor subdivisions, 3,200 public housing authorities, 14,178 school districts, 1,625 public education institutions of higher learning and 550 tribal governments are among those authorized to buy IT products and services through the FSS program.To implement the new law, the General Services Administration released an interim rule that adds a subpart (GSAR 538.70) to its acquisition regulations. Importantly, the proposed subpart and its associated contract clauses do not require FSS contractors to sell to state and local entities; rather, participation is voluntary.When an eligible entity places an order against a federal IT schedule contract or a corporate schedule contract that includes IT products or services, the schedule contractor must either fill the order or specifically decline to do so within five days of receiving it, unless the contract allows for longer response time. Notably, the contractor must fill all orders it doesn't decline within the five-day period, so it is important for contractors to establish a reliable tracking system for receiving and responding to orders.When the schedule contractor accepts or fails to decline an order, a new contract is formed between the ordering entity and the contractor. It incorporates by reference all terms and conditions of the schedule contract, except the disputes clause, the patent indemnity clause and the portion of the commercial item contract terms and conditions that apply only to federal agencies.The ordering entity may include terms and conditions required by statute, regulation or ordinance, but only to the extent that they do not conflict with the terms and conditions of the schedule contract. This is an important change from the proposed version of the rule, as it allows reasonable tailoring of FSS orders, on either the entity's initiative or the contractor's insistence, to state and local procurement laws and liabilities.It remains to be seen how state and local entities will manage potential conflicts between contract clauses mandated by state law and those required by a schedule contract. In cases where the entity's terms and conditions are a matter of policy, the agency may be able to waive them.However, state and local laws that have been translated into mandatory contract clauses cannot be so easily ignored. Therefore, some state and local entities may need to change their laws to facilitate ordering from the federal IT schedule.The interim rule encourages parties to resolve disputes through alternative dispute resolution, but further provides that disputes "may be litigated in any state or federal court with jurisdiction over the parties," applying federal procurement law and, if pertinent, the Uniform Commercial Code.For constitutional reasons, however, it is not clear that any federal forum would have jurisdiction over a contract dispute between a private party and a state or local government. Thus, contractors would be wise to assume that disputes will be resolved in state and local courts and to insist on appropriate contract terms, such as limitations of liability, in orders accepted from state and local governments. *Richard Rector is a partner in the Government Contracts Group of Piper Marbury Rudnick & Wolfe LLP in Washington. His e-mail address is richard.rector@piperrudnick.com.