Buy Lines: There is a fine for not walking GSA's line

Here's a business model for you: Uncle Sam signs a contract with you, you deliver, Uncle pays, then you return almost half the revenue.

How about it? No? Well, Oracle Corp. didn't get the choice when the General Services Administration's inspector general, and later the Justice Department, took a close look at a GSA Schedule contract Oracle inherited when it acquired PeopleSoft in 2004.

The PeopleSoft schedule contract was in effect from 1997 until Oracle canceled it in 2005. During this time, the government placed orders for software licenses and related maintenance to the tune of about $240 million.

A former employee blew the whistle that the company hadn't fully disclosed its commercial sales practices before the contract award. As a result, the Justice Department was able to extract $98.5 million in damages and penalties under the False Claims Act in a settlement announced Oct. 11.

Over the past two decades, I've had the opportunity to support hundreds of companies in analyzing sales data to make the pricing and discounting disclosures necessary for the basis of the award-pricing relationship of every GSA Schedule contract. It's not an easy task for the uninitiated, and as the PeopleSoft case reminds us, it must be able to withstand the scrutiny of auditors in order to avoid the kinds of penalties levied against Oracle.

I'm both amazed and concerned by the mistaken beliefs of many in government and industry about what is required to get and maintain compliance with a GSA Schedule contract. I've heard people say that the GSA Schedule is "quantity-one" pricing, convincing themselves, as PeopleSoft apparently did, that they don't have to disclose volume discounts granted to commercial customers. This is not true.

Others claim they don't need to disclose discounts associated with transactions greater than the maximum-order threshold of the schedule contract. Again, this is not true. Just because a transaction over the threshold doesn't trigger the price-reduction clause doesn't mean that discount won't need to be disclosed at the five-year contract option renewal time.

Still others claim that, as GSA in 1996 eliminated the post-award audit clause, the agency has no right to look back in time at discounting practices. Obviously, this is not true.

What is true is simple: Getting a schedule contract requires full disclosure of sales and discounting practices. After award, maintaining a schedule requires a system to monitor easily commercial sales data to maintain the agreed-upon pricing relationship defined in the schedule contract.

Some believe GSA should get out of the business of determining best pricing for the government, saying that contractors should fight it out at the order stage. That might work for commodities, multiple brands meeting the same specification, but it doesn't answer the question of how the government is to do the legally required price analysis for items that are not directly comparable, such as the complex software provided by Oracle.

It is ironic that a contract designed for pure commodities has become the best vehicle to represent complex, commercial products with unique licensing or service-level terms. No other contract can bake in manufacturer-specific terms to let all agencies get the same terms. Under no other contract can a manufacturer with a product that commands a premium price in the commercial market get that pricing on the schedule contract. And if an agency does a best-value evaluation across multiple brands, no other contract offers easier ordering.

But all of these benefits have a cost, that of keeping GSA Schedule contract pricing congruent with their commercial customers. And it is the contractors that must bear that responsibility and that cost.

Steve Charles is a co-founder of immixGroup, a government business-consulting firm in McLean, Va. He welcomes your comments at Steve_Charles@immixgroup.com. immixGroup ranks No. 65 on the Washington Technology 2006 Top 100.