Buy Lines: What's your basis of award?

Steve Charles

The most recent example was this summer. GSA insisted, under threat of termination, on major price reductions for Sun Microsystems Inc. products across multiple schedule contracts. But other audits are quietly working through the discovery and settlement process, which involves an analysis of every order and price a company charged for goods and services to federal and nonfederal customers.

Some common questions I hear are:

  • How can the government demand this information when my company sells commercial items?

  • Didn't procurement reform eliminate the need to provide cost or pricing data to the government?

  • Why can GSA's inspector general demand to see pricing data before renewal of an option period, and then use that information to demand lower prices?

  • Why can the government claim I overcharged them for the past five years, if the pricing in my new five-year schedule contract is more favorable?

The answers lie in the fact that multiple-award schedule contracts are awarded without competition. The "competition" component is the offerer's track record in the U.S. market combined with the GSA contracting officer's authority to seek most favored customer pricing.

The contractor then promises that the pricing will remain competitive relative to certain nonfederal customers or categories of customers as designated in the contract award documents.

GSA's inspector general has the authority to ensure that pricing structure is maintained throughout the life of the contract.

If irregularities are discovered, auditors will look back to previous contract periods. Because few companies keep records designed to maintain pricing relationships among types of customers, auditors often -- as much as 84 percent of the time -- find overcharges to the government. GSA then threatens termination until the alleged overcharges are paid.

On July 26, the GSA inspector general, along with a representative from Veterans Affairs Department, asked a Senate Homeland Security subcommittee on federal financial management, government information and international security for greater authority to conduct post-award audits. VA said that its post-award audit authority, with the threat of criminal charges and treble damages, has saved the government millions of dollars.

Industry has been voicing its opposition to an advance notice of proposed rulemaking that wants to bring back full post-award authority for GSA multiple-award schedule contracts. This authority lets auditors see pre-award sales data any time up to three years after the final payment has been made under a five-year option period.

Industry has argued that GSA does not have the authority to apply these kinds of cost or pricing data requirements on commercial items. The GSA inspector general argues that they have found that commercial contracts have similar most favored pricing clauses and that the deterrent of post-award audits is needed to remind industry how the contract works.

Companies should take seriously the data system requirements of holding a schedule regardless of how the proposed rule fares in coming months. Such a system of records is required to comply with the contract's price reductions clause and the examination of records clause as they stand today.

I recently showed a marketing person a pre-award audit data request letter from the GSA inspector general. The marketing person said, "I wish we had this kind of data."

Don't let a GSA auditor hear you say that.

Steve Charles is cofounder of immixGroup, a government business-consulting company in McLean, Va. Steve welcomes your comments at

About the Author

Steve Charles is a co-founder of immixGroup, which helps technology companies do business with government. He is a frequent speaker and lecturer on technology and the federal procurement process. He can be reached at or connect with him on LinkedIn at

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