Price Reduction ClauseThe Government is actively pursuing violations of the discounting terms of contractors GSA Schedule contract, the discounting term violations are known as the Price Reduction Clause.

Prior to award of your GSA Schedule contract, you were required to disclose all of your commercial sales practices to GSA, who in turn identified your Most Favored Customer and used that information to negotiate GSA’s discount pricing (Basis of Award).

As a condition of your contract, you have agreed to maintain the pricing relationship between your GSA pricing and BOA customer.

The negotiated discount relationship between your GSA pricing and your BOA customer must be maintained throughout the contract period. Any reduction in pricing to your BOA customer or change in your standard discounting policies requires a like price reduction to GSA.

Any pricing deviation that disrupts this discount relationship must be reported to GSA not later than 15 days after the effective date. The report must include an explanation of the conditions under which the reductions were made.

There are several exceptions to the Price Reduction Clause:

  • To commercial customers under firm, fixed-price definite quantity contracts with specified delivery in excess of the maximum order threshold specified in your contract;
  • To eligible ordering activities under this contract (basically meaning all federal government entity); and
  • Caused by an error in quotation or billing, provided adequate documentation is furnished to the Contracting Officer.

Keep in mind that if your pricing practices change during the term of your agreement, including offering better discounts to a different class of customer or adding a new customer category that receives better pricing than GSA, you must disclose your new practices. GSA in turn may choose to renegotiate the discounts terms to GSA.

Below are a few cases of violations to the Price Reduction Clause that have resulted in substantial damages:

  • Oracle Did not fully disclose commercial sales practices and discounts, paid back $199.5 million in over charges: link
  • Humanscale Did not monitor price/discount relationship and overcharged the government, paid back $9 million in over charges: link
  • GSA Contractor NetApp Agrees to Pay U.S. $128 Million to Resolve Contract Fraud Allegations: link to story.
  • AbilityOne Industries pays $5 Million to Resolve False Claims Act Allegation: link

Please contact any our Coley GSA expert consultants  if you have any questions regarding the Price Reduction Clause on your GSA Schedule.

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