There are a few exceptions to the price reduction clause - events that will not necessarily trigger the clause. These include:
- Orders outside the basis of award. Vendors can grant whatever discounts they want to customers outside its Basis of Award, so long as such discounts are consistent with the vendor's disclosed commercial practices. This had better be well documented as the Government will naturally be very suspicious of some customer that suddenly falls outside the basis of award.
- Sales to authorized Schedule purchasers. If a purchaser is authorized to buy under the MAS contract but the contractor offers to sell at a lower price, that sale will not trigger the price reduction clause. The logic here is that the discount will accrue to the Government anyway.
- Orders above the maximum order threshold.
- Charitable donations
- No-charge items. For example, a contractor might offer a freebie to apologize for a late delivery or something along those lines.
If any of these events occur, it is always advisable to notify the contracting officer of the event and why you are not adjusting the prices as a result.
We should also address the consequences for failing to comply with the price reduction clause. Most likely, the penalties will be administrative in nature but could be more severe depending on how egregious the violation.
Administrative actions might include:
- a price adjustment (most likely event)
- a breach of contract claim by the Government against the vendor
- termination for default
Other penalties available to the Government include violations of
- the civil or criminal False Claims Act
- the criminal False Statements Act
- other criminal statutes
If there is a violation and the Government overpaid as a result of that violation, the Government will want its money back. That's why a price adjustment would be the most desirable outcome. Anything other than that, i.e. breach of contract or termination for default, will end your days as a Government vendor.