Thursday, March 27, 2014

MAS Contracts - The Price Reduction Clause and Reporting Requirements

Yesterday as we were reporting on the GSA Inspector Generals critical audit of the MAS program (Multiple Award Schedule), we noted that one of the IG's findings was that one of the significant findings was that half of all contractors had inadequate sales monitoring and billing systems to ensure proper administration of the price reduction and billing provisions of their MAS contracts.

After publication, we had a couple of inquiries for more information concerning the price reduction clause and in particular, the obligations of a MAS contractor.

The essential requirement is that contractors need to develop an internal tracking and reporting system so that whenever the price list for the bench-marked customer (or group of customers), drops, the MAS contract prices drop as well. It is not sufficient to assume that once you have a MAS contract, you're good to go for the next three years, or however long the period of performance. Note also that it is an active requirement. You need to set up the monitoring system and report changes to the benchmark.

The Price Reduction clause is found in the GSA Acquisition Manual (one of the various FAR Supplements) at 552.238-75. It reads, in part;

Before award of a contract, the Contracting Officer and the Offeror will agree upon (1) the customer (or category of customers) which will be the basis of award, and (2) the Government's price or discount relationship to the identified customer (or category of customers). This relationship shall be maintained throughout the contract period. Any change in the Contractor's commercial pricing or discount arrangement applicable to the identified customer (or category of customers) which disturbs this relationship shall constitute a price reduction.
During the contract period. the Contractor shall report to the Contracting Officer all price reductions to the customer (or category of customers) that was the basis of award. The Contractor's report shall include an explanation of the conditions under which the reductions were made.
A price reduction shall apply to purchases under this contract if, after the date negotiations conclude, the Contractor (i) revises the commercial catalog, price list, schedule or other document upon which contract award was predicated to reduce prices, (ii) grants more favorable discounts to the customer (or category of customers) that formed the basis of award, and the change disturbs the price/discount relationship of the Government to the customer (or category of customers) that was the basis of award.
Then, the Contractor shall offer the price reduction to the Government with the same effective date, and for the same time period, as extended to the commercial customer (or category of customers).
The point of the IG audit was that more than half of the MAS contractors have no such system so they have no way of complying with the contract's "most favored price" requirement.

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