Price Reduction Clause in GSA Contracts

The General Services Administration Acquisition Regulations (GSAR, or sometimes referred to as GSAM) requires a price reduction clause (see GSAR 552.238-75) be included in each GSA Schedule contract. Just as the Government is assured that it secures the most favorable pricing during negotiations, the price reduction clause ensures that it continues to receive "best pricing" throughout the life of the contract. In effect, the clause ensures that the most favorable relationship that existed at the time of negotiations continues throughout the life of the contract.

There are three distinct events that will trigger a price reduction. A reduction is required if the vendor (or contractor):

1. Revises the commercial catalog, price list, schedule, or other document upon which contract award was predicated to reduce prices.
2. Grants more favorable discounts or terms and conditions than those contained in the commercial catalog, price list, schedule, or other documents upon which contract award was predicated, or
3. Granted special 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.

Vendors have an affirmative duty to report all price reductions to the customer (or category of customers) that was the basis of award. Such reporting is to be made to the contracting officer. Failure to comply with the Price Reductions Clause can have (and has had) significant consequences. Thus it is important to fully understand the triggering events.

Consider what just happened to Deloitte Consulting LLP (Deloitte). Earlier this week, the Justice Department announced that Deloitte has agreed to pay $11 million to resolve allegations under the False Claims Act that it submitted false claims under a GSA contract.

In 2000, GSA awarded Deloitte a contract for technology services. The contract contained the price reduction clause which required Deloitte to reduce the prices it charged the Government if it offered lower prices to specific commercial customers during the course of the contract. Between 2006 and 2012, Deloitte failed to comply with the price reduction clause, resulting in Government customers paying more for Deloitte's services than comparable commercial customers.

There are a few exemptions to the price reduction clause. For example, orders outside the basis of award do not trigger the clause. Neither will orders above the maximum order threshold of the GSA contract. There are a few obscure other exemptions, all listed in the Price Reduction Clause.