Tuesday, September 17, 2019

GSA Price Reduction Clause

When GSA negotiates its 'multiple award schedule' (MAS) contracts, it relies on discounts, terms, and conditions that contractors offer to other customers. This is commonly referred to 'most favored customer' pricing.

However, the negotiated prices stated in a MAS contract are not necessarily fixed for the entire term of the contract. Most MAS contracts (perhaps all MAS contracts) contain a Price Reduction Clause (GSAR 552.238-81) which imposes a duty to report certain changes in its commercial pricing terms. In some cases, the Price Reduction Clause will require contractors to adjust their fixed prices downward.

The Price Reduction Clause specifies two events that will require contractors to reduce their prices. If the contractor later reduces the list price or otherwise revised the price list or offers more favorable pricing, discounts, or terms to another customer, the contractor must also offer the same deal to the Government. The other requires that the discount percentage offered to the Government must be maintained. If the contractor offers the Government a 15 percent discount off of list price, but later lowers its list price, the contractor must offer the Government the 15 percent discount off of the new list price, even if the old Government price is still most favored.

UPS (United Parcel Service) found about this clause the hard way. The Justice Department just announced a settlement with UPS for $8.4 million to resolve allegations that it overcharged Federal agencies for package delivery services under its GSA contract. From 2007 to 2014, UPS failed to follow the Price Reduction Clause of its GSA contract.

MAS contractors need to establish internal mechanisms to ensure that it maintains pricing integrity on its contracts. Without such internal controls, it is too easy to forget about contractually require duties and obligations like the Price Reduction Clause.

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