The Price Reduction Clause

Posted by Kevin Lancaster on Oct 28, 2011 12:36:27 AM

The pricing portion of a GSA Schedule is the most complex part of the contract. Since the US federal Government is the world’s largest volume buyer in the world, they expect to receive the lowest price possible for products and services. Therefore, every contract established with the GSA must include a price-reduction clause. This requires companies to give the government equal or better than their best customer price.

Just recently, Oracle Corp., the world’s second- biggest software maker agreed to pay $199.5 million plus interest to settle allegations that the companies failed to provide a price that it was giving another customer. The accord resolves a lawsuit claiming Oracle induced the GSA to buy $1.08 billion in software from 1998 to 2006 by providing inaccurate and incomplete information to GSA.

This amount is the largest obtained by GSA under the False Claims Act, a Federal law that allows citizens with knowledge of fraud (aka whistleblowers) by the United States Government to sue on behalf of the government against the person who committed the fraud. If this is successful, the whistleblower receives a portion of any recovered damages. In the case of Oracle, a previous employee filed the case in 2007 and 40 million dollars.

The discount that Oracle gave to the Government ranged from between 25 to 40 percent. Meanwhile the company offered other companies discounts of as much as 92 percent.

This case highlights the importance of adhering to the price- reduction clause. The Price Reduction Clause ensures a fixed relationship between the discounting practices offered by a contractor to GSA and the discounts offered by the same contractor to its “Basis of Award customer”. The Basis of Award customer represents the customer that is used as the representative benchmark. If a price reduction is offered to that benchmark customer at any time, the Government must receive that discount as well. This is one of the most important compliance factors to keep in mind when establishing and maintaining a GSA Schedule. The complexity of compliance depends on several variables. These include components such as pricing structure, the nature of services and the amount of products offered.

Consult Winvale if you’re uncertain or have any questions regarding this topic!

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Kevin Lancaster leads Winvale’s corporate growth strategies in both the commercial and government markets. He develops and drives solutions to meet Winvale’s business goals while enabling an operating model to help staff identify and respond to emerging trends that affect both Winvale and the clients it serves. He is integrally involved in all aspects of managing the firm’s operations and workforce, leading efforts to improve productivity, profitability, and customer satisfaction.

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