Despite tough economic times, especially in commercial markets, new multi-billion dollar government initiatives offer federal contractors opportunities unprecedented in recent history. With streamlined acquisition capabilities and pre-negotiated pricing, GSA Schedules will likely play a large role in “bailout” contracting. GSA Schedule holders need to beware, though, as fire sale prices offered to commercial customers could put you in hot water with the Government if you aren’t actively monitoring for GSA Schedule price reductions.
To monitor for price reductions, you need to know two things – the GSA Schedule Basis of Award (BOA) and who your Most Favored Customer (MFC) is. When you agreed to the terms and conditions of your GSA Schedule, you established a discount relationship with the Government called the BOA, which exists between GSA and your MFC. For example, your BOA statement might say something like “the discount offered to GSA will never be less than 5% more than the MFC’s discount of 10% off MSRP”. In this case, the additional 5% discount offered to GSA off the MFC discount is a constant; however the MFC’s discount of 10% could change. If it does, then price reductions come into play. Adding to the complexity is the fact that a GSA Schedule can have multiple BOAs and MFCs for different Special Item Numbers or manufacturers on Schedule.
In order to keep on top of potential GSA Schedule price reductions, it is vital to educate any employees responsible for offering pricing to commercial and government customers on how low they can go before a price reduction occurs.
Don’t Play with Fire!!
Keeping with the previous example, let’s say an overly ambitious salesperson decides to offer your MFC a special discount of 20% in order to close a deal before year’s end. The moment that deal is signed, a price reduction has occurred. Companies that have an active compliance program would probably have never let that deal go through in the first place, because they know that they now have to offer GSA a new discount of 5% more than the NEW MFC discount of 20%. Companies that aren’t paying attention; however, could end up with quite a surprise at their next GSA Contractor Assistance Visit when the price reduction is uncovered and they have to repay the money overcharged the Government since the triggering sale.
Don’t get in over your head – if you need help managing your GSA Schedule or developing a compliance program, contact Tom Williams of Aronson & Company at 301-222-8289 for assistance. Now is the time to make your GSA Schedule work for you!