Reproduced with permission from Federal Contracts Report, 105 FCR (June 21, 2016). Copyright 2016 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
Effective Trade Agreements Act and Pricing Compliance Programs for Federal Supply Schedules
Recent scrutiny by Sen. Charles Schumer (D-N.Y.) and a $75.5 million settlement stemming from allegations of overcharging the U.S. government send a clear message: Vendors must be compliant with their Trade Agreements Act (TAA) and pricing obligations on their Federal Supply Schedules (FSS). This article describes some of the most common TAA and pricing issues and points out some of the best practices.
The U.S. government created the FSS to streamline its acquisition process through volume buying from pre-approved vendors known as schedule contractors. Pursuant to the Federal Property and Administrative Services Act of 1949, 40 U.S.C. 101 et seq., the Government Services Administration (GSA) administers the FSS. This is why the FSS is also known as GSA Schedules or Multiple Award Schedules. In the past 67 years, the FSS have grown into a multibillion-dollar industry of vendors specializing in providing products and services to the U.S. government.
The Federal Acquisition Regulation (FAR) Parts 8, 12 and 38 govern the FSS. In accordance with FAR Part 12, FSS contracts are “commercial item contracts.” This means they may be awarded with less than full and open competition. When placing an order through the FSS, each agency is exempt from the small-business set-aside programs under FAR Part 19.
Compliance Issue 1: Buy American Statute and Trade Agreement Act
The U.S. government requires that products sold on the FSS are Buy American Statute (formerly the Buy American Act) and Trade Agreements Act compliant. In 1933, Congress passed the Buy American Act, 41 U.S.C. §§ 10a-10d (BAA), which required the U.S. government to give a preference to U.S. made goods over foreign-made goods in federal procurements to protect American workers and businesses.
Congress subsequently passed the Trade Agreements Act, 19 U.S.C. § 2512 (TAA) which allows the president to waive the BAA requirements for eligible products from countries that have signed an international trade agreement with the U.S. The TAA waiver applies only once certain dollar thresholds are met. The GSA has determined that since the estimated dollar value of each schedule it administers exceeds the established TAA thresholds, the TAA is applicable to all schedules. Both acts are discussed in detail in FAR Part 25, Foreign Acquisition.
Schedule contractors must comply with the BAA and TAA requirements. Specifically, the FAR states that schedule contractors must certify that each end product offered to the U.S. government is a U.S.made or designated country end product as defined in the “Trade Agreements” solicitation clause. Many schedule contractors purchase products from European or Asian suppliers or manufacturers and resell them to the U.S. government. Thus, it is critical to ensure that each product sold to the U.S. government has adequate compliance documentation.
The GSA has recently contacted schedule contractors to verify that their products are TAA and BAA compliant. This comes, in part, in response to the recent push from Schumer, who said several schedule contractors were listing products as “Made in America” when they were actually made overseas. So far, the GSA has removed 11 vendors. In addition to being removed from the FSS, schedule contractors risk debarment, financial liability and criminal penalties.
Compliance Issue 2: Pricing Issues and Requirements
The regulation controlling the GSA schedules requires schedule contractors to provide the U.S. government with the most favorable price. General Services Administration Acquisition Regulation (GSAR) Section 552.238-75 Price Reduction Clause, states, in part, that schedule contractors and the contracting officer must agree upon “(1) the customer (or category of customers) which will be 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.”
The GSAR requires schedule contractors to provide current, accurate and complete pricing policies and practices to the U.S. government during negotiation. Schedule contractors must also notify the U.S. government when they deviate from their standard written pricing policies.
Compliance with the Price Reduction Clause (PRC) is an ongoing obligation. However, many schedule contractors often change their business partners; their business partners change their points of production; and market prices fluctuate. Thus, it is important to monitor all of the changes affecting pricing — not only from the perspective of profitability, but also compliance.
Failure to comply with the PRC may result in substantially overcharging the U.S. government. This, in turn, could trigger a qui tam action against a schedule contractor and the involvement of the Department of Justice. According to the Justice Department, in 2015, two companies agreed to pay $75.5 million to settle claims that they misrepresented their commercial pricing practices and overcharged the U.S. government. Another company agreed to pay $44.5 million to resolve allegations that it overcharged the U.S. government for storage services. In 2016, the first major PRC noncompliance matter involved a company that agreed to pay $11 million to settle alleged false claims relating to overbilling the U.S. government on a GSA contract for six years.
Compliance Issue 3: Mandatory Disclosures of Violations
The Mandatory Disclosure Rule applies to the FSS and schedule contractors. It requires that schedule contractors report fraud and significant overpayments related to the contracts awarded by the U.S. government to the agency Office of Inspector General when a violation relates to ‘…an order against a Governmentwide acquisition contract, a multi-agency contract, a multiple-award schedule contract such as the Federal Supply Schedule, or any other procurement instrument intended for use by multiple agencies…” and to also copy the contracting officer.
This may often place schedule contractors in a difficult position of notifying all of the ordering U.S. government agencies. Failure to comply with the Mandatory Disclosure Rule is considered a cause for debarment. The GSA Office of Inspector General semiannual reports show TAA violations continue to be reported every year.
Best Practices for FSS Compliance
- Detail one or two individuals who are directly responsible for BAA and TAA compliance.
- Establish clear and easy to follow standards and policies.
- Automation prevents human errors.
- Invest in comprehensive compliance IT safeguards and internal checks early on.
- Proper preventive training and decision flowcharts will ensure that your compliance program is responsive to market changes and fluctuating prices.
- Conduct a third-party review of your policies and compliance practices. For close questions, seek legal advice.
- Report TAA and pricing noncompliance issues with your FSS. This includes notifying the ordering agency, the agency responsible for the contract, and your contracting officer.
- It may be best to hire an experienced outside counsel or consultant to handle this.
According to the GSA, the FSS are “fast, easy, and effective contracting vehicles for both customers and vendors” and are designed to mirror commercial business practices. Schedule contractors are automatically connected to multiple procurement opportunities across a wide array of U.S. government agencies. In the past six decades, the FSS have become more complex and require greater compliance. While the FSS offer many benefits, recent congressional and Justice Department scrutiny shows that compliance is paramount.
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