GSA Contract Pricing

Posted by editor on April 21st, 2009

A contractor has settled a lawsuit with the General Services Administration to the tune of $128 million dollars for not offering its lowest available pricing on a Federal Supply Service contract.

The contractor, California-based NetApp Inc., got into trouble under the False Claims Act, a “whistleblower” act that allows people not affiliated with the government to make claims on the government’s behalf. In this case, a former employee filed suit under the Act after senior managers reportedly ignored his findings that GSA was not given discounts available to commercial customers. The whistleblowing former employee will receive $19.2 million as part of the suit.

GSA Pricing and Commercial Discounts

Where did NetApp Inc. go wrong?

The contractor’s first mistake was in not giving the GSA the lowest available pricing. Their agreement required that the GSA be offered the same discounts as NetApp’s best commercial customers. This can be a tricky requirement to navigate. The lowest per unit pricing is not sufficient – the GSA must also be offered any discounts for bulk purchasing, repeat purchases, etc. that a contractor regularly offers its commercial customers. A one-time, customer-specific discount would most likely not apply, but if your company is regularly offering reduced pricing to some of its best customers, it must do the same on the GSA schedule. Similarly, if a company lowers prices overall during the course of a contract, it must inform the GSA before renewing the contract rather than trying to renew at the previous price.

While a pricing mix-up can stem from an error, the False Claims Act applies specifically to contractors who knowingly withhold information from or provide misleading information to the government. In the NetApp case, the suit alleged that NetApp knowingly kept information on commercial discounts out of the GSA’s hands.

NetApp’s second mistake was in failing to take action when employee Igor Kapuscinski notified management that the GSA wasn’t getting discounts that commercial customers were receiving. Because the False Claims Act specifies that contractors must knowingly deceive the government, NetApp senior management could have conceivably avoided the lawsuit by taking action when Mr. Kapuscinski brought the matter to their attention. Instead, the complaint alleges that in a meeting in July 2003 (four months after Kapuscinski first brought up the problem), NetApp failed to mention the commercial discounts to the GSA.

Making false statements in this manner is not only unethical, but also illegal. Because a government agency might not have much visibility into a company’s inner workings, the False Claims Act allows people who do have access to this kind of information to expose contract fraud. Not only does this put a stop to unethical behavior, in many cases (such as this one) the complainant receives a portion of the damages for his or her help.

Lawsuits such as this one serve as a reminder to all government contractors to double- and even triple-check all contract documents to ensure full compliance with the contract, and to address errors as soon as they are found. Noncompliance with a contract is bad enough – it can cost your company a lot of money and damage your chances of a contract renewal – but a trial for contract fraud can permanently damage a company’s reputation.