Federal Contract Law: Beware of traps in GSA's schedule program changes

Joseph J. Petrillo

The General Services Administration has gone ahead with one of the changes to the schedule program I discussed in my June 16 column.

GSA uses the Industrial Funding Fee, which it collects from contractors, to pay for the schedules program. On July 11 it issued a new clause on the IFF and sales reporting.

Under the final clause, as in the proposal, GSA can unilaterally change the IFF rate once per year. The clause still doesn't say explicitly that the price a contractor charges its government customer moves up or down with changes in the IFF. But the explanatory text accompanying the new clause makes clear that's just what GSA intends.

Larry Allen of the Coalition on Government Procurement said this aspect of the IFF has given some of the group's members heartburn. When establishing their prices, they 'ate' the IFF, rather than passing it on to their government customers. Now that the rate is changing from 1 percent to 0.75 percent, they need to reduce their prices even further. GSA considered and rejected their plight in the new regulation.

But the greatest impact of the new clause could come from the rules for determining reportable sales for the purpose of paying the IFF. The clause presumes that a sale to an authorized user is accomplished under the schedule contract, unless the contractor can show otherwise. An authorized user is basically any client in the entire federal government, certain contractors and some other customers, such as international agencies and quasigovernmental organizations.

GSA's explanatory text claims that the new clause is simply the continuation of current policy. I beg to differ. A reasonable reading of the old clause would conclude that the burden is on GSA to prove that a sale counts toward payment of the IFF. The new clause seems to put the burden on the contractor to show it wasn't a schedule buy.

The explanatory text is clear about what GSA expects: 'Since vendors always have the ability to make sales outside the schedule, they need to establish with their customers at the time of order placement whether a sale is being conducted under or outside the schedule.'

Given the large number of authorized users, this places a considerable paperwork burden on contractors and their customers.

Things are more complex for IT schedule contractors. Since state and local governments can use schedule contracts for co-op buys, contractors need to show if the sales are actually under the schedule.

GSA doesn't seem open to negotiation about any of this. Its new method of concluding contract modifications is to do so online. The contractor is guided through a series of steps, and can simply accept or reject the proffered modification. It's a lot like the license pages that display when you load new software. GSA offers the changes on a take-it-or-leave-it basis. If you don't take it, presumably GSA cancels your schedule contract.

At the dawn of the IFF era, GSA seemed eager to be more user-friendly, for contractors as well as government customers. Now that the schedule program is an essential sales channel for many companies, GSA seems to be reverting to its old ways.

Joseph J. Petrillo is a lawyer with the Washington law firm of Petrillo & Powell. E-mail him at jp@petrillopowell.com.

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