GSA Federal Supply Schedule Contracting: Compliance Program Best Practices

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2 GSA Federal Supply Schedule Contracting: Compliance Program Best Practices Breakout Session #: F14 Presented by: David Black, Partner, Holland & Knight Bill Bressette, Principal, Baker Tilly Date: 7/23/2013 Time: 4:00pm 5:15pm 1

3 Table of Contents CSP Disclosure Requirements and Contractor Best Practices Price Reduction Clause Requirements and Contractor Best Practices Considerations Unique to Professional Services Under GSA FSS Contracts Trade Agreements Act Requirements and Contractor Best Practices 2

4 Commercial Sales Practices Disclosure 3

5 CSP Disclosure Requirements Contractor is requested to disclose Commercial Sales Practices (CSP) data as part of original proposal package, certain modifications, and at the time of the option extension Among other items, the standard CSP form requests that you: Complete a matrix listing (i) customer categories; and (ii) best discounts per written policy or standard practice (where written policies do not exist) for each customer or category of customer that receives pricing equal to or better than that offered to GSA; (iii) concessions State whether the discounts and any concessions you are offering to the Government are equal to or better than the best price offered to any customer based on written policies or standard practices State whether any deviations from your disclosed written policies or standard practices ever result in better discounts (lower prices) or concessions Explain any deviations from the written policies and standard practices, including the frequency of occurrence 4

6 CSP Disclosures: Auditor Perspective Typical Pre-Award Audit Findings Regarding CSP Disclosures CSP is not current, accurate and complete. Government is not offered MFC pricing despite comparability to commercial MFC Failure to disclose full range of commercial discounts, terms and conditions more favorable than those offered to GSA Failure to identify and report all GSA schedule sales Employees do not meet the education and work experience for the labor positions billed Cost build-up rates are not accurately calculated. Indirect employees are included in the base hourly rates for direct employees, and/or inappropriate or excessive application of burden (fringe benefit and overhead) rate. 5

7 CSP Disclosures: Best Practices Perform data sweep prior to proposal submission and contract extensions Identify all current written pricing policies Pull and analyze commercial sales data and agreements to determine actual sales practices and deviations from policies and standard practices Assess reliability of sales data pulled from systems may need to sample from booking packages Analyze sales data for possible anomalies ensure data is usable, consider reconciling to G/L Interview sales, finance, and legal personnel involved in commercial sales process to further identify practices and deviations from those practices Document process to mitigate risk of reckless disregard allegations Focus on all customer types, even those that are not directly analogous to GSA customers 6

8 CSP Disclosures: Best Practices Prepare a narrative to accompany disclosure form Explain your efforts to compile data and characterize in terms of good faith Include appropriate disclaimers based on limitations or questions concerning data Identify and explain the deviations from written policies or standard practice Indicate whether you reserve the right to continue with identified deviations without being considered triggering events under the Price Reduction Clause (also include statement in your Final Proposal Revision and the ultimate contract) Potential deviations might include, for example: Bundling discounts, spot discounts, customer satisfaction, free training, Sales of obsolete/sample goods, trade-in allowances, upgrade allowances, non-standard warranties Consider conducting CSP sweeps on an annual basis, because: GSA clauses applicable to contract additions require confirmation of your commercial sales practices; and Consider potential PRC issues 7

9 Price Reduction Clause GSAM

10 Price Reduction Clause Requirements Contractor and GSA agree on: 1. A Basis of Award (BoA) customer or category of customers; and 2. A discount relationship between the Government and the BoA customer Contractor required to maintain this discount relationship throughout the contract. If the Contractor disturbs this discount relationship, it must notify the Contracting Officer (CO) within 15 days after the effective date. Report includes explanation of the conditions under which the reductions were made. The contract will be modified to reflect any price reduction. 9

11 Price Reduction Clause Requirements How does the price/discount relationship work? The price offered to a BoA customer can be higher than the GSA price and still trigger the PRC. It is the proportional relationship that counts Discount relationship maintained Discount relationship broken GSA to be notified and given equal opportunity to take advantage of price reduction 95 Sales Price Discount relationship broken in GSA s favor no PRC risk Month BOA Price GSA Price 10

12 Price Reduction Clause Requirements Price Reductions Any change in the Contractor s commercial pricing or discount arrangement applicable to the identified BoA customer below the Maximum Order Threshold which disturbs the Government s identified price or discount relationship to the BoA customer Examples: Revisions (resulting in price reductions) to commercial pricelist or other document upon which contract award was predicated; Grant of more favorable discounts or terms and conditions than those contained in the pricing documents upon which award was predicated; Grant of special discounts to the BoA customer, and the change disturbs the price/discount relationship of the Government to the BoA customer 11

13 Price Reduction Clause: Auditor Perspectives Right Hand vs. Left Hand Problem: The commercial side of the house doesn t understand the PRC and doesn t report transactions that trigger a price reduction Lack of Robust Tracking Procedure: Contractor lacks disciplined, real-time procedure for internally screening BoA customer sales for discounts Incorrect understanding of price/discount relationship between the Government and BoA customer: Contractor does not recognize all of the instances in which a price reduction would be triggered and how the price reduction would be calculated 12

14 Price Reduction Clause: Auditor Perspectives Non-Standard Discounts that are really Standard : Contractors give BoA customers non-standard discounts that should be disclosed under the PRC because, in practice, they amount to consistent discounts Insufficient Documentation of Deal Circumstances: Contractor does not document business justification for special terms and conditions to BoA customer based on unique circumstances (i.e., high volume, exclusivity, etc.) 13

15 Price Reduction Clause: Best Practices PROCEDURES: Real time data capture of all sales to the BoA customer, including all relevant data regarding deal terms and justification of nonstandard discounts. Real time analysis of all sales to identify deals that disturb the price-discount relationship between the Government and the BoA Customer. Prompt management pre-sale review of sales to BoA customers that disturb the relationship. 14

16 Price Reduction Clause: Best Practices PROCEDURES: Timely report all BoA Customer Sales that disturb the pricediscount relationship. Accurately calculate the amount of the price reduction and apply to government sales as of effective date of reduction. Identify and inform CO of PRC interpretation issues and how the contractor is handling them, including justification for not treating pricing change as a price reduction. Notify CO and offer Government benefit of all temporary promotion and price reductions to BoA Customer. 15

17 Price Reduction Clause: Best Practices PROCEDURES: Record retention relating to price reductions. Contract modifications: Clearly identify BoA customer and maximum order threshold. Promptly notify CO of all errors in quotation or billing. 16

18 Price Reduction Clause: Best Practices ASSIGN RESPONSIBILITY FOR PRC COMPLIANCE TRAINING, TRAINING, TRAINING. AND RE-TRAINING Never ending education campaign PERIODIC INTERNAL AUDITING OF PRC COMPLIANCE Find skeletons in the closet before the government does Identify and fix errors in PRC application before problems snowball ROBUST INTERNAL INVESTIGATION AND MANDATORY DISCLOSURE Internal employee reporting mechanism Responsibility for responding and investigating reports Responsibility for deciding whether to disclose/not disclose Documentation of this process 17

19 Service Contracting Issues 18

20 GSA Services Contracting: The Problem The expanding use of professional services has led to challenges in virtually all aspects of GSA FSS services contracting pricing and compliance, including preaward disclosures, post-award compliance, and GSA OIG Audits Unique nature of professional services business practices and pricing do not fit well within the current GSA contracting model Rarely are there published prices pricing decisions are decentralized, and vary dramatically based each project/client commercial customers come and go, so defining the optimal BoA can be very difficult Whatever came of the Multiple Award Schedule Advisory Panel recommendations and the proposed modifications to the CSP? GSA s use of the IT Services Best Rate matrix: Rates offered to the government should not be higher than your BEST (LOWEST) RATES under any contract shown. This form causes many problems for contractors 19

21 GSA Services Contracting: IT-70 Supplemental Pricing Matrix 20

22 GSA Services Contracting: Contractor Risks Commercial pricing practices are not well defined or understood internally, which results in GSA disclosures that are not current, accurate and complete Leads to defective pricing and potential False Claims Act liability CSP disclosures do not sufficiently capture all of the standard and non-standard pricing practices - Leads to defective pricing and Price Reduction Clause noncompliance audit findings Labor categories used commercially and as a basis for GSA prices do not align with (i.e., do not map to ) GSA labor categories - Leads to overbilling audit findings Company personnel working on GSA task orders do not meet the labor category requirements - Leads to overbilling audit findings Basis of Award customer(s) no longer exist This increases the chance that a broader BoA customer class will be pushed by GSA CO during price negotiations 21

23 GSA Services Contracting: Best Practices Key considerations for pre-award CSP disclosures: Properly define labor categories - contractors can establish flexibility by allowing years of relevant experience to be substituted for education and certification requirements. Map commercial or standard labor categories to proposed GSA categories for purposes of pre-award pricing analysis and disclosures. Explain the analysis you performed in formulating proposed pricing, and be very thorough with CSP disclosures, particularly as it relates to deviations from standard practices. Consider performing a statistical discount frequency analysis if frequency and depth of discounts are significant, consider other options, perhaps even a cost build-up approach. Components of effective post-award compliance include: Establish processes/controls to ensure personnel working on GSA projects meet minimum labor category requirements focus should be on years of experience, education, and technical skills. Adjust labor category mapping as commercial business changes and update GSA disclosures. Periodically review the qualifications of resources staffed to GSA Schedule projects to ensure compliance. 22

24 Supplies / Equipment: Country-of-Origin Issues 23

25 Country-of-Origin Requirements FSS Contracts are subject to the Trade Agreements Act (TAA) FAR and FAR The Contractor shall deliver under this contract only U.S.- made or designated country end products except to the extent that, in its offer, it specified delivery of other end products in the provision entitled Trade Agreements Certificate. The offeror certifies that each end product, except those listed in paragraph (b) of this provision, is a U.S.-made or designated country end product, as defined in the clause of this solicitation entitled Trade Agreements. 24

26 Country-of-Origin Best Practices PROCEDURES: Collect information required for product screening Require all vendors to provide certification of country of origin of each product supplied. Require all vendors to recertify the country of origin at regular intervals and upon request. Document substantial transformation analysis for all end products comprising of non-taa compliant materials or components. Maintain (and update) database of country-of-origin of all end products and components. 25

27 Country-of-Origin Best Practices PROCEDURES: Screen all products for TAA compliance before adding them to the FSS Contract Document the TAA compliance analysis as part of FSS process. 26

28 Country-of-Origin Best Practices ASSIGN RESPONSIBILITY FOR TAA COMPLIANCE EFFECTIVE TRAINING INSERT SUBCONTRACT CLAUSES PERIODIC INTERNAL AUDIT OF PRODUCTS ROBUST INTERNAL INVESTIGATION AND MANDATORY DISCLOSURE 27

29 Questions? David Black, Partner, Holland & Knight Tel: (703) , Bill Bressette, Principal, Baker Tilly Tel: (703) , 28