gsa schedule compliance pitfalls
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© 2012 | All Rights Reserved | 805 King Farm Boulevard | Suite 300 | Rockville , Maryland 20850 | 301.231.6200 P | 301.231.7630 F | www.aronsonllc.com
GSA Schedule Compliance Pitfalls
Presented by:Jennifer N. Aubel
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 2
Agenda• Understanding your Most Favored Customer (MFC) and
Basis of Award (BOA)• The Price Reductions Clause• Pro-Actively Administering your GSA Schedule Contract• Frequently Overlooked Terms and Conditions• Risks and Penalties Associated with Non-Compliance• Recent GSA Inspector General Audit Actions and Findings• Best Practices for Effective GSA Compliance Programs
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 3
Ways Failing to Comply with your GSASchedule Can Cost You Money
1. Not understanding the Basis of Award2. Incomplete, inaccurate, and/or out-of-date
Commercial Sales Practices3. Failing to reduce your prices when required4. Failing to increase your prices when allowed5. Failing to extend all negotiated discounts
(volume, quantity, prompt payment)6. Violating the Trade Agreements Act (TAA) and/or
Service Contract Act (SCA)Not educating the appropriate personnel on contract requirements or establishing adequatecontrols
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Understanding the Most Favored Customer and
Basis of AwardManaging Your Pricing Disclosures
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Major Recurring Findings in OIG Audits
to 1. Commercial sales practices data submitted support proposed pricing reflected non-current, inaccurate, and/or incomplete information (83.0%).
2. Commercial customers comprised <5.0% of the contractor’s sales (43.0%).
3. Contractor charged employees to labor rates for which they did not meet the minimum requirements in the contract (27.0%).
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 6
• Deceptively simple-looking• The single most important document in your
contract!• Designed for products companies; services
contractors will likely need to add information• The advent of the “Document 8”• When to update your CSP
Pricing Compliance Starts with Commercial Sales Practices (CSP-1)
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CSP-1 SpecificsAny customer means ANY customer
Don’t let form dictate content
Explain why GSA isn’t entitled to deviation-
based pricing
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• Used primarily in services Schedules• Can add complexity to the Basis of Award• What is meant by Most Favored Customer?
The Dreaded “Document 8”
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Most Favored Customer (MFC) vs.Basis of Award Customer (BOA)
Most Favored CustomerThe customer or class of
customers that receives your best pricing, regardless of the terms and conditions.
Basis of Award CustomerThe customer or class of
customers upon which the price reductions clause is
predicated.
These terms are frequently used interchangeably, but they are not always the same.
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 10
• Establishes a relationship between the BOA customer’s discount and the GSA discount that must be maintained for the life of the contract
• When this discount relationship is disturbed, then a PRICE REDUCTION has been triggered
The Basis of Award (BOA)
MSRP BOA Discount
BOA Price
GSA Discount
GSA Pricew/out IFF
Discount Relationship
Basis of Award $500.00 10.0% $450.00 15.0% $425.00 5.0%
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 11
Contractor’s price/discount relationship with the Government and with the MFC shall remain throughout the contract period no less favorable to the Government than at the conclusion of negotiations, that is:
For the life of the contract, the Government’s discount of X% [15%] will always be at least Y% [5.0%] greater than the Z% [10%] discount to the customer upon which this award is based.
How GSA Documents the BOA
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The Price Reductions Clause
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GSAR 552.238-75 Price Reductions• Price Reductions are not really about price, rather they
are about the discount• What transactions are monitored for price reductions?
Price Reductions, GSA Schedules
MSRP BOA Discount
BOA Price
GSA Discount GSA Price Discount
Relationship
Basis of Award $500.00 10.0% $450.00 15.0% $425.00 5.0%
Price Reduction $500.00 12.0% $440.00 15.0% $425.00 3.0%
New GSA Discount $500.00 12.0% $440.00 17.0% $415.00 5.0%
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 14
• Sales to eligible users of the GSA Schedules (ADM 4800.2G)• Contracts with a guaranteed value in excess of the Maximum
Order Threshold (MOT)• Price reductions caused by an error in bidding• Dissimilar terms and conditions– Pre-payment, trade-ins– Marketing considerations, exclusivity– Sales quotas, stocking requirements, customer support
• You must still disclose these transactions in your CSP
Exceptions to Price Reductions
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Keeping Your Contract CurrentAdministration and Maintenance
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When do you need to initiate a modification?• Price Reductions Clause is triggered• Changes to your Commercial Sales Practices• Changes to your Commercial Pricelist• Administrative changes to the contract• Change of ownership of the company or name
change
Administering your Contract
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Types of Contract Modifications:1. Contractor-Initiated Modifications– Pricing changes (increases and decreases)– Adding or deleting products and services– Administrative or legal changes
2. GSA-Initiated Modifications– Changes to terms and conditions in Solicitation– Usually mandatory– Notification sent to Contract Administrator
Administering your Contract
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72A Sales Reporting and IFF Remittance– Select method for reporting sales (cash vs. accrual)– Generate a report that accurately captures GSA
sales by SIN while excluding Open Market items and Other Direct Costs (ODCs)
– Verify GSA sales data against active GSA orders and corresponding IFF amount
– Completion of sales reporting and IFF remittance by the 30th of the month, even if you don’t have any contract sales
Sales Reporting and IFF Remittance
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Frequently Overlooked Terms and Conditions
The Fine Print
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• Prompt Payment Discounts• Volume Discounts• Small Business Subcontracting Plan• Trade Agreements Act (TAA) monitoring• Service Contract Act Requirements• Minimum Sales Requirement
Frequently Overlooked Terms and Conditions
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• Employment Eligibility Verification (E-Verify)• Contractor Code of Business Ethics and
Conduct• Reporting Executive Compensation and First-
Tier Subcontract Awards• VETS-100, Affirmative Action and EEO
Reporting
Frequently Overlooked Terms and Conditions
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Risks and Penalties Associated with Non-Compliance
Obey or you may Pay
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Risks and Penalties for Non-Compliance
• Termination for Cause• Payment of restitutions to
GSA customers• Renegotiation of GSA
Discount / Basis of Award• Significant fines and
penalties
• Suspension or Debarment• Civil Prosecution• Criminal Prosecution• Civil False Claims Act=
$11K per invoice plus treble damages
• Prison
The regret of knowing it was preventable!
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 24
How GSA Monitors ComplianceContractor Assistance Visit (CAV) Office of Inspector General (OIG) Audit
All contractors have these Limited number conducted per year
No subpoena power Subpoena power
Short visit and quick turnaround Lengthy data collection and analysis
Review of many compliance areas Focus on pricing issues
Process review and data sampling Extensive testing of transactions
Pre-expiration and mid-term reviews Pre-award or post-contract
Helping contractor succeed Looking for mistakes
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 25
GSA’s Office of the Inspector General (OIG)Sobering Statistics
GSA’s OIG Hotline (800) 424-5210
fraudnet@gsaig.govhttp://www.gsaig.gov/index.cfm/hotline/-hotline-form/
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 26
Comparing the last half of GFY11 to the first half of GFY12, the GSA OIG had a:• 67.8% increase in settlement recoveries ($)• 56.0% increase in suspensions/debarments• 31.7% increase in referrals for prosecution/
litigation
GSA’s Office of the Inspector General (OIG)Sobering Statistics
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 27
• 12/26/12 Grainger, $70M (faulty CSP disclosures)• 07/09/12 ADC Telecommunications, $1.0M (TAA)• 03/29/12 CXtec, $2.0M (Trade Agreements Act)• 10/06/11 Oracle, $199.5M+interest (inaccurate and
incomplete CSP) • 03/08/11 Black Box, $2.85M (failure to extend volume
discounts, improper freight charges)• 01/31/11 Oracle/Sun, $46M (defective CSP disclosures)• 10/10/06 Oracle/PeopleSoft, $98.5M (defective pricing
disclosures)• 12/02/05 Science Engineering Associates, $9.5M
(using unqualified employees)
Significant GSA OIG Settlements
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31 U.S.C. §§ 3729–3733• What is a False Claim?
– FCA make it a crime for any person or organization to knowingly make a false record or file a false claim with the government for payment
• What penalties are involved?– Up to three times the value of the False Claim, plus from $5,500 to
$11,000 in fines, per claim (i.e. invoice).• Justice Department has recovered more than $13.3B in FCA
violations since January 2009• In 2012, the Justice Department brought an all-time high of
647 relator (whistleblower) cases under the False Claims Act
Civil False Claims Act (FCA)
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 29
• OIG reports do not reflect Industrial Operations Analyst (IOA) referrals to the Schedule Contracting Officer for remediation
• Concerns about compliance risks associated with GSA Schedule contracts can impact merger and acquisition activities
• Qui Tam, or whistleblower, provisions of the False Claims Act incentivize disgruntled employees or competitors to report compliance violations
Small Businesses Have Risk, Too
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 30
Best Practices for Effective GSA Compliance Programs
Educate your Stakeholders
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 31
• Maintain system for accurately identifying, tracking and reporting GSA contract sales
• Report GSA contract sales and remit Industrial Funding Fee (IFF) on time
• Monitor commercial sales for compliance with Basis of Award discount relationship
• Maintain GSA price list on GSA Advantage!• Update SAM on an annual basis
Contract Management Basics
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 32
Elements of Successful Compliance Programs
• Executive Leadership• Finance, Contracts and
Administrative• Customer-Facing
Employees• Sales Personnel• Existing Customers
1. Educating Stakeholders
• Commercial Contracts• Basis of Award Customer
• Government Contracts• GSA Sales• Federal, Non-GSA Sales
2. Ability to Track and Capture Transactions
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 33
Elements of Successful Compliance Programs
• Mandatory Modifications• Contractor-Initiated
Modifications• Changes to CPL• Changes to Commercial
Sales Practices• Administrative Changes
3. Modify the Contract when Required
• Task Orders and Master Contract Documents
• Records should be retained 3 years after final payment
• Minimum 8 years
4.Document Retention Policy
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 34
How to Mitigate Compliance Risk
Promote culture of compliance
Develop comprehensive compliance plan
Implement policies and procedures
Communicate policies broadly
Establish necessary
infrastructure
Ensure checks and balances
Monitor and track relevant
sales
Review documents
carefully
Institute regular internal audits
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 35
Elements of Successful Compliance Programs
Conduct Periodic Internal Reviews
GSA Task Order
Compliance
Master Contract
Maintenance
Commercial Pricing Review
Compliance Processes
Review
Internal Systems
Adequacy
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 36
Aronson’s Government-Focused Blogwww.aronsonblogs.com/gcsg
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• Multi-disciplined professionals focused on Government and Technology Services
• Team of professionals dedicated to GSA Schedules provides a one-stop solution for GSA Schedule contracting
• Lead you through the process of identifying, obtaining and maintaining a GSA Schedule contract that is best suited to achieve your specific goals
• Premier GSA Schedule Services advisor• Proven track record helping companies
achieve their government contracting goals
• Ranked #4 in INSIDE Public Accounting’s 2012 “Best of the Best”
About Aronson LLC
© 2012 | All Rights Reserved | Aronson LLC | www.aronsonllc.com Slide: 38
Contact Information
Jennifer AubelManaging ConsultantAronson LLC805 King Farm Boulevard, Suite 300Rockville, MD 20850jaubel@aronsonllc.comDirect: (301) 231-6253
Connect with me on LinkedIn!
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