The General Service Administration (GSA) is taking steps to enforce schedule holder compliance with the Trade Agreement Act (TAA). TAA regulations require GSA contractors to deliver products wholly manufactured or substantially transformed in the United States or “designated” countries. Historically, this has been an ongoing compliance challenge for federal government contractors, given the increased production of commercial item products in countries that are not TAA-eligible (e.g., China, India, Malaysia, Thailand and Vietnam). GSA reinforced its enforcement activity in May by issuing a letter to more than 2,900 schedule holders requiring prompt responses certifying TAA compliance of schedule offerings. Compliance requirements apply to both schedule holders and manufacturers that offer their products or services through other schedule holders pursuant to a letter of supply that certifies TAA compliance.

On May 5, 2016, GSA regional offices in Fort Worth, TX, and Kansas City, MO, alerted schedule holders by letter that they had one week to “review their total offering of products” and provide evidence of compliance with TAA requirements. The notice requires contractors to submit the Country of Origin (COO) for all products on their schedule along with a Certificate of Origin for all products made in the US or TAA-designated countries.

The letter cites confirmed allegations of Multiple Award Schedule program TAA noncompliance as a driver of GSA efforts to enforce requirements in such a comprehensive and time-sensitive manner. Letter distribution targeted the following schedule holders:

• 84 – Total Solutions for Law Enforcement, Security, Facilities Management, Fire, Rescue, Clothing, Marine Craft and Emergency/Disaster Response

• 56 – Buildings and Building Materials/Industrial Services and Supplies

• 73 – Food Service, Hospitality, Cleaning Equipment and Supplies, Chemicals and Services

• 66 – Scientific Equipment and Services

• 51V – Hardware Superstore

Federal Supply Schedule TAA compliance enforcement

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SCORE No. 01531-161USCSG No. 1606-1957435 NEED None

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

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To determine whether a product is compliant, the contracting officer (CO) relies on the contractor’s certification, which verifies COO classification of the product. The COO determination is complex in and of itself, given that an item may have many components with manufacturing and assembly processes occurring in various countries. Due to the complexity of the product life cycle, U.S. Customs and Border Protection is the authority to issue final determinations, and apply and interpret the TAA’s COO rules (i.e., substantial transformation test). While GSA notices were sent to schedule holders, TAA compliance obligations are not limited to schedule holders. Specifically, any product manufacturer that offers its products through reseller or distributor schedules is required to certify in its Letter of Supply compliance with TAA.

Per GSA instructions, schedule holders found to be noncompliant with TAA requirements must do the following:

• Delete all non-TAA-compliant products from contracts

• Update GSA Advantage to remove the deleted products from the catalog or update any incorrect COO designation

• Submit an updated price list to the National Schedules Information Center

Furthermore, if noncompliant products have been delivered to the US Government, schedule holders may need to make mandatory disclosures pursuant to FAR 52.203-13 and FAR Subpart 9.4. If proper notification is not provided by the schedule holder, long-term implications may include potential criminal and civil penalties under the False Claims Act (FCA), cancellation of the contract pursuant to General Services Acquisition Regulation 552.238-73, suspension or debarment. FCA liabilities can extend to manufacturers that incorrectly certify their products as being TAA-compliant to reseller/distributor schedule holders.

While the GSA notice focused on products, TAA compliance is also enforceable on government contracts for services and solutions. The test for COO is where the contractor is “established,” and has been recognized by the U.S. Government Accountability Office (GAO) to mean where the contractor is incorporated or headquartered.

The U.S. Department of Veterans Affairs (VA) recently issued a policy reversal requiring all covered drugs under the Veterans Health Care Act to be offered on Federal Supply Schedule (FSS) contracts, regardless of whether the contractor met the COO standards of the TAA. The VA CO has the authority to issue “non-availability determinations,” which will allow the VA to list noncompliant covered drugs on FSS contracts under certain circumstances. The policy reversal requires manufacturers to submit a Request for Modification if they already have FSS contracts and add their noncompliant products. Companies that do not have FSS contracts, due to the fact that all their covered drugs were classified as noncompliant, must enter into an interim agreement with the VA that will enable their covered drugs to be considered for an FSS contract. TAA noncompliant drugs are required to be on a FSS contract or interim agreement by June 6, 2016.

Going forward, schedule holders should document their manufacturing process in detail, assess compliance with TAA requirements, and establish a process for maintaining COO records for products and services on their FSS schedule contracts. Similar initiatives should be undertaken by manufacturers that certify their products and services as being TAA-compliant to schedule holders. Ensuring compliance with the TAA, whether a schedule holder is offering a product or service, is critical to reducing contracting risks, including FCA allegations.

EY’s Government Contract Services (GCS) has long been at the forefront of providing services to prospective and performing GSA and VA FSS contractors. From assisting contractors in obtaining FSS contracts to helping resolve Department of Justice (DOJ) fraud allegations, we have knowledge and experience in a wide variety of pricing, contract administration and systems issues and litigation situations.

ContactsSajeev Malaveetil Partner Ernst & Young LLP +1 703 747 1248 sajeev.malaveetil@ey.com

Todd LaMastres Partner Ernst & Young LLP +1 214 969 8484 todd.lamastres@ey.com

Courtney Black Senior Manager Ernst & Young LLP +1 214 969 9604 courtney.black@ey.com