Federal Supply Schedules - Government Oversight and Enforcement Rights
"Examination of Records" Clause. This clause at GSAR 552.215-71 gives authority to the government to conduct postaward audits under the Schedules Program. In response to comments that postaward reviews of initial pricing actions deviated from commercial practices the program was designed to emulate, the Examination of Records clause was amended in August 1997 to eliminate that portion of the clause that automatically provided for postaward audits of pricing information. Though such authorization may be given under unusual circumstances, the clause became much less onerous by removing the threat of defective pricing audits. Contractors must still, at a minimum, retain records for their Schedule contract and options from contract inception or the beginning of the option until three years after receipt of the last payment.
Postaward Audits. The GSA is still entitled to conduct postaward audits to ensure compliance with two GSAR clauses – the "Industrial Funding Fee and Sales Reporting" clause and the "Price Reductions" clause. Common problems are (1) failure of contractors to report sales and remit the IFF and (2) report discounts after award to the "Basis of Award" customers and hence provide proportionate price reductions to the government. The IFF is a fee paid to the ordering agency to cover GSA FSS’s operating and administration costs. The burden is on Schedule contractors to (1) include the IFF in the prices charged to the ordering agency (2) collect the IFF (3) make quarterly reports to the FSS on contract sales and (4) remit payment of the IFF (currently 0.75% of their quarterly Schedule contract sales). The quarterly reports and IFF payments are due "within 30 calendar days following completion of each reporting quarter."
During an audit for IFF compliance auditors may investigate whether contractors are performing in accordance with the "Basis of Award" and "Price Reduction" clause. Generally auditors will question (1) whether contractors’ current sales and billing data are complete (2) whether the contractor has timely disclosed changes in its price lists, discounts or discounting policies (3) whether the Schedules reflect price reductions offered to the "Basis of Award" customers (4) whether the government has been given the appropriate discounts in a timely manner and (5) whether the contractor is compliant with the other contract terms. If the audit uncovers violations of the IFF or Price Reduction clauses the government will almost certainly seek a price reduction and possibly other damages.
Enforcement Rights. The government has a variety of tools to discourage false reporting. A number of statutes (e.g. criminal False Claims Act, Major Fraud Act, etc.) provides hefty criminal sanctions against willful false statements. Expensive civil actions, where double and treble penalties can be imposed, are also possible where the state of mind aspect necessary for criminal action is much less. Rather than intent to defraud for criminal action, the government only needs to prove, by a preponderance of the evidence, the contractor had "actual knowledge of the information" or "acted in deliberate ignorance" or "reckless disregard of the truth." Finally, there are considerable administrative remedies where claims against the contractor can be made where no form of intent is needed.
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