John Weathington, President & CEO of Excellent Management Systems, Inc.
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Success with Government Contracting

3 Steps for Avoiding Huge Government Penalties Against your General Services Agreement (GSA) Contract

Government contract compliance is no stranger to me as I’ve spent a significant amount of time consulting with large firms like Sun Microsystems and Hewlett Packard on their General Services Administration (GSA) issues. Through that valuable experience, I’ve learned some best practices that I’d like to share, that should keep you out of trouble.

Government contracting is just good business sense, and can be a very important part of your overall business strategy. It may take a while to get started, but once you’ve proven yourself as a viable business partner either with quality products, or outstanding service, it can be a very good way to steady through turbulent times. If you don’t already have a GSA schedule, take some time to look into it, and then call a good lawyer to help you get one.

GSA Compliance is Serious Business: If GSA auditors feel things look really bad, they can move for a suspension of contract while they determine whether or not you should be debarred. If you are debarred, you cannot do business with ANY government agency. What’s worse, if these “investigators” suspect fraud or anything that smells like it, you might find yourself in a lawsuit with the Department of Justice (DOJ) under the False Claims Act and / or the False Statements Act. As you can imagine, these penalties are very steep, costing up to $10,000 per Government invoice plus treble damages. Some large companies have paid tens of millions of dollars in GSA fines.

However, with all the benefits comes a level of accountability that is sometimes underestimated. As much as our government likes doing business with you, you can believe this arrangement will not be done on a handshake. There are specific provisions in your contract under what’s called the Price Reductions Clause (PRC), which mandate this policy – “all things considered.”

The “all things considered” (my terminology) part is where you can really get tripped up. For instance, it’s not fair that your business with the Government be compared with sales to resellers, as the discounts will obviously be large. Also, what about sales to academic institutions? What about very large deals? All these are legitimate exclusions from the PRC clause of your GSA contract.

So as it goes, PRC is a thicket in everybody’s contract and for obvious reasons a place GSA auditors love to focus on in an audit. After your GSA contract is awarded, they may show up periodically for a “contractor assisted visit” – an audit conducted by an Industrial Operations Analyst (IOA). This may seem innocuous at first; however, understand that these people are more than just auditors. They are also trained by the Government as investigators, and they will be on the lookout for things that don’t add up.

The key is to stay organized, and follow these simple steps:

Step # 1: Analyze your Commercial Sales Practices for Exclusions

You must be clear in your own organization what constitutes a valid comparison for PRC reasons. Do a very thorough analysis of all the current and possible sales situations that might be a reason for exclusion, and have the backup ready to justify a challenge.

Step # 2: Create a Government Contracting Policy and Code of Ethics

This serves two purposes. First and most importantly, it sends a clear signal to the Government that you are making an honest effort to run your company in an ethical manner. This is extremely important, as the more serious allegations and penalties come as a result of alleged unethical conduct. Don’t give the auditors an opportunity to go this route. Second, it clears up the language of the GSA contract into a lucid and objective statement of contract terms. Your policy should reflect your findings in Step 1 and among other things clearly document all reasons for PRC exclusion.

Step # 3: Create and Execute a Communication Plan

Having a policy on the desk collecting dust will do you no good in an audit. Once your policy is created, ensure that you have plans in place to effectively communicate the policy to all persons involved (email, meetings, training, etc.) on a regular basis. Be diligent on your execution, and be diligent about collecting the evidence of your execution.

Government contracting can be an intelligent business choice, as long as you steer clear from the big pitfalls. I’ve just shown you a three step plan that should help with the more severe types of penalties. Of course, there’s still more work to do, but get started today on building your policy, and communicating it to the right people. You don’t want to be caught in an audit without one.