The three whistle-blower cases the Justice Department joined against Accenture Ltd., Sun Microsystems Inc. and Hewlett- Packard Co. represent the biggest challenge to manufacturers of commercial products in this decade. The cases have ensnared dozens of technology manufacturers and prime contractors.
The General Services Administration’s allegations against Sun should sober any product company that holds a schedule contract. Sun’s decision to terminate its contract because of auditor demands to see commercial sales data illustrates the challenge companies face when providing the required commercial sales practice disclosures to GSA in seeking an award or update of a schedule contract.
A similar failure to disclose forced Oracle Corp., the buyer of PeopleSoft, to pay a record $98.5 million settlement to the government for PeopleSoft’s alleged overcharges on sales of $204 million. Those kinds of damages are simply unacceptable to any company, and companies must understand that they will be required to defend their disclosures with sales data to withstand a GSA inspector general audit, whether it is pre-award or post-award.
Most of the news reports related to the Sun case have focused on the sparring among the leaders of GSA, GSA’s IG and the oversight committees on Capitol Hill. What the news doesn’t tell us is what companies should be doing to avoid trouble with the GSA schedule contracts — especially for products. We also are not hearing why anyone should want to hold a GSA schedule contract or why an agency would want to order from it.
In the past, GSA has called the schedules its crown jewels, and we must ensure that manufacturers and government understand why that remains true. It’s the only vehicle in the government that can accommodate technology products with their many forms of licensing and other terms. And it is the only vehicle that offers easy ordering requirements with built-in reasonable prices that allow competition to occur at the brand level, thus avoiding limited source justifications without having to go through a request-forquotation or request-for-proposal process.
GSA should openly embrace the unique authority granted to it by Congress through the schedules program. When this authority is exercised and audited to maintain program integrity, business transactions can be done much more easily than any other method in a manner that is true to the Federal Acquisition Regulation requirements for competition.
GSA must rebuild integrity in a program that only it has the authority to run — a program that must not be confused with indefinite-delivery, indefinite-quantity contracts. Without such a rebuilding, contractors — especially commercial product manufacturers — who continue to maintain a schedule face a significant monitoring and disclosing burden combined with off-the-charts legal risks but with none of the promised benefits of streamlined ordering.
When the rules are followed, products purchased via a GSA schedule will be commercial items in the truest sense of the term, pricing will be considered competitive, and price reasonableness will be determined so that additional competitive procedures and questions about whether certified cost or pricing data is needed at the delivery order stage are averted. Section 1.2.2.6 of the Defense Contract and Pricing Reference Guide states that the Federal Supply Schedule contracting officer already has determined that the prices are fair and reasonable. Moreover, it states that the schedules are designed to be a ready source of market information, even when they are not used to make a purchase.
The schedules program must be strengthened so that the Defense Federal Acquisition Regulation Supplement and similar guidance can continue to apply to the use of schedule contracts — at least for truly commercial products.
Steve Charles is co-founder of immixGroup Inc., a consulting firm. E-mail him at steve_charles@immixgroup.com.
