Multiple Award Schedule Contracts with the General Services Administration

Companies that provide supplies to the government operate under Multiple Award Schedule (“MAS”) contracts with the General Service Administration (“GSA”). These contracts are also known as GSA contracts, or Federal Supply Schedule (“FSS”) contracts. The MAS program is the largest interagency contracting vehicle in the federal government, since every agency of the U.S. government consumes general supplies. Since 2006, sales under MAS contracts have consistently exceeded $35 billion. Today, GSA schedules include not just products but also services including information technology needs, management consulting, training services, professional engineering services, and solutions for law enforcement. As the government continues to purchase more and more supplies and professional services, the risk of fraud increases.

MAS contracts have three requirements related to the FCA. First, a “defective pricing” clause requires a company to disclose to the government any discounts or price reductions the company gives to ordinary customers so that the government may negotiate for that price. Vendors must also disclose any catalogue prices it offers to private buyers. Second, under the “price reduction” clause, companies must update the government on any new discounts offered to commercial customers, and offer the same reduced price to the government, including retroactively. Third, companies must certify compliance with the U.S. Trade Agreements Act that requires all products be produced in countries with reciprocal trade agreements with the U.S. (including Canada, Mexico, England, France and Japan). China, Taiwan, Malaysia and South Africa are not included. Any false statement made to the government regarding one of these three requirements may cause the company to be liable under the FCA.

Most FCA claims arising out of MAS contracts involve services rather than products. This is because services involve variable and qualitative elements such as “productivity” or “skill level.” In other words, it is easier for contractors to inflate the value of the services they are providing under MAS contracts.

Example

In October of 2011, the GSA obtained its largest ever settlement from Oracle Corp., the world’s second largest software manufacturer. The company agreed to pay $199.5 million plus interest for violating the FCA by failing to offer the government the same price as commercial customers under its GSA contract. Oracle knowingly and recklessly concealed from the government the best discounts it offered commercial customers. As a result, Oracle breached its GSA contract and overcharged the government by tens of millions of dollars. The relator in the case received a $40 million share of the settlement.

Example

Also, Hopkinton, Massachusetts based information technology company EMC Corporation settled an FCA lawsuit stemming from alleged misrepresentations made to the GSA. EMC allegedly promised to perform a price comparison for each government order, to ensure that the government received a price as low as that offered to commercial entities. However, according to the Department of Justice, EMC knew that it was incapable of conducting such frequent price comparisons. This resulted in the government not receiving the best price as required by law. EMC settled FCA claims brought against it for $87.5 million in May 2010.

Example

In July 2013, the Gallup Organization agreed to pay the United States $10.5 million after it allegedly inflated contract prices. A former Gallup employee filed a qui tam lawsuit asserting that Gallup deliberately overstated its estimated labor hours in proposals for contracts and task orders by the U.S. Mint and the U.S. State Department.