Originally posted in Law360 on April 24, 2015
By: Brian Miller, Managing Director, Navigant Consulting Inc.
The U.S. General Services Administration is proposing a Faustian bargain for contractors in the proposed transactional data reporting pilot program (GSAR Case 2013-G504; Transactional Data Reporting; 80 Fed. Reg. 11,619 (March 4, 2015)). Like Mephistopheles, the GSA entices contractors with a trade. Trade the Price Reductions Clause (PRC) for the proposed transactional data reporting requirements. In reality, the two have very little to do with each other, except that getting rid of the PRC may be just too tempting for contractors. Make no mistake about it: There is no guarantee the proposed rule will pass competition from the marketplace on to benefit government customers. So, what could possibly induce contractors to volunteer to take on onerous and dangerous transactional reporting requirements? Yes, of course, getting rid of the dreaded PRC. What contractor could possibly resist?
But before you trade the devil you know for the devil you don’t know, beware. The devil you don’t know will require contractors to gear up to produce transactional data including but not limited to the unit prices paid, quantity sold and total price, as well as manufacturer name and part number. Id. at 11627-28. Other data may also be required, such as transactional data elements regarding open-ended categories of nongovernmental entities such as the Red Cross (“Non Federal Entity, if applicable.” Id. at 11627).
The point is: Much is unknown about this pilot program. If a “horizontal comparison” is going to be made, then the contractor may want to provide additional data to explain the price, such as promotions, nonstandard terms, and bundling — not to mention the complexity of reporting professional services data for “horizontal comparison.” The security of your confidential data rests solely in the hands of the GSA. It is unclear whether some information may even possibly be shared with competitors. (Time was that sharing with a competitor violated procurement integrity, now apparently it’s just a reverse auction.) And, if the pilot program requires a contractor participating in the program to acknowledge that its information may not be kept confidential, then how is it protected from release under the Freedom of Information Act?
How difficult will this be? My former office, the GSA Office of Inspector General, reports that at least one-third of the contractors audited currently do not have systems to accurately accumulate and report schedule sales. Major Issues from Multiple Award Schedule Preaward Audits Audit Memorandum Number A120050-5, March 13, 2015, found here. Now they will have to set up a new system to report transactional data. If this transactional data resides in different information technology systems, then it must be reported from all IT systems.
If this challenge is not daunting enough, consider the consequences of misreporting or not fully reporting. Under the False Claims Act, a contractor faces treble damages and civil penalties, sometimes totaling thousands, or even millions, of dollars, if a court rules that the contractor did not submit accurate and complete data. A contractor is liable if it “knowingly” submits a false claim, but “knowingly” can also mean “deliberate ignorance” or “reckless disregard.” If a contractor has not set up an adequate system for producing transactional data and submits false transactional data, it might be subject to False Claims Act liability. At the risk of being facetious, spending only six hours to set up this system might constitute reckless disregard. (Id. at 11627 expresses a contrary view). Relators filing qui tam actions under the False Claims Act might also take the position that the missing data would influence the government’s understanding of pricing, and contractor was paid and retains payments based on the assumption that the contractor provided accurate transactional data.
As with any Faustian bargain, you lose. In this case, contractors (perhaps a select few, but the contours of the pilot program are not clear) get the devil they don’t know with unknown and at times unclear reporting requirements with new dangers of potential False Claims Act liability.
But they still get the devil they know, the burdens of the PRC. And here’s how. The proposed rule says that the contracting officer may require commercial sales practices (CSP) information at any time, and not just at the formation (pre-award audits) or termination of the contract (post award audits), but during the contract too. Specifically, the proposed rule states: “GSA would maintain the right throughout the life of the FSS contract(s) to ask a vendor for updates to its disclosures on its commercial sales format … where commercial benchmarks or other available data on commercial pricing is insufficient to establish price reasonableness.” Id. at 11621.
Presumably the OIG may analyze that data too. All contractors will have to keep CSPs. The contracting officer still has to make sure that the government is getting fair and reasonable pricing, and the OIG can always require this information in an internal audit of this pilot program and of whether COs are complying with the FAR’s requirement for fair and reasonable pricing. So, contractors will be required to now have systems that continue to produce CSPs and the new transactional data for the pilot program. What a deal. Maybe the status quo with the PRC isn’t so bad after all.
—By Brian Miller, Navigant Consulting Inc.
Brian Miller is a managing director in Navigant’s Washington, D.C., office and former inspector general for the U.S. General Services Administration.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.