by Jason N. Workmaster & Kevin T. Barnett

For years, GSA and its contractors have struggled on a case-by-case basis to resolve apparent conflicts between the commercial terms of contractors’ standard Commercial Supplier Agreements (“CSAs”) and End User License Agreements (“EULAs”), on the one hand, and GSA’s view of the requirements of federal law, on the other. Although this case-by-case approach often proved difficult and time-consuming, the reward at the end of it was an agreement in which the agreed-upon terms of the CSA or EULA would trump any conflicting provisions in GSA’s solicitation or the standard commercial terms clause.

Now, however, in an effort to speed up the negotiation of CSAs/EULAs, GSA has issued a “class deviation” [1] that would turn all of this on its head, and is in the process of issuing proposed bi-lateral, no-cost contract modifications to add the class deviation to existing GSA Schedule contracts. Contractors receiving these proposed modifications need to assess them carefully before agreeing to them. Otherwise, they could be giving up any rights they have to seek compensation for the cost impact resulting from this change.

Summary of the Class Deviation

GSA’s advertised goal in issuing the class deviation was to minimize the costs and delays of negotiating the terms of CSAs/EULAs. To accomplish this goal, it declared “unenforceable” 15 common terms and conditions, often found in licensing agreements, which GSA believes are inconsistent with federal law. This change would allow GSA to ignore those offending clauses during negotiations and, thus, reduce time and expense. But the class deviation did not stop there. Significantly, it also amended the Order of Precedence clause in a manner that would upend the pre-existing order of precedence. The class deviation also creates a new GSAR clause, 552.212-4 (“Contract Terms and Conditions – Commercial Items”), reflecting the substance of the deviation with the intention of incorporating the new clause into all contracts.

Principally, the class deviation formalized GSA’s practice of striking CSA/EULA clauses that the Government could not accept. Before this, GSA negotiated each CSA/EULA on an individual basis and compared the terms against an unofficial “Fail List,” consisting of terms and conditions that GSA believed were inconsistent with Federal law. For example, most EULAs include broad indemnification clauses. But, because the Anti-deficiency Act prohibits the Government from entering into such indemnification agreements, GSA would strike these types of provisions. So, while frustrating, it is understandable why GSA takes the position it cannot accept certain commercial terms. And everyone recognizes that streamlining such negotiations may even be beneficial when done appropriately.

At the same time, the class deviation made another subtle, but significant, change – specifically, it altered the order of precedence clause[2]by moving contract addenda (such as CSAs/EULAs) below both solicitation provisions and other paragraphs of the GSAR Contract Terms and Conditions clause. After the class deviation, the Order of Precedence provision in the new GSAR 52-212.4 provides:

(s) Order of precedence. Any inconsistencies in this solicitation or contract shall be

resolved by giving precedence in the following order:

(1) The schedule of supplies/services.

(2) The Assignments, Disputes, Payments, Invoice, Other Compliances, Compliance with Laws Unique to Government Contracts, Unauthorized Obligations [, and Commercial Supplier Agreements – Unenforceable Clauses] paragraphs of this clause,

(3) The clause at 52.212-5,

(4) Solicitation provisions if this is a solicitation.

(5) Other paragraphs of this clause.

(6) Addenda to this solicitation or contract, including any license agreements for computer software.

(7) The Standard Form 1449.

(8) Other documents, exhibits, and attachments.

(9) The specification.

This is not merely an administrative change. These addenda, including CSAs/EULAs, contain significant terms and conditions that govern the commercial transaction – and in many cases, include critical terms – that were formed by negotiations and agreements between the two parties. However, the agreed upon terms of the CSA/EULA would not control if the term conflicted with a term of the solicitation or another provision of the GSAR Contract Terms and Conditions clause (both unilaterally drafted by the GSA). In essence, by moving contract addenda down the order of precedence, GSA is attempting to make the agreement resemble more of a government contract than a commercial contract – exactly the opposite from the goal of commercial item contracting.

Contract Modifications to Incorporate the Class Deviation

But all is not lost, as the class deviation does not go into effect by itself. GSA must modify each contract to incorporate the clause. And, because GSA cannot modify a GSA Schedule contract unilaterally under FAR 52.212-4, it must add the deviated clause through a bilateral modification. GSA is now issuing proposed bilateral modifications to Schedule contractors, but is doing so on a “no-cost” basis. This means contractors must carefully assess the modification before they agree to it–otherwise, they could be waiving all rights to seek compensation for costs arising from the class deviation.

First, contractors must take a close look at their specific business to determine how much this change will impact their agreements. It is possible that no significant terms will be changed by the Order of Precedence adjustment. But, it is also possible that the contractor’s most important clauses could arguably be no longer valid. And second, like any reasonable business, the contractor should determine what the appropriate consideration would be to balance the change in contract terms.

As partners in commercial item contracting, GSA should recognize the appropriateness of this consideration and engage in good faith negotiations to reach a bilateral agreement. While industry rumors suggest that GSA is demanding contractors accept this bilateral modification or else GSA will refuse to process any additions or deletions from a contractor’s schedule, we trust that GSA will not follow through on these rumored actions. First, GSA values itself as a partner of industry, and that is not how true partners act. Second, refusing to process additions or deletions could constitute a violation of GSA’s contractual duty of good faith and fair dealing. As such, we have every reason to believe that GSA will give thoughtful consideration to a well-thought out and supported request for consideration in exchange for incorporating the class deviation.

[1] See Jeffrey A. Koses, GSA Sr. Procurement Executive, Acquisition Letter MV-15-03, “Memorandum for the Acquisition Workforce: Class Deviation Addressing Commercial Supplier Agreement Terms that Conflict or Are Incompatible with Federal Law” (July 31, 2015) available at https://interact.gsa.gov/sites/default/files/AL%20MV-15-03%20Signed.pdf.

[2] An Order of Precedence clause is a standard clause found in agreements with multiple documents or attachments. It clarifies how to resolve inconsistencies between the documents by listing the documents in order of control – i.e., the terms of a document higher on the list control over the terms of documents lower on the list.