GSA Proposes Radical Shift in Price Reduction Clause

By Dismas Locaria and Nathaniel S. Canfield of Venable LLP.

Few regulations governing federal contractors cause as much consternation as 48 CFR § 552.238-75, or as it is more commonly known, the Price Reduction Clause (PRC). On March 4, the General Services Administration (GSA) requested industry feedback on proposed changes to the PRC that would significantly change contractor responsibilities under the PRC, as well as how the government uses the PRC to ensure that it receives the best possible pricing. Contractors holding government-wide Federal Supply Schedule (FSS) and non-FSS contracts should pay close attention to GSA’s proposal and take advantage of this opportunity for dialogue with the government.

A fundamental component of the PRC is the determination of which of the contractor’s customers will be the “basis of award” and the price or discount the contractor offers those customers, which are used to determine the pricing or discount offered to the government. Thereafter, the contractor is required to report any pricing reductions given to the basis of award customers and immediately pass on such discounts as appropriate. This scheme greatly favors the government customer, has often proved difficult and expensive for countless FSS contract holders to administer, and has even underpinned a great number of False Claims Act cases.

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