GSA Option Extension: Are your commercial sales practices current, accurate and complete?

A contractor’s failure to keep disclosures current, accurate and complete increases audit risk and financial liability when the Office of Inspector General (OIG) comes knocking. This can be of critical importance at the time of option extension, when a contractor may be more likely to receive a pre-award audit of its Schedule contract. Watch the on-demand to learn how to:

• confirm that practices are properly disclosed
• navigate important dates in the option extension process
• prepare for an audit

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GSA Option Extension questions and answers

1. Is the option process the same for both Pharmaceutical and MD&D Schedules?

No, the VA Schedules program is governed by the same regulations that apply to the GSA Schedules, but there are marked differences in terms of the option extension process. First, OPEN is currently only applicable to the GSA Schedules. A few other differences related to the extension process for VA Schedule contracts are:

• Timing – the VA will typically provide notification of its intent to consider extending your contract 18 months prior to its expiration
• Information Requested – similar to what was requested for GSA Schedule contracts prior to OPEN
• Office of Inspector General (OIG) Review Process – if your contract exceeds certain sales volume thresholds it will receive an OIG review

2. The safe harbor language in the PRC includes sales to, "eligible ordering activities under this contract." This could be interpreted as sales under the GSA Schedule or more broadly to any sales to eligible ordering activities which might include prime contractors. How would you advise addressing a sale to an eligible ordering activity that is a prime contractor who also falls within the BOA class of customers?

Technically, a prime contractor is not an eligible ordering activity; however, they can be granted access to the Schedules program by an eligible ordering activity that has issued them a Letter of Authorization (LOA). Please refer to the information contained on GSA’s website for an explanation of the organizations that qualify as GSA eligible users.

GSA and the GSA OIG have consistently treated sales to prime contractors as commercial sales, no matter whether the ultimate end user has been a federal government customer or another type of entity. With the exception of GSA Schedule sales made under an LOA, we would advise that a contractor proceed with caution and consider all implications when making sales to prime contractors that fall within a company’s basis of award.

3. I was told every contractor goes through both a pre and post-award audit at every option period. Is that not true?

This is not true, and in fact only a limited number of GSA Schedule contractors receive OIG audits at the time of option extension. There is no "formula" (at least not one that is shared publicly) for how contractors are selected for pre-award audits at the time of option extension, but historically contractors with significant sales volume have been more likely to be selected for pre-award audits. Post-award audits are less common than pre-award audits, and are often initiated following a pre-award audit or result from a specific issue being brought to the attention of the OIG.

4. Are sales to the Basis of Award (BOA) customer exceeding the Maximum Order Threshold (MOT) for that schedule excluded from Price Reductions Clause (PRC) compliance?

Each schedule contract has a MOT established on a SIN-by-SIN basis. Commercial sales can fall within the exception of the MOT and not trigger the PRC, but the sale must satisfy each of the exception’s three elements: (1) A firm-fixed price in excess of the MOT (2) A definite quantity of products to be purchased; and (3) A specified delivery date. Merely having the potential to exceed the MOT is not enough.

5. If a dealer holds a contract on behalf of a manufacturer, does that shield the manufacturer from an audit?

No, there are still risks for the manufacturer. The manufacturer is typically required to provide a CSP-1 which discloses their commercial sales practices. The CSP-1 states that the reseller "must also obtain written authorization from the manufacturer(s) for Government access, at any time before award or before agreeing to a modification, to the manufacturer’s sales records for the purpose of verifying the information submitted by the manufacturer. The information is required in order to enable the Government to make a determination that the offered price is fair and reasonable." Therefore a manufacturer’s CSP and the sales to support those disclosures are subject to an audit by the government.