Recent False Claims Act settlement reinforces the importance of accurate commercial sales practice disclosures

In June 2015, the Department of Justice announced that VMware, Inc. (VMware), referred to as a manufacturer in GSA parlance, and Carahsoft Technology Corporation (Carahsoft), a reseller, “agreed to pay $75.5 million to resolve allegations that they violated the False Claims Act (FCA) by misrepresenting their commercial sales practice disclosures and overcharging the Government on VMware software products and related services.” A large GSA-related FCA settlement is certainly not groundbreaking news. What is unique here is that this settlement named both a reseller and a manufacturer.

There are numerous reasons for a manufacturer to use indirect channels to reach their federal government customers. A few of these reasons include: the reseller’s customer knowledge and relationships; the reseller’s access to federal government contract vehicles; and the manufacturer’s possible lack of customer knowledge and relationships. Conversation around the indirect model garnered much attention following a 2007 VA OIG report that suggested that the use of indirect channels is primarily a means for would-be contractors to avoid federal government contract pricing and compliance requirements.  

The complaint in this matter reads a bit like a soap opera, with all kinds of nasty allegations. The resulting settlement makes it clear that manufacturers are not insulated from the requirements and obligations associated with selling to the federal government, even if sales are made via resellers’ GSA and VA Schedule contracts.

Recommendations:

  • Manufacturers must ensure their commercial sales practice (CSP) disclosures are current, accurate and complete.  This settlement demonstrates the risk associated with not doing this correctly, even if you are one step removed from your Government customers. If a company plans to sell through resellers under the GSA or VA Schedules, it should perform a thorough historical pricing analysis to ensure the accuracy of its CSP disclosures. 
  • If a manufacturer has previously provided CSPs, it should consider performing a historical pricing analysis to ensure that its disclosures remain accurate. 
  • Both manufacturers and resellers should be certain to fully understand their obligations and ensure that they have the people, processes, and systems in place to fulfill those obligations.
  • Resellers with significant commercial sales may provide their own CSP disclosures. They should be ready to support the accuracy of their disclosures and prepared to demonstrate that they have significant sales to the general public.

For more information on this topic, or to learn how Baker Tilly government contractor specialists can help, contact our team.