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