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FCW : July 30, 2015
The recent $75.5 million Justice Department settlement with Carah- soft and VMware once again high- lights for software companies the inherent danger of selling products to the government. Clearly, the Federal Acquisition Regulation and the vari- ous fraud statutes, such as the False Claims Act, should penalize cheating and fraudulent behavior by govern- ment contractors because protecting taxpayer money is a cause of the high- est order. Unfortunately, sometimes the regulations are so complex and onerous that they can easily ensnare contractors who have no ill intent. The media reports on the VMware settlement indicate that the company had misrepresented its Commercial Sales Practices, which were submit- ted via Carahsoft in order to create fair and reasonable pricing on Carahsoft’s Schedule 70 contract with the General Services Administration. I have no spe- cial knowledge of VMware’s behavior, but I am familiar enough with the CSP process to know that it is ripe for faulty information. The point of the CSP submittal is to give a contracting officer enough historic pricing and discounting infor- mation to determine that the pricing proposed for the GSA Schedule is acceptable. This is often referred to as a “vertical” price analysis because it only looks at the actual sales of the products in question and does not com- pare the prices “horizontally” against similar competitive products. Logically, that approach makes sense because for commercial prod- ucts it is widely assumed that the price buyers are willing to spend is the best market determinant for a fair price. A mismatched approach To accomplish the pricing analysis task, GSA has created a form Schedule 70 aspirants must complete, through which they must disclose all their discounting practices to specified classes of customers in the preceding 12 months. And here is where things can quickly get off track. The form requires a software company to spe- cifically list its discounting practices to the following classes of customers: Distributors, Dealers/Resellers, VAR/ System Integrators, OEM, State and Local Government, Education/Non- Profits, and National and Corporate Accounts. Although most of us intuitively know what those types of accounts might be, it is also a fact that few if any software companies classify their sales into those types of hard-and-fast categories — nor do they necessarily have any type of standardized discount- ing for each. For many software accounting departments, an inquiry with a request for the “standard discount” to the VAR/ System Integrator channel over the previous 12 months will be met with stony silence. BY MICHAEL GARLAND The Commercial Sales Practices approach sets a trap that can snare even diligent contractors. Government and industry both deserve a smarter solution. A better path to fair and reasonable pricing 30 July 30, 2015 FCW.COM DrillDown In FASA’s spirit of reducing the regulatory burden and inherent danger of contracting with the government, it would be helpful if the government requested important information in ways that gave commercial companies a better chance to accurately comply. 0730fcw_030-031.indd 30 7/14/15 9:22 AM
July 15, 2015
August 15, 2015