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False Claims Act, qui tam lawsuits and GSA Multiple Award Schedule contracts

Companies that supply goods and services to the federal government may be liable under the False Claims Act if they falsely certify they are complying with government contract terms in their Multiple Award Schedule (MAS) contracts with the General Services Administration.

Multiple Award Schedule (MAS) contracts differ from commercial contracts in three major ways: They contain what are known as “defective pricing” and “price reduction” requirements as well as a requirement to comply with the U.S. Trade Agreements Act.

Defective pricing
Prior to contract negotiations, companies must disclose any discounts or price reductions they give commercial customers and offer the government the same or better terms. Failure to do so could create liability under the False Claims Act, as well as criminal liability.

Price reduction clause
Under the terms of Multiple Award Service contracts awarded by the GSA, companies must notify the government if they reduce for commercial customers a price that was used as a basis for contract negotiations. Contractors must give the government the same relative discount as they give their commercial customers. If they fail to do so, they could be liable under the False Claims Act.

Humanscale Corp., a New York-based company, paid $9 million in 2005 for failing to comply with the price reduction clause under three of its Multiple Award Service (MAS) contracts for office equipment and furniture and failing to provide current, accurate and complete pricing information to the General Services Administration when government contracts were negotiated. As a result, the government was overcharged.

U.S. Trade Agreements Act compliance
As part of MAS contracts, contractors must certify that they have complied with the U.S. Trade Agreements Act. This means vendors must sell to the government only products that are made (or “substantially transformed,” as stated in the law) in “eligible” countries, i.e., those that have reciprocal trade agreements with the U.S.

Eligible countries include Canada, Mexico, England, France and Japan. Countries that aren’t eligible include China, Taiwan, Malaysia and South Africa.

As a result of a qui tam (whistleblower) lawsuit brought under the False Claims Act, five companies have paid the federal government a total of $30 million to settle allegations that they submitted false claims when they sold to U.S. government agencies office supply products manufactured in countries not permitted by the Trade Agreements Act.

Corporate Express Office Products paid $5 million; Office Max Inc. paid $9.8 million; Office Depot Inc. paid $4.75 million; Staples Contract and Commercial Inc. paid $7.4 million; and Caddo Design paid $100,000.

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