Previously we discussed how the GSA's Industrial Funding Fee (IFF) was faring at the GSA Board of Contract Appeals.
We first discussed the case of GE Capital Information Technology Solutions-Federal Systems v. GSA, GSBCA No 15467, June 4, 2001, 01-2 BCA ¦ 31,445, which concerned GSA's method for conducting an IFF audit. That case taught us that GSA may use sampling and extrapolation to bring an IFF claim against a GSA Schedule contractor, although it's still unknown whether the Board will also allow sampling and extrapolation in deciding the actual amount of IFF payment, if any, that the contractor actually owes to GSA.
We next discussed the case of Xerox Corporation v. GSA, GSBCA
No. 15190, July 27, 2001, 01-2 BCA ¦ 31,528, which showed us that the express exclusion of trade-in during negotiations trumped GSA's later attempt to apply the IFF to the trade-ins.
We now continue our analysis of the IFF by reviewing the case of Contemporaries, Inc. v. GSA, GSBCA No. 15660, November 29, 2001, 2001 WL 1511870. In Contemporaries the contractor learned the hard way that annotating a purchase order with the correct contract number is very, very important. When the contractor was first awarded a GSA Schedule in 1997, the contractor already had an existing relationship with the National Institute of Health (NIH), which was purchasing temporary services from the contractor through the use of Blanket Purchase Agreements (BPA).
In 1999, when it came time to renew the BPA, the contractor offered the NIH contracting officer the use of the GSA Schedule contract as a way to expedite the process. NIH readily agreed and used the GSA Schedule contract to issue the BPA. The contractor, believing that because this business had been generated prior to the award of the Schedule, neglected to pay the IFF for sales under the 1999 BPA.
A compliance audit by GSA in February 2001 revealed the unpaid fees and litigation ensued. The contractor argued that the NIH was going to purchase from it regardless of the contract vehicle used, and that using the GSA contract number was merely a way to make things easier for NIH.
Finding for GSA, the GSBCA stated that the issuance of the BPA with the Schedule contract number "did not merely represent Ôassignment of an arbitrary number,' but defined the contractual vehicle and the terms and conditions under which NIH was to purchase the covered services." Thus, the contractor was required to pay GSA to the tune of $10,000 in IFF payments for the use of the Schedule.
So, based on GE Capital, Xerox, and Contemporaries, here's what a contractor can do to better prepare for its inevitable IFF audit:
1. IFF Tracking System
Design, test, and implement a solid system for tracking all GSA Schedule sales, compilation of quarterly sales, and IFF payments. To the extent that GSA believes a contractor's IFF tracking system is solid, GSA's auditors will have more confidence in the sampling you provide and will root around less in your files.
2. Schedule Negotiation
Based on your experience selling to the government, think through the IFF problems that could arise and carefully negotiate Ñ and document your negotiations with GSA about how the IFF will or will not apply to your sales practices. As shown in the Xerox case, careful contract negotiation can later trump over-eager auditors.
3. Identification of all Sales
Identify all your sales as either GSA Schedule sales or non-GSA Schedule sales. GSA Schedule sales are all sales based on a BPA or purchase order that uses your GSA Schedule contract number. Non-GSA Schedule sales are all other sales, including open market orders, contracts let pursuant to an RFP, and GWACS.
While GSA has pressured contractors to pay the IFF on open market sales of items that are listed on the contractor's GSA Schedule price list, it seems clear from Contemporaries that the Board will look first to the contract number on the purchase order to decide whether the sale was a GSA Schedule sale. For credit card and telephone orders, and for orders missing the contract number, call the agency to confirm whether or not the sale is a GSA Schedule sale.
And however you identify sales, be consistent. Inconsistent identification of sales could throw your identification process into doubt.
4. Compliance Review
At least once per year, audit your IFF tracking system and identification of sales process to review whether they are being properly implemented and to see whether improvements are needed. If your internal audit uncovers a mistake, you can fix it going forward to reduce your liability. Your compliance review should be part of a your annual GSA Schedule compliance review of your obligations under the contract.
Taking these steps should reduce your exposure to liability for the IFF. Since the IFF is still a relatively new requirement, however, it will take several more years before the Board issues more decisions providing contractors with guidance concerning the mistakes, misunderstandings, and disputes that will undoubtedly continue to arise on both sides of the issue.
