GSA, Gateway settle dispute

GSA price reduction clause

A settlement over Gateway Inc.'s alleged failure to extend price reductions

to its contract with the General Services Administration has industry groups

and analysts calling for removal of the requirement, saying it is out of


Gateway agreed to pay the U.S. government $9 million last week to settle

the allegations. The government claimed that from May 9, 1994, to Jan. 31,

1997, Gateway had no system in place to ensure compliance with the price-

reduction clause, and that through March 31, 1997, the company had an inadequate

system, according to an Oct. 31 statement from the Justice Department.

As a result, Gateway routinely failed to offer price reductions that

occurred between purchase and shipment, as required in its contract with

GSA, the statement said.

Justice investigated the claims with GSA and the U.S. Attorney's office

for the District of South Dakota, where Gateway is based.

Gateway spokesman Tyson Heyn said the company honored its contract with

GSA. "We settled a dispute with [GSA] to avoid the expense and time of litigation.

We have admitted no wrongdoing, and the federal government continues to

be one of our most valuable customers," Heyn said.

The government will recoup the substantial overpayments to Gateway with

the settlement, U.S. Attorney Ted McBride said in a statement.

But industry representatives said the price-reduction clause is not

the way for the government to get the best price.

"What drives good prices is competition between the schedule holders,"

said Larry Allen, executive director of the Coalition for Government Procurement,

an industry association comprising 300 companies in the federal market.

The coalition has asked GSA to eliminate the price-reduction clause because

it is archaic and irrelevant to ensuring good prices on the GSA schedule,

he said.

In the IT marketplace today, where prices change hourly, no company

can guarantee it is compliant with the clause, but most make good efforts

to comply, Allen said.

"But GSA is using a horse-and-buggy approach to try and monitor the

21st-century marketplace," he said.

In 1994, GSA changed the price- reduction clause to include only price

reductions offered to industry. That allowed contractors to provide discounts

off the GSA schedule to other agencies for multiple-item orders such as

blanket purchase agreements.

The clause remains a problem because companies with large commercial

and government sales forces do not keep tabs on each others' deals, and

the rule requires contractors to make distinctions between the terms and

conditions of commercial and government sales, said Philip Kiviat, president

of the Kiviat Group, a sales and marketing firm.

The GSA price-reduction clause is an example of the "law of unintended

consequences," said Chip Mather, senior vice president at Acquisition Solutions

Inc., a federal procurement consulting company, and a former Air Force procurement

official. "It actually prevented discounts."

Contractors were reluctant to give government customers discounts for

fear they would have to also lower the prices on the GSA schedule contracts,

Mather said.


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