At a recent Contractor Assessment, a few of the compliance errors pertained to the Federal Acquisition Regulation (FAR) Part 51 Deviation, a seldom-monitored area that causes some level of confusion for many contractors. Although there may be several reasons why this happens, one of the most frequent is that the contractor failed to distinguish transactions under the deviation as GSA sales. Contractors may not know what constitutes a GSA sale, may have not offered GSA pricing to a GSA eligible buyer, and/or they may not have a proper system in place to track documentation and identify GSA sales.
In accordance with FAR Part 51.1, Contractor Use of Government Supply Sources, contractors can be given the authority to make purchases against Federal Supply Schedule (FSS) contracts on behalf of the government. This usually occurs for large-scale projects when a contractor needs to purchase products and/or services in order to provide a total solution for an agency. The federal government will include clause 52.251-1, Government Supply Sources, in solicitations to indicate to prospective contractors that items procured under the deviation may be proposed.
The FAR 51 deviation requires that the supplies or services being purchased are ancillary to the primary purpose of the contract with the federal agency. The authorization is only available to the federal government, not to state or local governments using cooperative purchasing. Many contractors find themselves questioning if the particular entity is a federal government agency. GSA published a list identifying executive agencies authorized to use GSA sources of supply and services.
Prime contracts including FAR 52.251-1 will be awarded on either a time and materials (T&M) or cost reimbursement basis. A selling contractor can offer the prime contractor its GSA pricing or better. The prime must invoice the government for items purchased under the deviation at the price they were purchased from the selling contractor. The buying contractor cannot add any markup onto these items.
Should your company receive an order from a federal prime contractor under referencing the FAR 51 Deviation, there are a few things to keep in mind. First, be sure to obtain a copy of the Letter of Authorization (LOA) that is signed by the federal contracting officer. Assure that the authorization provides the following information:
- Authorized party’s name
- Prime contract number
- Period of the authorization
- Other limitations or conditions as necessary
- Instructions to comply with the applicable policies and procedures
- Executed on government agency letterhead with signature
Whenever a prime requests your GSA pricing, you should ask them to provide either a FAR 51 Letter of Authorization (LOA) or a proposed Contractor Teaming Arrangement (CTA). If you don’t, you could end up triggering a price reduction.
Retain these documents for the contractual records regarding this order. There may be numerous purchases on multiple occasions. It is important that the expiration date of the authorization letter be monitored closely so when it expires, a new letter may be requested, if the contract is still in place. If the prime contractor has its own GSA schedule, the selling contractor will want to include their contract number on the purchase order or invoice. A selling contractor will also want to include the following example language on the invoice: “in care of ‘[name of government agency]’ under written authorization from ______ dated ______.”
This type of transaction will count as a GSA sale and means that the Industrial Funding Fee (IFF) applies. The contractor will need to report it as such during the appropriate 72A quarterly sales reporting period.
Compliance issues surrounding GSA schedules are complex, and failure to fulfill certain contractual requirements exposes companies to significant risk. Please don’t hesitate to contact Aronson if you’d like our team to conduct a compliance review of your GSA schedule program. This review identifies key areas of risk and recommends corrective actions to limit potential liability under the contract. For more information, please call Hope Lane at (301) 231-6266 or email email@example.com.