Top Five Failures in GSA Office of Inspector General (OIG) Audits #3, Overcharges and Overstated Rates

At a Glance

• Main Takeaway: Pricing offered both commercially and to GSA customers must be consistent with the negotiated terms and conditions of your GSA Multiple Award Schedule (MAS) contract.
• Business Impact: Overcharges and overstated rates on GSA MAS orders can result in a financial liability and negatively impact the GSA ceiling prices going forward.  
• Next Steps: Ensure your GSA pricing is consistent with your commercial practices and strengthen your pricing practices to ensure proper administration of the GSA contract.

The Full Story:

The third in a series of articles dedicated to GSA OIG audit compliance failures focuses on overcharges and overstated GSA ceiling rates. Both issues can have a material impact on your company’s bottom line. Overcharges discovered in audits result in the contractor issuing a refund payment to the government. Overstated rates discovered in audits result in reductions to the GSA ceiling pricing going forward.

What Does GSA Consider an Overcharge?

Contractors negotiate ceiling prices for products and services awarded on MAS contracts. The ceiling price can only be changed by bilateral modification. Pricing at the task order level should not exceed the GSA contract ceiling prices. An overcharge occurs when the task order prices are higher than the awarded GSA ceiling prices, as shown in the table below. GSA monitors order-level pricing compliance not only in audits but also in the contractor assessments every MAS contractor has. Both the auditors and the Industrial Operations Analysts (IOAs) who conduct assessments require contractors issue a refund to the customer to remedy an overcharge.

Contractors with Other Direct Costs (ODCs) awarded on their MAS contract need to be aware of their awarded markup structure. It is a common practice to bill ODCs at cost plus an associated markup. The markup must be awarded at the MAS contract level before it can be applied to ODCs at the task order level. Any markup applied at the task order level exceeding the contract terms constitutes an overcharge, even if the price is still below the established ceiling price. An example is included in the table below.

Contractors can take the following actions to ensure their GSA pricing is up to date in effort to avoid overcharges:

• Product providers: Review products and pricing when a new commercial price list is issued. Promptly submit modifications to GSA requesting needed changes.
• Service providers: If your contract does not include pre-negotiated out-year pricing, review your services and pricing at least annually. Promptly submit modifications to GSA requesting needed changes. Our article, Avoid Overbillings, has more information on best practices for service providers.
• Contracts with ODCs: If your standard commercial practice is to bill ODCs at cost plus a markup, ensure the markup is incorporated into you GSA contract. If the terms are not consistent with your current practices, submit a modification to make necessary updates.  

What are Overstated Rates?

During a preaward audit, the auditors review pricing on commercial and non-GSA contracts to recommend pricing for the upcoming option period. If non-GSA customers receive better pricing than GSA, the auditors may use the non-GSA pricing as a basis for determining GSA ceiling prices. This often results in recommended reductions to the GSA prices. Although the lower pricing may have been offered to non-GSA customers for a specific reason, e.g. a large volume order, the auditors may still recommend the GSA Contracting Officer negotiate lower pricing. Just because a transaction doesn’t trigger the Price Reductions Clause doesn’t mean the auditors won’t target those rates for their go-forward rate recommendations.

When significant commercial sales do not exist, the auditors request cost build up documentation based on the individuals (employees and subcontractors) who performed work on MAS orders during the audit period. If actual costs are not consistent with the current or proposed GSA ceiling prices, the auditors will find the GSA prices are overstated and recommend reductions to the GSA ceiling prices.

Based on the recommended per audit rates, the auditors will calculate the total cost savings if the GSA Contracting Officer accepts the recommended pricing. The table below demonstrates this calculation typically found in the audit report.

In this example, $6 Million in cost savings to the government also represents a $6 Million reduction in MAS sales for the contractor. Contractors can avoid this finding by developing pricing practices, both commercially and to GSA customers, consistent with the awarded terms of the GSA MAS contract.

The Bottom Line:

There can be significant penalties or financial impact resulting from overcharges and overstated rates findings. It’s important to identify and remedy any deficiencies well before your contract is selected for an OIG audit or contractor assessment. Contact Aprio’s GSA team today to discuss your current pricing policies and how to strengthen your practices to ensure ongoing compliance.

Related Resources/Assets/Aprio.com articles/pages

An Introduction to Multiple Award Schedule (MAS) OIG Audits

Top Five Failures in GSA Office of Inspector General (OIG) Audits #1, The Price Reductions Clause

Top Five Failures in GSA Office of Inspector General (OIG) Audits #2, Unqualified Labor