A helpful introduction to the US GSA schedule price reduction clause

The "best customer" price requirement has been mentioned before in this blawg, particularly in relation to the Oracle case. This requirement is much more complex than that quick moniker reveals, however. Indeed, it may even be misleading. The following article, which is an interview with Jonathan Aronie, gets me, and hopefully you, much closer to an understanding of what the clause is all about.
Is the GSA schedule price reduction clause necessary?

Jonathan Aronie literally wrote the book on GSA schedule contracts and explains what the price reduction clause is, and why it doesn't always work out to be the lowest price.

He's a partner at Sheppard, Mullin, Richter & Hampton, LLC and author of Multiple Award Schedule Contracting.

He explains what the price reduction clause does.

"It guarantees to the government uniquely favorable pricing treatment, where, at the outset of a GSA schedule contract, the government identifies one or more commercial customers to which [it] will compare the contractors' pricing and, if the government starts not being treated as well as this group of commercial customers, then the government demands better pricing from that date going forward."

He adds that, when it comes to pricing, a lot of misconceptions surround who is offering the lowest.

"The key is, when you negotiate your contract, whatever ratio is established needs to be maintained. For some companies, it's the lowest price. For some companies, the government might get five percent worse than commercial customers. So, it's not necessarily the lowest, but it is an established negotiated relationship that has to be monitored and maintained."

There are, of course, a lot of exceptions to the clause, as well, which can make things even more complicated.

"Not every discount to a commercial entity triggers the clause. Any GSA schedule contractor has to have a system to monitor compliance. It has to be able to look at its commercial customers that are within what's called the 'basis of award,' -- within this tracking category. You have to monitor those sales to know if the pricing is below what it should be. Then, you look to see if an exception applies, and then you look to see if you have an obligation to reduce the government's price."

This monitoring process can be quite daunting, too, because a lot of companies see the GSA schedule as a way to break into the government market. Aronie says, though the agency has gotten better at explaining the schedule, it can still be confusing.

"Previously, they've touted the GSA schedule as no different from a commercial contract, and that has had the unwitting effect of duping some companies into thinking that it doesn't have these unique obligations; whereas, this is is a unique obligation and companies need to go in with their eyes open."

The article goes on to discuss the onerous audit track that must be maintained to participate as a GSA schedule vendor and other matters. It is worth your time to read the whole thing if you have any involvement with GSA schedule contracting.