GSA’s Maximum Order Threshold Clause
Through the General Services Administration (GSA), the federal government is able to receive the best possible price for commercial goods and services. Several GSA contract clauses support these endeavors, such as the Maximum Order Threshold clause I-FSS-125.
The Maximum Order Threshold provides vendors the option to decline orders above the established dollar amount that is set forth in the solicitation, without penalty. Vendors, who accept orders above the Maximum Order Threshold, are generally asked by the ordering activity to provide additional discounts.
Yet despite this, a recent article by the Federal Computer Week reported that “some Multiple Award Schedule purchases are costing more when they exceed the maximum order.” The article also revealed that the report by GSA’s Office of Inspector General (OIG) on April 26, 2013, “found that at least two vendors ‘claim the plain language of GSA contract clause I-FSS-125…exempts schedule orders over the maximum order from the Price Reduction clause.’ The OIG calculated that those vendors ‘have failed to pass on over $100 million in price reductions for GSA orders over the maximum order.’” The clause (I-FSS-125) in question states:
“The FAS contracting officer, when signing the contract, determines that the schedule contract’s pricing is fair and reasonable up to the Maximum Order Threshold for each Special Item Number (SIN). If an ordering activity intends to place an order that exceeds the SIN’s maximum order threshold, the ordering activity will ask for a reduced price (the Price Reductions clause does not apply to reduced prices on orders that exceed the maximum order threshold). The contractor can offer a new lower price, offer the lowest price available under the contract, or refuse the order and return it in accordance with the Order Limitations clause.”
The clause was ratified by GSA in 1995, in an effort to “encourage agencies to seek bulk-purchase discounts.” Therefore, it is not surprising that GSA believes “that the vendors are deliberately misinterpreting the language to reach ‘the illogical conclusion that larger government orders are entitled to lesser discounts than smaller government orders.’”
Although the OIG agrees with GSA’s disposition, they did not find the language in clause I-FSS-125 to be straight forward. Furthermore, the report concluded that GSA “needs to publish its interpretation of this clause and remove the clause language from existing contracts,” in order to ensure that every agency is able to receive the appropriate discounts for orders above the Maximum Order Threshold.