Price Reduction Clause

(If you prefer, this is a podcast episode covering this topic here.)

Whether or not you have an understanding of this clause, it may be something that keeps you up at night- so let’s get a handle on what the true implications are,  and how you can keep your contract out of hot water! *Please do note that this is a layman’s interpretation of this clause, and not a lawyer’s interpretation.* A quick rule of thumb: If your pricing decreases in any way, let GSA know right away. GSA mandates that they receive the absolute lowest pricing on all your products and services. If you have a special customer that receives a particularly low price, lower than all your other commercial customers, you will need to give GSA a discount off even those rates. That special customer is called your Most Favored Customer.

Let’s break this down a little further. Your GSA pricing starts out by disclosing your commercial rates. Say you sell water bottles for $50 a piece- however, you have one customer that gets water bottles for $45 a piece. The standard customer would be your commercial customer, and the customer who buys it for only $45 would be your Most Favored Customer. GSA wants a discount off your Most favored customers rates. Say you land at selling your water bottles to GSA for $40. That means GSA pays 11% less than your most favored customer is paying. This discount relationship must be maintained throughout the life of your contract. If you suddenly start selling water bottles to your MFC for $30 a piece for any reason, GSA will STILL need to get that 11% discount, putting GSA’s rate at $26.40.

If you do not have a Most Favored Customer, but just commercial customers- the same logic applies. Drawing from the above example, if you sell water bottles for $50 a piece, GSA will want a discount off that rate. Whatever discount is agreed upon at contract award, GSA will want that maintained for the life of the contract as well. You can always sell to GSA for cheaper than what was agreed upon at contract award, but never for more. All of this logic applies to Prompt Payment and Quantity Volume discounts as well. If you give one of those discounts to commercial customers, you will have to disclose that to GSA and then also match that same discount, or better, for your GSA customers for the life of the contract. For instance, if you typically give commercial customers a 1% discount for orders over $100,000 you will also need to extend this discount to GSA customers. (GSA may even negotiate with you a greater discount, perhaps a 2% discount off orders over $100,000. It depends on what is negotiated when you are getting your contract.)

Should your discount relationship change, you must let GSA know by requesting a price decrease inside of eMod. The faster you do this, the safer your contract will be. **You officially have 15 days to notify your CO if you suddenly start giving a commercial customer a steeper discount than you originally disclosed to GSA.**This is not a fun regulation to make a misstep on. If you would like to forego the regulation altogether, you can opt into GSA’s Transactional Data Reporting Program. More information on this can be found here.

 If you’d like direct support from a GSA consultant to help with a specific project, reach out to us at info@elevategsa.com.

Price Reduction Clause Link: https://www.law.cornell.edu/cfr/text/48/552.238-81