GSA Most Favored Customer And The Price Reductions Clause
Most favored customer (MFC)
When you apply for a GSA schedule, it is a requirement that you must identify the best discounts you have given to the following customer categories: Dealers/retailers; distributors/wholesalers; educational institutions; state, county, city and local governments; OEMs; and others (national accounts, end users.)
The MFC clause is based on the basis that the government deserves similar or better discounts than the best discount you offer to a particular customer category.
Based upon the written information you submit with your proposal, the government will identify the customer/category that you have given the largest discount to as your most favored customer. Then it is up to you to negotiate with the government in identifying the category that is most similar to the government customer.
This will usually be the end user customer category, which ordinarily receives a lesser discount than offered to other customer categories, and is most similar to the government in the way it buys. Remember it is important when you are negotiating any contract with GSA that include the MFC/PRC, that your most favored customer is identified, because the Price Reduction Clause is contingent upon the discounts offered the MFC.
Once the MFC category is identified, the government will usually negotiate a discount that is equal to, or better than, the discount given the Most Favored Customer.
When establishing negotiation objectives and determining price reasonableness, compare the terms and conditions of the MAS solicitation with the terms and conditions of agreements with the offeror’s commercial customers.
Some vendors cannot offer GSA their most favored customer pricing without losing revenue. Unfortunately, there isn’t a one size fits all answer to this problem.
However there are exceptions such as; an offeror may incur more expense selling to the Government than to the customer who receives the offeror’s best price, or the customer who receives the best price may perform certain value-added functions for the offeror that the Government does not perform.
The Government recognizes that the terms and conditions of commercial sales vary, and there may be legitimate reasons why the best price is not achieved. In such cases, some reduction in the discount given to the Government may be appropriate.
Price Reductions Clause (PRC)
Now the Price Reductions Clause states that if you violate the contractually agreed upon pricing/discount relationship by offering a (better) discount to your MFC, you have invoked the PRC.
This means that from the date the violation took place, you will owe the government a discount proportionately equal to that given the MFC. Further, should you be audited and the government finds that the data they have relied upon to negotiate a price with you is inaccurate, you will be subject to civil and possibly criminal penalties, such as large fines and jail sentences.
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