Diligence Considerations When Acquiring A GSA MAS Contractor

At a Glance:

• Main Takeaway: GSA’s Multiple Award Schedule (MAS) is often discounted as an entry-level federal contract, but ignoring its complex requirements during due diligence can lead to unfavorable outcomes.
• Business Impact: Failure to identify MAS compliance failures before close can have financial implications, such as rate reductions, repayments, legal fees, and more, that diminish the value of a deal.  
• Next Steps: Before closing your next merger or acquisition, make sure that you have taken the unique MAS contract requirements into account during diligence.

Got any questions? Schedule a consultation with Aprio’s GSA Audits and Investigations Team today.

The Full Story:

GSA’s Multiple Award Schedule (MAS) is a hugely popular contract vehicle. In fiscal year 2023, over 15,000 MAS contractors reported more than $50 billion in sales. Chances are, if you are acquiring a federal contractor, they have a MAS contract. There are also many companies who wouldn’t consider themselves federal contractors who hold MAS contracts, so commercial merger and acquisition (M&A) practices aren’t exempt. When performing due diligence on a MAS contractor, simply reviewing the contract and orders is likely not enough to eliminate risk.

We will go through some unique considerations for buyers in this article.

Navigating the Quagmire of GSA Pricing Covenants

In 2004, Oracle acquired PeopleSoft for $10.3 billion. Two years later, Oracle settled with the Department of Justice for $98.5 million to resolve allegations that PeopleSoft made defective MAS pricing disclosures. Oracle spokesperson Bob Wynne stated, “Oracle was not aware of the [False Claims Act] suit when it bought PeopleSoft.” Unfortunately, Oracle inherited PeopleSoft’s liability under the GSA contract in the acquisition.

Oracle had to pay because of PeopleSoft’s Commercial Sales Practices (CSP) and Price Reductions Clause (PRC) failures. Although GSA is piloting a new pricing program¹, many MAS contracts are still subject to CSP and PRC obligations. These requirements often represent the greatest financial risk to a buyer. Covered contractors must make detailed disclosures on their CSP regarding their commercial pricing and discounting practices. If the disclosures aren’t current, accurate, and complete, GSA can retroactively reduce pricing.

GSA uses the CSP to establish a Basis of Award (BOA), tying MAS pricing to a commercial customer or category of customers. This is where the PRC comes in. The PRC requires that when the contractor increases its discount to the BOA, it must also increase GSA’s discount per the awarded discount relationship. Should they fail to do so within 15 days, they have triggered the PRC. From then on, any time they invoice over what the MAS price should have been, they have overcharged the government.

When checking for price reductions or defective pricing disclosures in diligence, remember this is a two-fold exercise. First, you need to review the target’s commercial transactions. If there appear to be price reductions, you must apply that analysis to the GSA sales. It is possible to have a price reduction with no liability if the target did not sell the impacted products or services. When financial liability exists, the buyer needs to decide how to mitigate the issue. That may mean walking away.

Labor Qualifications

If acquiring a service provider, a buyer should pay special attention to the target’s MAS labor category descriptions. The MAS contract establishes minimum education, experience, and functional responsibilities for each category. Any person who bills under a MAS category, whether employee or subcontractor, must meet those requirements. If they do not, it is considered an overcharge. Depending on the hours the unqualified resource billed, liability can add up quickly.

GSA is more likely to catch unqualified labor because they sample resumes at every contractor assessment. Here are some factors to consider during diligence:

• Does the target verify labor qualifications?
• Do the categories require advanced degrees or excessive experience?
• Do the categories require a specific type of degree (e.g., Bachelor in Accounting) or experience (e.g., three years of project management experience)?
• Does the contract allow for the substitution of education for experience and vice versa?

Other Important Terms and Conditions

While the topics above require getting into the weeds, it’s important not to forget about the basic MAS terms and conditions. Like labor qualifications, GSA checks these at every contractor assessment, which increases the chances mistakes will be found. Most importantly, ensure that the target has been honoring all awarded GSA discounts, such as the basic discount, as well as any quantity/volume and prompt payment discounts. Other terms and conditions, such as the Trade Agreements Act (TAA), may also apply.

The Bottom Line:

MAS contract compliance is a niche area that M&A teams may not have experience with. In acquisitions where the target has significant GSA sales, the diligence plan should include MAS-specific compliance testing. Aprio’s GSA Audits and Investigations Team can perform a pre-close assessment that identifies critical MAS terms and conditions, highlights risk areas, and makes recommendations for next steps.

Related Resources/Assets/Aprio.com articles/pages

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

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

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¹ In 2016, GSA introduced a pricing pilot called Transactional Data Reporting (TDR). Under TDR, contractors are no longer required to submit a CSP or maintain a BOA discount relationship under the PRC. TDR only applies to certain Special Item Numbers (SINs), mostly for products. Around half of MAS contractors hold at least one TDR-covered SIN. If you are performing diligence on a TDR-covered contract, confirm when the target elected to participate. They would still be subject to the PRC until that date.