Board of Contract Appeals General Services Administration Washington, D.C. 20405 _______________________________________________ GRANTED IN PART: June 23, 1999 _______________________________________________ GSBCA 14918 PHOTON TECHNOLOGY INTERNATIONAL, INC., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Charles G. J. Marianik, President and C.E.O. of Photon Technology International, Inc., Monmouth Jct., NJ, appearing for Appellant. Robert T. Hoff, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. BORWICK, Board Judge. This appeal involves a claim by respondent General Services Administration (GSA), in the amount of $13,384.17 for alleged overcharges on sales pursuant to a Federal Supply Service (FSS) multiple award schedule contract for fluorescence spectrometers. Appellant elected the small claims procedure under Rule 202. This decision is issued by a single judge and is final and conclusive and shall not be set aside in the absence of fraud. The decision shall have no value as precedent. Rule 202(b). The parties agreed to submit their cases on the record pursuant to Rule 111. GSA claims that, for certain sales, the appellant did not give the required schedule contract discount, but sold the items at its commercial price. GSA also claims that appellant charged for freight costs which, under the schedule contract, were to be included in the price. Appellant disputes all claims.[foot #] 1 Appellant does not deny that it failed to give the schedule discount but maintains that it was not required under the contract to sell at the discounted sched- ule price to those agencies which were not "GSA qualified" or which did not identify the schedule contract as the basis for their purchases. We grant the appeal in part. While appellant construes the scope of the contract too narrowly, the methodology of the Government claim is also in error. The Government seeks refunds for seventy-six invoices; the Government's claim includes invoic- es for fifty-six items that are not on the appellant's authorized schedule price list. We do not regard purchases of those items as schedule purchases. We award a refund of $5302.95 for the overcharge and freight for the twenty items that were on the schedule price list. Findings of Fact Solicitation and resulting contract On July 27, 1994, GSA entered into a FSS Multiple Award Schedule contract with appellant for supply of special item number 632-07, fluorescence spectrometers (spectrometers) and accessories. Appeal File, Exhibit 2. The contract's term was from May 1, 1994 through April 30, 1999. Id. For certain items listed in the contract, appellant agreed to give discounts of five percent for orders of up to eleven units and discounts of ten percent for orders of twelve or more units. Id., Exhibit 1. For all other items listed in the contract, appellant agreed to give discounts of ten percent for orders of up to eleven units and fifteen percent for orders of twelve or more units. Id. Discounts were based on appellant's commercial price list of July/August 1993 and specified commercial end-use customers as the category of customers for price reduction purposes. Id. The solicitation and resulting contract provided that the prices offered must include delivery to (1) the door of the ordering activity by means specified, (2) the siding at destina- tions when specified by the ordering office, or (3) the freight station nearest the destination when delivery is not covered under (1) or (2) above. Appeal File, Exhibit 2 at 13 ( F-FSS- 202-E.) The scope of the contract is defined in the solicitation ----------- FOOTNOTE BEGINS --------- [foot #] 1 A GSA pre-claim audit mentions appellant's alleged failure to remit an industrial funding fee (IFF) to the Federal Supply Service, but the Government did not include the IFF issue in its claim against appellant. We thus mention the IFF only to give a full account of the facts, we do not consider whether the Government is entitled to reimbursement of the IFF. ----------- FOOTNOTE ENDS ----------- which led to the contract as providing for the: normal supply requirements of the Federal Government and resultant contract will be used as a mandatory source for the articles or services listed herein (excluding those available from the Commercial Customer Supply Center (CCSC) Program and the Standardization and Control of Industrial Quality Tools Program) by all departments and independent establishments, including wholly-owned Government corporations, in the executive branch (except the U.S. Postal Service and the Depart- ment of Defense (DOD)) for delivery within the 48 contiguous states and Washington, D.C. Appeal File, Exhibit 2 at 31 ( I-FSS-102-B). The provision further explained that if an agency finds that the identical product is available from another source at a lower price, the agency could purchase that item from the lower-priced source without violating the contract, but that each contractor "was obligated within the scope of this contract to deliver all articles and services ordered." Id. The solicitation and resulting contract provided that other activities were also entitled to use the contract on a non- mandatory basis. Federal agencies which were non-mandatory users included non-appropriated fund activities as prescribed in Federal Property Management Regulations 101-26.000, Government contractors who had obtained authorization pursuant to 48 CFR 51.1, mixed ownership Government corporations, and the Government of the District of Columbia. Appeal File, Exhibit 2 at 33 ( I- FSS-150-A). As to non-mandatory users: Contractors are encouraged to honor orders from these activities. If the Contractor is unwilling to accept an order, the Contractor shall return it by mailing or delivering it to the ordering office within 7 working days after receipt. Failure to return an order shall constitute acceptance whereupon all provisions of the contract shall apply to such order. Id. The solicitation and resulting contract provided that delivery orders "may be placed by either the using Federal agencies or GSA." Id. at 16 ( 552.216-73). The solicitation and resulting contract contained a price reduction clause. The purpose of the price reduction clause was to "ensure that throughout the terms of the contract, the Govern- ment shall maintain its relative price/discount advantage in relation to the Contractor's commercial customer(s) price/discount upon which the contract award was predicated." Appeal File, Exhibit 2 at 34 ( I-FSS-390(a)). The clause further provided that prior to the award of the contract the Government and the contractor shall reach agreement as to the price relationship between the Government and classes of customer upon which the award was predicated, and that "this relationship shall be maintained throughout the contract period." Id. ( I- FSS-390(b)(1)). If, after the conclusion of negotiations, the contractor (1) reduced the prices contained in the price list offered by the contractor and used by the Government to establish the prices, or (2) reduced the price by special discount to the identified category of customer, then a price reduction would apply. Id. ( I-FSS-390(b)(3)). A price reduction would also apply to price reductions granted to Federal agencies. Id. ( I- FSS-390(c)). For this contract, the award was based on appellant's commercial price list of July/August 1993 for commercial end-use customers, which, as noted above, was the class of customer upon which the discount relationship was based. Appeal File, Exhibit 1. The solicitation and resulting contract provided: If, subsequent to the award of any contract resulting from this solicitation it is found that any price negotiated in connection with this contract was in- creased by any significant amount because the prices, data and facts were not as stated in the offeror's "Certificate of Established Catalog or Market Price," then the contract price(s) shall be reduced by such amount and the contract shall be modified in writing to reflect such adjustment. Appeal File, Exhibit 2 at 63 ( M-FSS-330(c)). Contract modifications In modification 500, the Government added a provision requiring appellant to remit an IFF equal to one percent of the total sales reported on GSA form 72A. Appeal File, Exhibit 4. On June 25, 1996, GSA issued modification 700 to the contract which added a new category of non-mandatory user--"other activities and organizations authorized by statute or regulation to use GSA as a source of supply." Id., Exhibit 9 at 26 ( I-FSS-102-D). The provision also restated the contractor's obligation to deliver all articles ordered by activities within the Executive Branch, but maintained the contractor's option to reject orders from outside the Executive Branch. Id. Price list The solicitation and resulting contract required the con- tractor to submit with its offer a price list showing, among other information, by each item, the special item number under which the model number was being offered, for Government approval and for subsequent publication upon award. Appeal File, Exhibit 2 at 35 ( I-FSS-600-B(a)(1),(2)). The contractor could request modifications to the price list to add items, offer price reduc- tions or otherwise make revisions. Id., Exhibit 2 at 39 ( I- FSS-630-B(a)). A contractor could add other items as long as the items fell within the special item number upon which award was based. Id. If all discounts, terms and conditions were the same as the initial award, a statement to that effect was required. Id. Consideration would be given to adding items three months into the contract period and every three months after that for multi-year contracts. Id. Pursuant to the contract, appellant published a FSS Autho- rized Federal Supply Schedule Price list. The cover sheet of the price list offered discounts of five percent on model numbers RI- L, RI-M, RI-F, RI-D, SE-510, SE-512, and SE-513; discounts of ten percent on all other units listed in the contract, and additional quantity discounts for orders of twelve units and above. Appeal File, Exhibit 5. On the succeeding pages, the price list listed each item by model number, item description and the non-discount- ed price for each item. Except for items 101A, 102A, and 121A, most model numbers were alphanumeric--e.g., QM-1 or SE-110M. Some model designations were purely alphabetic, e.g. RC-L. This was the only price list in effect for the contract. According to a subsequent GSA audit, appellant had issued new commercial price lists in July 1994 reflecting re-engineering of certain products. On August 24, 1994, appellant requested modification of the contract to incorporate the new price list while maintaining the Government discount. On September 26, 1994, the contract specialist requested clarifications concerning model changes and the new price list. On October 3, 1994, appellant requested that it be allowed to substitute its July 1, 1994 price list for the price list in the GSA contract. For reasons not explained, the contract was never modified to incor- porate the July 1994 price list. Id., Exhibit 23. Site visits and contract administration problems After a site visit on March 21, 1996, a GSA quality assur- ance specialist (QAS) reported that appellant's order tracking system for Government sales was weak and that on several sales to the National Institutes of Health, National Aeronautics and Space Administration and Veterans' Administration Hospitals that could be considered GSA schedule sales, schedule contract discounts were not given. Appeal File, Exhibit 7. The QAS noted that university sales could be for Government research and considered GSA sales. Id. On April 10, 1997, the QAS reported that appel- lant "has been operating from an unapproved price list since 7/1/95." Id., Exhibit 11. According to the QAS, appellant's controller used a 1996 and 1997 price list to fill agency orders. Id. On February 5, 1998, the contracting officer requested another visit to review appellant's order tracking system; the contracting officer reminded appellant that it was required to submit to the FSS on a quarterly basis the dollar value of total Government sales for each special item number under the contract and remit one percent of that amount to the FSS as an industrial funding fee. Appeal File, Exhibit 16. On March 31, 1998, the QAS reported that appellant had an unacceptable order tracking system, and that the appellant only gave a schedule contract discount when the ordering agency asked for the discount or sent a written order referencing the schedule contract number. In all other instances, appellant charged list price. The QAS noted that appellant had not paid the IFF on unreported sales. Id., Exhibit 17. Contract cancellation; subsequent audit and claim On May 28, 1998, GSA canceled the contract effective June 25, 1998. On October 20, 1998, GSA conducted a post-award contract audit and determined that there were overbillings of $13,384.17 on seventy-six invoices between August 11, 1994 and April 9, 1998. Appeal File, Exhibit 23. The auditors developed a spreadsheet that listed sales considered to be GSA schedule sales. The auditors calculated the refund to the Government by first calculating the ten percent contract schedule discount and then adding to that figure the cost of freight charged by appel- lant to the ordering agencies. The auditors included freight because, as we have earlier noted, the schedule contract prices included freight. Id. A comparison of the auditors' spreadsheet and the authorized schedule price list shows that of the seventy- six invoices examined by the auditors, twenty were for items on the authorized schedule contract price list: Invoice Date Invoice Number Model Number Qty 9/28/94 9356 X-1002 1 11/20/94 9477 X1016T 3 2/13/95 9605 SX-1714 1 2/13/95 9612 SX-1714 1 5/19/95 9836 X-1011T 1 12/22/95 10339 SE-100 1 12/22/95 10339 SX-1714 1 1/25/96 10404 X-1023 1 5/16/96 10745 X-1011T 1 5/16/96 10745 X-R928P 1 11/29/96 11338 X-1002 1 1/2/97 11493 X-1023 1 3/31/97 11687 MD-1-Z 1 4/30/97 11765 X-1021-T 1 6/19/97 11889 SE-100 1 6/19/97 11889 101A 1 6/19/97 11889 X-1023 1 9/16/97 12099 MD-5020 1 9/25/97 12134 X-1008 1 1/06/98 12461 MD-5020 1 Compare id., Exhibit 5 with id., Exhibit 23. On January 28, 1999, the contracting officer wrote appel- lant: You are hereby notified that [appellant] has failed to comply with the terms and conditions of the above contract in regard to fulfilling its responsibilities for allowing federal agencies schedule contract pric- ing, charging federal agencies prices from unapproved price lists and charging for freight when the approved delivery terms for this contract are F.O.B. destina- tion. The attached Appendix A lists the orders which [appel- lant] invoiced customers at list price or greater. These invoices included shipping and handling charges. In some instances, Government customers received a discount, but less than the negotiated [ten percent], thus resulting in overbillings. It is the determination of the undersigned contracting officer that you are hereby indebted to the Government in the amount of $13,384.17. This debt is in addition to any other Government claim, demand for payment or debt collection action. The Government hereby demands payment of $13,384.17. Appeal File, Exhibit 24. Respondent did not demand payment of the one percent for the IFF. The "attached Appendix A" refers to the spreadsheet developed by the auditors. The overcharge for the twenty orders for items on the authorized schedule contract price list was $5302.95. Appellant filed a timely appeal from this demand. Discussion Appellant argues that the Government is not entitled to any refund because it was only obligated to give contract discounts to those agencies which identified themselves as either GSA or "GSA qualified" to receive the discounts: Section I-FSS-102-D outlines who would be qualified agencies covered by this contract. The first paragraph states that the agencies are not obligated to order under the contract and can use it on a "nonmandatory basis." If they elect not to use the purchasing route via the contract and do not specify that they are entitled to the discount as per the contract, the [appellant] has no way of knowing that they are enti- tled to the GSA discount. Appellant's Record Submission Memorandum at 1. Appellant is wrong in asserting that agencies have to be "GSA qualified" and identify themselves as qualified to order under the contract. The contract creates two user categories: mandatory users--"all departments and independent establishments, including wholly-owned Government corporations, in the executive branch (except the U.S. Postal Service and the Department of Defense (DOD))" and non-mandatory users--federal agencies which were not mandatory users, including non-appropriated fund activi- ties as prescribed in Federal Property Management Regulations 101-26.000, Government contractors who had obtained authorization pursuant to 48 CFR 51.1, mixed ownership Government corporations and the Government of the District of Columbia. As to mandatory users, appellant was "to deliver all articles and services ordered." As to non-mandatory users, the appellant retained the right to reject orders, but if it did not do so within seven working days of receipt, the failure to return an order would "constitute acceptance whereupon all provisions of the contract shall apply to such order." In short, the contract assumes that Federal agencies and are either required to or entitled to use the schedule contract; the contract places the burden on the contractor to identify those non-mandatory users whose orders the contractor chooses not to fill and to reject those orders. The solicitation and resulting contract were clear in this regard, and appellant cannot maintain that only agencies that identified themselves as GSA qualified were entitled to the discount. See AT&T Communications Inc. v. Wiltel, Inc. 1 F.3d 1201 (Fed. Cir. 1993) (regarding analogous question of scope of services under the FTS 2000 contract). That does not mean, however, that the Government is entitled to the full refund it seeks. The Government in its record submission memorandum relies upon the contract's price reduction clauses as the authority for seeking the refund. The contract's price reduction clause in I-FSS-390 contemplates that a contra- ctor's general price reduction to commercial or federal estab- lishments will trigger equivalent schedule contract price reduc- tions. The price reduction clause in M-FSS-330(c) of the contract applies when the contract price was increased by any significant amount because the prices, data and facts were not as stated in the offeror's certificate of established catalog or market price. The price is reduced by the amount of the in- crease. Here, the Government is not seeking to reduce the estab- lished contract price; its claim is that the contractor was ignoring the contract price and overcharging customers. The Government may recover for overcharges without relying on price reduction clauses. See Jerry's U-Drive, GSBCA 7438, 85-1 BCA 17,817; Southern Business Systems, GSBCA 5727, et.al., 81-2 BCA 15430; 4 Industries Inc., ASBCA 46814, 94-1 BCA 26,984 (Govern- ment claim for overcharges based on price warranty clause). When enforcing a price term, however, it is necessary to have a contract price. For items sold under the schedule contract price list, the contract price could readily be determined by taking the stated discounts from the authorized price list. Here, out of the seventy-six invoices reviewed by the auditors, twenty invoice items matched the authorized price list items and it is possible to derive what the schedule contract price should have been. Fifty-six items, however, were not on the authorized price list and were thus not on the schedule contract. The auditors and the contracting officer took discounts from these invoices, as if the fifty-six items were on the authorized price list at the invoiced price. How federal agencies came to purchase non-schedule items from a schedule contractor presents an intriguing question of contract administration. The problem shows the care with which the schedule contracts must be administered; the Government must ensure that schedule contracts have current items and prices in place to ensure the Government obtains schedule discounts on the contractors' latest products.[foot #] 2 The existence of the problem, however, can not serve as a basis for contractual relief. The Government is entitled to a refund only for over- charges on the twenty items on the authorized price list. The amount of that overcharge is $5302.95, which is the sum of the freight charges and the discount appellant owes the Government for the twenty invoices reflecting schedule purchases. Decision The appeal is GRANTED IN PART. Appellant owes the Govern- ment $5302.95, plus any interest payable on that amount pursuant to the Debt Collection Act, 31 U.S.C. 3717. __________________________ ANTHONY S. BORWICK Board Judge ----------- FOOTNOTE BEGINS --------- [foot #] 2 We note that in this instance the Government knew by July 1994 that appellant was operating from price lists other than the 1993 price list that served as the basis for the schedule contract pricing, and was aware in March of 1996 that appellant was operating from unauthorized price lists. Nevertheless, the Government did not cancel the contract until May 28, 1998.