W.W. Grainger: Different Pricing Promises to GSA and USPS

W.W. Grainger agreed to pay $70 million to resolve False Claims Act allegations involving its different pricing promises to GSA and USPS, the Justice Department announced on December 26, 2012. The government alleged that Grainger gave the General Services Administration incomplete commercial-sales information for price negotiations and denied the Postal Service the best overall discount promised under separate contracts. An insider who knows the discounts offered to commercial customers may see the problem from either side: what the company told the government, or what it actually charged.

Grainger is a national hardware distributor headquartered in Lake Forest, Illinois. It sold hardware and other supplies under a General Services Administration contract through the Multiple Award Schedule program, which lets government agencies and other authorized purchasers buy commonly used commercial goods and services. Its postal contracts covered sanitation and maintenance supplies. The alleged overcharges left government purchasers and the Postal Service paying more than their contracts required.

What Is GSA Fraud?

False commercial-pricing information that makes government buyers overpay is one form of GSA fraud. In Grainger’s case, the government alleged that incomplete sales and discount disclosures undermined the prices the General Services Administration negotiated for its Schedule contract.

Access to that government marketplace came with a pricing disclosure obligation. As the Justice Department described Grainger’s contract, the company had to provide current, accurate and complete information about its commercial sales practices, including discounts afforded to other customers. The agency used that information to negotiate its own terms. The discounts a distributor gave outside the government were therefore part of the government bargain.

An audit by the General Services Administration Office of Inspector General after the contract award uncovered the alleged disclosure failures. The Justice Department alleged that government customers purchasing under the contract paid higher prices as a result.

The USPS Contracts Promised the Best Overall Discount

Grainger’s two Postal Service contracts required the agency to receive the best overall discount Grainger offered to any commercial customer. That was the specific most-favored-customer promise in the sanitation and maintenance contracts.

Agents and auditors from the Postal Service Office of Inspector General investigated Grainger’s pricing practices. The Justice Department alleged that Grainger did not consistently honor the discount promise, causing the Postal Service to pay more than it should have.

Here, the commercial discount served a different purpose. The General Services Administration needed accurate commercial-sales information to negotiate its terms. The Postal Service already had a contractual right to the best overall discount. A commercial deal could therefore matter both as information owed to the General Services Administration and as the comparison for what the Postal Service should receive.

For a sales or contract employee, that makes the identity of the government buyer important. The useful connection is between the commercial discount, the particular purchasing contract and the discount that buyer was promised.

Two Buyers, Different Customer Comparisons

Grainger’s GSA contract required current, accurate and complete commercial-sales information, including discounts given to other customers. Its postal contracts promised the best overall discount offered to any commercial customer. The same sales records could therefore answer different questions for the two buyers: whether the information supplied for GSA negotiations was complete, and whether the Postal Service received its promised discount.

The Justice Department’s announcement does not treat those promises as interchangeable. It attributes the GSA issues to failures uncovered in a post-award audit. It separately describes postal investigators examining whether Grainger consistently honored the contractual discount. The buyer, contract and investigation remain distinct even though the settlement resolved both sets of allegations.

For a person who worked on Grainger’s customer accounts, that distinction identifies which records explain the concern. A discount absent from information supplied to GSA bears on the negotiation. A better overall deal for a commercial customer bears on the postal promise. We connect the transaction to the representation or price term that applied to that buyer.

The Price Records Behind the Promise

The evidence connects a commercial transaction to a government representation and a government bill. For this kind of pricing case, we examine the contract’s customer comparison, commercial invoices, rebates and discount records, sales disclosures and government invoices together.

A rebate or an off-list concession can make the commercial deal better than the published price suggests. We compare that actual deal with what the supplier disclosed and what the government paid, using the customer comparison in the contract.

That comparison gives an insider’s product and customer knowledge a concrete use. Someone familiar with a commercial account may recognize a concession absent from the written pricing policy. Someone administering the government contract may recognize the customer category used in its pricing terms. When those views meet, a discount that looked like an isolated sales decision can be connected to a government purchasing promise.

How the Pattern Appears in Other Pricing Cases

In the Hewlett-Packard postal pricing settlement, the government alleged that prices exceeded those offered to comparable customers, while Grainger’s postal promise required the best overall discount offered to any commercial customer.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

The Settlement Resolved Allegations About Both Purchasing Relationships

The announcement described coordination among the Justice Department’s Civil Division, the U.S. Attorney’s Office for the Eastern District of Wisconsin, and the two purchasing agencies’ inspectors general. The Postal Service’s Office of General Counsel also participated. That account identifies how the separate pricing investigations reached a common resolution.

The government expressly said the settled claims remained allegations and that there had been no determination of liability. Grainger’s agreement to pay therefore should not be described as a finding that every commercial sale produced an overcharge. The account is narrower: information required for GSA’s negotiations was allegedly incomplete, and postal purchases allegedly did not consistently receive the discount their contracts required.

The $70 million figure covers the settlement announced for those allegations together. The announcement does not divide that amount into a GSA recovery and a postal recovery. We keep the pricing promises separate without inventing an allocation of the settlement between them.

You Know the Discounts Behind the Government Price

If you know the commercial discounts or the government billing, speak to one of our whistleblower experts about the prices the government paid. We work with you to connect the sales, disclosures and overcharges into your strongest government pricing whistleblower case. We bring in government procurement whistleblower lawyers who understand Schedule and postal pricing, and stay beside you through the case.