Fastenal: GSA Discounts, Extra Charges and Origin Allegations
Fastenal agreed to pay $6.25 million to resolve allegations of overcharging and product-origin violations under its General Services Administration contract. A government audit uncovered the issues: incomplete commercial-discount disclosures, missed price reductions, improper delivery and sales-tax charges, and products manufactured in countries outside the trade agreements.
The Justice Department announced the False Claims Act settlement on January 13, 2011. Fastenal, a national hardware distributor based in Winona, Minnesota, sold hardware to government customers through the General Services Administration’s Multiple Award Schedule program. The allegations reached both the price on the bill and the hardware delivered.
What Fastenal Sold Through the GSA Schedule
Fastenal’s General Services Administration contract gave the distributor access to government buyers for ordinary commercial hardware. The Multiple Award Schedule program provides a purchasing process for commonly used commercial goods and services. In describing Fastenal’s contract, the Justice Department explained the bargain: contractors gained access to that marketplace by agreeing to disclose their commercial pricing policies and practices and to follow the contract’s terms on government sales.
That makes the commercial side of a distributor’s business part of the government pricing story. Traditional Schedule pricing used information about actual discounts and concessions, including departures from a company’s written policy. A catalog price could tell the government what a vendor listed. The commercial-sales disclosure was meant to tell it how the vendor actually sold.
The traditional pricing arrangement also identified a customer or customer category against which later pricing would be tracked, known as the basis-of-award customer. The negotiated comparison supplied a reference for required price reductions. For an employee familiar with commercial accounts, the important connection is between the treatment those customers received and the promise made in the government contract.
The Allegations in Fastenal’s Contract
The settlement covered four kinds of alleged contract failure. Together, they reach the information used to negotiate prices, later pricing adjustments, extra invoice charges and the origin of the products sold.
Commercial Discounts Missing From the Disclosures
The General Services Administration’s Office of Inspector General said Fastenal knowingly failed to provide current, accurate and complete information about its commercial sales practices, including discounts given to other customers. The government alleged that its buyers negotiated without the full picture of the discounts other customers received. The government alleged that taxpayers paid more than they should have for the hardware.
The traditional Commercial Sales Practices format called for information that was current, accurate and complete to the specified date before submission, with later changes disclosed before negotiations closed. A commercial account’s history can show what the company knew about its pricing at the time it was negotiating with the government.
Required Price Reductions That Did Not Reach the Government
The Justice Department also alleged that Fastenal failed to comply with the Price Reductions Clause in its General Services Administration contract and overcharged government customers. This part of the case concerned the pricing promise after the contract was in place.
Under the traditional Schedule arrangement, a change in the specified commercial pricing relationship could trigger a corresponding government reduction. An employee who knows how discounts changed may understand why the government price should have moved too.
Delivery and Sales-Tax Charges Added to Government Sales
Fastenal allegedly assessed improper delivery and sales-tax charges on government purchases. The Justice Department said the pricing and charge practices caused the United States to pay more than it should have for Fastenal products.
A review focused on the hardware’s unit price can miss what happened elsewhere on the invoice. Here, the government specifically identified delivery and sales tax as additional sources of alleged overcharging. Someone who knows the billing entries may have a different view of the transaction from someone who negotiated the product discount.
Products From Countries Outside the Trade Agreements
The government alleged that Fastenal knowingly sold products manufactured in countries without trade agreements with the United States, including China, in violation of the Trade Agreements Act. This allegation follows the product back to manufacture.
For a distributor, sourcing records can answer a question that a customer invoice leaves open: who made the product and where. Manufacturer records, supplier representations, shipping documents and purchase orders can connect a product sold to the government with its actual origin.
Under the Trade Agreements Act’s product-origin rules, origin can turn on where manufacturing substantially transforms material into a new article with a different name, character or use. A distributor’s U.S. address does not tell the buyer where that manufacturing happened.
The GSA Audit Brought the Issues Together
A General Services Administration post-award audit discovered the issues resolved in Fastenal’s settlement. Its Office of Inspector General worked with the Justice Department and the U.S. Attorney’s Office for the Western District of Missouri to investigate and resolve the allegations.
The audit matters because the commercial information behind a government price sits outside the government invoice. Fastenal’s alleged discount-disclosure failures concerned its dealings with other customers. Its alleged delivery and tax overcharges appeared on government sales. Understanding the contract meant looking at more than the hardware ordered.
The same commercial-disclosure problem appeared in another hardware distributor’s case. In W.W. Grainger’s settlement, a General Services Administration post-award audit also raised allegations of incomplete commercial-sales and discount disclosures. Grainger’s separate postal contracts carried their own customer-pricing promises.
What Proof Do You Need as a Whistleblower?
For allegations like these, the useful evidence connects the contract’s pricing and origin promises with commercial sales, government invoices and the products supplied. We work with you to establish that connection and what the people responsible knew.
The contract version and the timing of a commercial change also matter. Traditional Schedule pricing tied disclosures to a negotiated tracking relationship, while later transactional-data-reporting arrangements changed that relationship. We examine the terms and modifications that applied to the sales at issue. A person familiar with those changes can help explain how a commercial discount was handled inside the business and how that treatment reached government billing.
How Much Money Can a Whistleblower Get From a Qui Tam Lawsuit?
A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For a person with direct knowledge of government pricing or sourcing, we assess how the information supports a government procurement whistleblower case.
You Know the Discount Behind the Government Price
If you see hidden commercial discounts, improper government charges or false product-origin claims on a GSA Schedule contract, speak to one of our whistleblower experts about the business records you know. We build your strongest government procurement whistleblower case with you and bring in government procurement whistleblower lawyers who understand Schedule pricing and product-origin disputes. You have a partner through the whole case, starting with the business records you understand best.
