Cisco Systems: Manufacturer Disclosures Behind Westcon GSA Pricing

Cisco Systems and Westcon Group North America agreed to pay $48 million jointly to settle False Claims Act allegations over incomplete disclosures behind Westcon’s GSA pricing of Cisco products. The government contract was Westcon’s. The pricing case reached Cisco too.

The Department of Justice announced the civil settlement on September 7, 2010. Cisco was the manufacturer. Westcon, formerly doing business as Comstor, was the reseller whose contract with the General Services Administration supplied the route to government sales. The government alleged that both companies knowingly gave contracting officers incomplete information, resulting in defective pricing and false government claims.

How Westcon’s GSA Pricing Worked

Manufacturer disclosures give government negotiators information about the commercial prices behind a reseller’s offer. Commercial sales information helped the General Services Administration negotiate what government customers would pay for Cisco products through Westcon. In the traditional Schedule pricing model, the government looked beyond a published price list to the discounts and concessions a business actually gave its commercial customers.

A written discount policy describes how the company says it prices its goods. Transactions show the deals it actually makes. Under the traditional commercial sales disclosure format, the information sought included deviations from written policies. A concession left off the price list still mattered to the government negotiation.

The same format addressed resellers without significant commercial sales. It could require them to supply manufacturer information, depending on the format’s conditions. That puts the manufacturer’s commercial records behind a government bargain even when the reseller holds the Schedule contract.

The General Services Administration sought most-favored-customer pricing, but could accept another fair and reasonable price where warranted. It then chose a commercial customer as the pricing reference and negotiated the relationship between that customer’s price and the government’s price.

For an insider, the useful comparison is therefore specific: the commercial deal, the information disclosed about it and the government bargain that followed. A price list can look entirely consistent with the government price while leaving out the concessions that made the commercial deal cheaper.

The Manufacturer Information Behind the Reseller’s Price

Manufacturer pricing staff may know which discounts customers actually received. Reseller staff may know which pricing information reached the government negotiator. A government contract at the reseller does not put the manufacturer’s commercial information beyond the pricing inquiry: Cisco and Westcon both settled the government’s allegations.

The timing of the information matters as much as its contents. The traditional disclosure format called for current, accurate and complete information through the stated date before submission, with later changes disclosed before negotiations closed. An internal pricing record and a submission to the General Services Administration need to be understood against the same negotiation period.

That gives manufacturer pricing staff a particular perspective. Someone who knows the actual discount practices may recognize an omission in a description that looks plausible to a reader outside the business. Someone who handled the reseller communications may understand how that description traveled. Our work is to connect those accounts to what the government was told and charged.

What Is GSA Fraud?

In the Cisco case, the alleged GSA fraud was knowingly giving contracting officers incomplete information that resulted in defective product pricing and false government claims. Taxpayers bore the prices paid by federal agencies. The government said incomplete information distorted the bargain used to set those prices.

The allegation connects negotiation to billing. The commercial information helps set the government price, and that price then reaches claims for payment. For a pricing insider, the decisive discrepancy may be between the commercial business they know and the account of it presented during negotiations.

A whistleblower started the case, and the government settled it with both companies.

Hewlett-Packard’s Pricing Disclosure Led to an Audit

Hewlett-Packard supplies a concrete parallel: its disclosure of possible GSA contract noncompliance led to an audit that concluded the contract had been defectively priced. The Justice Department’s August 30, 2010 announcement described a separate $55 million settlement covering pricing and kickback allegations.

The pricing part concerned HP’s 2002 contract to sell computer equipment and software to federal agencies. HP had to tell the General Services Administration how it did business in the commercial marketplace so that government buyers could receive a fairly negotiated price. In 2007, HP told contracting officials that it might not have complied with all the contract’s applicable provisions. The agency’s inspector general audited the contract after that disclosure.

The comparison shows why commercial information has value beyond the sales department. In HP’s case, a disclosure about compliance opened an examination of the negotiated price itself. In Cisco’s case, the government alleged incomplete information at the negotiation stage. Both accounts put the information behind the bargain at the center of the pricing dispute.

Later GSA Changes Depend on the Contract

The General Services Administration’s later transactional reporting model removed the promise to track a chosen commercial customer’s pricing. The individual contract modification determined when the change took effect. Transaction reporting and accurate sales data remained part of the bargain.

What Proof Do You Need as a Whistleblower?

For a manufacturer pricing case, the useful evidence connects actual commercial terms to the information supplied for the government negotiation and the price ultimately billed. Discount records, the commercial sales submission, manufacturer-to-reseller communications and the governing agreement can each explain a different part of that connection.

An insider who understands deviations from the written discount policy may be able to explain what a standard price sheet leaves out. A person who knows the negotiation may be able to explain which version reached GSA. Billing information then connects the negotiated price to government claims. We examine those connections with you, including what the people responsible knew when the information was supplied.

Our whistleblower experts bring the commercial account and the government transaction into the same case assessment.

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

You Know the Discounts Behind the Price

If you know what a manufacturer disclosed to a reseller and what its commercial customers actually paid, talk with our whistleblower experts about that difference. We work beside you to develop the pricing case and bring in government procurement fraud whistleblower lawyers who understand GSA negotiations and manufacturer disclosures. We stay with you from the first call through the work of building your strongest GSA pricing whistleblower case.