Westcon / Comstor: Reseller Pricing in the Cisco GSA Settlement

Westcon / Comstor and Cisco Systems agreed to pay $48 million in the Cisco GSA settlement over allegations that incomplete disclosures distorted reseller pricing and led to false government claims. The contract was Westcon’s. The products were Cisco’s. The government alleged that both companies knowingly gave contracting officers incomplete information while negotiating the prices agencies would use.

The Department of Justice announced the joint settlement on September 7, 2010. It identified the reseller as Westcon Group North America, formerly doing business as Comstor, and said the claims concerned the General Services Administration and other federal agencies. A whistleblower brought the qui tam case, and the government reached the settlement. The alleged defect began in the negotiations for Westcon’s contract and carried through to the government’s purchases of Cisco products.

Westcon’s Contract, Cisco’s Products

Westcon held the GSA contract at the center of the allegations, making its negotiation submissions the connection between Cisco’s products and the prices offered to government buyers. The company supplying the commercial pricing information and the company presenting the government offer can occupy different places in the sale.

A GSA Schedule provides commercial goods or services at stated prices for a stated period. In the traditional pricing system, GSA used information about commercial sales to negotiate the government’s bargain. The commercial sales disclosure requirements sought actual discounts and concessions, including departures from written policies. The information had to be current, accurate and complete, with changes disclosed before negotiations ended.

A price list could give the starting price while leaving out concessions that customers actually received. A reseller without significant commercial sales could need the manufacturer’s information to support its submission. That is why the manufacturer’s sales practices can matter to a contract held by the reseller: the government needs to understand the commercial bargain behind the proposed government price.

In Westcon’s case, the government was negotiating with the same companies it alleged had kept the commercial picture incomplete. Taxpayers bore the prices that followed.

How Incomplete Disclosures Reach Government Bills

Defective pricing in this setting means that the government negotiated from incomplete or inaccurate commercial information and ended up with the wrong price. The Westcon allegations followed that sequence from the negotiation submissions to Cisco product prices and then to false claims for payment.

Hewlett-Packard’s pricing case shows how an audit could examine that connection. In its August 30, 2010 announcement, the Justice Department said HP’s contract required it to explain how it did business commercially so GSA could negotiate a fair price for government customers. HP later disclosed possible noncompliance to GSA. The resulting inspector general audit concluded that the contract had been defectively priced.

For a reseller pricing inquiry, we follow the commercial information into the offer and the negotiated terms, then connect those terms to the orders and invoices. The useful question is what the contracting officer understood about the price, compared with what the businesses making the sale knew.

What Proof Do You Need as a Whistleblower?

For a reseller pricing case, useful proof connects the commercial sales practices, the information given to GSA and the government purchases that followed. Our whistleblower experts work with you to connect pricing disclosures and discount communications to commercial and government invoices, and to understand which part your knowledge explains.

A commercial sales employee may recognize a concession that the government submission leaves out. Someone responsible for the reseller’s GSA offer may know what information the manufacturer supplied and how it appeared in the submission. A contracts or billing employee may be able to connect the negotiated price to particular orders. These are different views of the same transaction, and their value grows when the records can be read together.

Under traditional Schedule pricing, GSA negotiated a reference customer or customer category to track prices against, called the basis of award. That reference could differ from the seller’s most favored customer.

The historical pricing agreement, relevant modifications and effective dates show which promise governed a sale. We use those terms to connect the commercial records to what the government should have been told or charged.

The Manufacturer and Reseller Pattern

Like Westcon and Cisco, VMware and Carahsoft settled allegations of concealed commercial pricing involving a manufacturer’s products sold through a reseller’s Schedule contract. Informatica allegedly gave resellers false discount information that inflated prices negotiated with GSA. Oracle America’s settlement concerning Sun Microsystems included allegations that Sun’s inaccurate commercial disclosures affected two resellers’ GSA contracts as well as its own government contracts.

Why Are Procurement Departments Particularly Vulnerable to Fraud?

Procurement can divide knowledge of a purchase among people who see different prices, submissions and payments. In a reseller channel, the manufacturer may know the commercial concessions, the reseller may prepare the government offer, and an agency may buy at the negotiated price. An insider can recognize the discrepancy between those accounts.

Transparency International’s 2024 paper, Transparency, Accountability, and Integrity of Public Procurement Systems, identifies complex processes and numerous participants as procurement corruption risks. It also says that the value of access to information depends on people being able to use the data.

For a reseller pricing case, that means reading the government bargain alongside the commercial information behind it. Someone who knows how discounts were approved or what the manufacturer sent to the reseller can explain a discrepancy that a public price schedule leaves hidden.

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.

You Know What Reached the Government

If you worked with Westcon, Comstor or Cisco pricing and know how the commercial information compared with the GSA submission, speak with our whistleblower experts about building your strongest reseller pricing case. We develop the case with you and bring in government procurement whistleblower lawyers who understand GSA pricing and reseller relationships. From the first account of the pricing decisions through the pursuit of a recovery, we stay on your side.