The General Services Administration’s multiple-award schedules were in the headlines recently, and not in a good way.

In response to a House committee investigation, the GSA said it owed $3 million to 1,281 small contractors it had removed from schedules due to lack of sales.

The payments were due under the GSA’s minimum guaranteed payment clause, Federal Acquisition Service Commissioner Thomas Sharpe wrote.

“It became clear that GSA was not adhering to its own contracts and had not paid the required termination costs to small businesses for at least five years,” Rep. Sam Graves, R-MO, chair of the House Small Business Committee, wrote in a news release on May 16.

It was bad publicity for GSA, for sure. But something seemed missing; a fuller explanation was needed. Let’s take a closer look.

The payments owed arose from schedules contract clause I-FSS-106 offering up to $2,500 to contractors cancelled for lack of sales.

If small businesses were underpaid by $2,500 each, and this went on for five years, why was no one screaming about it?

“I did not hear a single complaint about it,” said a longtime specialist in the field.

“I am not sure the contractors realized they were owed money. Otherwise, they would have been yelling,” Scott Orbach, president of EZGSA consulting firm, told Set-Aside Alert.

As Orbach explained, small business owners work hard to gain GSA schedules contracts, and most strive diligently to make sales. But if they fail to sell anything, they want to move on to the next thing, and might not realize they are owed money in the fine print, he said.

But another procurement specialist felt the contractors should share some of the blame: “The minimum payments clause is in the contract and the contractor bears some responsibility for being aware of what is in their own contract.”

Then there also are questions about how exactly the contractors were supposed to apply for and receive the payments.

The I-FSS-106 clause states that for the contractors to be eligible for the minimum payment they must make a timely submission of GSA Form 72A and of their close-out sales report.

GSA officials, in followup comments to the press, have suggested that eligible contractors also would need to explicitly request the guaranteed minimum payment due. That was the practice in place for many years, they suggested.

“Because of policy dating back several years and several administrations, some businesses were not compensated because they had to request the guaranteed minimum payment to GSA,” Betsaida Alcantara, GSA communications director, told the Washington Post.

The I-FSS-106 clause, as currently written, does not appear to specify exactly whether, or how, the contractors must apply for the guaranteed minimum payment.

“There is no mechanism, or if there is a mechanism, it has not been highly publicized,” Orbach said.

Still, some observers believe that it’s common sense that the contractors should have known to send an invoice or to make a request. “This is the federal government. You just don’t get paid for anything without an invoice,” a contractor said.

Few or none of the 1,281 contractors owed payments had sent in an invoice or request, a committee source told Set-Aside Alert. The panel found 27 contractors who sent invoices under the clause, and who got paid, the source said.

The GSA now has changed that practice and will no longer require the payments be requested or invoiced. Going forward, “GSA will not require contractors to request a guaranteed minimum payment,” Sharpe wrote in a May 6 letter to the House committee.

A contributing factor to the lapse is that GSA, for years, apparently overlooked low sales. In recent months, with several strategic sourcing initiatives, the GSA has switched course and has been actively removing from the schedules contractors with little or no sales.

Of 3,330 cancelled contracts that were reviewed by the House committee, the GSA said it owed the guaranteed minimum payments to 1,334 vendors, including 1,281 small vendors.

More information: House Small Business Committee press release: http://goo.gl/lnSP1
Thomas Sharpe letter: http://goo.gl/OoTqt