Medical device manufacturers and life sciences companies frequently supply commercial products and services to the U.S. Government under the Federal Supply Schedule (FSS) or General Services Administration (GSA) Schedules program.  For example, in one such program managed by the Department of Veterans Affairs, suppliers provide surgical instruments, hospital equipment, and surgical dressing materials to the Government.  Under these programs, suppliers publish a list of items offered for sale along with pricing, terms, and conditions applicable to the sale of each item, and individual agencies issue purchase orders incorporating these terms to acquire the listed item.

Until recently, it was thought that rules in Part 12 of the Federal Acquisition Regulation (FAR) applicable to commercial item purchases—rules that restricted agencies from including non-standard terms in their commercial item acquisitions without heightened justification—would apply equally to commercial items purchased under the FSS.  But in CGI Federal Inc. v. United States, No. 14-cv-355C, the U.S. Court of Federal Claims held that agencies could ignore the restrictions of FAR Part 12 except in three narrow circumstances.  If the holding is affirmed, suppliers selling on the FSS will need to be on the lookout for an increasing number of requirements that are inconsistent with standard commercial practices.  Such requirements—which could include, for example, slower payments or increased product liability obligations—have the potential to significantly affect suppliers’ pricing, compliance burden, and strategy to supply goods and services to the Government.     

In CGI Federal, a prospective bidder responding to a Request for Quotation for commercial services under the FSS by the Center for Medicare and Medicaid Services (CMS) protested a non-standard payment term in the solicitation.  According to the protester, the term required the supplier to await payment for as many as 420 days, when standard industry practice was to collect payment in no more than 30-40 days.  The protester argued that under the requirements of FAR Part 12, CMS faced a heightened standard to justify its departure from industry practice (i.e., the agency was required to conduct market research and obtain a waiver from FAR Part 12, which it did not do).  CMS responded that FAR Part 12 requirements did not apply to acquisitions under the FSS, which are governed by FAR Part 8.4, except in three enumerated circumstances—the Government’s termination for cause, termination for convenience, and addition of open market items to FSS orders.  The Court agreed with CMS.  Under the Court’s reasoning, in this case, CMS only had to show that the non-standard provision did not lack a rational basis or violate other laws and regulations, such as the Competition in Contracting Act.

The protester appealed, and in a rare move, the Court granted the protester’s motion to stay its ruling pending appeal to the United States Court of Appeals for the Federal Circuit.  Check back on the blog for the latest developments on the appeal.