A New York government contractor has agreed to pay $5.65 million to resolve claims that it violated the False Claims Act by failing to comply with the Price Reduction Clause in its GSA Schedule contract.

The hefty settlement is a strong reminder that the GSA takes the Price Reduction Clause very seriously, and that failing to abide by the Price Reduction Clause can lead to significant repercussions.

The Price Reduction Clause, GSAR 552.238-75 is included in every GSA Schedule contract.  It provides that the Schedule contractor and GSA will agree upon a customer, or category of customers, which will be the basis of award, as well as the government’s discount relationship toward that customer.

The clause requires that the discount relationship be maintained throughout the period of the contract.  The contractor must report any price reductions to the customer(s) forming the basis of award, and in many cases will be required to offer the government a corresponding discount.

In this case, the contractor in question, Corning Incorporated, entered into a GSA Schedule contract in 2005 to sell laboratory research products to the government.  A former Corning employee later filed a whistleblower, or “qui tam” False Claims suit in federal court, alleging that Corning had knowingly failed to report discounts to the customers forming its basis of award, and knowingly failed to provide the government with corresponding discounts.

Corning’s settlement brings an expensive end to the False Claims suit against the company.  As usual in settlements, Corning admitted no liability, but simply decided to write a large check to Uncle Sam.

One final note, in case you wonder why former government contractor employees sometimes initiate whistleblower suits.  Sure, there may be personal grudges involved in some cases, but to paraphrase Terrell Owens’ publicist, the former employee in this case had 900,000 reasons to file a qui tam action.  That’s right: the former employee stands to receive $904,000 as his share of the settlement.