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Compliance 101: Understanding the Greatest Challenge in Doing Business with the Government

Compliance 101: Understanding the Greatest Challenge in Doing Business with the Government

Published: November 23, 2010

Government business is big business; especially for small businesses.

Hundreds of small businesses make millions of dollars every year providing their services and products to the government through, for example, a General Services Administration (GSA) or Veteran- Affairs (VA) Multiple Award Schedule Contract.

Some of these companies also lose millions of dollars every year because they do not follow the government rules and regulations that go along with their GSA Schedule contracts.

Trade Agreements Act (TAA) infringements, defective pricing, and false claims are some of the more common reasons companies receive penalties for failure to comply with their contract terms. The dollar value of these penalties can be more than what these companies are making through their contract.

So, how do you make money in the government without risking compliance penalties?

Diligence is the best method of ensuring contract compliance. In order to be diligent, you must understand where the most common dangers lie.


Diligence starts with planning.

Before you start, make sure you have resources devoted to managing your contract. Remember, yo-re entering into a contract with the government and they will hold you to it.

Plan to have some kind of system in place to track your government business separate and apart from your commercial business. Your company must be able to monitor, collect, and accurately report government sales information. The government will check up on you regularly, and thoroughly.

In fact, as holder of a GSA Schedule contract, you will have an Industrial Operations Analyst (IOA) visit once every 12 or 18 months. These visits will focus on the policies and processes you have in place for the management of your contract.

Common Compliance Pitfalls

Even with proper planning, there are still many ways companies can fall out of compliance with their contracts. There are several that are the most common'gotcha'.


Pricing is probably the most financially damaging compliance issue. The government has collected billions of dollars in penalties because of non-compliant pricing.

One such area of non compliance is called'defective pricin'. As part of the proposal process, the government asks that a company disclose information about how it sells to commercial customers. The government relies on that information to decide if the prices the company offers to the government are fair and reasonable.

Pricing is defective if information that a company submits to the government is not accurate or not complete.

If you submit defective pricing you probably have not been diligent enough; worse yet, there may be someone in your company that is not telling the truth. Just because the government is large, do't assume the government wo't notice if you over charge. It will' and yo'll wind up paying the difference, and then some.

Another way you can get dinged is by not paying attention to your price reduction clause. When negotiating your contract with the government, you're required to tie your government pricing to what you charge a customer or category of commercial customers, your basis of award, and the discounts you offer those customers.

The Price Reduction Clause says that your contract price should be reduced if you reduce prices to a customer in your basis of award.

Companies that submit defective pricing or fail to comply with the price reduction clause intentionally or with negligent disregard can incur very high monetary penalties. Companies can also suffer administrative penalties such as contract cancellation, suspension, and debarment.

Trade Agreements Act

The next most common cause of non-compliance revolves around the Trade Agreements Act (TAA). TAA states that you may not sell products from non-TAA compliant countries, or services from companies that are not established in the U.S. or a designated end country, through your GSA Schedule contract.

This is a sticky subject that brings us back to the importance of diligence. Take the time to understand the TAA regulations and how they might affect you.


As we started out saying, government business is big business - especially for small businesses. The secret to staying in the government business is to stay compliant. The secret to staying compliant is to be diligent, and to find a partner who already knows the ins and outs of government rules and regulations, and who can keep on top of your government business and help keep you compliant - and successful.

Additional Resources

Bill Gormley is president and CEO of Washington Management Group and FedSources, chairman of the Coalition for Government Procurement, and Vice Chair at the Procurement Round Table.

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