Price Reductions Clause

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The Price Reductions Clause (PRC) allows the GSA to determine a “Basis of Award” (BOA) customer, often called “Most Favored Customer” (MFC). This BOA or MFC is the that which GSA Pricing and discounting are based on. So, if you have several customer types, the GSA will typically select the one that is the closest match to the GSA as a customer. Often times, this is “All Commercial Customers.”

If and When a GSA Contractor offers a higher discount to their BOA, then the GSA’s Price Reductions Clause is triggered and the GSA is then supposed to receive a discount according to that offered to the BOA Customer + the negotiated GSA Discount. For example:

GSA Negotiated discounts: GSA received 3% discount from “All Commercial Customers” who receive a 0% discount.

If GSA Contractor sells to a Commercial Customer with a 2% discount, then this triggers the PRC, and the new GSA Discount is to be bumped up to 5% (the 3% originally offered to GSA + the 2% that the BOA was given). This can apply even if it was just a one-time discount offered.

This has been a very problematic clause for GSA Contractors for as long as it has been around. Many believe that the GSA should not have the ability to reach into Commercial Practices, that this is not a fair business practice because it limits a companies ability to be competitive in the commercial market.  If you have opted for price reductions clause then we can help you manage it effectively.