Review of Contentions by Hewlett-Packard Company Regarding Prices Charged to the Government for the Purchase of Goods

PSAD-78-50: Published: Dec 20, 1977. Publicly Released: Dec 20, 1977.

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A review was conducted of contentions by the Hewlett-Packard Company that a GAO report failed to adequately consider differences between commercial and General Services Administration (GSA) contract terms and conditions. The report stated that some contractors charged the government more for their products than they charged commercial customers who purchased smaller or comparable quantities. Hewlett-Packard stated that the terms and conditions under GSA Federal Supply Schedules differ from those that Hewlett-Packard gives to commercial customers, and these directly affect the price discounts offered to the government. Hewlett-Packard charged that the report failed to consider these differences.

The company cited GSA multiple-award contracts requiring firm fixed prices for 12 months, while other customers must use the catalog base price effective when the order is placed, as an example of a difference in discounting. The extent that GSA benefits from requiring fixed prices for 12 months seems to relate directly to the extent that list prices increase during the 12-month contract period. Any price advantage obtained by the government as a result of the 12-month fixed prices is minimal. The company cited the 1-year free warranty extended to the government under multiple-award contracts, while commercial customers receive only a 90-day free warranty, as another contract difference. For most product types, the warranty given commercial customers is the same 1-year warranty given the government. The 90-day delivery requirement generally does not create higher government contract costs. The government should not be expected to simply accept the contention that benefits provided by original equipment manufacturers warrant an additional discount over that given the government. The most significant shortcoming in the GSA multiple-award schedule contracting process is nonrecognition of the anticipated aggregate amount of government contract purchases during negotiations.

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