In a significant ruling affecting holders of Federal Supply Schedule ("FSS" or "schedule") contracts, the General Services Administration Board of Contract Appeals ("GSBCA") has ruled that there exists an affirmative obligation to bring the fact that the holder possesses a schedule contract to the attention of government ordering agencies so that they can take advantage of the contract’s benefits. The GSBCA further ruled that this affirmative obligation applies to orders from all government agencies, regardless of whether the agency is required to use the schedule contract.

In Photon Technology International, Inc. v. General Services Administration, GSBCA No. 14918 (June 23, 1999), the GSA claimed that it was entitled to a refund for several product sales Photon made to the government at commercial list prices. The GSA reasoned that Photon had overcharged the government for the sales because the products were on Photon’s GSA schedule contract at discounted prices. Photon, however, asserted that its GSA schedule was not the basis for all of its sales to the government, and argued that it had made the sales in question to government agencies which had not identified themselves as "qualified" to order from the schedule, or had not specifically stated that they were in fact placing an order under Photon’s GSA schedule.

The GSBCA strongly rejected Photon’s argument, and instead concluded that Photon could not "maintain that only agencies that identified themselves as GSA qualified were entitled to the discount." The GSBCA pointed out that Clause I-FSS-102-D of Photon’s FSS contract required Photon to 1) honor any order from a mandatory user and 2) affirmatively reject any order from a non-mandatory user within a specified period of time, or the order would be deemed accepted under the schedule contract’s terms. Accordingly, the Board ruled that "the contract places the burden on the contractor to identify those non-mandatory users whose orders the company chooses not to fill and to reject those orders." Barring affirmative action to meet that burden, the Board concluded that all orders are deemed to be covered by the schedule contract. I-FSS-102-D, and similar schedule clauses, are found in most FSS contracts.

The Photon decision has potentially far-reaching importance because it, in effect, mandates that holders of FSS contracts are obligated to disclose to all government agencies ordering from them that the government maintains an FSS contract which includes the item(s) being ordered and grant those agencies the discounts and terms set forth in the schedule contract unless the holder can and does affirmatively reject the order. Presumably, this obligation attaches even if the government official placing the order has no intention of ordering under the FSS contract. Prior to the Photon case, a non-mandatory user could choose to simply place an order with a contractor holding an FSS contract, using alternate contracting vehicles such as a purchase order or a credit card with no applicable terms and conditions. The holder of the FSS contract had no apparent obligation to advise the ordering agency of the existence of the FSS contract. After all, non-mandatory users are not obligated to use the FSS contract, may not be aware that it exists, and/or may have no intent or interest in using it. It has been less than clear the extent to which I-FSS-102-D, and similar schedule clauses, could be construed to mandate the manner in which a non-mandatory user could exercise its procurement authority, or the extent to which such clauses might be applied to restrict a schedule holder from selling schedule items to non-mandatory users under other contract vehicles.

The uncertainty surrounding the treatment of non-mandatory users has become increasingly important to schedule holders in recent years. Government users are more frequently ordering supplies under commercial procedures outside of the schedule contracts. Government users are also ordering using a plethora of procurement vehicles and means of communication, all sure to cause confusion. Government purchase card use for the procurement of commercial items has increased significantly, as has the use of Federal Acquisition Regulation ("FAR") Parts 12 and 13 and other "commercial" purchasing procedures. The Government is increasingly using telephone, fax , and e-commerce modes of communication, which do not always aid the contractor in making a determination or lend themselves to entering a discussion of whether a government order is being placed under a schedule contract. This issue is exacerbated by government credit card users who do not know whether they are ordering under a schedule contract, FAR Part 13 micro-purchase procedures, or some other purchasing procedure available under the FAR. Nor is it clear what a schedule contract holder’s duties are when the contractor has more than one ordering vehicle covering the same product.

Distinguishing a schedule from a non-schedule sale to the government can be extremely important to the schedule holder. Schedule holders have numerous obligations under schedule contracts, including the calculation, reporting, and payment of "user fees," which do not otherwise apply to other procurement procedures or contracts.

It should be noted that the Photon decision may not be used as precedent because it was decided under the GSBCA’s small claims procedures. However, it does provide useful guidance regarding how at least one GSBCA judge would handle this issue. In light of this decision, schedule contract holders who accept orders from government agencies for items on their schedule contracts under other terms and conditions, e.g. purchases under FAR Parts 12 and 13, should take steps to make it abundantly clear at the time of order which regulatory scheme, or contract vehicle, applies. And apparently, when in doubt, schedule holders should assume that the schedule contract applies.