On September 9, the Department of Veterans Affairs (“VA”) Office of Inspector General (“OIG”) released its findings based on a review of the VA Federal Supply Schedule (“FSS”) Program. See, VA Federal Supply Schedule Contracts. The VA and other government agencies annually purchase approximately $25 billion in medical equipment, pharmaceuticals, and services through the VA FSS Program. The OIG’s findings are based on information identified during its VA FSS contract audits. The report sets forth opportunities to improve the efficiency of the VA FSS Program and strengthen price protections to ensure the government obtains the best possible prices using taxpayer dollars.
The OIG identified three primary areas for improvement:
1. Improving Tracking Customer Guidance
The Price Reductions clause is unique to FSS contracts. Under the Price Reductions clause, a tracking customer (or basis of award customer) is used to track price reductions FSS contract holders provide to tracking customers during the term of an FSS contract. The FSS contract holder is required to pass on the price reductions to the government. During contract negotiations, the parties agree on the tracking customer or category of customers. The broader the tracking customer, the more transactions an FSS contract holder must monitor.
The price reduction requirement sounds simple in concept—if an FSS contract holder reduces the prices a tracking customer pays during the term of the contract, the government’s prices must be reduced by a similar amount. However, application of the Price Reduction clause has proven anything but simple. For years, industry has criticized its use because of the significant time required to comply with the clause and potential exposure for non-compliance. See, e.g., VA-White-Paper-Final-Draft-6-16-16.pdf.
With its transition to Transaction Data Reporting (“TDR”), the General Services Administration (“GSA”) FSS Program is moving away from the Price Reductions clause. Under TDR, the Price Reductions clause is inapplicable. The GSA OIG has repeatedly criticized the move to TDR and abandonment of the Price Reductions clause. See, GSA IG Report Finds GSA Wrongly Portrays Its Transactional Data Reporting Pilot Program as a Success.
Contrary to the GSA FSS Program, in its report, the VA OIG is doubling down on the use of the Price Reductions clause in VA FSS contracts. The VA OIG states that the current practice of relying on a single “tracking customer” to benchmark government pricing may not provide optimal price protection. The OIG recommends that VA FSS officials negotiate pricing using all group purchasing organizations (“GPOs”), as different groups have varying purchasing patterns that could better protect government prices. However, the devil is in the details. GPOs have different pricing tiers based primarily on purchase volume commitments and/or exclusive access arrangements. The government is statutorily prohibited from agreeing to such terms. Vendors will need to ensure tracking customers based on all GPOs identify the applicable GPO pricelists or pricing tiers.
2. Dealers and Resellers Without Significant Commercial Sales
Vendors who are dealers or resellers without substantial commercial sales pose a unique challenge because the Price Reductions clause, which ensures the government receives competitive pricing, cannot be effectively enforced when there are no commercial customers to track. The OIG recommends updating the VA FSS solicitations to require these vendors to provide manufacturer commercial sales data and establish tracking mechanisms to satisfy price reduction requirements.
The GSA FSS Program is also struggling with how to treat information technology (“IT”) dealers and resellers. In January 2026, GSA issued a Request for Information (“RFI”) seeking industry comments on the value of dealers and resellers. See, Multiple Award Schedule – Notice of Request For Information (RFI) about IT hardware procured through Value Added Resellers (VAR). In June 2026, GSA published a summary of the responses received in response to the RFI. See, Multiple Award Schedule – Summary of Results of Request For Information (RFI) about IT hardware procured through Value Added Resellers (VAR). GSA has not taken a definitive position on the use of dealers and resellers.
It is likely that GSA’s ultimate position will affect the use of resellers under the VA FSS Program. However, there are significant differences in how resellers are used on the two different FSS Programs. For the VA FSS Program, and unlike for the GSA FSA Program, resellers often provide access to pharmaceuticals and medical supplies and equipment that would not otherwise be available to government customers. As a result, government customers can only purchase such products on an open market basis at open market prices. The VA FSS Program will need to carefully balance the OIG’s recommendation with the VA FSS Program’s ability to access pharmaceuticals and medical supplies and equipment necessary for patient safety.
3. Vendor Self-Disclosure Process
Following January 2026 discussions with the OIG, the VA FSS Program established a new process in February 2026 for vendors to voluntarily report noncompliance findings. This includes a dedicated mailbox for disclosures and guidance distributed to vendors via e-mail and the VA FSS Newsletter. Encouraging VA FSS contract holder voluntary self-disclosures is laudable. Because of its recency, however, the efficacy remains to be seen. It is imperative that the VA OIG publicly report on self-disclosures and their resolution to demonstrate to VA FSS contract holders their benefit. In its response to the OIG’s recommendations, the VA FSS Program committed to implementing a structured self-disclosure policy with leniency incentives.
VA FSS Contract Holder Takeaways from the OIG’s Report
- VA FSS contract holders negotiating contract renewals and options need to be prepared if the VA FSS Program seeks to broaden the scope of applicable tracking customers that must be monitored for purposes of price reductions. Vendors should not agree to track price reductions for broad categories of customers that they cannot responsibly monitor. The scope of agreed-upon tracking customers will be dependent on a vendor’s IT system sophistication. In terms of agreeing to a tracking customer defined as “all” GPO customers, vendors must clearly define the GPOs’ applicable pricelists or pricing tiers.
- VA FSS contract holders who are resellers should pay attention to any policies implemented by the GSA FSS Program and be prepared to demonstrate the value resellers of pharmaceuticals and medical supplies and equipment provide to VA hospitals.
- VA FSS contract holders should carefully review any self-disclosure policies proposed or implemented by the VA FSS Program and monitor the OIG’s so-called “leniency” associated with their resolution.