Major Fine to Contractor Providing Data Services to U.S. Government

(MoneyWatch)  Network Appliance of California will pay a fine of $128 million to settle claims by the U.S. Governemnt that it overcharged them. The company was accused of not offering the same prices to its government customers as it did to commercial ones. PCWorld writes that this settlement was the result of charges brought due to a whistleblowing former employee.

NetApps had qualified through the General Services Administration (GSA) to provide various data management and storage solutions. The GSA schedule allows companies to pre-qualify goods and services and their prices so that government agencies can contract directly with the company. In this case NetApps charged the government higher prices then it did other customers and did not provide correct pricing data to the government.

This is similar to the kind of issues that Office Depot is having with local and state governments. That company agreed to provide goods to those entities at fixed prices under a contract they established with Los Angeles County. Now it turns out that different governments were charged different prices, and certainly not the lowest available. Office Depot is under investigation in various states and has agreed in some cases to pay back money. This case also involved a whistle blower.

Many of the government contracts for goods, especially those bought in bulk, and services are often based on things like the GSA schedule which allow a company to reach a lot of customers without going through a contract process with each one. Of course part of the deal is that the companies provide competitive pricing to the government. Most of these awards require some level of pricing information be provided to the government to justify the costs.

The use of these types of schedule is beneficial to both parties as it allows the companies to reach a much larger market and makes it easier for the government to buy what it needs. The Federal Government though as such a large customer makes great demands on the prices offered, and because they are willing to qualify a great deal of different suppliers that also forces the price down. The sellers hope to make money on the volume of the deals. In NetApps case it seems they were trying to make money on the price as well as the volume. The fine is part of a settlement so no guilt was admitted or penalty applied. The whistle blower under Federal law will share in the fine and will soon be almost $20 million richer.