GSA Schedule contracts require the contractor to remit an Industrial Funding Fee (IFF) to GSA on a quarterly basis. The current IFF is 0.75% of sales. This fee is the means by which the government agency (end-user) procuring products or services on the GSA Schedule compensates GSA for the service they perform in negotiating and administering GSA Schedules. If the end-user were to procure products or services directly, they would incur additional expense in issuing RFPs/RFQs, receiving and evaluating proposals, and negotiating prices. By using the GSA Schedule, they save these additional expenses justifying the IFF.

When proposing prices for the GSA Schedule, the contractor establishes a base price which covers its costs and fee and then adds 0.75% to cover the IFF to determine the total GSA price. If the base price is $1,000, the GSA Schedule price would be $1,007.50. This is the price the contractor charges the end-user. On a quarterly basis, the contractor reports its sales to GSA and remits the IFF payment to GSA. GSA Form 72a is the normal means of reporting sales. The online reporting system takes the sales amount entered by the contractor and multiplies it by 0.75% to determine the amount to be remitted.

If the contractor uses the $1,007.50 as its sales price on the Form 72a, the online reporting system will take that and multiply it by .0075 to obtain an IFF owed of $7.56 instead of $7.50. This small difference becomes significant when sales numbers increase. The difference is paying the IFF on the IFF that’s already included in the price which is more IFF than was negotiated. To avoid paying IFF on IFF, the contractor would need to establish an internal method of calculating sales that results in a sales price for reporting purposes which when entered into the Form 72a results in an IFF owed of $7.50, the amount of IFF negotiated into the Schedule price. To do this you take the sales price paid by the end-user ($1,007.50) and multiply by 0.9925 (which is 1 minus .0075) to get a calculated sales price of $999.94. Sales of $999.94 on the Form 72a would result in a calculated IFF of $7.50 ($7.49955 rounds to $7.50).

The GSA defers questions regarding the calculation of IFF to the individual ACOs. While the above method of calculating sales for the purpose of IFF reporting is mathematically correct, I could find nothing to indicate that GSA has addressed the IFF on IFF issue and concurred with contractors reporting sales that differs from what appears on actual invoices. In the above example, the invoice to the end-user would have reflected a sales price of $1,007.50 while the sales reported on the Form 72a would be $999.94. In fact, GSAR Clause 552.238-74 provides “The dollar value of a sale is the price paid by the Schedule user for products and services on a Schedule task or delivery order.” which would be the $1007.50 price.

I suspect that most companies just “eat” the IFF on IFF as a cost of doing business with the Federal Government – anything else would raise questions in an audit. It’s something to consider when proposing GSA Schedule prices if you anticipate a high volume of sales.