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Selling Energy to the Federal Government

Fortnightly Magazine - February 1 1998

future to encounter some of these added risks and costs. As explained next, they may have opened the door by signing areawide contracts.

Hidden Risks in Today's Contracts

Today's areawide contracts typically contain standard and nonstandard clauses that may already impose responsibilities and risks on utilities far greater than the minimum requirements for a bilateral, written government contract. One such nonstandard provision is a type of "most favored customer" clause, which also may give rise to audit rights for the government. Among the standard provisions in areawide contracts, two of the highest-risk clauses relate to gratuities and kickbacks.

MOST FAVORED CUSTOMER CLAUSE. Under the typical most-favored-customer clause, the utility warrants that neither the service rates made available nor the charges billed to a government agency will exceed those available or charged to any other customer served under the same service classification for the same or comparable services under like conditions of use or under similar circumstances. If the charges for any of these services are not established in tariffs, rates, rules or regulations, the ordering agency has the right to audit before payment.

Compliance with these requirements could prove difficult, time consuming and expensive. Procedures would have to be adopted to carefully compare the services, conditions, circumstances, charges, rates and prices applicable to the federal government with those applicable to all other customers. When there is an overlap, the government must be charged no more than the other customer.

These provisions could impose certain risks. First, the government could allege that the warrants represent false statements (em if, for example, through an audit or through other means (e.g., an action filed under the False Claims Act) the charges, rates or prices for a particular service are challenged. Second, if there are false statement allegations, there may also be allegations that any requests for payment made under the contract are false claims. These allegations could subject the utility and individuals to protracted investigations and civil and criminal penalties. %n8%n

GRATUITIES AND KICKBACKS. In areawide contracts, the standard gratuity provisions make it illegal to provide gratuities to government personnel. The penalties and sanctions associated with providing illegal gratuities include denial of the contract award, cancellation of the contract, criminal prosecution and debarment from federal government contracting.

The standard anti-kickback provisions make it illegal for a vendor or supplier to provide anything of value to a contractor or subcontractor for or because of favorable consideration. The phrase "anything of value" is construed broadly. It can include, for example, cash, gifts, entertainment, work on a home or employment of friends or relatives. The standard provisions impose an affirmative obligation on the government contractor or supplier to establish and enforce measures to preclude kickbacks within its organization. Stiff monetary penalties arise for violations of these provisions.

Adapting to the New Environment

All is not lost, however. To prosper, utilities simply must learn to live by the rules applicable to their government contracts. In fact, all the rules have not yet been set, giving utilities a little time to help fashion some of them.

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