Compliance with Most Favored Customer Clauses: Giving Meaning to Ambiguous Terms While Avoiding False Claims Act Allegations
Federal and state contracting authorities more frequently are including Most Favored Customer (MFC) clauses in contracts for procurement of privately manufactured products. These clauses seek to ensure that the contracting authority (typically a federal or state agency) receives at least as favorable pricing as other customers making similar purchases. For example, the government agency may request that the contractor warrant that the prices it charges under the contract will be as favorable as those offered to other parties purchasing similar products of similar quantity under similar terms and conditions. In theory, the request to be treated equally to others making similar purchases is reasonable.
In practice, however, it is challenging to satisfy MFC clauses because they often contain ambiguous comparative terms that make MFC compliance an onerous undertaking. Specifically, in a world of complex products and services, it often is difficult—if not impossible—to identify “similar” products sold pursuant to “similar” terms and conditions. Making compliance even more challenging are those MFC clauses that do not define the subset of purchasers (basis of award customers) who are to be compared for purposes of determining whether a price adjustment is necessary to satisfy the contractor’s MFC obligations. Some MFC clauses are not limited to any subset of purchasers, effectively requiring the contractor to search all U.S.-based sales to ensure compliance with the clause.
This Comment will provide examples of MFC clauses, identify the most common problems contractors have in complying with such clauses, and provide recommendations for best practices to achieve compliance with the Clauses and thereby mitigate the potential for liability under the False Claims Act (FCA).
Mitchell S. Ettinger & James C. Altman,
Compliance with Most Favored Customer Clauses: Giving Meaning to Ambiguous Terms While Avoiding False Claims Act Allegations,
Notre Dame L. Rev. Online
Available at: https://scholarship.law.nd.edu/ndlr_online/vol90/iss1/1