GSA long has stated that the “MAS program is designed to mirror commercial buying practices.” (Don’t laugh – I’m serious! Slide 12 if you don’t believe me.) In the commercial marketplace, SaaS licenses are sold for set periods of time (typically annual terms) and paid for in advance. Historically, GSA refused to accept this commercial term, explicitly prohibiting customer agencies from paying in advance when acquiring SaaS through the MAS program. Software companies, rejoice, because GSA finally has seen the light!
GSA’s longstanding opposition for advance payment for SaaS licenses was rooted in the Advance Payment Statute (31 U.S.C. § 3324) – a decade’s old statute that reads just like its title (“payment under a contract to provide a service or deliver an article for the United States Government may not be more than the value of the service already provided or the article already delivered”). The logic is simple – that is, once you embrace the Federal Government’s distrust of its contractor partners – it’s too risky to pay for good and services in advance, and therefore any goods/services provided to the Federal Government must be paid for in arrears.
The Federal Government has acknowledged certain exceptions to this general rule. For example, in a 1995 bid protest, GAO held that advance payment was permissible for a “a monthly subscription to a CD-ROM technical database, an online database that includes technical articles updated daily, and a newsletter.” Almost sounds like the first SaaS license… Yet despite the ready analogy of rotary phone to iPhone and “online database” to SaaS license, GSA has been steadfast in its position that ordering agencies could not pay in advance for SaaS licenses. That is, SaaS must be paid for at the end of the subscription term, rather than at the time of initial access or “delivery” (though, not-so-anecdotally, anecdotally we’ve encountered at least a handful of Federal agencies that disregarded this position).
On March 15, 2024, GSA finally embraced the MAS pillar from slide 12 of the GSA “Pathways to Success.” In particular, GSA’s Senior Procurement Executive Jeff Koses issued a Memorandum explaining GSA’s position is that advance payments for SaaS are not actually advance payments, but rather “a specific type of contract financing,” and therefore not prohibited by the Advanced Payment Statute (I dare you to write a more Federal Government-speak sentence than that). There are certain strings attached, of course – the specific order allowing for upfront payment must meet the following criteria:
- Access to the software is granted contemporaneously with payment (i.e., delivery of the license is made contemporaneously with payment);
- The license is acquired on a fixed-price or fixed-price with economic price adjustment basis even if other portions of the task order or contract are not fixed price;
- The license is priced at a single seat, multi-seat, unit, or subscription price covering a fixed term, defined as ‘a limited period of time’;
- The license’s pricing/billing model allows for no utilization or consumption metric other than quantity to affect the costs incurred over the negotiated term;
- The license does not require any upfront payment other than the fixed seat, unit, or subscription cost as a prerequisite for access or a pricing discount; and
- Within end user or other license agreements, the license service is continuous and uninterrupted for the negotiated term of access to the license.”
We do not anticipate any of these strings giving SaaS providers much concern.
The Memorandum is effective immediately and the GSAM will be updated to reflect this new position. Software companies – SaaS Schedule orders already should reflect payment in advance, and, if not, right now may be the perfect time to forward this article to your reseller partner.