Settlement Costing Grainger $70 Million

The company admitted no liability and maintains that it complied with disclosure requirements and the two federal contracts in all material respects.

Both the U.S. Department of Justice and W.W. Grainger Inc. posted announcements Dec. 26 that say the company has settled its dispute with the federal government regarding allegations that it submitted false claims under contracts with the General Services Administration and the U.S. Postal Service. Grainger, a leading distributor of safety and other products, admitted no liability and maintains that it complied with disclosure requirements and the two contracts in all material respects.

DOJ's release said Grainger entered into a contract to sell hardware and other supplies to government customers through GSA's Multiple Award Schedule program. The program provides the government and other GSA-authorized purchasers with a streamlined process for procuring commonly used commercial goods and services. To be awarded a MAS contract, contractors must agree to disclose their commercial pricing policies and practices to assist the government in negotiating contract terms.

The release says the settlement resolves issues discovered during a GSA post-award audit of Grainger's MAS contract. "The GSA Office of Inspector General learned that Grainger failed to meet its contractual obligations to provide the GSA with current, accurate and complete information about its commercial sales practices, including discounts afforded to other customers," it states. "As a result, government customers purchasing items under the Grainger MAS contract paid higher prices than they should have. In addition, today's settlement resolves allegations that Grainger failed to meet its contractual obligations to provide 'most-favored customer' pricing under two USPS contracts for sanitation and maintenance supplies. The USPS contracts required Grainger to treat USPS as Grainger's 'most-favored customer' by ensuring that USPS received the best overall discount that Grainger offered to any of its commercial customers. Agents and auditors from the USPS Office of Inspector General (OIG) investigated Grainger's pricing practices and discovered that Grainger did not consistently adhere to this requirement, causing USPS to pay more than it should have for purchases made under the two contracts."

The release says Grainger has agreed to pay $70 million to settle the matter.

"The substantial payment by Grainger reflects the Justice Department's focused and productive work in the economic interests of our citizen constituents," said U.S. Attorney James L. Santelle of the Eastern District of Wisconsin. "This settlement shows that we are committed to ensuring that false claims are investigated fully and pursued effectively so that government monies are used properly and the integrity of our contracting system is upheld."

Grainger's statement (http://invest.grainger.com/phoenix.zhtml?c=76754&p=irol-newsArticle&ID=1769706&highlight=) says the company announced on Oct. 16 that "the discrepancy centered on disclosure language in the General Services Administration(GSA) and United States Postal Service (USPS) contracts, which were implemented more than 10 years ago. Grainger maintains it complied with the disclosure requirements and the contracts in all material respects, and the settlement does not contain any admission of wrongdoing by the company. The GSA and USPS remain long-standing and important Grainger customers," it continues. "These contracts account for a portion of the company's overall government business, which represented 17 percent of its total U.S. 2011 revenue. As Grainger disclosed in October, it recorded a $70 million pre-tax reserve for this settlement and established a separate pre-tax reserve to resolve tax, freight and miscellaneous billing issues with these two government customers."

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