IFF Overview and New Operational Challenges
The now complete Q4 2023 Government Pricing reporting cycle was the first quarter with the shortened IFF reporting and payment requirements in effect. As we previously discussed, the VA reduced the timeframe for manufacturers with an FSS contract to report and pay the Industrial Funding Fees to the U.S. government from 60 days to 30 days. Let's review the IFF basics, the operational challenges associated with this change, and the key requirements of IFF calculations.
IFF Basics
In the government's own words (General Services Acquisition Manual section 552.238-80 (b)(2)), the purpose of the Industrial Funding Fees is as follows:
The IFF reimburses FAS [Federal Acquisition Services] for the costs of operating the Federal Supply Schedules Program. FAS recoups its operating costs from ordering activities as set forth in 40 U.S.C. 321: Acquisition Services Fund. Net operating revenues generated by the IFF are also applied to fund initiatives benefiting other authorized FAS programs, in accordance with 40 U.S.C. 321.
The IFF is calculated as a fixed percentage of sales under the FSS contract:
The Contractor shall accurately report the dollar value [...] of all sales under this contract by calendar quarter [...]. 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. [...]
The IFF represents a percentage of the total quarterly sales reported. This percentage is set at the discretion of GSA's FAS. GSA's FAS has the unilateral right to change the percentage at any time, but not more than once per year.
In practice, the IFF percentage has been set at 0.5% of sales, and has not been changing. We will talk more about the nuances of the IFF calculations further down.
New Operational Challenges
The new 30 day IFF timeline presented novel challenges to our manufacturer clients and to us as their vendor. The government pricing business process is commonly set up with a 30-day reporting and certification timeline in mind. Making a payment within the same time frame requires manufacturers to go through an internal approval and account funding process, which can take anywhere from a few days to a couple of weeks, depending on the internal controls a manufacturer has in place. On top of this, IFF payments are not made in the same way as "normal" business payments. The manufacturer must log into the VA Sales Portal and report quarterly sales as well as release the payment at the same time.
A 2 week payment turnaround means that IFF calculations and amounts must be finalized earlier, within 2 weeks of the end of the quarter. This compressed timeline for data processing and calculations does not leave much room for any hiccups, especially if the manufacturer's data gathering process is not automated and takes time.
While the calculations themselves are automated and practically instant in the Woven Data system, finalizing IFF numbers within 2 weeks required adjustments in our operational controls. For example, General Ledger reconciliations that ensure completeness of data loading and proper classification of transactions must be finalized sooner than otherwise necessary for other GP calculations.
IFF Calculation Complexity
The "half a percent of sales" formula above belies some complexity. Here are a few things to be aware of:
- When GSA talks about "sales", they really mean "all FSS purchases", whether direct or indirect. For most manufacturers, FSS purchases are indirect sales via wholesalers, identified via chargeback data. Occasionally, a manufacturer's distribution strategy includes direct FSS sales as well, and the direct sales dataset must then also be processed.
- IFF reporting is per FSS contract. While a manufacturer typically only has a single FSS contract, acquired products may temporarily remain on the original manufacturer's FSS contract, with IFF reporting responsibilities assigned by the acquisition agreement. Mid-quarter product transitions from one contract to another require care to avoid double-payment.
- While IFF is calculated as a percentage of total FSS sales, VA requires FSS sales to be separately totalled up and reported for the VA and for all Other Government Agencies. This means that direct and indirect FSS customers must be categorized prior to IFF reporting. Addressing this requirement is easy with a Customer Master database that we maintain for all our manufacturer clients, but would be a challenge to consistently do manually.
Published on Feb. 7, 2024 by Sergei Krupenin