GSA Clarifies Permissibility of Upfront Payments for Software-as-a-Service Offerings

On March 15, 2024, the General Services Administration (GSA) issued Acquisition Letter MV-2024-01 providing guidance to GSA contracting officers on the use of upfront payments for acquisitions of cloud-based Software-as-a-Service (SaaS).  Specifically, this acquisition letter clarifies that despite statutory prohibitions against the use of “advance” payments outside of narrowly-prescribed circumstances, upfront payments for SaaS licenses do not constitute an “advance” payment subject to these restrictions when made under the following conditions:

• access to the software is granted contemporaneously with payment (i.e., delivery of the license is made contemporaneously with payment);
• the license is acquired under a fixed-price or fixed-price with economic price adjustment, 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 licensed service is continuous and uninterrupted for the negotiated term of access to the license.

This guidance follows Acquisition Letter MV-21-06, which permitted federal agencies to order cloud computing services on a consumption basis through GSA’s Federal Supply Schedule program (and eliminated application of the Price Reductions Clause to such offerings), and it represents the latest in a series of steps by GSA to better align the federal government’s acquisition practices for information services with customary commercial practices.