DCAA has caught up on their incurred cost backlog and is concentrating effort on Truth in Negotiations Audits (i.e., Defective Pricing). The objective of the Truth in Negotiations audit is to determine whether a negotiated contract price was increased by a significant amount because a contractor did not submit or disclose current, accurate or complete cost or pricing data.
So, what is the Truth in Negotiations Act
The Truth in Negotiations Act (TINA) now called Truthful Cost or Pricing Data Act requires contractors to submit certified cost or pricing data when the proposal value exceeds the specified threshold of $2,000,000, and no exceptions apply. Contractors must certify that the cost or pricing data is current, accurate and complete as of the date of price agreement. The format of the required Certificate of Current Cost or Pricing Data is included in FAR 15-406-2.
The FAR 15.403-1 exceptions to submitting certified cost or pricing data on contract values below $2,000,000 follow:
- Adequate price competition
- Prices set by law or regulation
- Commercial items
- Waiver has been granted
- Modifying a contract or subcontract for commercial items
What are the Defective Pricing Clauses?
The following clauses are included in solicitations and contracts when certified cost or pricing data will be required by the contractor or subcontractor which provide the government the right to obtain a contract price adjustment.
- FAR 52.215-10 – Price Reduction for Defective Certified Cost or Pricing Data
- FAR 52.215-11 – Price Reduction for Defective Certified Cost or Pricing Data - Modifications
- FAR 52-215-12 – Subcontractor Certified Cost or Pricing Data
- FAR 52.215-13 – Subcontractor Certified Cost or Pricing Data - Modifications
Is there a Way to Avoid the Clauses in the Solicitation?
Even if the contracting officer issues a solicitation for certified cost or pricing data (i.e., including the clauses), the contractor can respond with a commercial item proposal. In this case, if the contracting officer accepts/makes a determination on the commercial item, the contractor needs to ensure the defective pricing clauses are removed from the contract before signing it. In addition, the contractor is not required to sign a Certificate of Current Cost or Pricing Data if they qualify for an exception. This is the same for a subcontractor that submits a proposal to the higher tier contractor meeting the exception (adequate competition, commercial item, etc.); a Certificate of Current Cost or Pricing Data is not required.
Is DCAA Going to Select my Contract?
Maybe. DCAA generally performs defective pricing audits on large firm fixed price contracts because any price reduction will include the amount, plus applicable overhead and profit. The government is also entitled to recovery of the overpayment plus interest and possibly penalties.
What Steps Should I Take?
Now is a great time to revisit your purchasing and estimating policies with your staff to ensure that you are complying with the requirements for preparing/negotiating proposals subject to certified cost or pricing data. Contractors should ensure that any updates and the impact to certified cost or pricing data is provided to the government at negotiations or before a certificate of current cost or pricing data is signed. As part of monitoring your estimating system, we recommend when comparing estimates to actual costs, any significant risk and potential offsets are identified.
Redstone GCI is Here to Help
Redstone GCI is available to assist contractor’s in assessing their purchasing system compliance with DFARS 252.244-7001 and additional DCMA CPSR expectations. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying business system requirements.