RGCI - Defective Pricing Audits Time to Check that Your Procedures are in Order

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:

  1. Adequate price competition
  2. Prices set by law or regulation
  3. Commercial items
  4. Waiver has been granted
  5. 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.

Contact Us for a Consultation

Written by Lynne Nalley, CPA

Lynne Nalley, CPA Lynne is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to Commercial Item Determinations and support, Cost Accounting Standards, DFARS Business System Audits, Proposals, and Incurred Cost. Prior to joining Redstone Government Consulting, Lynne served in several capacities with DCAA and DCMA for over 35 years. Professional Experience Lynne began her career working with DCAA in the Honeywell Resident Office, Clearwater, FL in 1984. Lynne’s experience included various positions which involved conducting or reviewing forward proposals or rate audits, financial capability audits, progress payments, accounting and estimating systems, cost accounting standards, claims and disclosure statement reviews. She is an expert in FAR, DFARS, CAS and testified as an expert witness. Lynne assisted in drafting the commercial item guidance for DCAA Headquarters. Lynne was assigned as a Regional Technical Specialist where she provided guidance to 20 field offices on highly complex or technical issues relative to forward pricing, financial capability or progress payment issues. As an Assistant for Quality, she was involved in reviewing and ensuring audit reports were in compliance with policy and GAGAS as well as made NASBA certified presentations to the staff including but not limited to billing reviews, CAS, unallowable cost and progress payments. To enhance her experience in government contracting, Lynne accepted a position with DCMA in 2015 as part of the newly organized DCMA Cadre of Experts in the Commercial Item Group. This included performing reviews of prime contractor’s assertions and/or commercial item determinations as well as performing price analyses. Lynne was a project lead and later became a lead analyst where she engaged with the buying commands on requests and reviewed price analysis reviews performed by a team of 5 analysts. She also assisted the DCMA CPSR team relative to commercial items and co-instructed the Commercial Item Training presented to DCMA. Education Lynne earned a Bachelor of Science Degree in Accounting from the University of Central Florida. Certifications State of Florida Certified Public Accountant State of Alabama Certified Public Accountant Defense Acquisition Workforce Improvement Act (DAWIA) Level III- Auditing DAWIA Level III – Contracting

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: Proposal Cost Volume Development & Pricing, DFARS Business Systems, DCAA Audit Support, Government Regulations, Federal Acquisition Regulation (FAR)