Defective Pricing - Government has Burden of Proof

Last week, we posted several articles on the Truth in Negotiations Act. We defined cost or pricing data, why it is important, the difference between facts and judgment, and some of the Government's fraud indicators related to contractor failure to comply with TINA. Today, we pick up another element of defective pricing, the Government's burden of proof in asserting defectiv pricing.

Defective cost or pricing data (Defective Pricing) occurs when, after a contract is negotiated, it is discovered that the data used to price the contract was inaccurate, incomplete, or noncurrent.. Under TINA and the contract price reduction clause, the Government is entitled to an adjustment in the contract price (including fee) when it can be shown to have relied upon the defective data. The Government always bears the burden of proof in a defective pricing case. Based on a 1993 General Dynamics ASBCA (Armed Services Board of Contract Appeals) case, the Government must prove the following:

• The information meets the definition of cost or pricing data. Refer to our January 4th post for the definition of cost or pricing data. Data must be factual, not judgmental.
• The information existed before the date of agreement on price.
• The data was reasonably available before the date of agreement on price.
• The data the contractor submitted was not accurate, complete, or current.
• The undisclosed data was the type that prudent buyers or sellers would have reasonably expected to have a significant effect upon price negotiations.
• The Government relied on the defective data.
• The Government's reliance on the defective data caused an increase in the contract price. As a side note, case law has made this final point rather easy for the Government to prove. Baring evidence to the contrary, the natural and probable consequences of defective pricing is an increase in the contract price.

If the Government fails to establish proof in any of these seven criteria, it will not prevail.