Defective Pricing - Offsets

Failure to submit current, complete, and accurate cost or pricing data often times hurts the contractor as much or more than the Government. Bad estimating is bad estimating. When the Government alleges defective pricing, contractors have the authority to submit "offsets". Contracting officers must allow an offset for any understated cost or pricing data the contractor submitted.  However, the offset cannot exceed the amount that the Government is seeking to recover. There can never be an increase in contract price as a result of offsets.

The offset does not have to be in the same cost grouping as the overstated cost or pricing data. Material costs could offset labor costs, for example. Contractors must prove two things. First, that the higher cost or pricing data was available before the "as of" date specified on the Certificate of Current Cost or Pricing Data and secondly, the data was not submitted to the Government.

Case law has identified two instances where contractors were not entitled to an offset. In one case, the contractor knew that its cost or pricing data was understated before the certification data. In other words, if a contractor purposefully understated its bid for whatever reason (e.g. competitive pressure), that understatement would not comprise a valid offset. Secondly, the Government was able to prove that submission of the data before the "as of" date specified in the certificate would not have increased the contract pricie in the amount of the proposed offset.