Yesterday, we discussed Cost or Pricing Data by quoting from the FAR definition and by providing examples. Today, we will discuss why cost or pricing data, in the context of pricing government contracts, is important.
Back in May 1959, GAO reported an alarming number of overpriced government contracts. By October of that year, DoD revised its regulations to require contractors to provide a Certificate of Current Cost or Pricing Data during contract negotiations. In 1961 DoD added a price reduction clause to its regulations for occurrences of defective pricing. Meanwhile, Congress was also acting on the GAO report. By 1962, the Truth in Negotiations Act (TINA) was signed into law (Public Law 87-653). TINA now applied to all Executive Branch agencies, not just the DoD.
The objective of the regulatory and statutory provisions was to require truth in negotiating. Although not all elements of costs are ascertainable at the time a contract in entered into, those costs that can be known should be furnished currently, accurately, and completely. If the costs that can be determined are not furnished accurately, completely, and as currently as is practicable, the Government should have the right to revise the price downward to compensate for the erroneous, incomplete, or out-of-date information.
TINA's purpose is to level the negotiation playing field by ensuring that government negotiators have access to the same pricing information as the contractor's negotiators. TINA requires contractors to submit cost or pricing data that is accurate, complete, and current as of the date of agreement on contract price.
Defective pricing is not fraud but could lead to fraud allegations, depending on a number of factors including intent. The purpose of TINA was never to detect fraud but over the years, audit agencies have considered whether any fraud indicators exist in each and every defective pricing situation. Those with positive indicators are referred to one or more investigative organizations for review. Tomorrow we will discuss some of those positive indicators.
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