Defective Pricing - Contractor Defenses

This is the seventh part of our eight part series on defective pricing. In our final part on Monday, we will add links to all of the previous parts for ease of reference. Today we will address some of the defenses that are available to contractors facing a defective pricing allegation. These are not going to exonerate contractors who have not been fastidious in submitting current, complete, and accurate cost or pricing data. However, there has been considerable litigation in the defective priciing arena becasue, in part, the Government fails to make its case by satisfying the six elements that need to be present in order to sustain a defective pricing allegation.

If you are a contractor facing a defective pricing allegation, you will most certainly want to defend yourself to the extent you can. There are a number of defenses that have been successfully raised and adjudicated. There are also a number of defenses raised that have been unsuccessful. First we’ll discuss some successful defenses.

1. The information at issue was not cost or pricing data. Recall from our earlier posting that “cost or pricing data” is tightly defined in the FARs.

   Cost or pricing data means all facts that as of the date of price agreement prudent buyers and sellers would reasonably expect to affect price negotiations significantly. Cost or pricing data are factual, not judgmental; and are verifiable. While they do not indicate the accuracy of the prospective future costs or projections, they do include the data forming the basis for that judgment. Cost or pricing data are more than historical accounting data; they are all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred.

   Within this definition, there could be any number of defenses. Perhaps the information in question was not factual. Perhaps it was such that it would not have affected price negotiations significantly. Perhaps the information in question would not have contributed to the soundness of estimates of future costs. And on and on.  
2. The government did not rely on the defective data. One of the five elements necessary for the Government to sustain an allegation of defective pricing is that the Government relied on the defective data. In order to determine whether the Government relied or did not rely on the defective data, requires access to the Government’s record of negotiation (usually referred to as a Price Negotiation Memorandum or PNM) and any other correspondence you can compile. Just because data was furnished, does not necessarily follow that the Government relied on it. 
3. The price offered by the contractor was a “floor” below which the contractor would not have gone. This, in our mind, would be difficult to sustain. There are situations where a contractor will offer a price and refuse to go below it. Even under those circumstances, the contracting officer must still ensure that a price is fair and reasonable. If he/she accepts that bottom line price, he/she has determined that the price is fair and reasonable. If the contracting officer had known the data was defective, he/she might not have been able to make that determination. 

Unsuccessful defenses to price reductions

1. The contractor or subcontractor was a sole source supplier or otherwise was in a superior bargaining position.  
2. The contracting officer should have known that the cost or pricing data the contractor or subcontractor submitted was defective 
3. The contract price was based on total cost and there was no agreement about the cost of each item procured under the contract. 
4. The contractor did not submit a Certificate of Current, Complete, and Accurate Cost or Pricing Data. The law requires contractors to furnish all cost or pricing data up until the date of agreement on price. The mere absence of a “certification” does not render the statutory requirement moot.