Voluntary Defective Pricing Disclosures - Proposed Rule Will Limit Audit Rights

DoD published a proposed rule last week that would require DoD contracting officers to request "limited-scope" audits in the interest of promoting voluntary contractor disclosures of defective pricing.

Currently, FAR 15.407-1(c) requires that whenever contracting officers learns or suspects that certified cost or pricing data furnished in support of contract negotiations were not current, complete, or accurate, or were not adequately verified by the contractor as of the time of negotiation, to request an audit (by DCAA) to evaluate the propriety of the data furnished.

 DoD is proposing to revise the DFARS (DoD FAR Supplement) to "stipulate" that contracting officers shall request a limited-scope audit when a contractor voluntarily discloses defective pricing after contract award (unless, of course, a full-scope audit is appropriate for the circumstances). This proposal is a response to an initiative to eliminate requirements imposed on industry where costs outweigh benefits.

Specifically, contractors recommended that DoD clarify policy guidance to reduce repeated submissions of certified cost or pricing data. Frequent submissions of such data are used as a defense against defective pricing claims by DoD after contract award, since data that are frequently updated are less likely to be considered outdated or inaccurate and, therefore, defective. This proposed rule impacts the regulatory guidance regarding the requirement for contracting officers to request an audit even if a contractor voluntarily discloses defective pricing after award. If this new rule is implemented, contracting officers will request a limited scope audit on just the data that has been disclosed by the contractor and its impact on the negotiated contract price.

This proposed rule will have no impact on DCAA's current program of auditing contracts for compliance with TINA (Truth in Negotiations Act). That program (which has become dormant because of "higher risk" audits) randomly samples contracts for in-depth defecting pricing audits.