Friday, April 14, 2017

Is Your Contract Subject to a TINA Audit?

Now that DCAA (Defense Contract Audit Agency) is nearly current in its audits of contractor incurred cost proposals and the new Administration has lifted it federal hiring freeze, the Agency is preparing to hire as many as 500 new auditors and may be turning its attention to other types of audits that have been curtailed in favor of higher priority assignments. One of those program areas where DCAA has been eager to resume, with the DoD Office of Inspector General's active encouragement, is contractor compliance with the Truth-in-Negotiations Act (TINA).

The Truth-in-Negotiations Act applies to negotiated contracts where contractors submitted certified cost or pricing data to the Government. You can determine whether TINA applies by looking for the contract clauses at FAR 52.215-10, 11, 12, or 13. The absence of one or more of these four clauses doesn't necessarily mean the contract is not subject to TINA however. The Government makes mistakes from time to time in drafting their contracts and has been know to inadvertently omit the TINA clause. Since TINA is a statutory requirement, the Government sometimes invokes the Christian Doctrine to "read" the clause into the contract. Refer to DCAA's Contract Audit Manual (CAM) 14-112.1 for information on the Christian Doctrine.

Just because a contractor submitted certified cost or pricing data and the respective clauses are included in the contract however, doesn't mean the contract is subject to TINA. The Government must also have relied on the certified cost or pricing data. In many negotiations, the Government does not rely on submitted certified cost or pricing data in arriving at a fair and reasonable price, but instead, relies on other factors such as previous prices paid. DCAA has been burned many times where alleged TINA violations have been discarded by contracting officers because either the contractor or contracting officer has shown that the agreed-to price was based on something other than certified cost or pricing data. Here's where contractors can be pro-active when DCAA begins a TINA review - someone knowledgeable about the negotiations should assess whether certified cost or pricing data, even though submitted, was relied upon by the Government in establishing the negotiated price.

The Government PNM (Price Negotiation Memorandum), which is the Government's view of what transpired during negotiations, usually includes a statement as to whether the Government negotiator relied upon certified cost or pricing data. DCAA will rely on this statement when initiating its TINA review however that particular statement is usually "boilerplate" verbiage and can and should be refuted if it is not true. Contractors will not usually have access to the Government PNMs but should be in the practice of writing up their own view of negotiations, giving clear narrative as to what was submitted and what was relied upon in arriving at a negotiated price.

To learn more about TINA (i.e. Defective Pricing) refer to our eight part series from 2010.

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