Voluntary Post-Award Disclosure Program of Defective Pricing

The Department of Defense is trying to encourage contractors to voluntarily disclose instances of defective pricing - situations where factual data did not get to the negotiating table for consideration in determining fair and reasonable pricing.

In the interest of promoting voluntary disclosures, the Department is revising its policy on requesting an audit on the voluntary disclosure. Heretofore, voluntary disclosures have been automatically referred to DCAA (Defense Contract Audit Agency) for a full audit. Under new procedures published today, contracting officers will be given discretion over whether to request an audit at all or limit the scope of an audit to just those areas affected by the voluntary disclosure.

Contractors have been requesting for years for DoD to change its policy that require repeated submissions of certified cost or pricing data. Sometimes, especially on major acquisitions, negotiations are protracted over several months and contractors find they need to continuously update their cost or pricing data to defend against subsequent defective pricing claims. This continual updating requires a lot of resources, which becomes very costly.

One of the initiatives under BBP 3.0 (Better Buying Power) was to look for ways to remove unproductive requirements imposed on industry. One of the specific actions under this initiative was to revise FAR 15.407-1(c) to eliminate the requirement that a contracting officer shall request an audit if a contractor voluntarily disclosed defective pricing (see BBP 3.0 - Removing Unproductive Requirements Imposed on Industry). This new policy accomplishes that goal.

Don't Audit, Discuss

The final rule removes the mandatory requirement to conduct an audit in all cases of a contractor's voluntary disclosure of defective pricing. However, in order to calculate appropriate price reductions as required by 10 USC 2306, it is necessary that contracting officers, at a minimum, discuss the disclosure with the Defense Contract Audit Agency (DCAA) to determine the completeness of the contractor's voluntary disclosure and the accuracy of the contractor's cost impact calculation for the affected contract, and the potential impact on existing contracts, task or delivery orders, or other proposals the contractor has submitted to the Government.

This discussion will assist the contracting officer in determining the involvement of DCAA, which could be no audit at all, a limited-scope audit (e.g., limited to the affected cost elements of the defective pricing disclosure), a full-scope audit, or technical assistance.

Here's the specific regulatory wording:

When a contractor voluntarily discloses defective pricing after contract award, the contracting officer shall discuss the disclosure with the Defense Contract Audit Agency (DCAA). This discussion will assist in the contracting officer determining the involvement of DCAA, which could be a limited scope audit (e.g., limited to the affected cost elements of the defective pricing disclosure), a full-scope audit, or technical assistance as appropriate for the circumstances (e.g., nature or dollar amount of the defective pricing disclosure). 

At a minimum, the contracting officer shall discuss with DCAA the following:
     (A) Completeness of the contractor’s voluntary disclosure on the affected contract.
     (B) Accuracy of the contractor’s cost impact calculation for the affected contract.
     (C) Potential impact on existing contracts, task or deliver orders, or other proposals the contractor has submitted to the Government. 

This new policy does not remove DCAA's ability to initiate its own defective pricing reviews. A voluntary disclosure on a particular contract however should reduce the risk factors that DCAA considers when deciding whether defective pricing audits need to be initiated.