Thursday, January 7, 2010

Cost or Pricing Data - Facts vs. Judgment

This week we have been discussing TINA, the Truth in Negotiations Act and the law's implication for government contractors. The law applies generally to negotiated contracts. So awards based on adequate price competition, prices set by law or regulation, and commercial items are exempt. The law requires contractors to submit current, complete, and accurate cost or pricing data in support of negotiations. Cost or pricing data is generally that which is factual in nature. And herein lies one of the most contentious issues when it comes to defective pricing; is it fact or is it judgment?

The distinction between fact and judgment is often difficult to make. Information that mixes fact and judgment will require disclosure because of the underlying factual information. A management decision is that kind of information. Management decisions are generally a conglomeration of facts and judgment. To determine whether management decisions can be classified as cost or pricing data, it is helpful to consider the following factors:
  • Did management actually make a decision?
  • Was the management decision made by someone with the authority to approve or disapprove actions affecting costs?
  • Did the management decision require some sort of "action" affecting the relevant cost element, or was the "decision more along the lines of preliminary planning for possible future action?
  • Is there a substantial relationship between the management decision and the relevant cost element?
  • Is the management decision the type of decision that prudent buyers and sellers would reasonably expect to affect price negotiations significantly?
For example, a management decision to give employees a five percent cost of living adjustment is cost or pricing data. But, if that decision had to be first approved by the Board of Directors, it might not be cost or pricing data, depending upon whether the Board typically, historically, and expectantly "rubber stamps" management decisions (cost or pricing data) or actively involves itself in the process of determining the rate of increase (not cost or pricing data until board approval).  A decision to defer pay raises is cost or pricing data but if a deferral was one of several options being considered as a way of cutting costs, it would not be cost or pricing data.

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