Wednesday, July 21, 2010

Defective Pricing - Government's Burden of Proof

Yesterday we began a series of posts on defective pricing or TINA (truth in negotiations act). Every negotiated procurement over $650 thousand requires certified cost or pricing data. Contractors (and subcontractors) that fail to disclose current, complete, and accurate cost or pricing data will have to pay back the amount that the contract was increased as a result of its failure. Additionally, the contractor is subject to interest on the overpayment and possibly face some kind of investigation (more on that last point later this week).

In order for the Government to prevail in a defective pricing audit, it must prove five things.
  1. The information in question fits the definition of cost or pricing data. We defined "cost or pricing data" in yesterday's post. It can also be found in the definitions section of FAR (FAR 2.101).
  2. Accurate, complete, and current data existed and were reasonably available to contractor before the agreement on price.
  3. Accurate, complete, and current data were not submitted or disclosed to the contracting officer or one of the authorized representatives of the contracting officer and that these individuals did not have actual knowledge of such data or its significance to the proposal.
  4. The Government relied on the defective data in negotiating with the contractor.
  5. The Government's reliance on the defective data caused an increase in the contract price. This last point is not all that difficult based on the "theory of natural and probably consequences" which provides that the natural and probable consequences of defective pricing is an increase in the contract price.
Establishing these five points is a necessary prerequisite to achieve price reductions to contracts.

Tomorrow we will examine some of the intricacies of these five points.

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