The Government has a program for reviewing contractor compliance with the Truth in Negotiations Act (TINA). They're called post-award audits because the audits are initiated after contract award. Contracts are selected based on risk factors. Aside from contract value, there are other factors that play into the selection of specific contracts. One of those is the Defective Pricing Lead Sheet. The lead sheet is a two-part form. Part A is prepared when a contractor's proposal is evaluated and Part B is prepared when the PNM (Price Negotiation Memorandum) is finished. We began this series yesterday. If you missed that part, go here.
Today we will cover Part A of the form. There are nine questions that the reviewer must answer regarding the state of the contractor's proposal. After answering the questions, the reviewer must rate the probability of defective pricing from a 1 to a 10 with 10 being the highest probability.
1. Was there adequate lead time for the contractor to prepare the proposal? Its a simple fact that when people are in a hurry, they make mistakes. Contractors that are not given sufficient lead time to prepare their proposal, are more at risk for failing to submit all of the cost or pricing data available to it.
2. Was there adequate time for audit review? In the old days, Government auditors strove to be responsive to contracting officer requests. Sometimes these requests did not provide sufficient time for auditors to conduct an audit in the detail that was considered necessary to do a adequate job. Usually, this resulted in a qualified audit report but at the same time, generated an audit lead so that the auditors could take another look at the information down the road. In today's environment, the auditor is not as responsive to the contracting officer and generally takes whatever time is necessary to conduct its review, regardless of contracting officer need. Therefore, this question should always be marked "yes".
3. Was the contractor's supporting data generally adequate, complete and current? If not, did the contractor remedy the deficiency? Did deficiencies in the proposal necessitate a qualified opinion on the audit report? Some proposals are good and some are badly assembled and supported. The ones that have math errors, where summary numbers do not trace to supporting detail, where significant costs are unsupported, and where supporting information is out dated, have a higher probability of being defectively priced.
4. Was there any indication of potential defective pricing on subcontracts or interdivisional work? Prime contractors are responsible for determining the price reasonableness of their proposed subcontracts. Government auditors usually review the work of the prime contractor to ensure that they have done an adequate review and determination process. If the prime contractor has not yet completed its review of the subcontractor, there is no assurance that the subcontract price is based on current, complete, and accurate cost or pricing data.
5. Were any questioned or unsupported costs attributable to an estimating system defect? If so, was a flash report issued? Has the contractor corrected or initiated action to correct the defect? An estimating system is foundational to being able to consistently prepare and submit current, complete, and accurate cost or pricing data. This question focuses on the adequacy of the system, not inadvertent omissions or mathematical errors.
6. Has the contractor's estimating system been reviewed within the past three years? Have any noted defects been corrected? Could the defects lead to defective pricing? This question focuses on past reviews of contractor estimating systems. If prior reviews disclosed deficiencies, those deficiencies should have been corrected in a timely manner.
7. Is this a proposal for a follow-on contract? If so, was the prior (historical) experience considered in pricing this proposal? If deficiencies were noted, did the contractor submit an amended proposal? Did the circumstances require a qualified audit opinion? Was all the prior (historical) experience made available to the auditor? If so, was it audited? If it was not furnished, was a qualified opinion rendered? The use of prior "relevant" history is a solid estimating technique and should always be disclosed and considered in pricing follow-on contracts.
8. Are the contractor's estimating policies and procedures compatible with its method of recording data (is the contractor, whether or not CAS-covered, in substantive compliance with CAS 401)? Contractors must propose costs in a manner consistent with the way they record, accumulate, and report costs.
9. Were any other conditions indicative of potential defective pricing noted? This is the "catch-all" question to cover any concerns, conditions, or risks that might indicate an increased probability of defective pricing.