Friday, December 23, 2016

Negotiations that Require Certification of Cost or Pricing Data

Not every Government procurement requires contractors to submit certified cost or pricing data. In fact, certified cost or pricing data is a last resort when one of the exemptions described in FAR 15.403-1 is not available (e.g. adequate price competition, prices set by law or regulation, commercial items, etc). When certified cost or pricing data is required, the threshold is currently set at $750 thousand (see FAR 15.403-4).

The $750 thousand threshold applies to the negotiated price including profit or fee. Sometimes contractors forget that and mistakenly believe that a cost buildup that comes in under that amount is exempt. Then, at the conclusion of negotiations when the contracting officer slides a certificate of current cost or pricing data across the table for them to sign, they're not only surprised but now they're worried that perhaps they didn't perform a final scrub to ensure that all factual data was provided to the Government.

The same thing can happen with quantities. Sometimes a solicitation may require a certain quantity that when priced out, falls under the cost or pricing data threshold. However, during negotiations, the quantities are increased resulting in a final price that exceeds the certified cost or pricing data threshold. The gratitude of getting more business can suddenly turn worrisome when you realize that your proposal may not be as current, complete, and accurate as it could have and should have.

The consequences for failing to comply with TINA (the Truth in Negotiations Act) can be severe and even though the chances a contract will be audited for compliance with TINA may be slim (normally the larger the contract, the higher the chance), those chances increase significantly if the Government's interest in contractors' operations are piqued because of other matters. Contract auditors often expand their coverages when audit risks become elevated.

Whether certified cost or pricing data is required or not, contractors should always be providing the Government their best pricing. Its fine to make a profit and the Government wants contractors to be profitable. But the amount of profit must also be reasonable.

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