Since 1987, there has been statutory recognition for contractor offsets for defective cost or pricing data that resulted in understated costs. Whenever the Government challenges a contractor for failing to submit current, complete, and accurate cost or pricing data, the contractor is entitled to offset the cost impact of that defective pricing with other facts that went in the Government's favor.
Offsets must meet the same factual requirements that TINA (Truth in Negotiations Act) requires; must be factual data that existed at the time of agreement on price that was reasonably available to the contractor. Contractors cannot claim intentional understatements as offsets nor can contractors claim such things as unsupported "bottom-line" management adjustments.
To be considered, offsets against defective certified cost or pricing data
- must be certified to the contracting officer that, to the best of the contractor's knowledge and belief, the contractor is entitled to the offset in the amount requested,
- proves that the cost or pricing data were available before the date of agreement on the price of the contract (or modification), and
- proves that the data was not submitted before such date.
Offsets will not be allowed if
- the understated data was known by the contractor to be understated before the date of the Certificate of Current Cost or Pricing Data, or
- the Government proves that the facts demonstrate that the contract price would not have increased in the amount to be offset even if the available data had been submitted before the date of agreement on price.
So, for example, offsets are prohibited if the contractor intentionally withheld from the Government information showing a higher cost for an item or service.
Offsets are permitted among and withing various line items of certified cost or pricing data but never for more than the maximum defective overstated costs. Offsets can never result in an increased contract price.
One final note, generally, the Government will not entertain offsets unless and until the contractor certifies to its allowability. There have been a few exceptions for whatever reason but exceptions to certification are not the norm.