STUDENT GUIDE. CON 170 Fundamentals of Cost & Price Analysis. Unit 1, Lesson 2 Truth In Negotiations Act

Transcription

1 STUDENT GUIDE CON 170 Fundamentals of Cost & Price Analysis Unit 1, Lesson 2 Truth In Negotiations Act October 2016

2 STUDENT PREPARATION Required Student Preparation Read TINA Language, FAR Part 15, DFARS Part 215, and CPRG Vol 1 Ch. 3 Planned Academic Time Required: 3.5 hours Student performance will be informally evaluated during class discussions, and formally evaluated on Exam 1 CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 2

3 Lesson Presentation Understanding the Truth In Negotiations Act (TINA) is one of the most important lessons of all, for members of the contracting profession. This course s coverage of TINA is packed in two blocks - one here in Unit 1, and the other in Unit 5. This lesson provides a solid foundation about the important principles relative to TINA including what it is, it s purpose, the requirement for Certified Cost or Pricing Data, exceptions to TINA, and the application of TINA in contracting scenarios. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 3

4 To begin, let s consider how the Truth in Negotiations Act works to protect the Government s interests: Imagine yourself on vacation, driving across the plains of northern Colorado, through Wyoming, up to Montana. Suddenly, your car breaks down in the middle of nowhere. There is no cell phone coverage where you are. After hours of waiting, a mechanic pulls up in a tow truck. He is the only person who can fix your car within a reasonable timeframe. Under these circumstances, how would you fare in negotiating a price to fix your car, compared to shopping for a mechanic in a local city? OR After some storms in one of the plains states, nearly a thousand residential homes in a particular town or city suffered severe roof damage. With winter weather approaching, roofing companies could not keep up with demand for repairs. With every roofing company booked solid through the end of the roofing weather timeframe, competition was typically limited to a single offeror. Roofing materials and labor prices were skyrocketing. Under these circumstances, how would you fare in negotiating a roof repair? In situations like those with limited competition, or extreme market conditions, determining a fair and reasonable price can be particularly challenging. How would you determine a price to be fair and reasonable in the car repair scenario? How about in the roofing scenario? Would it help you in those situations to have a law which required those contractors to give you the factual data behind their price? Or at least required them to give you some insight regarding their customary prices for the same goods or service under similar conditions? In a sense, this is what the Truth in Negotiations Act (TINA) was designed to do. In order to safeguard from excessive expenditure of taxpayer dollars, TINA requires contractors to provide the Government with pricing information when normal market forces are not present, or almost any time a Contracting Officer does not have adequate data to determine a price to be fair and reasonable. This information gives us insight in to the contractor s actual costs and cost estimates, ensures we have enough insight to determine fair and reasonable, and mitigates risk of the Government paying unusually high prices. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 4

5 TINA, as implemented by FAR Subpart 15.4, requires contractors to submit certified cost or pricing data, or data other than certified cost or pricing data in certain situations. Where can you find the definition of certified cost or pricing data? To find out, review the TINA language (Attachment 1) and FAR 2.101, and notice the definitions for these terms are included at the citations shown below: CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 5

6 1. TINA Language, Title 10 U.S.C. 2306a Definitions: (h)(1) Cost or pricing data the term cost or pricing data means all facts that, as of the date of agreement on the price of a contract (or the price of a contract modification), or, if applicable consistent with subsection (e)(1)(b), another date agreed upon between the parties, a prudent buyer or seller would reasonably expect to affect price negotiations significantly. Such term does not include information that is judgmental, but does include the factual information from which a judgment was derived. (a)(2) Certified Cost or Pricing Data A person required, as an offeror, contractor, or subcontractor, to submit cost or pricing data under paragraph (1) (or required by the head of the agency concerned to submit such data under subsection (c)) shall be required to certify that, to the best of the person s knowledge and belief, the cost or pricing data submitted are accurate, complete, and current. (d) Submission of Other Information: When certified cost or pricing data are not required to be submitted under this section for a contract, subcontract, or modification of a contract or subcontract, the contracting officer shall require submission of data other than certified cost or pricing data to the extent necessary to determine the reasonableness of the price of the contract, subcontract, or modification of the contract or subcontract. Except in the case of a contract or subcontract covered by the exceptions in subsection (b)(1)(a), the contracting officer shall require that the data submitted include, at a minimum, appropriate information on the prices at which the same item or similar items have previously been sold that is adequate for evaluating the reasonableness of the price for the procurement. 2. FAR Definitions: Cost or pricing data ( Cost or pricing data, 10 U.S.C. 2306a(h)(1) and 41 U.S.C. 254b) means all facts that, as of the date of price agreement, or, if applicable, an earlier date agreed upon between the parties that is as close as practicable to the date of agreement on price, prudent buyers and sellers would reasonably expect to affect price negotiations significantly. Cost or pricing data are factual, not judgmental; and are verifiable. While they do not indicate the accuracy of the prospective contractor s judgment about estimated future costs or projections, they do include the data forming the basis for that judgment. Cost or pricing data are more than historical accounting data; they are all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred. They also include, but are not limited to, such factors as Vendor quotations Non-reoccurring costs Information on changes in production methods and in production or purchasing volume Data supporting projections of business forecasts and related operations costs Unit-cost trends such as those associated with labor efficiency Make-or-Buy decisions Estimated resources to attain business goals Information on management decisions that could have a significant bearing on costs. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 6

7 Certified cost or pricing data means cost or pricing data that were required to be submitted in accordance with FAR and and have been certified, or are required to be certified, in accordance with FAR This certification states that, to the best of the person s knowledge and belief, the cost or pricing data are accurate, complete, and current as of a date certain before contract award. Cost or pricing data are required to be certified in certain procurements (10 U.S.C. 2306a and 41 U.S.C. 254b). Data other than certified cost or pricing data means pricing data, cost data, and judgmental information necessary for the contracting officer to determine a fair and reasonable price or to determine cost realism. Such data may include the identical types of data as certified cost or pricing data, consistent with Table 15-2 of , but without the certification. The data may also include, for example, sales data and any information reasonably required to explain the offeror s estimating process, including, but not limited to (1) The judgmental factors applied and the mathematical or other methods used in the estimate, including those used in projecting from known data; and (2) The nature and amount of any contingencies included in the proposed price. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 7

8 With these definitions, you can see how TINA is the foundation for pricing policy across the Federal Government. Notice FAR is written such that the imperative is for contracting officers to purchase goods and services at fair and reasonable prices, and to obtain certified cost or pricing data unless there is a specific prohibition or exception. Another key element of pricing policy pursuant to TINA is that when certified cost or pricing data are not required, there is a specific order of preference contracting officers must follow before even asking the contractor for data other than certified cost or pricing data. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 8

9 Contracting Officers and price analysts must work together to determine prices to be fair and reasonable. Notice the order of preference for requesting data other than here in the pricing policy, and then elaborated on in FAR (a)(1)(i) through (iv): CO shall obtain whatever data are available from Gov t or other secondary sources, and use that data in determining a fair and reasonable price; CO shall require submission of data other than certified cost or pricing data from the offeror to the extent necessary to determine a fair and reasonable price if the contracting officer determines that adequate data from sources other than the offeror are not available; Consider whether cost data are necessary to determine a fair and reasonable price when there is not adequate price competition; Require the data submitted by the offeror include at a minimum appropriate data on the prices at which the same item or similar items have previously been sold, adequate for determining the reasonableness of the price The following learning points are important to keep in mind when you are contemplating what information and how much information to request of offerors: First: Even if the Government asks for data other than certified cost or pricing data, the contractor does not have to provide such data unless the Government can show it has exercised due diligence in exploring Government sources and other sources per the order of preference. Second: The FAR order of preference should shape the way contracting officers and Government acquisition teams conduct market research. Third: Even when additional data may need to be requested, FAR instructs contracting officers to pursue information regarding previous sales prices in a commercial, and/or competitive environment, such that price analysis rather than cost analysis can be accomplished. Fourth: If we re doing true market research (which is an on-going process), we should have thoroughly explored Government sources and other sources as part of building and evaluating the Government cost estimates, conducting risk assessments, refining our requirement, and preparing for negotiations. Asking for data from the offeror should be our last resort. Additionally, when asking for data from the offeror, it is recommended to request specific data used to fill in the gaps within our own research and analysis of the proposal. Imagine relying only on a car salesman for most of the information you need when buying a car. In contrast, a better approach would be to conduct thorough market research and price analysis on your own; then, only ask the salesman for a few specific points to help fill in the gaps from your research from other sources, which would most likely provide a more solid foundation for you in negotiations. Finally: Notice both TINA and FAR require us to limit our requests only to data necessary to determine fair and reasonable, and limit our requests to a form regularly maintained by the offeror. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 9

10 Now that we understand the reasons behind TINA, and have an understanding of cost or pricing data, certified cost or pricing data, and data other than certified cost or pricing data, we will explore when each of the following types of data are required. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 10

11 Now, read and review the TINA language included as attachment 1 to this lesson and verify the citations for the answers to the questions on the slide below: Also, notice the last question on the slide above - a common issue in the acquisition community is, what if subcontractors who are required to submit certified cost and pricing data, refuse to submit such data to the prime contractor (especially when they may be competitors on other contracts)? Does the subcontractor have any alternatives? The answer is YES. In such cases, the contracting officer can pursue the support of the ACO, and have either DCMA representatives or DCAA representatives serve as the focal point for receiving and reviewing subcontractor certified cost or pricing data. Recall from earlier in the lesson that TINA and the FAR require contracting officers to request certified cost or pricing data from offerors unless certain conditions apply. Now, we will examine those conditions. Per FAR (a), certified cost or pricing data shall not be obtained for acquisitions at or below the simplified acquisition threshold. This is a statutory prohibition which cannot be waived. In addition, FAR (b) also states that certified cost or pricing data shall not be obtained when any one of several exceptions applies. The five exceptions are listed on the following slide. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 11

12 Note, FAR (a) does not allow the submission of certified cost or pricing data below the Simplified Acquisition Threshold (SAT); however, the Contracting Officer may require such data between the SAT and the TINA threshold, with the advance approval of the HCA (see FAR (a)(2)). CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 12

13 Before we review each of the five exceptions in detail, note there are two other circumstances which do not require submission of certified cost or pricing data: Now, let s examine each of the five exceptions to certified cost or pricing data requirements in detail. Per FAR (b), there are several exceptions to the requirement for obtaining certified cost or pricing data. Each of the following exceptions restricts the Government from obtaining certified cost or pricing data. Thus, it is common for contractors and Government leaders to disagree on the definitions for each exception. Therefore, defining these exceptions accurately is critically important to protecting the Government s ability to determine a proposed price to be fair and reasonable. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 13

14 EXCEPTION 1: ADEQUATE PRICE COMPETITION The first exception to requiring certified cost or pricing data is adequate price competition. For DoD buying offices, contracting members must not only understand the FAR requirements in FAR (b)(1) and the standards at FAR (c)(1), but also the requirements stated in DFARS CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 14

15 Exercise: Adequate Price Competition Exercise Learning Objective Explain appropriate conditions for requesting certified cost or pricing data. Given a contracting scenario, determine the requirement for cost or pricing data. Introduction This lesson introduces the Truth in Negotiations Act and its importance in federal contracting. Now, after researching the standards to determine if adequate price competition exists, you will have to determine what cost or pricing data, if any, may be required of offerors in a given situation. Assessment This activity is not scored or graded. Student Instructions: After reviewing the full text of FAR and DFARS , analyze the following scenarios, and determine if adequate price competition exists. Based on the given scenarios, answer the accompanying questions. Be prepared to brief your results to the class. You have 45 minutes to complete this exercise. Scenario 1. You have a solicitation posted for grounds maintenance (commercial service) across 3 DoD installations. Market research report indicates 5 small businesses have relevant and recent experience in this mission area, and several of them submitted proposals for the previous contract 2 years ago. Our new solicitation closed after 20 days, and 3 offers (all small businesses) were received. The proposed prices are consistent with the Government s cost estimate, based on Market Research. Does this constitute adequate price competition? How would you proceed? CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 15

16 Scenario 2. Using FAR part 12 procedures, you have a solicitation posted for grounds maintenance (commercial service) across 3 DoD installations. Market research report indicates 5 contractors have relevant and recent experience in this mission area, and several of them submitted proposals for the previous contract 2 years ago and you again have a similar reasonable expectation of getting more than one offer. Our new solicitation closed after 45 days. Only 1 offer was received. The proposed price was consistent with the Government s independent cost estimate, which was based on Market Research of other competitive acquisitions and previous contract history. Does this constitute adequate price competition? How would you proceed? Scenario 3. You have a FAR part 15 solicitation posted for satellite control station maintenance (noncommercial) in a remote location. Market research report indicates 3 contractors have relevant and recent experience in this mission area, and submitted proposals for the previous contract 2 years ago. Our new solicitation closed after 45 days, 2 proposals were received. Does this constitute adequate price competition? How would you proceed? Scenario 4. You have a FAR part 15 solicitation posted for satellite control station maintenance (noncommercial) in a remote location. Market research report indicates 3 contractors have relevant and recent experience in this mission area, and submitted proposals for the previous contract 2 years ago. Our new solicitation closed after 45 days, but only 1 proposal was received. Does this constitute adequate price competition? How would you proceed? CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 16

17 Scenario 5. You have a solicitation posted for satellite control station maintenance (noncommercial) in a remote location. Market research report indicates 3 contractors have relevant and recent experience in this mission area, and submitted proposals for the previous contract 2 years ago. Our new solicitation closed after 20 days, but only 1 proposal was received. How would you proceed? Do you have an alternative to resoliciting? Scenario 6. You have a solicitation posted for satellite control station maintenance (noncommercial) in global, remote locations. The current contractor was awarded this work on a competitive basis 10 years ago, and was the only offeror who bid on the renewal contract 5 years ago. This year, market research revealed 1 other contractor with experience in one area of this maintenance, who responded to our Sources Sought Synopsis with the intent of winning a subcontract from the incumbent. One other contractor, a small business, expressed interest in this contract award. The Government technical team assessed their capability as minimal, with no past performance in this mission area. The solicitation closed after 45 days, and the incumbent submitted the only offer. Does this constitute adequate price competition? How would you proceed? CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 17

18 EXCEPTION 2: PRICES SET BY LAW OR REGULATION The next exception to requiring certified cost or pricing data is when prices are set by law or regulation. This exception is explained in FAR (b)(2). Here is a real-life example of this exception: Per FAR (c)(2), pronouncements in the form of periodic rulings, reviews, or similar actions of a governmental body, or embodied in the laws, are sufficient to set a price. Therefore, prices that might be set by law or regulation do not require certified data. Most contract specialists will not face this scenario during the course of their career, but just in case, refer to FAR (b)(2). CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 18

19 EXCEPTION 3: COMMERCIAL ITEM The next exception to requiring certified cost or pricing data is when a commercial item is being acquired. Following is an example of this exception. Consider the impact if a contracting officer determines an item to be commercial; but later, after the solicitation is posted: - only one proposal arrives--the contracting officer cannot request certified cost or pricing data; - two or three proposals arrive--but their prices have an unexpectedly wide range of variation; because the item is commercial, the contracting officer cannot require certified cost or pricing data Remember these limitations when studying FAR (a); (a). Now, let s explore several scenarios where a contracting officer must determine an item s commerciality, in order to determine what type of cost or pricing data can be requested. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 19

20 The next scenario presents a common situation regarding nondevelopmental items pursuant to paragraph (8) of the FAR definition of commercial item. Review the following scenario along with FAR (commercial item definition, paragraphs (1) and (8)), and determine if the items being acquired can be considered commercial items. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 20

21 To help illustrate the relationship between nondevelopmental items and commercial items, consider the following graph. As illustrated by the overlapping circles, only a subset of nondevelopmental items can be considered commercial. The next scenario illustrates an example of determining if an item is commercial when it appears to have significant commercial properties, but is not exactly like a good or service sold in the marketplace. Review FAR and (a)(3), and determine if the following service can be considered a commercial item. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 21

22 The next scenario is common in systems acquisition where the overall system is not commercial, yet subsystems may be considered commercial. If the contractor buys subsystems as commercial items, they may pay a lower price at more favorable terms; however, this could also limit the cost and pricing data available for those items. Review the references at the top of the following slide, and determine if the contractor could acquire the subsystems commercially. By this point, you can see that you may have to do some research to determine if a good or service can be considered commercial. In the next scenario, review the FAR and DFARS references in order to verify the answers to the questions presented. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 22

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24 There can be a tendency for contracting officers to simply ask for data, then not use it in evaluating the proposal. When evaluating an offeror s proposal, strive to understand the proposal well enough to ask the contractor for specific information to fill in any gaps in the cost or price analysis. Remember, FAR drives contracting officers to ask for as much information as necessary to determine the price to be fair and reasonable, without asking for more than necessary. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 24

25 EXCEPTION 4: WAIVERS Before we address our next exception, let s review. So far, we have seen we cannot require contractors to submit certified cost and pricing data if there is adequate price competition, prices are set by law or regulation, or when the item being acquired is commercial. The next exception to certified cost or pricing data to be discussed is when a waiver has been granted. You cannot process a waiver to require certified cost and pricing data when an exception or prohibition applies. Instead, waivers are another means to relieve the contractor of the requirement to submit certified cost and pricing data. The waiver is used when no other exceptions to requiring certified cost or pricing data apply; but, the contracting officer does not believe such data is necessary, or in the Government s best interest. Contracting officers must obtain approval of a waiver by the Head of the Contracting Activity, pursuant to FAR (c)(4). To determine the HCA for your activity, consult your agency s FAR supplement. Now, read the waiver process described in FAR (c)(4), and DFARS (b)(4)(A), and fill in the missing information on the slide below: CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 25

26 EXCEPTION 5: MODIFICATIONS TO COMMERCIAL ITEMS Finally, the last category to the exceptions to obtaining certified cost or pricing data is when modifying a contract for commercial items. This issue is addressed in the TINA language, FAR 2.101, and FAR A useful tool is also located at Attachment 2 of this lesson a flowchart of the process for determining the need for certified cost or pricing data for commercial and noncommercial modifications to commercial items. To begin this section, we must understand the process for requiring cost or pricing data for modifications to commercial items. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 26

27 You might ask why contractors would have reason to argue for classification as a commercial item? Simply put, there are several reasons; namely, if classified as commercial, there is no requirement for CERTIFIED cost or pricing data. This is a huge liability and resource consumer for contractors. In addition, if determined to be commercial we use FAR part 12 w/respect to the solicitation, inspection, acceptance, changes, payment, and closeout process. In assessing modifications to commercial items, begin by reading FAR 2.101(3)(i) and (ii): (3) Any item that would satisfy a criterion expressed in paragraphs (1) or (2) of this definition, but for -- (i) Modifications of a type customarily available in the commercial marketplace; or (ii) Minor modifications of a type not customarily available in the commercial marketplace made to meet Federal Government requirements. Minor modifications means modifications that do not significantly alter the nongovernmental function or essential physical characteristics of an item or component, or change the purpose of a process. Factors to be considered in determining whether a modification is minor include the value and size of the modification and the comparative value and size of the final product. Dollar values and percentages may be used as guideposts, but are not conclusive evidence that a modification is minor; Then read FAR (c)(3): (iii) The following requirements apply to minor modifications defined in paragraph (3)(ii) of the definition of a commercial item at that do not change the item from a commercial item to a noncommercial item: (A) For acquisitions funded by any agency other than DoD, NASA, or Coast Guard, such modifications of a commercial item are exempt from the requirement for submission of certified cost or pricing data. (B) For acquisitions funded by DoD, NASA, or Coast Guard, such modifications of a commercial item are exempt from the requirement for submission of certified cost or pricing data provided the total price of all such modifications under a particular contract action does not exceed the greater of the threshold for obtaining certified cost and pricing data ($750K) or 5 percent of the total price of the contract at the time of contract award. (C) For acquisitions funded by DoD, NASA, or Coast Guard such modifications of a commercial item are not exempt from the requirement for submission of certified cost or pricing data on the basis of the exemption provided for at FAR (c)(3) if the total price of all such modifications under a particular contract action exceeds the greater of the threshold for obtaining certified cost or pricing data in or 5 percent of the total price of the contract at the time of contract award. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 27

28 After reading these references, review the following scenario. To assist with your research and understanding, also review the flowchart at Attachment 2, which outlines the process for decisions with modifications to commercial items. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 28

29 The contractor asserts you can still treat the $104M contract as a commercial acquisition with respect to TINA? Can you? Start w/far 2.101, Commercial item (3)(i), and use the flowchart at Attachment 2 is modification available in the commercial marketplace? Does the mod change essential elements? Is the mod value less than the greater value of the TINA threshold ($750K) or 5% of the original contract value ($5M)? Therefore, does the modification to commercial item exception to TINA apply to this action? The next example is similar to the previous one, but illustrates a scenario where a commercial contract is already in-place. In the last scenario, the contract had not yet been awarded. In this case, a modification is to be awarded to an existing commercial contract. The solution is within the same FAR references as the previous example, and the Attachment 2 flowchart can also be used. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 29

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31 In conclusion, remember that regardless of the type of data requested, avoid a common tendency to require data and then not use it to evaluate the proposal. When evaluating an offeror s proposal, strive to understand the proposal well enough to ask the contractor for specific information to fill in any gaps in the cost or price analysis. Remember, the bottom line is that the FAR requires Contracting Officers to purchase supplies and services from responsible sources at fair and reasonable prices, without asking for more than necessary. Understanding the Truth In Negotiations Act language and the FAR implementation of that language is vital to one s success in the contracting career field. Lesson Summary-- TINA Takeaways TINA is a surrogate to normal market forces, to help the Government determine prices to be fair and reasonable. TINA requires contracting officers to obtain certified cost or pricing data, unless a prohibition or exception applies. TINA requires contracting officers to request data other than certified cost or pricing data when a prohibition or exception applies IF available data are inadequate to determine fair and reasonable. The contracting officer should only request additional data from offerors when necessary, after first reviewing data from internal government or other sources is inadequate to determine a fair and reasonable price. Even when the contracting officer is allowed to request data other than certified cost or pricing data, he must first seek information from Government sources and sources other than the offeror this is the focus of true market research When we must request data other than certified cost or pricing data, it should be of a form routinely managed by the offeror. To reinforce the process for contracting officers to determine what type of cost or pricing data should be requested (if any), review the following flowchart. For additional information, review the explanations provided in the CPRG, Volume 1, Chapter 3. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 31

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33 LESSON SUMMARY 1.2 Describe the Truth in Negotiations Act, including its purpose in mitigating government cost risk Explain appropriate conditions for requiring Certified Cost or Pricing Data Recognize the prohibitions and exceptions to requiring Certified Cost or Pricing Data Identify the requirements for applying the commercial item exception for new contracts Identify the requirements for applying the commercial item exception for modifications to commercial items Explain the requirements for waiving the TINA Identify the due diligence requirements for obtaining other information when certified cost and pricing data are not required Explain the limitations to obtaining no cost or pricing data, and data other than certified cost or pricing data Given a contract scenario, determine the requirement for certified cost or pricing data CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 33

34 Unit 1 Lesson 2 Attachment 1 10 U.S.C. 2306A. COST OR PRICING DATA: TRUTH IN NEGOTIATION CURRENT AS OF JAN 7, 2011 (a) Required Cost or Pricing Data and Certification. (1) The head of an agency shall require offerors, contractors, and subcontractors to make cost or pricing data available as follows: (A) An offeror for a prime contract under this chapter to be entered into using procedures other than sealed-bid procedures shall be required to submit cost or pricing data before the award of a contract if (i) in the case of a prime contract entered into after December 5, 1990, the price of the contract to the United States is expected to exceed $500,000; and (ii) in the case of a prime contract entered into on or before December 5, 1990, the price of the contract to the United States is expected to exceed $100,000. (B) The contractor for a prime contract under this chapter shall be required to submit cost or pricing data before the pricing of a change or modification to the contract if (i) in the case of a change or modification made to a prime contract referred to in subparagraph (A)(i), the price adjustment is expected to exceed $500,000; (ii) in the case of a change or modification made after December 5, 1991, to a prime contract that was entered into on or before December 5, 1990, and that has been modified pursuant to paragraph (6), the price adjustment is expected to exceed $500,000; and (iii) in the case of a change or modification not covered by clause (i) or (ii), the price adjustment is expected to exceed $100,000. (C) An offeror for a subcontract (at any tier) of a contract under this chapter shall be required to submit cost or pricing data before the award of the subcontract if the prime contractor and each higher-tier subcontractor have been required to make available cost or pricing data under this section and (i) in the case of a subcontract under a prime contract referred to in subparagraph (A)(i), the price of the subcontract is expected to exceed $500,000; (ii) in the case of a subcontract entered into after December 5, 1991, under a prime contract that was entered into on or before December 5, 1990, and that has been modified pursuant to paragraph (6), the price of the subcontract is expected to exceed $500,000; and (iii) in the case of a subcontract not covered by clause (i) or (ii), the price of the subcontract is expected to exceed $100,000. (D) The subcontractor for a subcontract covered by subparagraph (C) shall be required to submit cost or pricing data before the pricing of a change or modification to the subcontract if (i) in the case of a change or modification to a subcontract referred to in subparagraph (C)(i) or (C)(ii), the price adjustment is expected to exceed $500,000; and CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 34

35 (ii) in the case of a change or modification to a subcontract referred to in subparagraph (C)(iii), the price adjustment is expected to exceed $100,000. (2) A person required, as an offeror, contractor, or subcontractor, to submit cost or pricing data under paragraph (1) (or required by the head of the agency concerned to submit such data under subsection (c)) shall be required to certify that, to the best of the person s knowledge and belief, the cost or pricing data submitted are accurate, complete, and current. (3) Cost or pricing data required to be submitted under paragraph (1) (or under subsection (c)), and a certification required to be submitted under paragraph (2), shall be submitted (A) in the case of a submission by a prime contractor (or an offeror for a prime contract), to the contracting officer for the contract (or to a designated representative of the contracting officer); or (B) in the case of a submission by a subcontractor (or an offeror for a subcontract), to the prime contractor. (4) Except as provided under subsection (b), this section applies to contracts entered into by the head of an agency on behalf of a foreign government. (5) A waiver of requirements for submission of certified cost or pricing data that is granted under subsection (b)(1)(c) in the case of a contract or subcontract does not waive the requirement under paragraph (1)(C) for submission of cost or pricing data in the case of subcontracts under that contract or subcontract unless the head of the procuring activity granting the waiver determines that the requirement under that paragraph should be waived in the case of such subcontracts and justifies in writing the reasons for the determination. (6) Upon the request of a contractor that was required to submit cost or pricing data under paragraph (1) in connection with a prime contract entered into on or before December 5, 1990, the head of the agency that entered into such contract shall modify the contract to reflect subparagraphs (B)(ii) and (C)(ii) of paragraph (1). All such modifications shall be made without requiring consideration. (7) Effective on October 1 of each year that is divisible by 5, each amount set forth in paragraph (1) shall be adjusted to the amount that is equal to the fiscal year 1994 constant dollar value of the amount set forth. Any amount, as so adjusted, that is not evenly divisible by $50,000 shall be rounded to the nearest multiple of $50,000. In the case of an amount that is evenly divisible by $25,000 but not evenly divisible by $50,000, the amount shall be rounded to the next higher multiple of $50,000. (b) Exceptions. (1) In general. Submission of certified cost or pricing data shall not be required under subsection (a) in the case of a contract, a subcontract, or modification of a contract or subcontract (A) for which the price agreed upon is based on (i) adequate price competition; or (ii) prices set by law or regulation; (B) for the acquisition of a commercial item; or CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 35

36 (C) in an exceptional case when the head of the procuring activity, without delegation, determines that the requirements of this section may be waived and justifies in writing the reasons for such determination. (2) Modifications of contracts and subcontracts for commercial items. In the case of a modification of a contract or subcontract for a commercial item that is not covered by the exception to the submission of certified cost or pricing data in paragraph (1)(A) or (1)(B), submission of certified cost or pricing data shall not be required under subsection (a) if (A) the contract or subcontract being modified is a contract or subcontract for which submission of certified cost or pricing data may not be required by reason of paragraph (1)(A) or (1)(B); and (B) the modification would not change the contract or subcontract, as the case may be, from a contract or subcontract for the acquisition of a commercial item to a contract or subcontract for the acquisition of an item other than a commercial item. (3) Noncommercial modifications of commercial items. (A) The exception in paragraph (1)(B) does not apply to cost or pricing data on noncommercial modifications of a commercial item that are expected to cost, in the aggregate, more than the amount specified in subsection (a)(1)(a)(i), as adjusted from time to time under subsection (a)(7), or 5 percent of the total price of the contract (at the time of contract award), whichever is greater. (B) In this paragraph, the term noncommercial modification, with respect to a commercial item, means a modification of such item that is not a modification described in section 4(12)(C)(i) [1] of the Office of Federal Procurement Policy Act (41 U.S.C. 403 (12)(C)(i)). (C) Nothing in subparagraph (A) shall be construed (i) to limit the applicability of the exception in subparagraph (A) or (C) of paragraph (1) to cost or pricing data on a noncommercial modification of a commercial item; or (ii) to require the submission of cost or pricing data on any aspect of an acquisition of a commercial item other than the cost and pricing of noncommercial modifications of such item. (c) Cost or Pricing Data on Below-Threshold Contracts. (1) Authority to require submission. Subject to paragraph (2), when certified cost or pricing data are not required to be submitted by subsection (a) for a contract, subcontract, or modification of a contract or subcontract, such data may nevertheless be required to be submitted by the head of the procuring activity, but only if the head of the procuring activity determines that such data are necessary for the evaluation by the agency of the reasonableness of the price of the contract, subcontract, or modification of a contract or subcontract. In any case in which the head of the procuring activity requires such data to be submitted under this subsection, the head of the procuring activity shall justify in writing the reason for such requirement. (2) Exception. The head of the procuring activity may not require certified cost or pricing data to be submitted under this paragraph for any contract or subcontract, or modification of a contract or subcontract, covered by the exceptions in subparagraph (A) or (B) of subsection (b)(1). (3) Delegation of authority prohibited. The head of a procuring activity may not delegate functions under this paragraph. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 36

37 (d) Submission of Other Information. (1) Authority to require submission. When certified cost or pricing data are not required to be submitted under this section for a contract, subcontract, or modification of a contract or subcontract, the contracting officer shall require submission of data other than certified cost or pricing data to the extent necessary to determine the reasonableness of the price of the contract, subcontract, or modification of the contract or subcontract. Except in the case of a contract or subcontract covered by the exceptions in subsection (b)(1)(a), the contracting officer shall require that the data submitted include, at a minimum, appropriate information on the prices at which the same item or similar items have previously been sold that is adequate for evaluating the reasonableness of the price for the procurement. (2) Limitations on authority. The Federal Acquisition Regulation shall include the following provisions regarding the types of information that contracting officers may require under paragraph (1): (A) Reasonable limitations on requests for sales data relating to commercial items. (B) A requirement that a contracting officer limit, to the maximum extent practicable, the scope of any request for information relating to commercial items from an offeror to only that information that is in the form regularly maintained by the offeror in commercial operations. (C) A statement that any information received relating to commercial items that is exempt from disclosure under section 552 (b) of title 5 shall not be disclosed by the Federal Government. (e) Price Reductions for Defective Cost or Pricing Data. (1) (A) A prime contract (or change or modification to a prime contract) under which a certificate under subsection (a)(2) is required shall contain a provision that the price of the contract to the United States, including profit or fee, shall be adjusted to exclude any significant amount by which it may be determined by the head of the agency that such price was increased because the contractor (or any subcontractor required to make available such a certificate) submitted defective cost or pricing data. (B) For the purposes of this section, defective cost or pricing data are cost or pricing data which, as of the date of agreement on the price of the contract (or another date agreed upon between the parties), were inaccurate, incomplete, or noncurrent. If for purposes of the preceding sentence the parties agree upon a date other than the date of agreement on the price of the contract, the date agreed upon by the parties shall be as close to the date of agreement on the price of the contract as is practicable. (2) In determining for purposes of a contract price adjustment under a contract provision required by paragraph (1) whether, and to what extent, a contract price was increased because the contractor (or a subcontractor) submitted defective cost or pricing data, it shall be a defense that the United States did not rely on the defective data submitted by the contractor or subcontractor. (3) It is not a defense to an adjustment of the price of a contract under a contract provision required by paragraph (1) that (A) the price of the contract would not have been modified even if accurate, complete, and current cost or pricing data had been submitted by the contractor or subcontractor because the contractor or subcontractor (i) was the sole source of the property or services procured; or CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 37

38 (ii) otherwise was in a superior bargaining position with respect to the property or services procured; (B) the contracting officer should have known that the cost and pricing data in issue were defective even though the contractor or subcontractor took no affirmative action to bring the character of the data to the attention of the contracting officer; (C) the contract was based on an agreement between the contractor and the United States about the total cost of the contract and there was no agreement about the cost of each item procured under such contract; or (D) the prime contractor or subcontractor did not submit a certification of cost and pricing data relating to the contract as required under subsection (a)(2). (4) (A) A contractor shall be allowed to offset an amount against the amount of a contract price adjustment under a contract provision required by paragraph (1) if (i) the contractor certifies to the contracting officer (or to a designated representative of the contracting officer) that, to the best of the contractor s knowledge and belief, the contractor is entitled to the offset; and (ii) the contractor proves that the cost or pricing data were available before the date of agreement on the price of the contract (or price of the modification) or, if applicable consistent with paragraph (1)(B), another date agreed upon between the parties, and that the data were not submitted as specified in subsection (a)(3) before such date. (B) A contractor shall not be allowed to offset an amount otherwise authorized to be offset under subparagraph (A) if (i) the certification under subsection (a)(2) with respect to the cost or pricing data involved was known to be false when signed; or (ii) the United States proves that, had the cost or pricing data referred to in subparagraph (A)(ii) been submitted to the United States before the date of agreement on the price of the contract (or price of the modification) or, if applicable consistent with paragraph (1)(B), another date agreed upon between the parties, the submission of such cost or pricing data would not have resulted in an increase in that price in the amount to be offset. (f) Interest and Penalties for Certain Overpayments. (1) If the United States makes an overpayment to a contractor under a contract subject to this section and the overpayment was due to the submission by the contractor of defective cost or pricing data, the contractor shall be liable to the United States (A) for interest on the amount of such overpayment, to be computed (i) for the period beginning on the date the overpayment was made to the contractor and ending on the date the contractor repays the amount of such overpayment to the United States; and (ii) at the current rate prescribed by the Secretary of the Treasury under section 6621 of the Internal Revenue Code of 1986; and (B) if the submission of such defective data was a knowing submission, for an additional amount equal to the amount of the overpayment. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 38

39 (2) Any liability under this subsection of a contractor that submits cost or pricing data but refuses to submit the certification required by subsection (a)(2) with respect to the cost or pricing data shall not be affected by the refusal to submit such certification. (g) Right of United States To Examine Contractor Records. For the purpose of evaluating the accuracy, completeness, and currency of cost or pricing data required to be submitted by this section, the head of an agency shall have the authority provided by section 2313 (a)(2) of this title. (h) Definitions. In this section: (1) Cost or pricing data. The term cost or pricing data means all facts that, as of the date of agreement on the price of a contract (or the price of a contract modification), or, if applicable consistent with subsection (e)(1)(b), another date agreed upon between the parties, a prudent buyer or seller would reasonably expect to affect price negotiations significantly. Such term does not include information that is judgmental, but does include the factual information from which a judgment was derived. (2) Subcontract. The term subcontract includes a transfer of commercial items between divisions, subsidiaries, or affiliates of a contractor or a subcontractor. (3) Commercial item. The term commercial item has the meaning provided such term in section 103 of title 41. CON170, Unit 1 Lesson 2 Truth in Negotiations Act - Page 39