Difference between revisions of "TINA Monitoring"
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| − | + | ==Introduction - Monitoring a Contracts Cost== | |
| + | Sound business practices dictate that contracts should be monitored to ensure that they are profitable, and are not incurring costs in excessive of what was estimated (they are operating at losses). | ||
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| + | In the case of a The Truth In Negotiations Act contract there is the added risk of making too much profit by having an estimate that was not current, complete and accurate. If all facts known to the contractor were not disclosed to the US Government (or Prime) and not disclosing that information resulted in the price being higher, had the information been disclosed, there is the problem of defective pricing. | ||
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| + | If a contract is under-running its costs, the government may assert, correctly or incorrectly that the price was inflated because facts disclosed during negotiations was not current, complete and accurate. | ||
| − | TINA Monitoring is comparing what was proposed/estimated to actual costs. | + | |
| + | There can be many reasons a business is under-running it's costs, and these facts were not known during negotiations of a particular contract. For instance, technological advances can reduce labor costs, increases in business can result in less indirect costs being allocated to individual contracts, material and commodity costs could have been reduced, the complexity of design could have been reduced, redesign work anticipated may have been eliminated, etc. The reasons for a reduction in cost need to be captured as they occur on TINA based contracts. Post-Award, or Defective Pricing audits occur years after an award, and often times years after performance of a contract. Individuals with knowledge of particular circumstances may not recall all of the details, or may not be employed when these audits occur. It is therefore imperative to capture these details as they occur, and document these details in a contract file. | ||
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| + | ==TINA Monitoring== | ||
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| + | TINA Monitoring is an industry best practice, and should be required by any contractor performing on TINA Contracts. TINA Monitoring is comparing what was proposed/estimated to actual costs. There is generally a serious of progressive steps in the TINA monitoring process. | ||
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| + | ===TINA Monitoring Steps=== | ||
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| + | '''1. Contract Profitability.''' | ||
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| + | When performing TINA Monitoring it is best to look at it from a high level to determine if the profits being realized on a contract are substantially higher than what was bid. If a contractor generally anticipates profits from TINA contracts in a 12 - 15% range, and while performing TINA monitoring notices a contract that has 25% profit, then further review is necessary. The high level review will assist in focusing in on potentially problem contracts. | ||
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| + | It should be noted that one cost element can be under-running cost and another over-running costs. Hence, the high level analysis may miss any potential issues, however, the risk of defective pricing is significantly reduced, because, TINA does allow a contractor to offset costs in certain circumstances. | ||
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| + | '''2. Cost Element Analysis.''' | ||
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| + | Once a contract has been identified that exceed profitability levels, the next step is to evaluate the individual cost elements of a contract, actual vs. estimated to identify areas of significant difference. An in-depth review of a cost element would be next steps. Those steps would include basis of estimate, negotiation memorandum, and any other information available to determine the nature of why the costs in the estimate were not realized, and were other facts known or not known during negotiations. | ||
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[[Category:Truth In Negotiations Act (TINA)]] | [[Category:Truth In Negotiations Act (TINA)]] | ||
Latest revision as of 11:42, 19 July 2017
Introduction - Monitoring a Contracts Cost
Sound business practices dictate that contracts should be monitored to ensure that they are profitable, and are not incurring costs in excessive of what was estimated (they are operating at losses).
In the case of a The Truth In Negotiations Act contract there is the added risk of making too much profit by having an estimate that was not current, complete and accurate. If all facts known to the contractor were not disclosed to the US Government (or Prime) and not disclosing that information resulted in the price being higher, had the information been disclosed, there is the problem of defective pricing.
If a contract is under-running its costs, the government may assert, correctly or incorrectly that the price was inflated because facts disclosed during negotiations was not current, complete and accurate.
There can be many reasons a business is under-running it's costs, and these facts were not known during negotiations of a particular contract. For instance, technological advances can reduce labor costs, increases in business can result in less indirect costs being allocated to individual contracts, material and commodity costs could have been reduced, the complexity of design could have been reduced, redesign work anticipated may have been eliminated, etc. The reasons for a reduction in cost need to be captured as they occur on TINA based contracts. Post-Award, or Defective Pricing audits occur years after an award, and often times years after performance of a contract. Individuals with knowledge of particular circumstances may not recall all of the details, or may not be employed when these audits occur. It is therefore imperative to capture these details as they occur, and document these details in a contract file.
TINA Monitoring
TINA Monitoring is an industry best practice, and should be required by any contractor performing on TINA Contracts. TINA Monitoring is comparing what was proposed/estimated to actual costs. There is generally a serious of progressive steps in the TINA monitoring process.
TINA Monitoring Steps
1. Contract Profitability.
When performing TINA Monitoring it is best to look at it from a high level to determine if the profits being realized on a contract are substantially higher than what was bid. If a contractor generally anticipates profits from TINA contracts in a 12 - 15% range, and while performing TINA monitoring notices a contract that has 25% profit, then further review is necessary. The high level review will assist in focusing in on potentially problem contracts.
It should be noted that one cost element can be under-running cost and another over-running costs. Hence, the high level analysis may miss any potential issues, however, the risk of defective pricing is significantly reduced, because, TINA does allow a contractor to offset costs in certain circumstances.
2. Cost Element Analysis.
Once a contract has been identified that exceed profitability levels, the next step is to evaluate the individual cost elements of a contract, actual vs. estimated to identify areas of significant difference. An in-depth review of a cost element would be next steps. Those steps would include basis of estimate, negotiation memorandum, and any other information available to determine the nature of why the costs in the estimate were not realized, and were other facts known or not known during negotiations.
