Difference between revisions of "Defective Pricing"

Revision as of 10:25, 26 February 2016

What is Defective Pricing?

Simply put, knowingly submitting false cost or pricing data to the government on negotiated contracts. Defective pricing is any contracting action subject to the Truth in Negotiations Act (TINA) where the negotiated contract price including profit or fee was increased by a significant amount because:

• The contractor furnished to the Government cost or pricing data that were not complete, accurate, and current as certified in the contractor's Certificate of Current Cost or Pricing Data;

• A subcontractor or a prospective subcontractor at any tier furnished to the contractor cost or pricing data that were not complete, accurate, and current as certified in the contractor's Certificate of Current Cost or Pricing Data; or

• Any of the above parties furnished data of any description that were not accurate.

What are the indicators of defective pricing?

• Proposal estimate which was the basis for negotiation is higher than supporting documentation with no creditable explanation

• Continued failure to correct known system deficiencies

• Certification of false or misleading information

Remedies for Defective Pricing

When defective pricing occurs, the Government is entitled to a price reduction to eliminate any significant overpricing related to the defective data. That reduction must consider increases in both cost and profit or fee related to the defective data. In addition to a price adjustment, the Government is also entitled to:

• Interest on any overpayments that resulted from the defective pricing of supplies or services accepted by the Government.
• A penalty equal to the amount of any overpayment, if the contractor knowingly submitted cost or pricing data which were incomplete, inaccurate, or not current.

The Government entitlement to these remedies is incorporated in the prime contract using one of the following clauses:

• Price Reduction for Defective Cost or Pricing Data, or
• Price Reduction for Defective Cost or Pricing Data --Modifications.
• The prime contract also requires that covered subcontracts must include the substance of the appropriate clause above.

Managing a Post-Award Audit

So you have been notified by DCAA or other agency that they would like to perform a post award audit on your TINA contract. The reason for this audit is so that they can determine that the information provided at negotiation was current, complete and accurate. The first step is to understand what steps and processes the auditor will undertake. All DCAA audit programs can be found at: http://www.dcaa.mil/

Related Topics

Cost or Pricing Data

TINA Sweep

Price Negotiation Memorandum

What Does the Government Need to Prove in a Defective Pricing Case

Reference

• Chapter 5 Recognizing and Adjusting for Defective Pricing, Acquisition http://www.acq.osd.mil/dpap/cpf/docs/contract_pricing_finance_guide/vol4_ch5.pdf

• Federal Acquisition Regulation