The Truth in Negotiations Act (TINA) covers defective pricing. TINA requires prime contractors and subcontractors to submit cost or pricing data for contracts or pricing actions (e.g. a contract change or modification) in excess of $550,000 and to certify the data is accurate, complete and current. A waiver to this requirement exists under one of five conditions: (1) adequate price competition exists (2) commercial items are acquired (3) prices are set by law or regulation (4) a waiver is granted when the government deems prices are fair and reasonable (e.g. submission of "other than cost or pricing data") or (5) a modification is made for acquisition of a commercial item. We recommend contractors seek one of these waivers whenever possible. What is and is not "cost or pricing data" and when and how this data should be brought to the attention of the "government" is a source of almost unending litigation. For example, cost data refers to facts (e.g. actual labor rates, hours expended, price quotes from vendors, records of incurred costs) while estimates and judgment (e.g. budgets, profit plans, methods of performance) are not considered facts and hence not data that must be divulged (though the facts upon which estimates and judgments are based are considered data).

Even though the contractor signed a Certificate of Current Cost or Pricing Data the contractor may have inadvertently included "defective" data in the proposal that the government relied upon in negotiating a contract award. If the government can prove the contract or subcontract price is overstated because of its reliance on the defective data both the prime contractor, and through its flowdown clauses, the subcontractor is subject to a reduction in its contract price. Even though a contract price may be the result of many factors other than defective data (e.g. negotiating skills, perceived market conditions, etc.) the presumption is, short of evidence to the contrary, the government overpaid by the amount of the defective data and the adjustment is equal to the amount by which the cost or pricing data was overstated. In calculating the adjustment, the government usually recognizes offsets which means that if a contractor understates some cost or pricing data submitted in support of its proposal then that amount can be used to offset any overstatement the government claims exists.

As we are fond of saying, the practical meaning of most regulations are what court and agency guidance they are. Some recent cases and agency guidance highlight this notion.

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