An unsigned Air Force “Defective Pricing Notice” focusing on pricing issues related to litigation of defective pricing allegations against Science Applications International Corp. has created quite a stir in industry and government circles.  The February 11 document described itself as an explanation of FAR Table 15-2 and states contractors in support of their proposed contract pricing should be required to (1) identify and provide copies of any quantitative risk analysis or any other written analysis of the risks involved in performing the anticipated work (2) identify and provide copies of minutes, briefings or reports from meeting or panels convened to review the price proposal (3) identify the nature and amount of any management reserve, risk reserve, minimum required and variance labor hours or any other contingency included in the proposed price and (4) explain the effective fee calculation or similar calculation.  For contracts covered by the Truth and Negotiations Act contractors must submit to the government certain “cost or pricing data” to support negotiations regarding the contract price and they must certify the cost data submitted are current, accurate and complete.  Defective pricing allegations under TINA apply only to “cost or pricing data” not management judgments and there is a long history of controversy as to what is “cost or pricing data” and what is not.  

Two influential industry groups issued follow up letters March 29 and April 4 to Air Force official Charlie Williams stating the February 11 notice inappropriately “expands the definition of cost or pricing data” found in FAR 2.101 by including management judgments rather than factual information in determining whether defective pricing under TINA has occurred.  The letters indicated the expanded definition of cost or pricing data constitutes a significant change and if the letter is applied to other contractors the government must follow notification and commentary procedures for changing the law.  Mr. Williams responded April 13 saying the “Defective Pricing Notice” was developed to assist Air Force officials in negotiations with SAIC’s ongoing litigation and had not “broader application” and did not “reflect a change in pricing policy.”  However a few weeks later Steven Shaw, deputy general counsel of the Air Force issued an internal memo that seemed to contradict Mr. Williams’ assurances emphasizing the February 11 Notice should “apply to all TINA-covered contract actions with all contractors, not just SAIC.”

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