Defective Pricing???

[ThePunk]

Contract A (1.5 mil) was awarded to a sole source vendor. Certified Cost and Pricing was obtained. TINA applies.

A new requirement for the same items was recieved by the contracting shop. The sole source vendor submitted an offer (698K). Other than cost and pricing data was requested by the contracting shop and was received. This information contained actuals from the past three contracts (including Contract A).

After reviewing the other than cost and pricing data, the contract specialist pulled the file for Contract A and looked at the Audit, Technical Audit, Cost and Pricing Data, and PNM that was completed on Contract A. The material actuals for the past contracts did not match up with what the Contractor Certified to under Contract A. This discrepancy was valued around 100K.

It is believed that the contractor either-

A--Negotiatied material prices with vendors down after award is made with the Gov't

or

B-- Waited until they recieve multiple awards from other contracts and purchase material in bulk to realize significant savings.

It is in my opinion, that this situation could be identified as defective pricing because---

1. Certified Cost and pricing data was obtained and Tina applies

2. The Government relied on the certified cost and pricing data

3. Reliance on this data caused and increase in the negotiated price

4. The contractor knew, or should have known, that more current, accurate and complete data existed.

Through contacting DCAA and DCMA, it looks as though Post Awards Audits/Defective Pricing Cases are not even looked at unless they value 100m ( i may be wrong on that one). If this is the case, what other steps can or should a contracting specialist take to resolve this matter.

It is important to note that this has occured multiple times when Certified Cost and Pricing was obtained and Tina applies.

Thanks in advance for your help.

[Don Mansfield]

You wrote:

It is believed that the contractor either-

A--Negotiatied material prices with vendors down after award is made with the Gov't

or

B-- Waited until they recieve multiple awards from other contracts and purchase material in bulk to realize significant savings.

That doesn't mean that there was defective pricing. A contractor can truthfully execute a certificate of cost or pricing data and then try to get better material prices than what they originally estimated. A negotiator who knows what they are doing will take that into account when negotiating the contract price.

[Guest Vern Edwards]

Defective pricing occurs when the certified cost or pricing data that it had submitted as of the date of price agreement were, in fact, not accurate, complete, or current at that time. The mere fact that actual costs differed from what had been expected during negotiation on the basis of certified cost or pricing data does not mean that defective pricing has occurred. In order to prove defective pricing you would have to be able to show that the contractor had information in its possession at the time of price agreement that would have affected the negotiations and that the contractor did not submit the data to the government.

The question that you must answer is: Did the contractor have facts at its disposal during negotiations with the CO concerning materials prices that it did not disclose to the government?

[ThePunk]

You wrote:

You wrote:

A contractor can truthfully execute a certificate of cost or pricing data and then try to get better material prices than what they originally estimated.

My question is:

How can a contractor truthfully submit the certificate of cost and pricing data, when they knowingly(like you mentioned above) are going to negotiate lower material costs?

15.403-4 b

(2) A Certificate of Current Cost or Pricing Data, in the format specified in 15.406-2, certifying that to the best of its knowledge and belief, the cost or pricing data were accurate, complete, and current as of the date of agreement on price or, if applicable, an earlier date agreed upon between the parties that is as close as practicable to the date of agreement on price.

If a Contractor is going to negotiate lower prices after award is made, the prices that were certified too can not be found to be accurate and complete. Can they?

[here_2_help]

Hi ThePunk,

Let me restate Vern's post.

Do you believe that the contractor knew it would negotiate lower vendor pricing at the time it excuted the CCPD? Or, do you believe that the contractor had a history of negotiating lower vendor pricing that it should have disclosed as certified cost or pricing data?

If the answer to both of those questions is "no" then there is no defective pricing.

And to your other point, DCAA has not focused on post-award "defective pricing" audits for a couple of years now. That's not to say they don't perform any such audits -- because they do -- but that's not where the agency focus is at the moment.

Hope this helps.

[Guest Vern Edwards]

If a Contractor is going to negotiate lower prices after award is made, the prices that were certified too can not be found to be accurate and complete. Can they?

Sure.

Here is an example of defective pricing: The contractor submits a proposal in which it estimates the cost of an item to be purchased at $10.00 per unit, based on a supplier's quote. However, the contractor has dealt with that supplier in the past and has a record of negotiating a 20 percent discount off the purchased price. The contractor does not share the information about its history with that supplier with the CO.

Here is another example: The contractor submits a proposal in which it estimates the cost of an item to be purchased at $10.00 per unit, based on a supplier's quote. The contractor has no history with that supplier, but has done a price analysis and has developed a prenegotiation objective of negotiating a 20 percent price reduction off the quoted price. The contractor does not share its price analysis or its prenegotiation objective with the CO.

In both cases, the contractor had facts that it did not share with the CO. That's defective pricing.

[ThePunk]

So back to the original question...

If DCAA/DCMA will not address this issue, because of the lower dollar value and lack of priority in their eyes. What other steps can or should a contracting specialist take to resolve this matter?

Would this be something to take to a DoD Hotline?

[Guest Vern Edwards]

How much money are we talking about? As for the DOD Hotline, if you think you should call it, then call it. Here is what the DOD Hotline says about itself:

The Department of Defense, Office of Inspector General Hotline ("Defense Hotline") is an important avenue for reporting fraud, waste, abuse, and mismanagement regarding programs and personnel under the purview of the U.S. Department of Defense. The Defense Hotline continues its primary mission of providing a confidential and reliable vehicle for military service members, DoD civilians, contractor employees and the public to report fraud, waste, mismanagement, abuse of authority, threats to homeland security and leaks of classified information.

If you think that any of those things is involved, then call the Hotline. Don't ask strangers what you should do.

[ThePunk]

Around 200k without interest. This was only on 2 contracts that I went back and checked. There very easily could be more.

[Guest Vern Edwards]

You aren't going to get DCAA involved for $200K, and without DCAA you're going to have a hard time proving defective pricing.

[LindaK]

Everyone seems to be in agreement that 1) there's no certainty as to whether this is indeed defective pricing at this point, and 2) At this dollar value, DCAA/DCMA will not get involved.

Anyone care to offer advice on the follow-up question - "what other steps can or should a contracting specialist take to resolve this matter?" Or do you recommend he/she ignore the information uncovered?

[Navy_Contracting_4]

Everyone seems to be in agreement that 1) there's no certainty as to whether this is indeed defective pricing at this point, and 2) At this dollar value, DCAA/DCMA will not get involved.

Anyone care to offer advice on the follow-up question - "what other steps can or should a contracting specialist take to resolve this matter?" Or do you recommend he/she ignore the information uncovered?

If you have convincing evidence that the contractor's certified cost or pricing data were not current, accurate or complete, and you can demonstrate that the government relied on the non-current, inaccurate or incomplete data to its detriment, then the contracting officer could send a letter to the contractor demanding a price reduction pursuant to the clause at FAR 52.215-10. If the contractor does not agree, then, depending on the certainty of your determination, there is always the option of making a unilateral price reduction pursuant to the clause. Of course, the contractor may dispute the price reduction and submit a claim, and then it will be up to the Board of Contract Appeals.

[Guest Vern Edwards]

Excellent response from Navy.

[joel hoffman]

If you have convincing evidence that the contractor's certified cost or pricing data were not current, accurate or complete, and you can demonstrate that the government relied on the non-current, inaccurate or incomplete data to its detriment, then the contracting officer could send a letter to the contractor demanding a price reduction pursuant to the clause at FAR 52.215-10. If the contractor does not agree, then, depending on the certainty of your determination, there is always the option of making a unilateral price reduction pursuant to the clause. Of course, the contractor may dispute the price reduction and submit a claim, and then it will be up to the Board of Contract Appeals.

Note that you will have to have "convincing evidence", not just a "belief", to support defense of a claim for defective pricing. The burden of proof is on the government to prove that there is defective pricing.

As for the Hotline, I think that might involve the CID , OSI or other criminal investigative service. From past experience, they often aren't very good at defective pricing and may go off trying to prove fraud, rather than handle TINA cases. Defective pricing is an administrative action, while fraud is a criminal action - and much harder to prove. They really screwed up some situations for us where we were just trying to take admin actions. By the time they got done with it, the KO's were unable or unwilling to pursue the TINA route.

[ContractPriceAnalyst]

From this thread, it is not clear if ThePunk ever contacted DCAA. Before proceeding with a unilateral determination, I would recommend that you contact the cognizant FAO to let them know that you suspect defective princing then let the Supervisory Auditor make a determination as to whether or not to take any audit action.

Good Luck!

[Retreadfed]

You wrote:

My question is:

How can a contractor truthfully submit the certificate of cost and pricing data, when they knowingly(like you mentioned above) are going to negotiate lower material costs?

15.403-4 b

(2) A Certificate of Current Cost or Pricing Data, in the format specified in 15.406-2, certifying that to the best of its knowledge and belief, the cost or pricing data were accurate, complete, and current as of the date of agreement on price or, if applicable, an earlier date agreed upon between the parties that is as close as practicable to the date of agreement on price.

If a Contractor is going to negotiate lower prices after award is made, the prices that were certified too can not be found to be accurate and complete. Can they?

How do you know they were going to negotiate lower prices instead of merely attempt to negotiatie lower prices? If you can show that they knew they were going t negotite lower prices, can you say what price theyknew they could negotiate? The purpose of TINA is to put th government ad contractor on the same footing in regard to making estimates of what would be a reasonable price. For this purpose, the contractor is reqired to disclose certified cost or pricing data that are current complete and accurate. That means the contractor must disclose all facts reasonably available to it at th time of price agreement that would have had an affect on price negotiations. Based on this, what fact(s) do you believe the contractor had that were not disclosed to the government so that the government was disadvantaged in the negotiations?