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General and administrative expense


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Retread

In post 12, I wrote:

I think it is highly significant. I cannot imagine why, in this specific case, actual cost of performance makes a difference. The fact of the matter is that we agreed to a price $3M higher than what we would have agreed to without defective data (I think the burden should be on the prime to prove it would not have had the same decrement to the proposed subcontract price that should have been offered (i.e., without defective data) that it had to the actual subcontract proposed price). Why give the prime a benefit based on actuals?

Your comment to this was:

wvanpup, in response to your post 12, a defective pricing claim is a government claim against the contractor. As such, the government has the burden of proof on every element of its claim, including the amount of the overpricing. The contractor has to prove any defenses it has to the government claim such as an offset.

I am not sure if you are taking issue with my post, or clarifying it. Of course I agree with you that a defective pricing claim is a Government claim for which the Government has the burden of proof, including the burden concerning amount. However, the Government has the benefit of a rebuttable presumption concerning the dollar for dollar effect of defective data. That being the case:

  • I do not question what the regulation says, but I still cannot understand why the regulation uses actual cost of performance in the formula that determines the limit on the Government's defective pricing recovery. The issue should be the price the Government agreed to vs. the price the Government would have agreed to without the defective data.
  • The rebuttable presumption of a dollar for dollar impact is sufficient to meet the Government's burden of proof concerning quantum. The contractor has at least the burden of going forward to raise an issue that rebuts the presumption (e.g., that it would have used a different decrement had the subcontract price not been affected by defective data). I do not recall if the contractor also has the burden of persuasion to show that the presumption has been rebutted, or if raising the issue is sufficient to put the burden of persuasion concerning quantum back on the government (i.e., the Government must prove quantum without the benefit of the presumption concerning the effect of the defective data).
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Bond premiums are a prime contractor cost markup on the overall subtotal price of a construction contract mod. The prime's bonding cost is not part of the subcontractor's proposal.

Wvanpup (post #7) and Seeker (post #9) found the disconnect between the policy in FAR 15.407-1(f)(1) and paragraph ( b ) of the clause at 52.215-10. The clause states that the adjustment limits markups to applicable OVERHEADS and profit. The explanation in 15.407-1(f)(1) limits the markups to applicable INDIRECT COSTS plus profit.

"(1) When a prime contractor includes defective subcontract data in arriving at the price but later awards the subcontract to a lower priced subcontractor (or does not subcontract for the work), any adjustment in the prime contract price due to defective subcontract data is limited to the difference (plus applicable INDIRECT COST and profit markups) between the subcontract price used for pricing the prime contract, and either the actual subcontract price or the actual cost to the contractor, if not subcontracted, provided the data on which the actual subcontract price is based are not themselves defective."

I would go for including it under the scenario of paragraph ( b ) since there probably isn't any case law disputing it and the intent seems to be to allow it as an indirect cost.

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wvanpup, my comments were directed toward this sentence "I think the burden should be on the prime to prove it would not have had the same decrement to the proposed subcontract price that should have been offered (i.e., without defective data) that it had to the actual subcontract proposed price). The natural and probable consequences doctrine applies to the question of whether defective cost or pricing data caused an increase in contract price, not the amount of that increase. The government still has the burden of proving the amount by which the contract price was increased. Further, a contractor does not have to use any cost or pricing data in preparing its proposal. TINA is only a disclosure statute. I rely on United Technology Corp. ASBCA No. 51410, (Feb. 27, 2004)

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Retread: I do not disagree that TINA is only a disclosure statute, nor do I disagree that a contractor is not required to use the cost or pricing data in preparing its proposal. United Technology was decided on the basis of lack of reliance, not on quantum. I still maintain there is a rebuttable presumption concerning the amount of the increase caused by the defective data.

The following is from material from a Fed Pubs defective pricing course I took in 2012:

The DFARS, courts, and Boards have developed a "dollar for dollar" presumption in defective pricing cases. It is presumed that the "natural and probable consequence" of defective data is a contract price increase in the dollar maount reflected by the defect. Thus, in the absence of contrary evidence, liability is generally determined by the difference between costs represented by the data disclosed to the Government and the costs represented in the undisclosed data, plus applicable overhead and profit.

For cases to this effect, see

Sperry Corp. Computer Systems, 88-3 BCA 20975 ("In these circumstances, we can only conclude that appellant's vague allusions to an overlooked credit are insufficient to overcome the presumption that the contract price should be reduced on a dollar-for-dollar basis. See Sylvania Electric Products, Inc. v. United States, 202 Ct.Cl. 16, 27–28, 479 F.2d 1342, 1349 (1973); DAR § 3–807.10(a)(2)" (emphasis added).)

Etowah Mfg. Co., 88-3 BCA 21054 ("The failure to disclose the purchase and intended use of the interim Mill–Max assembly machines increased the Government's justification for the definitive price by $115,933 or $.003 per fuze. Finding 37. Etowah has failed to rebut the presumption that the negotiated price was increased by this amount as a result of the non-disclosure" (emphasis added).)

Sylvania Elec. Products, Inc. v. U.S., 479 F.2d 1342, quoting the following from the Armed Services Procurement Regulation: "In establishing that the defective data caused an increase in the contract price, the contracting officer is not expected to reconstruct the negotiation by speculating as to what would have been the mental attitudes of the negotiating parties if the correct data had been submitted at the time of agreement on price. In the absence of evidence to the contrary, the natural and probable consequence of defective data is an increase in the contract price in the amount of the defect plus related burden and profit or fee; therefore, unless there is a clear indication that the defective data was not used, or was not relied upon, the contract price should be reduced in that amount” (emphasis added).

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Oh it is more than a disclosure statute. Here is an interesting article from 1968 concerning the Act , including some history. It also discussed natural and probable consequence...

http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=2645&context=fss_papers

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Guest Vern Edwards

Joel:

Oh it is more than a disclosure statute.

What more is it? According to Ralph Nash, in a September 2013 article, "The Great Engine War: A Strange Sequel," The Nash & Cibinic Report:

TINA is a disclosure statute.

You can find many statements to that effect in articles in legal journals. So what more is it in your view? Please explain.

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It is not "only a disclosure law". It also provided the government an administrative contract remedy, short of having to prove intent to mislead or defraud during negotiations, in order to obtain a price reduction.

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Guest Vern Edwards

TINA is only a disclosure statute because that is all that it requires a contractor to do. A contractor has fulfilled its obligation once it has disclosed. It has no further obligation. The fact that the law provides for a price reduction if defective pricing injures the government does not change the fact. That is nothing but a remedy for failing to disclose.

Here are what some people who know what they are talking about have said about the TINA, in addition to Prof. Nash. First, Brig. Gen. Richard J. Bednar, U.S. Army (Ret.), former judge advocate officer:

The Truth in Negotiations Act that passed in 1962 was simply a disclosure statute.

See "The Fourteenth Major Frank B. Creekmore Lecture," 175 Mil. L. Rev. 286 (2003).

See also Knight, "'Certified Estimates' and Mandatory Disclosure: A Bad Decision Makes for A Worse Regulation", 44-SUM Procurement Law 24 (2009):

TINA is a disclosure statute.

See also Bodenheimer, "Competition Trumps Defective Pricing Claim in the Great Engine War," 47 Govt Cont ¶ 86 (2005):

In a $299 million claim characterized by a Government pleading as “Garden Variety” defective pricing, the Air Force advanced novel, often unprecedented, propositions that would have transformed the Truth in Negotiations Act (TINA) from a disclosure statute into a post facto repricing exercise.

Here is Judge Jack Delman of the ASBCA in United Techologies Corp., ASBCA No. 51410, 04-1 BCA ¶ 32556:

TINA is a disclosure statute. It requires a contractor under certain circumstances to disclose and to furnish cost or pricing data to the government and to certify that the data are accurate, current and complete. This disclosure and certification obligation is not limited to that data actually used or relied upon by the contractor to prepare its proposal. Under the regulatory definition, the data to be provided consists of “all facts existing up to the time of agreement on price which prudent buyers and sellers would reasonably expect to have a significant effect on price negotiations... ” (finding 74). On the other hand, once a contractor has furnished accurate, current and complete data, it has fulfilled its TINA obligations.

See also Bodenheimber, Defective Pricing Handbook (2012-2013 Ed.) p. 2:

[T]he Truth in Negotiations Act simply requires a contractor to disclose cost or pricing data.

Finally, see Manos, Government Contract Costs and Pricing (2013) § 84:2:

The Truth in Negotiations Act (TINA) was intended to level the playing field by giving Government negotiators access to all of the cost or pricing data reasonably available to the contractor, even if the contractor's price is based on other facts and considerations. TINA requires contractors to disclose cost or pricing data and to certify that such data are accurate, complete and current. It also requires that prime contracts include a provision for a downward price adjustment if the negotiated price is significantly higher as a result of “defective” cost or pricing data (i.e., data that is inaccurate, incomplete or noncurrent as of the effective date of the contractor's certificate) regardless of whether the defect is intentional or unintentional. TINA is strictly a disclosure statute; it does not in anyway limit the price or fee a contractor can charge.

You're spreading misinformation, Joel. It is a very important legal point that TINA is only a disclosure statute, nothing more.

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Guest Vern Edwards

wvanpup:

I do not question what the regulation says, but I still cannot understand why the regulation uses actual cost of performance in the formula that determines the limit on the Government's defective pricing recovery. The issue should be the price the Government agreed to vs. the price the Government would have agreed to without the defective data.

The provision now in paragraph ( b ) was added to the defective pricing clause on November 4, 1971, 36 Fed. Reg. 21120, without explanation, word for word as it is today. I doubt that anyone around today knows why it was added or why it was written the way it is. It's obvious purpose is to limit the contractor's liability for a price reduction to, at most, the amount that it saved by awarding the subcontract to a different firm or by doing the work in-house. It is not liable for any amount in excess of that. That's simply the way that it is.

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