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JMG

Defective pricing with bottom line settlement

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Curious for feedback...

Does settlement at a bottom line price, of a sole source contract over the TINA threshold, impact the reliability of a defective pricing claim? FAR 52.215-10(c)(1)(iii) states the contractor cannot use agreement on total cost as a defense, but what about total price (when profit was not specifically agreed to)? Any pertinent case law would be appreciated. Thank you.

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JMG, a defective pricing claim is a government claim and the government has the burden of proving all elements of the claim.  Generally, there are three things that the government must prove to sustain its claim:  the contractor disclosed (it does not have to submit the data) cost or pricing data that were not current, complete and accurate; the government relied upon the defective cost or pricing data; and the reliance on the defective data resulted in an increased contract price.  Obviously, this is a fact specific inquiry and the government will prevail in a defective pricing claim, even when the negotiated price was reached on a bottom line  basis, if it can carry its burden of proof.  On the other hand, if the government cannot make the showing necessary to have its claim sustained, it will not prevail regardless of how the negotiations were conducted. 

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Generally, there are three things that the government must prove to sustain its claim:  the contractor disclosed (it does not have to submit the data) cost or pricing data....

Okay, Retread, I ask that you explain that assertion in light of the language in 10 USC § 2306a, FAR, and in respected treatises like Government Contract Costs & Pricing, by Manos, in which the words "submit" and "submission" are used in abundance. So what the heck did you mean when you said that the contractor does not have to submit cost or pricing data?

I think I know what you meant, and I suspect you of trying to provoke discussion, but since the person whose question you answered is obviously not an expert, you were  irresponsible to say what you did and stop where you did without explaining.

Lastly, you did not answer the question. "Does settlement at a bottom line price, of a sole source contract over the TINA threshold, impact the reliability of a defective pricing claim?"

What do you think? Since the defective pricing clause does not prohibit a "bottom line price" or "total price" defense, can a contractor defend itself against an accusation of defective pricing and false claim by saying that the parties agreed on a bottom line/total price? If you say no, then please explain.

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Retread:

By the way, the Government must prove more than three things. It must prove:

  1. that the information at issue was cost or pricing data;
  2. that any cost or pricing data that was assertedly not disclosed was reasonably available to the contractor before price agreement;
  3. that any assertedly nondisclosed cost or pricing data had not been disclosed to or was not known by appropriate Government representatives;
  4. that any inaccurate, incomplete, or noncurrent cost or pricing data was relied upon by the Government; and 
  5. that any inaccurate, incomplete, or noncurrent cost or pricing data caused a price increase.

See Bodenheimer, Defective Pricing Handbook, § 13.5, "Summary of contractor defenses."

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Vern, In your #2 defense I think you have a typo. Shouldn't "the contractor" be "the Government"?

 

H2H

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H2H:

No. I meant contractor. The cost or pricing data must have been reasonably available to the offeror or contractor prior to the cutoff date. See FAR 15.406-2[c]; FAR 15.407-1(b)(2); FAR Table 15-2, Note 1; and Bodenheimer, Ch.5, esp. §§ 5.1 and 5.2.

An offeror or contractor has no obligation to disclose cost or pricing data that existed but were not reasonably available to it prior to the cutoff date.

Vern

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I appreciate the references and burden of proof requirements. Any opinions, or experience, with the posed question. I like how Vern phrased it:

 

"What do you think? Since the defective pricing clause does not prohibit a "bottom line price" or "total price" defense, can a contractor defend itself against an accusation of defective pricing and false claim by saying that the parties agreed on a bottom line/total price"?

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6 hours ago, Vern Edwards said:

Retread:

By the way, the Government must prove more than three things. It must prove:

  1. that the information at issue was cost or pricing data;
  2. that any cost or pricing data that was assertedly not disclosed was reasonably available to the contractor before price agreement;
  3. that any assertedly nondisclosed cost or pricing data had not been disclosed to or was not known by appropriate Government representatives;
  4. that any inaccurate, incomplete, or noncurrent cost or pricing data was relied upon by the Government; and 
  5. that any inaccurate, incomplete, or noncurrent cost or pricing data caused a price increase.

See Bodenheimer, Defective Pricing Handbook, § 13.5, "Summary of contractor defenses."

In response to the original broad question, if the above criteria are met, thus relied upon in the government's agreement of a bottom line price, It could support a finding of defective pricing, depends upon the specifics of the case. What difference does it make whether or not the amount of profit or fee was agreed to?

Many aspects of a proposal and or settlement are judgemental, not factual, which allow for wiggle room (reasonable range) in the settled price. And the Profit rate doesn't have to be agreed to. But if defective c or p data were relied upon by the government in its agreement to the amount of the settlement, i think that it could likely prevail in recovery. Depends upon the specific circumstances. Non-specific answer to a non-specific question. 

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JMG:

I'm going to hit it back to you. What sort of defense would 'agreement on total price" be? So the parties agreed on a total price -- so what? How would that be any kind of defense if the government could establish its five proofs? What would the contractor say? Yeah, but we agreed on a total price? How would it follow from agreement on total price that a government defective pricing claim would not be valid?

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I agree with Joel.  As I mentioned in my earlier post, whether defective pricing occurred is a fact specific question.  The fact that a price was agreed to on a bottom line basis, does not mean that defective pricing occurred or that it did not occur.  As with any other defective pricing case, the government will have to show that it relied upon the defective cost or pricing data that was disclosed and that this reliance resulted in an increase in contract price.  If the government cannot do this, the contractor does not need to worry about any defenses it might have.  In this regard, note that there is a rebuttable presumption of reliance and increased price once the government shows that the contractor failed to disclose cost or pricing data that was current, complete and accurate.  However, this presumption can be rebutted by the contractor.  If this happens the government then has to produce evidence of actual reliance and increased price.  But, the fact that the price agreed to was the result of bottom line negotiations is not a defense once the government makes its required showing.  

Vern, in regard to your question concerning "disclose" vs. "submit,"  I was referring to the fact that TINA only requires a contractor to disclose data to the government in a way that puts the government on an essentially equal footing with the contractor in regard to its ability to make an informed judgment as to what would be a fair and reasonable price.  In doing so, the contractor does not have to back the truck up and dump a bunch of data on the contracting officer.    Table 15-2 of FAR 15.408 permits the contractor to describe the data in writing as an alternative to physical submission. Further, the data does not have to be disclosed to the contracting officer.  Instead, it can be disclosed to a number of government personnel so long as the purpose of the requiring disclosure of cost or pricing data is met. 

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Retread, here's 10 USC 2306a, "Required Cost or Pricing Data and Certification." paragraph (1)(A):

Quote

(a)Required Cost or Pricing Data and Certification.—

(1)The head of an agency shall require offerors, contractors, and subcontractors to make cost or pricing data available as follows:
(A)An offeror for a prime contract under this chapter to be entered into using procedures other than sealed-bid procedures shall be required to submit cost or pricing data before the award of a contract if—
(i)
in the case of a prime contract entered into after December 5, 1990, the price of the contract to the United States is expected to exceed $500,000; and
(ii)
in the case of a prime contract entered into on or before December 5, 1990, the price of the contract to the United States is expected to exceed $100,000.

Emphasis added.

The statute says "submit." It does not say "disclose." It does not say "describe." Table 15-2 does not say "describe," and I don't think it says "disclose." FAR 52.215-10 says "furnished." It does not say "disclose" or "describe." The certificate of current cost or pricing data in FAR 15.406-2 says "submitted." It does not say "disclose" or "describe." FAR 15.407-1 says "submitted." It does not say "disclose" or "describe."

Please explain. Why do say "disclose" and "describe"? Are they official synonyms for submit? Is there a difference between submit and between disclose or describe? There would seem to be, at face value.

And does "disclosure" to just any "government personnel" satisfy the obligation to submit?

It seems to me that if we're going to tell people about rules like TINA, we should explain fully. It only takes an extra few moments to get it right.

 

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13 hours ago, Vern Edwards said:

JMG:

I'm going to hit it back to you. What sort of defense would 'agreement on total price" be? So the parties agreed on a total price -- so what? How would that be any kind of defense if the government could establish its five proofs? What would the contractor say? Yeah, but we agreed on a total price? How would it follow from agreement on total price that a government defective pricing claim would not be valid?

I don't think its a good defense, but I am just posing a question to what the defective pricing clause states. It must state total cost, and not total price, as an invalid defense for a reason? Why not total price or total cost?  It's a FAR based question. I get all the answers- all good. Good discussions. Thanks.  

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1 hour ago, JMG said:

I don't think its a good defense, but I am just posing a question to what the defective pricing clause states. It must state total cost, and not total price, as an invalid defense for a reason? Why not total price or total cost?  It's a FAR based question. I get all the answers- all good. Good discussions. Thanks.  

So, I think you are asking why FAR doesn't address not using a defense to defective pricing when there was no specific agreement on "total costs" within the "total price" but there is agreement on total price, correct?  

How is it possible to agree on total costs but not on profit, then agree on total bottom line price based upon total bottom line cost plus unagreed profit? 

 

 

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46 minutes ago, joel hoffman said:

So, I think you are asking why FAR doesn't address not using a defense to defective pricing when there was no specific agreement on "total costs" within the "total price" but there is agreement on total price, correct?  

Yes.

How is it possible to agree on total costs but not on profit, then agree on total bottom line price based upon total bottom line cost plus unagreed profit? 

If you are negotiating at a bottom line price you have no agreement on total costs. I don't know why you would go bottom line if you had agreement on total costs; that doesn't make sense to me.

 

 

Quote

 

 

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JMG:

The key to the answers to your questions lies in the history of the price reduction clause. You have to look into that history to find where the language in paragraph (c) pertaining to "agreement about the total cost of the contract" came from and why it was added.

I know the answer, because I researched it long ago. But I'm not going to say, because that's too easy. You'll research it if you really want to know. That's how I learned. But I'll give you a hint: 1997.

There are plenty of free research tools on the internet: Government Publishing Office. Library of Congress.

Vern

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Vern, in response to your questions concerning the use of "disclose" instead of "submit," note that the extract from Bodenheimer's article that you quoted, uses the term "disclose" instead of "submit."  Also, the Defense Contract Audit Manual from which the five points he listed are taken uses the term "submit or disclose."  See, for example, CAM 14-102 (Defective pricing occurs when a contractor does not submit or disclose to the Government certified cost or pricing data that is accurate, complete, and current prior to reaching a price agreement.)  Several articles by experienced government contracts attorneys, such as Jay DeVecchio use "disclose"  (The Truth in Negotiations Act (“TINA”), 10 U.S.C. § 2306a, is a disclosure statute. It requires contractors in certain circumstances to disclose to the government accurate, current, and complete “cost or pricing data” relevant to costs or prices proposed by the contractor.) See, Defective Pricing:  A Very Short Course.  Finally, there are ASBCA decisions that use the term "disclose" to refer to a contractor's obligations under TINA.  Thus, I feel comfortable with its use.

Saying that TINA is a disclosure statute conveys a clearer and broader description of TINA than merely saying a contractor has an obligation to submit cost or pricing data when required by the contracting officer.  First, it makes it clear that actual or physical delivery of the data is not required.  Further, it indicates that the contractor does not have to use the data or create data for the government.  The contractor only has to disclose the data in a meaningful way, i.e., in a way that puts the government on essentially an equal footing with the contractor in regard to the ability to make a judgment as to what would be a reasonable price.

There is no limit on who is a proper recipient of cost or pricing data.  It can be to someone who is not involved with the negotiations or proposal evaluation process so long as the disclosure is made in a meaningful way.  For example, see Symetrics Industries, ASBCA No 59297 (13 Aug. 2015) where disclosure to an auditor and ACO who were not involved in the contract negotiations or proposal evaluation process were proper recipients of cost or pricing data when the PCO knew that such a disclosure had been made and the auditor receiving the data knew of its significance to a specific solicitation.  Whether a meaningful disclosure has been made to a proper recipient is a question of fact, so there is no bright line test for determining who is a proper recipient in a given case.   

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Retread:

Thanks for the response.

The statute and FAR use the term submit. FAR also uses the term furnish. Neither the statute nor the FAR use either disclose or describe. As defined in various dictionaries, submit is not a synonym for deliver, and both the certificate of current cost or pricing data and FAR Table 15-2 say that the data may be submitted by specific identification in writing. So you’re right that submission does not necessarily entail physical delivery of the data to the Government. You're also right that many commentators use the term disclose. The problem is that none of those terms describe the actual legal obligations of offerors and contractors with respect to the requirement “to submit” cost or pricing data. The actual obligations have been spelled out by the courts and the boards of contract appeals and are referred to in various Government publications, such as the Contract Pricing Reference Guides.

I strongly disagree with you that calling TINA a “disclosure statute” conveys “a clearer and broader” description of the requirements of TINA than saying that a contractor must submit data. Disclose is no clearer than submit, and saying that TINA is a "disclosure statute" does not tell us anything really useful about TINA submission/disclosure oblgations. In fact, it might be more misleading to call it a disclosure statute in light of the actual requirements. You might know, or be interested to learn, that that the Court of Federal Claims has used the phrase “disclosure statute” in only two decisions, neither of which were TINA cases. The ASBCA is the only board of contract appeals to have used the phrase “disclosure statute,” and only once, in United Technologies Corp. ASBCA No. 51410, 04-1 BCA 32556, Feb. 27, 2004, a TINA case. The fact that various commentators have used the term “disclosure statute” is not especially illuminating. Good luck finding a treatise on the general nature or common features of disclosure statutes. The term is not defined in Black’s Law Dictionary.

But let’s use your word disclose, since there is no question that it is in common use with respect to TINA. The problem is: What act or acts constitute disclosure? Can an offeror simply provide a data dump or pull open file drawers and say, “It’s all in there”? The answer is no. There’s a lot more to it. Bodenheimer devotes all of Chapter 6 in his book, 24 pages, to a description and explanation of the voluminous case law on submission/disclosure. As he puts it, “The harder question is what (if anything) the contractor must do beyond simply handing the data to the proper Government official or telling that official where to look for such data.”

See Bodenheimer §§ 6.8, 6.9, and 6.10 for specific discussion of TINA submission/disclosure obligations. The most extensive discussion of the TINA submission/disclosure obligation that I have found is in Truth in Negotiations/Edition III, by Morrison and Ebert, 89-11 Briefing Papers 1 (October 1989). Unfortunately, it is more than 25 years old of some of it may be outdated in light of new case law.

You were wrong when you wrote, “There is no limit on who is a proper recipient of cost or pricing data. It can be someone who is not involved with the negotiations or proposal evaluation process so long as the disclosure is made in a meaningful way.” It's not true that an offeror can submit/disclose to any Government official. See Bodenheimer § 6.5,”Disclosure to the proper Government official”:

Quote

For disclosure purposes, three sets of Government officials may serve the role as proper Government recipients of cost or pricing data: (1) the Procuring Contracting Officer (PCO) who conducts the price negotiation; (2) the PCO’s authorized representatives who assist the PCO in the negotiations or analysis of the cost and/or price; and (3) in certain circumstances involving overhead and or indirect costs, the Administrative Contracting Officer (ACO) and authorized officials responsible for reviewing and negotiating such costs such as for the purpose of approving forward pricing rates.

See also § 6.6, “Disclosure to the proper Government official—Contracting officer and price negotiation team,” in which he says:

Quote

[D]isclosure only to Government officials not part of the negotiation team leaves the contractor exposed to defective pricing liability.

Disclosure of data to Government officials unconnected with the negotiation at issue generally falls short of adequate disclosure.

See also § 6.7, “Disclosure to the proper Government official—Government officials reviewing overhead and indirect rates.”

I think you misstated the case in the ASBCA's Symetrics decision. The auditor in that case was working on forward pricing rate agreements that the the negotiating PCO was going to rely on, and the Government did not meet its burden of proof.

Wifcon Forum is not the right format in which to go into greater detail. My point is that TINA is an extremely complicated set of rules that have potentially serious consequences for the uninformed and the misinformed. Understanding and compliance entail the study of obscure concepts and terminology, more than 50 years of complex litigation, and many treatises. That’s why we need people like David Bodenheimer and Karen Manos. I think we should be very thoughtful and careful when we discuss such matters here at Wifcon Forum, especially since the Forum has become something of a schoolhouse for newbies. We must not simply assert this or that, but provide authoritative references for further reading. The extra effort to do so will make us more careful.

 

 

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