Vern Edwards

Big mistake.

I have found the LMI study at the Haithi Trust: https://babel.hathitrust.org/cgi/pt?id=uc1.l0050759224&view=page&seq=7&skin=2021 Unfortunately, you cannot download or print it. You can only read it online. Good luck reaching anyone at LMI. Apparently, they are all working from home. Covid-19 appears to have finally put an end to business communication by telephone.

That's wrong. Way off base. A lot of analysis and theory went into the development of the WGL. Nevertheless, there have long been questions about the effectiveness of the WBL.

The Weighted Guidelines (WGL) method was the product of a study by Logistics Management Institute (LMI) that was done for DOD and presented in 1963. The first version of the WGL was added to the Armed Services Procurement Regulation (ASPR) on November 23, 1963, 28 Fed. Reg. 12555 - 12561. You can see the original ranges there. The ASPR adopted the LMI recommendations with minor changes. A reasonably good discussion of the origins of the WGL contains an appendix that includes the original LMI recommendations. See Craig and Pousardian, Weighted Guidelines: An Empirical Investigation of Research and Development Acquisitions, Appendix B, which can be accessed at https://apps.dtic.mil/sti/pdfs/ADA123040.pdf. See also Trueger, "Defense Contract Profits - Weighted Guidelines Method," Journal of Accountancy, February 1965, p. 45. If you call LMI you may be able to obtain a copy of their original study report. I don't think it is available online. I don't know of any copy in any library.

Agreed. When a contract clause, such as a Changes clause, provides for a price adjustment based on the effect of some event on the contractor's cost of performance, or when it seeks breach damages, the amount of the adjustment must be based on incurred or estimated allowable cost plus a reasonable profit. See Kellogg Brown & Root Services, Inc., ASBCA 57530, 19-1 BCA ¶ 37,205: There is one exception to that rule—when, in the absence of cost information, a court or board adopts the "jury verdict" approach to determining an equitable adjustment or breach damages. See Cibinic & Nash, The "Jury Verdict" Approach: Equitable Technique or Contractor Bonanza?, in The Nash & Cibinic Report (December 1991). The authors discuss four versions of the jury verdict approach. See also Cibinic & Nash, Equitable Adjustments: Cost or Value?, The Nash & Cibinic Report (August 2019).

@WifWafYou are making this too hard. As ji20874 has pointed out, the purpose of TINA is to ensure the CO has the information needed to make a reasonable estimate of what it will cost the contractor to perform. The presumption is that a reasonable cost plus a reasonable profit will equal a reasonable price, no matter how the contractor has set its price. That would be the government's going-in negotiation position. As mentioned at the beginning of this thread, there are at least three approaches to pricing, only one of which is cost-based. The other two are market-based and value-based. And some companies likely use some combination of methods. How about we apply TINA only to major system production contract actions and allow agency heads to apply it to sole source contract actions valued at less than the major system threshold but more than $50 million on a case-by-case basis and with written risk-based justification. That would reduce the cost of its administration, but would entail some risk of price gouging. We'll reduce that risk by setting up a special pricing and negotiation training program for experienced COs who will be assigned to negotiate cost-based pricing actions. We'll let agencies request noncertified cost or pricing data in sole source contract actions valued at between $50 million and $10 million when pricing will be cost-based, but not when it's market-based or value-based. Offerors would have to disclose their pricing method. When pricing is market-based or value-based, offerors would have to provide a description of how they arrived at the price they propose. Would that scheme expose the government to too much risk of price gouging? Would the risk exceed the cost of wider application? We don't know, so we'd have to do some fact-based policy analysis.

See FAR 31.205-17, which states, in part: I presume DCAA handles the matter in accord with FAR.

In the old Armed Services Procurement Regulation, Section 1, General Provisions, paragraph 1.314 was named "Disputes." This is how the Disputes clause read in the 1976 edition of the Armed Services Procurement Regulation, before enactment of the Contract Disputes Act (CDA) of 1978, which is the current law: No mention of the word claim. No certification requirement. The entire focus was on the word dispute. The CO had to make a final decision about a dispute. The CDA changed that, shifting the focus to a claim, and the CO had to make a final decision about a claim. But when DOD added coverage of the new law to the ASPR it retained the old paragraph heading, "Disputes and Appeals." Since the FAR was largely modeled on the ASPR, the coverage in Part 33 was named "Disputes and Appeals." They didn't name it to reflect the change in emphasis from disputes to claims. No dispute is necessary for a claim. Today, Subpart 33.2 is still "Disputes and Appeals," which is a little misleading. Some contracting officers still think there has to be a dispute before there can be a claim, even after the Reflectone decision.

@WifWafYou are misinformed. Nothing in FAR Table 15-2 requires a contractor or subcontractor to use a cost-based approach to product pricing. It requires only that the contractor submit certified cost or pricing data and prescribes a format for doing so. FAR Table 15-2 does not require that the price be based on the certified cost or pricing data or set in a particular way. The certified cost or pricing data might indicate that the deliverable will cost $X to produce, but the contractor is free to set is price at $2X or $10X or $100X. TINA is a disclosure statute, not a pricing statute.

Just add an additional line item to the order for the follow-on year.

No TINA exception is predicated upon the seller's pricing strategy.

@WifWafAre you saying that it's not possible that the government's cost-based pricing apparatus costs more than it's worth? And you are proposing that Congress revise the Contract Disputes Act of 1978 to eliminate appeal of a CO's final decision to the Court of Federal Claims and then to the Court of Appeals for the Federal Circuit and on to the Supreme Court? And you think those two courses of action would be simple? If your answers to the above three questions are yes, then I question your notions of probability and cost-benefit analysis.

Why is the clause at FAR 52.233-1 named "Disputes"? The word dispute appears in the clause only four times and the word is not defined. The word claim appears 24 times and is defined in great detail. The clause is devoted to the procedure for the submission and certification of claims and to CO issuance of decisions on claims. The same applies to FAR Subpart 33.2. Why isn't it named "Claims, CO Decisions, and Appeals"? Wouldn't that be more descriptive of its content than "Disputes and Appeals"? Is a dispute a prerequisite to the submission of a claim? What constitutes a dispute? Is every disagreement between the parties a dispute? If not, what is the difference?

Modern textbooks on product and service pricing describe three basic pricing strategies: cost-based, market-based, and value-based. The Contract Pricing Reference Guides describe cost-based and market-based pricing in Volume 1, Price Analysis, but do not describe value-based pricing. The choice of strategy is up to the seller. FAR Subpart 15.4 reflects a cost-based strategy, as does the DODIG attack on TransDigm. The DODIG has asserted that profit in excess of 15 percent of costs is "excessive". Is there any legal requirement that companies selling to the government take a cost-based pricing approach to product pricing and price negotiation? Is there any moral imperative that companies take a different approach to pricing when dealing with the government than with other customers? If no to Questions 1 and 2, is the government's application of policies grounded in cost-based pricing (e.g., TINA) overly broad? If so, when if ever should the government demand a cost-based approach? Is it possible that the government's cost-based pricing apparatus (requiring detailed cost proposals, TINA, proposal "audits," etc.) costs more than it's worth, as perhaps demonstrated by the outcome of the 10-year United Technologies defective pricing litigation? https://www.wiley.law/alert-3531 https://www.crowell.com/files/20190401-Defective-Pricing-and-FCA.pdf https://www.crowell.com/pdf/newsroom/GovtContractor_Bodenheimer_Oct06.pdf https://www.opn.ca6.uscourts.gov/opinions.pdf/15a0062p-06.pdf

In principle, I think the costs of a company-initiated vaccine incentive payment would be allowable pursuant to FAR 31.205-13, Employee morale, health, welfare, food service and dormitory costs and credits, paragraph (a)(2) or (3). In my opinion, $100 or $200 would be reasonable, $1,000 would not. But that's subjective, debatable, and negotiable. I would expect it to be allocated as an indirect cost.

Is the product sold in a competitive market? If so, maybe there are two questions: Not how much they can mark it up, but (1) how much can they sell it for and (2) how little can they make it for. See Car: A Drama of the American Workplace (1999), by Mary Walton. One of the best business books I've ever read. In fact, THE best.

Good philosophy when you're engaged in mass production.

Outrage is fashionable in Congress, and elsewhere. Maybe, instead of focusing on the contracting process, Congress should ask why the government buys and uses things that will need hard-to-get and pricey spare parts in a few years. How much longer are we going to need manned "fighter" aircraft and strategic bombers? ("Dogfight" means firing a missile at a plane that's still over the horizon.) How long will aircraft carriers last in a war with a major nation armed with hypersonic missiles? (Like China.) Do we still need airborne infantry divisions? (To make mass drops behind enemy lines? Really? Like Market-Garden in WWII, that great success?) How many of our "needs" are driven by necessity and how many by a desire for cultural preservation? Nostalgia?

Contracting offices have been procuring housing/lodging services for military and civilian personnel for as long as I have been around, and I have been around for almost 50 years. Such acquisitions are not at all uncommon. Maybe it's time to put your personal experience as a "personnelist" behind you. Contracting contracts for whatever is needed.

If the government wants better prices, it must do better requirements planning, market analysis, and strategizing, and it must educate and train a cadre of first rate price negotiators. New "cost data" laws will accomplish nothing. But Congress's only power is legislation, so laws are the only solutions it understands. And the top people in agencies, the political appointees, are afraid to say that, and are unable to propose a better alternative. It will do no good to give more cost data to people who lack market savvy, a long-term strategy, and negotiation table know-how. It will only overwhelm and confuse them. As William Munny told Little Bill, "Deserve's got nothin' to do with it."

See GAO, Statement of William H. Sheley, Deputy Director of Procurement and Systems Acquisition Division before the Senate Committee on Armed Services, on Profit Limitation Statutes, April 2, 1980:

@joel hoffmanIn your opinion. I do not know of any official definition of "excess profits" that applies to government contracts. Do you? I know that there has been no restriction on profits since expiration of the Renegotiation Act during the 1970s. And I do not know of any law that compels a firm to sell to the government at a price the government likes.

How will additional data help the CO if the seller says, "You can have all the data you want. It won't change the price. No one else stocks the item you want. If you don't want it at that price, we won't stock anymore either"?

Why should TransDigm have to "justify" its pricing? What law requires a prospective contractor to justify its prices?

In the DODIG summary: Emphasis added. What is the FAR definition of excess profit?