Nontraditional Defense Contractor Certified Cost and Price Data Exception

[Kaelthas_Sunstrider]

@Atlas STS, the Truthful Cost and Pricing statute (codified at 10 U.S.C. Chapter 271 and 41 U.S.C. Chapter 35) is fundamentally about a disclosure of data owed to the federal Government when, in its role as a buyer, certain conditions are met for a purchase and none of the authorized exceptions to the required disclosure applies. Some form of this law will probably always exist, fortunately or unfortunately, although the conditions and/or exceptions do change. But again, it is about disclosing data, and that is what you are ultimately certifying to when you complete/provide the certificate as prescribed by FAR 15.406-2 to the contracting officer.

 

[Fara Fasat]

Joel, I really don't want to leave this hanging out there, unanswered. You have stated, pretty bluntly, that it was 'wrong' and 'dangerous' to state that there is no connection between the price you want and the data you submit, as Retreadfed asserted. You have said that the price must be 'based on' the data submitted. What does that mean? The references you cited all talk about the data that must be submitted, and say nothing about price. If we follow your logic to its conclusion, you seem to be saying that the price must be within a certain range of (i.e., 'based on') the costs. Are you suggesting there is a limit on profit? 

If a contractor's current, complete, and accurate data shows a cost of $10 to make a product, and the contractor wants to charge $20 (a 100% profit), what prohibits that? That price is 'based on' the costs, just as charging $12 would be. If the government doesn't like $20, start negotiating. It has the data, it's on an equal footing with the contractor, and the purpose of TINA has been met.

[Retreadfed]

1 hour ago, Fara Fasat said:

Are you suggesting there is a limit on profit? 

Fara, I think the issue goes deeper than profit.  Two examples, in the first case, contractor X looks at the actual labor costs incurred to perform a previous contract for the same item being procured.  X uses the actual cost data in developing its proposed price and discloses that data to the government.  However, if a learning curve analysis is applied to the data, it would become apparent that the per unit cost for later procured items is less than the average unit cost computed using the actual labor costs.  Using Joel's analysis, the contractor would be required to use the learning curve data to develop its proposed price instead of the actual labor cost data.

Example 2, Y has used a particular subcontractor for a part for several years.  When preparing a proposal for a government contract, Y discovers a potential new supplier for that part who can provide the part at a cheaper price.  Y is not certain that the new supplier can provide and acceptable part within the time required by the potential contract.  Y discloses the lower quote from the new vendor, but relies upon prices quoted by its usual supplier in developing Y's proposal.  The way I understand Joel's position, Y would be required to base its proposal on the new and lower quote although Y does not intend on using that vendor.

[Atlas STS]

My takeaway from @Retreadfed and @joel hoffman is that you're not in dispute, but slightly different definitions of data maybe?  When I submitted my cost and pricing data, in the format of Table 15-2, it added up to my proposal total.  The spreadsheet included actually certifiable cost and pricing data, my judgmental data, and all of my other assumptions for cost and pricing (including profit).  It showed clearly how I arrived at our price which I think was ultimately Joel's point.

I think retreadfed is saying that not all data is treated equal and while all certifiable data should be submitted, it doesn't have to be used.  I think his examples mimic my situation.  I did a relatively small order three years ago for the same product so I have to provide that data.  But it would be inaccurate to use that data in my cost and pricing calculations for the current order being proposed.

[Retreadfed]

1 hour ago, Atlas STS said:

I think retreadfed is saying that not all data is treated equal and while all certifiable data should be submitted, it doesn't have to be used. 

Not quite.  While all reasonably available cost or pricing data needs to be submitted and certified, the contractor does not have to use any of that data in formulating its proposed price, although, in my experience, many do use that data and base their proposed price on that data.  However, such use is not required.  As a DCAA auditor once testified in a deposition, a contractor can base its proposed price on the square root of the distance from the Earth to the Moon if it wants to.

[joel hoffman]

1 hour ago, Atlas STS said:

I did a relatively small order three years ago for the same product so I have to provide that data.  But it would be inaccurate to use that data in my cost and pricing calculations for the current order being proposed.

Why do you have to provide data that is inapplicable to your price? You could mention it then say that it isn’t applicable because…

[Atlas STS]

@joel hoffman We have so little data that is not judgmental that I guess I'm erring on the side of caution.  I was reading all these post audit findings and it seems like auditors and contracting officers can expect even outdated information that wasn't used to develop the price if the government feels it SHOULD have been used to develop the price.  Hence my whole terror at the concept of "complete".

[joel hoffman]

5 hours ago, Retreadfed said:

Fara, I think the issue goes deeper than profit.  Two examples, in the first case, contractor X looks at the actual labor costs incurred to perform a previous contract for the same item being procured.  X uses the actual cost data in developing its proposed price and discloses that data to the government.  However, if a learning curve analysis is applied to the data, it would become apparent that the per unit cost for later procured items is less than the average unit cost computed using the actual labor costs.  Using Joel's analysis, the contractor would be required to use the learning curve data to develop its proposed price instead of the actual labor cost data.

Example 2, Y has used a particular subcontractor for a part for several years.  When preparing a proposal for a government contract, Y discovers a potential new supplier for that part who can provide the part at a cheaper price.  Y is not certain that the new supplier can provide and acceptable part within the time required by the potential contract.  Y discloses the lower quote from the new vendor, but relies upon prices quoted by its usual supplier in developing Y's proposal.  The way I understand Joel's position, Y would be required to base its proposal on the new and lower quote although Y does not intend on using that vendor.

Example 1: if it is “apparent that the per unit cost for later procured items is less than the disclosed, average unit cost computed using the actual [historical] labor costs” then the disclosed cost or pricing data used to price the contract isn’t “accurate, current or complete.” - to me it would be considered defective cost or pricing data. You are aware that the current cost will be lower than the disclosed cost. It isn’t Truthful.

Example 2: “The way I understand Joel's position, Y would be required to base its proposal on the new and lower quote although Y does not intend on using that vendor.”

That is not my position. As long as you explain the circumstances and disclose that you aren’t going to use the lower priced vendor in your second example , that is not defective pricing. You disclosed the vendor’s pricing that you intend to purchase and why you didn’t use the lower price.

[Retreadfed]

18 hours ago, joel hoffman said:

You are aware that the current cost will be lower than the disclosed cost. It isn’t Truthful.

Joel, in this hypo, all the data the contractor has (e.g. time cards, production data, etc.) was disclosed to the government.  The issue is that there are various ways that data can be analyzed.  The contractor chose one way that leads to a specific result.  However, the government has the same data as the contractor and can analyze it the way the contractor did or use another analytical method.  In any event, the contractor's duty in regard to cost or pricing data ended when it disclosed all the data it had.  The contractor is not responsible for what, if any, use the government makes of that data.  The proposed cost is not cost or pricing data and a contractor does not certify its proposed price.  Instead, the contractor certifies the cost or pricing data it disclosed to the government.  For there to be defective pricing, the contractor must have failed to disclose current, complete and accurate cost or pricing data.  Here the data disclosed met that test.

19 hours ago, joel hoffman said:

As long as you explain the circumstances and disclose that you aren’t going to use the lower priced vendor in your second example , that is not defective pricing.

Out of curiosity, if the contractor merely disclosed the lower quote and did not provide any explanation as to why that subcontractor was not going to be used, would defective pricing exist?

[joel hoffman]

18 hours ago, Retreadfed said:

Joel, in this hypo, all the data the contractor has (e.g. time cards, production data, etc.) was disclosed to the government.  The issue is that there are various ways that data can be analyzed.  The contractor chose one way that leads to a specific result.  However, the government has the same data as the contractor and can analyze it the way the contractor did or use another analytical method.  In any event, the contractor's duty in regard to cost or pricing data ended when it disclosed all the data it had.  The contractor is not responsible for what, if any, use the government makes of that data.  The proposed cost is not cost or pricing data and a contractor does not certify its proposed price.  Instead, the contractor certifies the cost or pricing data it disclosed to the government.  For there to be defective pricing, the contractor must have failed to disclose current, complete and accurate cost or pricing data.  Here the data disclosed met that test.

Out of curiosity, if the contractor merely disclosed the lower quote and did not provide any explanation as to why that subcontractor was not going to be used, would defective pricing exist?

Retreadfed, we’re out of state this weekend on family business. I will respond next week. Have a good weekend!

[joel hoffman]

On 9/15/2023 at 11:51 AM, Retreadfed said:

Out of curiosity, if the contractor merely disclosed the lower quote and did not provide any explanation as to why that subcontractor was not going to be used, would defective pricing exist?

Are you referring to post award review or discovery or to pre-award proposal review and negotiation (proposal adequacy)?

I will address proposal adequacy here. 

The proposed DoD contractor in the situation of only one offer received must provide breakdowns of all costs (EDIT: not addressing commercial products or services or other exceptions to certified cost or pricing here) in its proposal in enough detail for the KO to determine price reasonableness, per the numerous FAR and DFARS provisions and 15.4/215.4 references. This is not restricted to cost or pricing data. It also includes appropriate data other than cost or pricing data, if necessary.

FAR 15.408, Table 15-2, Section I Paragraph C(2)(i) requires that the proposal disclose the judgmental factors applied and the mathematical or other methods used in the estimate.

EDIT: BTW, this paragraph includes disclosing those methods used in projecting from known data - such as disclosing differences between known data and the current situation. Don’t merely disclose historical cost or pricing data, then change the pricing without disclosing how the current pricing varies or evolved from the historical data. This may include judgmental and/or factual differences. The “contractor’s  duty in regard to cost or pricing data [does NOT end] when it disclosed all the data it had”, then left it up to the government how it interprets the disclosed cost or pricing data. 

EDIT: The prime must perform and document price analyses for all proposed subcontracts per the Table 15-2 instructions at Ii A., in accordance with FAR 15.408 and the applicable Provision(s) for submission of current cost or pricing data. 

For those subcontracts based upon adequate price competition, this would include information concerning the competition, comparison of prices and the judgmental basis and rationale for selection of the source and price. And yes, you include the cost of the sub you intend to use in the proposal breakdown.

Thus, the price analysis obviously should address comparisons with the other prices, including the lower priced proposal.

Also - the cost principles in FAR 31 are applicable to negotiated FFP contracts when cost analysis is applicable, per 31.103. Subcontracts are “costs” to the prime.

Per FAR 31.201-3 (Determining Reasonableness): “A [prime contractor] Cost is reasonable, if in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business…No presumption of of reasonableness shall be attached to the incurrence of costs by a contractor.  If an initial review of the facts results in a challenge of a specific cost by the [KO or COR], the burden of proof shall be upon the contractor to establish that such cost is reasonable.”

In my opinion, reasonableness  of subcontractor competitive selection should be based upon the standard as though there is competition at the prime contract level.

To assert adequate competition as the basis for subcontract pricing, the contractor should justify why a higher priced subcontractor proposal is necessary.

Assuming that the prime actually used the higher priced subcontract without explaining it in its price analysis, I don’t know if there would be “defective pricing”. But it would appear to be an inadequate proposal (withholding required information) for the government to determine the reasonableness of the proposed price.

EDIT:

If the KO becomes aware of the lower offer without price analysis or justification before award, the KO should require the prime proposer to justify why it selected the higher price subcontract proposal, before awarding the contract.

If the prime didn’t reveal that there was/were lower priced offer or offers before award, I think that there could be a truthfulness issue. The government might have been able to negotiate a lower price…

If the prime awards to the lower priced subcontractor after negotiations concluded and effective date of the certification of current cost or pricing, but still included the higher price in its final proposal, there may be defective pricing.

I saw that situation occur in one of my Districts.

EDIT: I didn’t discuss the requirement for the prime to also conduct cost analysis of subcontract proposals, when applicicable. Here, I am responding to a specific scenario where a subcontract price is based upon adequate competition.

Edited September 22, 2023 by joel hoffman
Expanded on proposer’s duty to disclose how proposed prices evolve from historical cost or pricing data and cited references for required price analysis of all subcontractor proposals and inclusion of the analysis in the proposal. Note: this discussion do

[joel hoffman]

Let me finally (hopefully) add that the instructions for providing cost or pricing data require contractor to summarize all costs and separately show profit.

It’s not the government’s responsibility to interpret the differences between raw cost or pricing data and/or data other than cost or pricing data and the proposed contract or line item costs which may evolve from the raw data, to determine the amount of profit proposed. 

[formerfed]

Right.  Plus I will add as a contracting officer, if an offerors cost and pricing data including proposed profit/fee doesn’t add up with proposed prices, I would tell them to resubmit.  This discussion is just making things way too difficult.

[Retreadfed]

5 hours ago, formerfed said:

Plus I will add as a contracting officer, if an offerors cost and pricing data including proposed profit/fee doesn’t add up with proposed prices, I would tell them to resubmit.

On what basis?  What says, the proposed price has to match cost or pricing data plus profit/fee?  Isn't this what negotiations are for?  Remember, you are generally dealing with a sole source.

[formerfed]

2 hours ago, Retreadfed said:

On what basis?  What says, the proposed price has to match cost or pricing data plus profit/fee?  Isn't this what negotiations are for?  Remember, you are generally dealing with a sole source.

A company proposes a price or costs.  As a CO/KO I exhaust all the means to determine price/cost reasonableness so I resort to offeror submission of cost or pricing data and my analysis.  I want the offeror to support their proposed amount.  If the proposed amount is $20 and the offeror says their cost is $20, I expect them to show a 100% profit.  I don’t care about anything else.  What is their anticipated cost of performance and what is their data supporting that?  What good is a bunch of other stuff?

I would just tell them what I need and don’t waste both of our time.

If I was negotiating I need to understand the offerors proposal.  Unless data was submitted on the basis of the proposed amount, it’s difficult to determine reasonableness or come to agreement.
 

 

[Retreadfed]

13 hours ago, formerfed said:

If I was negotiating I need to understand the offerors proposal.

I agree and that is done through fact finding and discussions with the contractor.

 

13 hours ago, formerfed said:

Unless data was submitted on the basis of the proposed amount, it’s difficult to determine reasonableness or come to agreement.

The purpose of submitting cost or pricing data is to place the government on the same footing as the contractor in regard to what is a reasonable price.  Nothing in the statute or FAR requires a contractor to base its price on the cost or pricing data the contractor submitted to the government.  The fact that a contracting officer finds it difficult to determine what is a reasonable price based on an analysis of the same data the contractor has is not the contractor's problem.  That is where support from DCAA, DCMA, cost/price analysts  and technical folks comes into play.  In many cases, the contracting officer should not try to analyze the cost or pricing data on his/her own, but should get help from people who specialize in such analysis.

[formerfed]

Certainly but you’re missing my point.  What you’re saying is correct.  My point is if an offeror didn’t submit data that clearly supports his proposed amount in an easily to understand format, I would ask them to resubmit.  I also wouldn’t try to analyze myself.

[Retreadfed]

On 9/23/2023 at 12:03 PM, formerfed said:

 My point is if an offeror didn’t submit data that clearly supports his proposed amount in an easily to understand format, I would ask them to resubmit.

There are two thoughts here. First, you seem to be saying that the cost or pricing data has to support the price proposed.  I disagree with that premise.  The price proposed does not have to be based on the cost or pricing data disclosed to the government, although contractors frequently do so.  All the contractor has to do is disclose the data to the government in a manner that reveals the significance of the data to the particular procurement.  That leads to the second thought concerning the format in which cost or pricing data is submitted.  The solicitation provisions in the FAR and DFARS both refer to FAR Table 15-2 as the default format for submission of cost or pricing data.  As an alternative, the contracting officer can permit another format to be used.  As long as the contractor submits cost or pricing data in the format required by the solicitation, I think the contractor is good to go and the contracting officer should have no complaints because the contractor has done precisely what the contracting officer asked it to do.

[Neil Roberts]

From the contractor side, I would gladly furnish the contracting officer an easy to understand chart displaying the rationale and dollar delta of each element between the cost or pricing data and the price proposed. However, I would not resubmit a Table 15-2 proposal. 

[formerfed]

3 hours ago, Neil Roberts said:

From the contractor side, I would gladly furnish the contracting officer an easy to understand chart displaying the rationale and dollar delta of each element between the cost or pricing data and the price proposed. However, I would not resubmit a Table 15-2 proposal. 

Exactly.  My problem with some of the prior responses is the implication that cost or pricing data doesn’t add up to the proposed amount, including the profit.  The bottom line is supporting the proposed amount to perform as well as allow a structured approach to analyze profit/fee.

@Retreadfed I said what you’re saying is correct.  Look a couple posts above.  Again my point as a contracting officer is I would want it in something I could relate to anticipated cost of performance including profit.  I’ve never had a contractor not provide it in that manner nor ever heard of that situation anywhere.

Quote

First, you seem to be saying that the cost or pricing data has to support the price proposed.  I disagree with that premise.  The price proposed does not have to be based on the cost or pricing data disclosed to the government, although contractors frequently do so.  All the contractor has to do is disclose the data to the government in a manner that reveals the significance of the data to the particular procurement. 

Edit:  I think the difference here is partially based on my not explaining my thought adequately.  Suppose a proposal is based on 30 hours of labor but the cost or pricing data using historical experience uses 20 hours.  As a contracting officer I expect the offeror to explain the assumptions used to arrive at 30 hours.

This is also getting way off topic from the original question.  

 

[joel hoffman]

 

21 hours ago, Retreadfed said:

There are two thoughts here. First, you seem to be saying that the cost or pricing data has to support the price proposed.  I disagree with that premise.  The price proposed does not have to be based on the cost or pricing data disclosed to the government, although contractors frequently do so.  All the contractor has to do is disclose the data to the government in a manner that reveals the significance of the data to the particular procurement.  That leads to the second thought concerning the format in which cost or pricing data is submitted.  The solicitation provisions in the FAR and DFARS both refer to FAR Table 15-2 as the default format for submission of cost or pricing data.  As an alternative, the contracting officer can permit another format to be used.  As long as the contractor submits cost or pricing data in the format required by the solicitation, I think the contractor is good to go and the contracting officer should have no complaints because the contractor has done precisely what the contracting officer asked it to do.

Often a price for a non-commercial product or service may be based upon both judgmental cost data (e.g., number of mhrs when not known or firmly established, risk factors, etc.) and factual cost or pricing data (e.g., material quotes, manufacturing means and methods, labor rates, subcontracts, etc.).

EDIT: [In other words, cost or pricing data aren’t necessarily historical data. It can also be the non-judgmental cost components of prices developed for the current solicitation.]

Sometimes there are historical cost or pricing data that isn’t current and costs will be adjusted (evolve) for the instant acquisition. The basis for adjustment may be judgmental and/or factual. But it is a requirement to explain it in the proposal per the instructions for the default Table 15-2. ** in FAR 15.408.

Edit: [And yes, @Fara Fasat. The FFP contract and any line item price obviously includes both costs and profit. I’m only addressing the basis for proposed cost within the proposed price(s) here. Profit is separately identified. If the supporting cost breakdown is only 50% of the proposed price, then that will be or should be apparent -  not have to be deduced by the buyer.

For single source, negotiated DoD acquisitions of this magnitude, the cost principles in Part 31 apply when cost analysis is used in addition to price analysis.] 

20 hours ago, formerfed said:

Edit:  I think the difference here is partially based on my not explaining my thought adequately.  Suppose a proposal is based on 30 hours of labor but the cost or pricing data using historical experience uses 20 hours.  As a contracting officer I expect the offeror to explain the assumptions used to arrive at 30 hours.

This is also getting way off topic from the original question.

It’s more than an expectation - it is a specific requirement in the Instructions for default Table 15-2. **

**From the Instructions for Table 15-2 

“C. As part of the specific information required, you must submit, with your proposal-

(1) Certified cost or pricing data (as defined at FAR 2.101). You must clearly identify on your cover sheet that certified cost or pricing data are included as part of the proposal.

(2) Information reasonably required to explain your estimating process, including-

(i) The judgmental factors applied and the mathematical or other methods used in the estimate, including those used in projecting from known data; and

(ii) The nature and amount of any contingencies included in the proposed price.

D. You must show the relationship between line item prices and the total contract price.You must attach cost-element breakdowns for each proposed line item, using the appropriate format prescribed in the "Formats for Submission of Line Item Summaries" section of this table. You must furnish supporting breakdowns for each cost element, consistent with your cost accounting system.”

We would also instruct the offeror or contractor (mods and claims) to designate judgmental data as (J) and actual or otherwise factual data as (F), for instance.

Edited September 25, 2023 by joel hoffman

[joel hoffman]

On 9/24/2023 at 1:34 PM, formerfed said:

This is also getting way off topic from the original question

I think that this discussion directly pertains to @Atlas STS stated concern with having to provide “certified cost or pricing data” that is accurate, current and complete (in particular, “terror” in relation to being “complete”) in support of its proposed Price.

And it shows how judgmental data  (which isn’t necessarily certified cost or pricing data) can be used when historical (I.e., actual/factual) cost or pricing data is used but needs to be adjusted for the current acquisition to fit the current conditions or circumstances.

I realize that @Atlas STS is upset that the KO won’t accept a commercial item exception to single offeror cost or pricing data since Atlas’ firm is a “Nontraditional Defense Contractor” (as are most small business DoD contractors).