Jump to content
The Wifcon Forums and Blogs

Recommended Posts

A prime has requested rates from a subcontractor. The prime sent a set of target rates as a guideline. The subk knows from its internal comp system and surveys that it can't get low enough to meet the target in one category. The subk also knows that they are not at all likely to try to fill any of those positions so the proposal team queues up two options: reply with a rate quote at the target or no-bid that position. The subk contracts team blocked the first option citing that a TINA violation because internal data did not support the ability to meet and fill at the target rate. The contracts team recommended bidding the position at rates above target in order to line up with compensation data and if the prime came back and negotiated the rates down, then that would be the appropriate way to get to a final BAFO position at the target rates. Huh?

What's wrong here?

Link to post
Share on other sites

The sub is probably aware of a 9th circuit False Claims Act case brought against Lockheed Martin (I think this is the contractor), where the court held that a contractor could ber held liable under the FCA for underbidding a contract. The sub could just be trying to be risk adverse.

Link to post
Share on other sites

Is this deal being negotiated competitively, or on a sole source basis? If it's competitive, then TINA should not apply. If it's not competitive, and the amount is over the TINA threshold, then still TINA should not be a problem, because you can quote whatever you want, as long as you disclose "all facts that . . . prudent buyers and sellers would reasonably expect to affect price negotiations significantly." [FAR 2.101 definition of "cost or pricing data.]

I'm not famiiliar with the 9th circuit False Claims Act case mentioned by Retreadfed, but I believe TINA does not require you to quote any particular price; it merely requires you to disclose. You may quote a price that is higher or lower than your cost or pricing data might support, as long as you disclose all the facts.

Link to post
Share on other sites

Retread is thinking of the False Claims Hooper vs Lockheed Martin case--

"The case of United States ex rel. Hooper v. Lockheed Martin Corporation (No. 11-55278 9th. Cir. 2012) alleged that the Lockheed Martin Corporation submitted false and gross underbids in order to ensure the company won federal contracts related to the Range Standardization and Automation IIA (“RSA”) program, which is overseen by the United States Air Force."

From a synopsis at: http://bergermontague.com/blog/index.php/false-claims-act-court-rules-lockheed-martin-can-be-sued-for-underbidding-on-government-projects/

Edit- Add the link to the actual decision- http://cdn.ca9.uscourts.gov/datastore/opinions/2012/08/02/11-55278.pdf

Link to post
Share on other sites

What Navy_ said.

I assume the contract type will be T&M with billings based on category labor rates. The following comments are based on that assumption.

1. The SubK is free to bid any T&M labor rate it dang well chooses. (See FAR 3.502-3.)

2. TINA is a disclosure requirement, not a use requirement.

3. I think the Hooper decision is scary for people because it advanced the theory that a buyer could be induced to award a contract through an intentionally low bid, when the bidder intended and knew it would be billing more costs than it bid. But remember. the Hopper decision was a decision to on an appeal of a summary judgment, and not a decision on the merits. (It was remanded.) In any case, the issue under appeal was a FCA "fraud in the inducement" argument and not a TINA argument. Moreover, if the Subcontract is T&M type then the SubK is going to be bound by its labor rates, and thus I would be surprised if there is any false claim aspect here as the SubK will bill what it bid, regardless of its costs.

Hope this helps

Link to post
Share on other sites

Hooper alleges that Lockheed intentionally underbid on a cost contract. Though the court states the contract was cost plus award fee, there is a reference to a target price which makes me wonder if it was really a cost plus incentive fee contract. As noted, the appeallate court held that an intentionally low offer may be the basis for a False Claims Act case. Assuming that Hooper proves an intentionally low price was submitted, I wonder how damages will be determined.

Lockheed was not the low offeror, and was awarded the contract on a best value basis. Will the court speculate on what the contracting officer would have done if the "correct" cost estimate had been provided (i.e., would Lockheed still have been best value)? If Lockheed would still be best value, there are no damages; indeed, there may be a savings to the Government because the negotiated fee may have been higher. If Lockheed would not have been best value, will the court speculate on the difference between Lockheed's cost of performance and the cost of performance of the company that would have otherwise won? What gets compared to what to determine how much we overpaid, e.g., actual performance vs other contractor's offered price, Lockheed's correct price vs other contractor's offered price, Lockheed actual cost vs an estimate of the other contractor's cost?

Link to post
Share on other sites

If the case is based on a fraud in the inducement theory, the damages could be everything that Lockheed has been paid under the contract because the government would not have incurred that expense had it not been for the fraudulent conduct of Lockheed Martin.

Link to post
Share on other sites

Interesting theory. Of course, the Government would have incurred the expense because it would have awarded the contract to someone else, but that may not be relevant (does quantum meruit apply in fraud in the inducement cases, or does the government get to keep the value of what was delivered without having to pay for it?).

Link to post
Share on other sites

so "we are able to quote whatever price we want as long as we certify that we are willing to disclose any of the data/information that prudent buyers/sellers would reasonably expect to significantly impact final price negotiations. If the prime finds that the price we submitted varies from the data that supports our cost, then they have the right to negotiate us toward a price they think is reasonable based on our certified cost data, or they can elect to not award anything to us."

and this doesnt offend the requirement for certified cost and pricing data? The argument being that if our comp system points to a $50 an hour rate but we are bidding $40 per hour, then we are providing defective pricing.

Link to post
Share on other sites

Suppose a contractor's internal estimate is that it will take 1,000 production hours to make a widget. The contractor provides all required historical information and accurate rates. The contractor then represents to us that its estimate is that it will take 1,500 production hours to make the widget. Estimates, being judgment rather than fact, are not usually cost or pricing data. Disregarding the potential for a False Claims Act violation, is there a TINA violation for deliberately providing a false statement concerning the contractor's actual estimate?

Link to post
Share on other sites

There is a very recent 8th Circuit decision on fraud in the inducement and the False Claims Act. See In Re Baycol Product Litigation (http://caselaw.findlaw.com/us-8th-circuit/1646862.html). The decision was about whether the pleadings were sufficient to plead fraud (they were in some cases). The dissent raised an interesting issue that touches on the question I raised about calculating damages in the Hooper case, where the alleged fraud may have caused us to award to Lockheed a contract that we would have otherwise awarded to someone else. I have no answer, just find it an interesting issue.

The court ends its truncated analysis of this factor with the Supreme Court's ruling in Hess that the “taint [of fraudulent inducement] entered into every swollen estimate which was the basic cause for payment of every dollar paid.” Supra p. ––––, quoting 317 U.S. at 543, 63 S.Ct. 379. But in Hess, the fraud was undisclosed collusive bidding, a fraud the very purpose of which was to ensure that the government paid inflated claims submitted under the fraudulently induced contract. Likewise, in the few published cases that have upheld fraud-in-the-inducement FCA claims, the fraud ensured that the government would pay inflated claims, or would otherwise not receive the financial benefit of its bargain. See United States ex rel. Longhi v. Lithium Power Tech., Inc., 575 F.3d 458, 473 (5th Cir.2009) (the government's benefit of the bargain, “to award money to eligible deserving small businesses ... was lost as a result of the Defendant's fraud” in inducing the grants), cert. denied, 559 U.S. 1067, 130 S.Ct. 2092, 176 L.Ed.2d 722 (2010); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 791–94 (4th Cir.1999) (fraud that allegedly induced paying more to a subcontractor survived Rule 12(B)(6) dismissal); Murray & Sorenson, Inc. v. United States, 207 F.2d 119, 123 (1st Cir.1953) (fraud “increasing the price which the government eventually has to pay”).
By contrast, the fraud in the inducement alleged by Simpson—failing to disclose a known risk to patients prescribed Baycol—did not necessarily have the effect of increasing the amounts paid for reimbursement of claims submitted under the DoD contracts. The only damage allegation relating to the DoD contracts in Simpson's 92–page Second Amended Complaint was that “the Government paid money to Bayer for a drug that it would not have purchased had it known the full truth.” But that was harm resulting from the underlying fraud, not a plausible allegation that the government was harmed by paying false claims under the DoD contracts. With or without the contracts at issue, DoD physicians would have prescribed statin drugs to military personnel who needed to lower their cholesterol. There is no allegation that DoD paid more for Baycol than it would have paid for a different statin. There is no allegation that the government paid damages to DoD patients who were prescribed Baycol and developed rhabdomyolysis. For this reason, Simpson failed to state a plausible FCA claim simply by alleging fraud in the inducement. To plead this alleged fraud with the particularity Rule 9(B) requires, she needed to allege specific harm resulting from specific false claims submitted under the fraudulently induced DoD contracts. “[A]llegations of product defects and consumer injury” do not cure deficiencies in an FCA complaint. United States ex rel. Roop v. Hypoguard USA, Inc., 559 F.3d 818, 824 (8th Cir.2009).
Link to post
Share on other sites

so "we are able to quote whatever price we want as long as we certify that we are willing to disclose any of the data/information that prudent buyers/sellers would reasonably expect to significantly impact final price negotiations. If the prime finds that the price we submitted varies from the data that supports our cost, then they have the right to negotiate us toward a price they think is reasonable based on our certified cost data, or they can elect to not award anything to us."

and this doesnt offend the requirement for certified cost and pricing data? The argument being that if our comp system points to a $50 an hour rate but we are bidding $40 per hour, then we are providing defective pricing.

1. The certification is more than just being "willing to disclose." The certification is that you "submitted, either actually or by specific identification in writing," accurate, complete, and current cost or pricing data. See FAR 15.406-2.

2. If you submit accurate, complete, and current cost or pricing data that you believe would support a $50/hr rate, but offer to perform for $40/hr, the data you submitted is not defective.

Link to post
Share on other sites

Thanks Navy! Can you point me to the specific clauses or language that I can use to support your second point?

Mayo, is this a fixed price proposal? If it is, then you can propose to perform for less than your disclosed cost. If it is cost reimbursement proposal, you can also propose to invoice at a lower cost. See "Formation of Government Contracts" by Nash and Cibinic for support for those statements.

However, I think you said that your firm would not intend to provide certain labor categories for the lower prices, that you would only provide pricing in order to complete the required proposal, correct?

Link to post
Share on other sites

Thanks Navy! Can you point me to the specific clauses or language that I can use to support your second point?

My second point was merely a logic statement. If the law requires you to submit accurate, complete, and current cost or pricing data, and you do submit accurate, complete, and current cost or pricing data, you have complied with the law and can't be found to have submitted defective cost or pricing data. The issue of reaching agreement on the price, with both parties in possession of accurate, complete, and current cost or pricing data, is a separate matter. Besides, I'm thinking you must be worrying about something other than being penalized for submitting defective cost or pricing data, since you're subject to action in that regard only "f any price, including profit or fee, negotiated in connection with this contract, or any cost reimbursable under this contract, was increased by any significant amount." [FAR 52.215-10(a), emphasis added.]

Link to post
Share on other sites

Mayo, is this a fixed price proposal? If it is, then you can propose to perform for less than your disclosed cost. If it is cost reimbursement proposal, you can also propose to invoice at a lower cost. See "Formation of Government Contracts" by Nash and Cibinic for support for those statements.

However, I think you said that your firm would not intend to provide certain labor categories for the lower prices, that you would only provide pricing in order to complete the required proposal, correct?

It is T&M. Essentially, the contracts team will not let the company bid the target rate because the pricing data does not support the lower rate. so they want to submit the higher rate and then let the prime BAFO them down and then they'll come down to the lower target rate. If this strategy does not offend the letter of the law, then the law would appear to me to be as useless as t's on a bull. The price information does not support the lower rate at an initial lower submission, and so it wouldn't support it at the BAFO submission either. So why the kabuki dance? Why not just submit the lower rate from the get-go if that's what the sub wants to do?

EDIT: too early, forgot the contract type, updated.

Link to post
Share on other sites

Is it cost-type. Essentially, the contracts team will not let the company bid the target rate because the pricing data does not support the lower rate. so they want to submit the higher rate and then let the prime BAFO them down and then they'll come down to the lower target rate. If this strategy does not offend the letter of the law, then the law would appear to me to be as useless as t's on a bull. The price information does not support the lower rate at the initial submission, and it doesn't support it at the BAFO submission either. So why the kabuki dance? Why not just submit the lower rate from the get-go if that's what the sub wants to do?

(EDITED) Thanks, Mayo. My advice is for the subk to contact the prime before submitting the proposal. The subk should discuss the fact that the company cant meet the "target rate" internally nor by hiring or subcontracting, based upon market research. The subk should advise what the lowest rate(s) for that category would be. Then it should ask for their reaction. Do not propose lower rates than it knows it would bill the prime for, if the positions would be filled.

I am assuming that you said that this is a cost type subcontract and I assume that this is a non-competitive subcontract proposal that is subject to TINA. You stated in your original post "The prime sent a set of target rates as a guideline. The subk knows from its internal comp system and surveys that it can't get low enough to meet the target in one category. The subk also knows that they are not at all likely to try to fill any of those positions."

This assumes that the subk does not intend to commit to billing at the lower, target rate if the prime does actually require the subk to fill that position(s). In a cost contract, the subk could agree to and actually bill at below cost basis. However, If the subk instead proposes at the target rate knowing that it would actually bill higher, actual costs or those position(s), then - in my opinion - it is, at a minimum, probably providing defective cost or pricing data.

If those positions are not likely to be fillrd, than why not negotiate to rermove them or truthfully propose on the probable actual cost basis?

Link to post
Share on other sites

"If the subk instead proposes at the target rate knowing that it would actually bill higher, actual costs or those position(s), then - in my opinion - it is, at a minimum, probably providing defective cost or pricing data." That's a nice way of calling it a lie, apparently intended to deceive someone who would read or rely on the statement or proposed lower rate.

Link to post
Share on other sites

Joel,

"If the subk instead proposes at the target rate knowing that it would actually bill higher, actual costs or those position(s), then - in my opinion - it is, at a minimum, probably providing defective cost or pricing data." That's a nice way of calling it a lie, apparently intended to deceive someone who would read or rely on the statement or proposed lower rate.

If this were a cost-reimbursement contract, I would agree with you, but it's T&M. How can you bill at a higher rate than is in the contract?

Link to post
Share on other sites

Navy, Mayo edited his answer to my earlier question concerning contract type after I replied this morning via my posts 20 and 21, above. Ok ,now my assumption is that this will be a non-competitive, T&M subcontract with binding unit labor rates, not a cost contract.

Now, Mayo is saying: "It is T&M. Essentially, the contracts team will not let the company bid the target rate because the pricing data does not support the lower rate. so they want to submit the higher rate and then let the prime BAFO them down and then they'll come down to the lower target rate. If this strategy does not offend the letter of the law, then the law would appear to me to be as useless as t's on a bull. The price information does not support the lower rate at an initial lower submission, and so it wouldn't support it at the BAFO submission either. So why the kabuki dance? Why not just submit the lower rate from the get-go if that's what the sub wants to do?...

EDIT: too early, forgot the contract type, update"

OK - My advice still is for the subk to contact the prime contractor before submitting a proposasl. The subk should discuss the fact that the company cant meet the "target rate" internally nor by hiring or subcontracting, based upon market research. The subk should advise what the lowest rate(s) for that category would be. Then it should ask for their reaction.

If the prime tells them to submit a firm unit price at the target rate with cost or pricing data and they do it, they should truthfully state what the basis is for the unit rate. If it means that the true cost to the subk would likely be be higher, based upon market research and internal price support, state so. The next question is - what happens if the position is actually required to be filled? Does the subk fill it at a loss or refuse to fill it at a loss? Those seem to be the only choices. If it refuses, will there be a contract performance issue? Will there be questions about the subk's actual intent to fill or not fill?

If the position will never be filled, then it won't be a problem for anyone and there will be no monetary damage.

Link to post
Share on other sites

Joel,

Yes, I didn't realize that it was a correction until after I had responded to you. Sorry for the confusion.

I agree with you totally that the sub and the prime need to talk to each other and make sure both understand the situation. I think the questions you pose are excellent, and need to be addressed openly and explicitly.

Link to post
Share on other sites
Guest
This topic is now closed to further replies.
×
×
  • Create New...