A practical quiz on the Truthful Cost or Pricing Data statute.

The Truthful Cost or Pricing Data statute(a.k.a., “TINA”) will be 57 years old this September. Yet, it remains impactive, controversial, and far too often misunderstood. 

 

Originally, the statute was enacted as the “Truth in Negotiations Act” (TINA) by the 87th Congress via Public Law 87-653 in 1962.Prior to TINA, contractors submitting bids to the government were not held to any substantial requirement to disclose relevant information about the basis for their costs and pricing to the government. This placed the government at a clear disadvantage in negotiations, and many government stakeholders considered this situation in dire need of being addressed. 

 

In 1959, a Government Accountability Office (GAO) audit report revealed that the prices by some defense contractors were excessive and resulted in unwarranted profits. GAO further concluded this would not be the case if the government negotiators were aware of the cost details that comprised the prices proposed to be charged to the government. Hence, actions were initiated to place the government on an equal footing with industry. Those various actions resulted in the enactment of TINA, which requires offerors to submit their cost and pricing data to the government at various points in the negotiation process, and ultimately certify that data.

 

In TINA’s 57 years of existence, there have been numerous disputes, claims, protests, and court cases involving the statute’s requirements, for which entire books and classes have been developed to advance the practitioners’ understanding. Stakeholders are still arguing over interpretations of the key parts of the statute, including such things as:  

What is “adequate competition”?

What is (and isn’t) cost data?

What is “factual”; what is “judgmental”?

 

With the recent, significant increase in the dollar threshold for the application of TINA, effective, working knowledge of its requirements is more important than ever. Hopefully, the following quiz, and the authors’ suggested answers that follow, will help increase your awareness and expertise on the subject.

 

HOW WELL DO YOU KNOW TINA?  

The following is a practical quiz on the Truthful Cost or Pricing Data statute (a.k.a., TINA). Record your answers and test your knowledge of TINA.

 

What requirement does TINA specify?

 

What is the primary purpose of TINA?

 

 

When specified per TINA, what is the current dollar award threshold for contractor submittal of certified cost or pricing data?

 

Can the contracting officer require cost or pricing data below the dollar threshold?

 

What is the preferred government form for contractor submittal of cost or pricing data?

 

Is all cost or pricing data ultimately certified by the contractor?

 

What document does the contracting officer request from the contractor at the conclusion of price negotiations to evidence the contractor’s compliance with Pub. L. 87-653? 

 

 In the document mentioned in Question #7, what must the contractor state is true about the factual cost or pricing data submitted to the government? 

 

List 5 examples of “factual” contractor data. 

 

List 4 examples of “judgmental” contractor data.

 

Is there a legal requirement for the contractor to conduct an in-house “sweep” of its data prior to certifying?

 

What are the 5 current exceptions from TINA? 

 

What actions must the contracting officer take when certified cost or pricing data is submitted?

 

 When the contractor submits defective data, what actions can result?

 

 Is the government required to be equally open/disclose information to the contractor during negotiations?

 

 What is the contractor’s obligation, if any, if a lower cost element becomes known after the contractor certifies its price and the contract award is still pending?

 

 When there is an allegation of defective pricing, can the contractor propose offsets to resolve the matter?

 

 

 What are some best practices for the contractor to comply with TINA?

 

 What are some best practices for the contracting officer to comply with TINA? 

 

 What does the latest dollar threshold ($2,000,000) mean for the contractor and the contracting officer on a “go-forward” basis? 

 

ANSWERS 

 

What requirement does TINA specify?

TINA requires contractors to submit cost or pricing data, in specified situations, when submitting bids/proposals that will result in contracts, or additions to contracts, to be funded by the federal government. Cost data may or may not be certified by the contractor, depending on the situation and the currently specified TINA dollar threshold.                               

 

What is the primary purpose of TINA?

TINA is intended to place the government on an equal footing with the contractor with respect to the cost data that is available to support the proposed price. The government uses the contractor cost data as an important tool to independently determine if the proposed price is fair and reasonable.                                                                                                     

 

When specified per TINA, what is the current dollar threshold for contractor submittal of certified cost or pricing data?

Currently, $2,000,000. A history of the dollar thresholds since 1962 is as follows:

1962: $100,000

1990: $500,000

2000: $550,000

2006: $650,000

2010: $700,000

2015: $750,000

2018: $2,000,000 

The FAR Council is required to make inflation-based adjustments to the TINA threshold every five years, with the next inflation adjustment due in 2020. The 2018 threshold adjustment was not inflation-based.           

 

Can the contracting officer require cost or pricing data below the dollar threshold?

Yes. The contracting officer is always authorized to take whatever actions are deemed necessary to ensure the government is paying a fair and reasonable price. However, cost or pricing data below the TINA threshold would not have to be certified, thereby substantially reducing the risk on the part of the bidder.                                                                                                                 

 

What is the preferred government form for contractor submittal of cost or pricing data?

Form SF-1411 with all supporting details and per FAR Table 15-2.           

 

Is all cost or pricing data ultimately certified by the contractor?

No. Per TINA, the contracting officer determines if the data must be certified. There are situations where the data does not need to be certified.                           

 

What document does the contracting officer request from the contractor at the conclusion of price negotiations to evidence the contractor’s compliance with Pub. L. 87-653?

A “Certificate of Current Cost or Pricing Data” (CCCPD). 

 

In the document mentioned in Question #7, what must the contractor state is true about the factual cost or pricing data submitted to the government?

The contractor must state, and certify, that the factual data is complete, current, and accurate as of the date of price agreement. Wherein:

Complete — All reasonably available data relevant to the pricing action has been submitted or disclosed.

Current — The most recent data available up to the date of price agreement, or other agreed-to date, has been submitted or disclosed.  

Accurate — The cost or pricing data are free of errors or misstatements. 

Further, the contractor official signing the Certificate should be knowledgeable of the proposal, how it was developed and finalized/updated, and in a position to bind the contractor for contract performance and TINA compliance.                                                                                                                 

List 5 examples of “factual” contractor data.

“Factual data” are data that are formal, objective, and verifiable. Examples would include items such as:

Actual, hourly labor rates paid per a union contract agreement;

Actual, salary labor rates paid to engineers assigned to the proposed work;

Actual, formal direct material quotes for the proposed work;

Firm, booked sales;

Shop hour backlog;

Profit or loss on prior, completed contracts for the same or similar equipment;

Percentage of the shop workforce eligible to retire during the period of performance (POP) of the proposed contract;

Percentage of the engineering workforce eligible to retire during the POP of the proposed contract; and/or

Scrap and rework factors on prior, completed contracts for the same or similar equipment.                                                     

 

 List 4 examples of “judgmental” contractor data.

“Judgmental data” are data that are subjective and not factual — objective or verifiable as to accuracy, except through hindsight. Examples would include items such as:

Estimates;

Budgets;

Forecasts; and/or

Any reports, evaluations, or studies that predict future events or data.                                                                                         

 

Some specific examples include:

Expected hourly labor cost increases during the POP of the contract that are beyond the term of the current union labor agreement; and/or

Offerors’ estimates of future business volume, and their effects on indirect cost rates.

The key point here is there is a relationship between fact and judgement. The volume of bids and proposals a contractor has outstanding is a fact; the number of contracts that will be awarded to a contractor is judgement. Typically, the contractor and the government negotiator may disagree on judgement in this area, which can greatly influence rates. Many observers contend that the government is better-positioned to opine in this area, because it has pending award data not available to the contractor. 

 

Another key point here is that from 1962 through the present, a constant trend has been that contractors are always striving to constrict what is considered factual and certifiable, and the government (contracting officers, government auditors, etc.) are always trying to expand the definition of what is considered factual and certifiable.                                                                                                         

 Is there a legal requirement for the contractor to conduct an in-house “sweep” of its data prior to certifying? 

Conducting a “sweep” typically means the contractor’s chief negotiator formally contacts all personnel that provided inputs to the proposal and requests they verify that the inputs contained in the final, proposed price are, in fact, the latest available to the contractor. Surprisingly, there is no legal requirement to conduct a “sweep” (via statute, regulation, or otherwise); however, this has long been a “best practice” of responsible contractors. 

 

What are the 5 current exceptions from TINA?

As per FAR 15.403-1(b):

Adequate price competition: two or more responsible bidders, etc.;

Prices set by law or regulation, such as most utilities;

Commercial items;                                                                 

Waivers, and in exceptional cases where a waiver is required by the head of the contracting activity (yet these are very rare); and

Modifying a contract, or subcontract, for commercial items—as limited by the standards.                                                                                           

 

 What actions must the contracting officer take when certified cost or pricing data is submitted?

The contracting officer must document in the Price Negotiation Memorandum (PNM) File the extent to which the contracting officer:

Relied on the certified cost or pricing data submitted, as well as how the data were used in negotiating the price; and

Recognized as inaccurate, incomplete, or noncurrent any certified cost or pricing data submitted, as well as the actions taken by the contracting officer and the contractor as a result. 

The PNM is a key document in any defective pricing action.              

 

The key point here is that possession of a CCCPD does not relieve the contracting officer from examining and analyzing the contractor’s cost or pricing data. 

 

 When the contractor submits defective data, what actions can result?

The government can allege that defective pricing has occurred and pursue/initiate various remedies, most of which are usually very costly and draining for all parties. Defective pricing is a minefield that is best avoided through prevention, not cure. Contractors should exercise care to not submit defective data, and contracting officers need to be vigilant about early detection and remedy of defective data if recognized.                                                            

 

For the government to allege that defective pricing has occurred, the following five elements are required and must be proven by the government, with all of the burden of proof resting with the government:

Cost or pricing data must exist and have been submitted by thecontractor,                                                     

The defective data must have been reasonably available to thecontractor,

The defective data must not have been submitted to the government prior to negotiations,

The government must have relied on the defective data in negotiations, and

The defective data must have caused an increase in the contract price.

Proving all these elements exist, and defending against such allegations, is usually burdensome, time-consuming, and costly for all the parties. 

 

An example of a potential defective pricing situation is as follows:

The contractor conducts a “sweep” of all final proposal inputs, but it does not reveal that the Purchasing Department received a significantly lower materials quote on several of the forgings. Perhaps the Lead Buyer for those forgings was on vacation during the time of the “sweep,” and the lower material costs did not get factored into the final contract price?

Somehow, the contracting officer becomes aware of this oversight, and goes back to the contractor for the appropriate price reduction. 

How the contractor responds to the contracting officer’s request will dictate whether an allegation of defective pricing is brought forward by the government.                                                                              

       

 Is the government required to equally open/disclose information to the contractor during negotiations?

 

At first blush, no. TINA only states what the duties and responsibilities of the contractor are with respect to disclosure, but is silent about the government’s duties and responsibilities concerning disclosure of information. 

 

However, there is a very good argument to be made that TINA also places disclosure responsibilities on the government, even though none are explicitly stated within the statute. This argument that the government does have disclosure responsibilities originates from two basic areas of the applicable law:

Under the general contract law — The government is obliged to refrain from hindering a contractor’s attempted performance, and to do whatever is necessary to enable the contractor to perform. This obligation, labeled “constructive condition of cooperation,” imposes on both parties a duty to disclose to the other any information which is deemed essential to the transaction. For example:

Anytime the government owes the contractor government furnished information (GFI) or government furnished equipment (GFE) to perform the contract, the government, through its actions or inactions, has the potential to affect the contractor’s performance, such as when the GFI or GFE is late, discrepant, or otherwise less than acceptable for contract performance—especially if the actual condition is different than that portrayed by the government during pre-award negotiations.

Under the specific operation of Pub. L. 87-653 — Here, the argument goes that the government has disclosure responsibilities by operation of the statute itself. For example:

When the contracting officer recognizes that contractor data are not complete, current, or accurate and does not disclose same to the contractor; or 

When the contractor’s price is understated in relation to the government’s own estimate or past pricing for same or similar work.

The purpose of Pub. L. 87-653 is to ensure the government pays a fair and reasonable price for the goods and services it procures. Given this purpose, it follows that disclosure of significant data that can affect pricing should be bilateral. 

 

What is the contractor’s obligation, if any, if a lower cost element becomes known after the contractor certifies its price and the contract award is still pending?                                                                                 

The contractor is obligated to disclose this information prior to award. Depending on the agreed-to price, this may or may not affect the award price; however, FAR 15.406-2 clearly states that a later exception invalidates the certified cost or pricing data certificate.The facts and circumstances of the specific situation will dictate what action is ultimately decided and needed.                                                                                  

When there is an allegation of defective pricing, can the contractor propose offsets to resolve the matter?       

Yes. While the government is entitled to a price adjustment for any increased cost due to defective pricing, the contractor may propose offsets if it can prove that other data were available that understated its proposed and resultant contract price. Such data must have been available in a time period up to the date of price agreement specified in the Certificate. The contractor also needs to show that it was unaware the data were understated at time of certification.                                               

 What are some best practices for the contractor to comply with TINA? 

The contractor should:

Ensure the people in the proposal process recognize and understand there will be different proposal “mechanics” and requirements that apply above and below the TINA cost data threshold, and/or if one of the TINA exemption conditions exist.                                         

Establish and maintain an adequate cost accounting system that enables generation of cost data (certifiable and other than certified), as may be specified by the government. The system should also be able to undergo and pass a pre-award audit if required.

Have internal processes in place to ensure the final agreed-to price is based on the latest, factual data that are “complete, current, and accurate.” A best practice to achieve this outcome is to conduct an internal “sweep” of all proposal inputs to verify they are, in fact, the latest available as of the date of price agreement. 

Ensure the person signing the Certificate can bind the company and thoroughly understands — 

The TINA requirements, 

The company’s proposal process, and 

The serious financial and legal consequences of submitting a TINA Certificate.        

Only certify to the “factual” data in the final proposal (and ensure the Certificate is annotated as such).                                                 

 

 What are some best practices for the contracting officer to comply with TINA? 

 

The contracting officer should: 

Recognize and understand there will different requirements and “mechanics” that apply above and below the TINA threshold, and/or if one of the TINA exemption conditions exist, and structure the government solicitation accordingly.

Recognize that, with the increase in the TINA cost data threshold, there will be increased instances of dealing with “other than certified” cost data, and fewer pre-award audits, and ensure the government’s proposal evaluation toolkit is equipped to handle this new situation.

Document the PNM File properly whenever certified cost or pricing data are submitted. (See the answer to Question #13 for the details.)         

                                                                                                               

 What does the latest dollar threshold ($2,000,000) mean for the contractor and the contracting officer on a “go-forward” basis? 

It should result in more companies participating. Smaller companies will have the ability to receive larger contracts. It should have little effect on participation by larger companies involved in receiving government contracts — both below and above the new threshold. 

There will be less-detailed information available to the contracting officer for negotiation of procurements above the old threshold, but below the new threshold. The contracting officer can still ask for cost data, but not requiring certification places far less burden on the bidder. 

There will be significantly fewer contracts, and contract changes, requiring cost data submittal, resulting in fewer pre-award audits — thus, placing more burden on the contracting officer to request and analyze cost breakdowns below the new threshold, especially on sole-source actions. 

In general, it should result in a somewhat faster closeout of government contracts due to a probable increase in the number of fixed-price contracts under the new threshold. Also, in the future, it can be expected that there will be fewer total contracts requiring final cost data submittal, audit, and analysis for final price agreement and closeout. CM                      

 

Anthony L. DiGirolamo, CPCM    

Consultant, ALD Consulting, LLC

Past President, NCMA Greater Pittsburgh Chapter

 

Louis Lamanna, CPCM, NCMA Fellow, NARA CFRM

Consultant

Past President, NCMA Greater Pittsburgh Chapter

 

Tony and Lou have over 60 years’ combined experience working for and with defense contractors analyzing and negotiating proposals and contracts utilizing cost and pricing data under the requirements of the Truthful Cost and Pricing Data statute (a.k.a., TINA).

 

Endnotes

 1.) 41 USC Chapter 35.

 2.) The name change came about as part of the Positive Law Codification of Title 41, U.S. Code, of 2014. (However, for ease of reference, this article shall hereinafter refer to the statute by its historical acronym, “TINA.”)

 3.) Pub. L. 87-653, as amended, and FAR 15.403-4 (requiring certified cost or pricing data).

 4.) See John D. Lanoue, “The Truth-in-Negotiating Clause of P.L. 87-653, as Interpreted by the Armed Services Board of Contract Appeals (ASBCA),” Villanova Law Review (Spring 1968).

5.)  Janie L. Maddox, Brent Calhoon, and Samantha Schwellenbach; presentation at the NCMA World Congress; Breakout Session #B10 (Washington, DC: July 28, 2014) (hereinafter “2014 World Congress presentation”). 

 6.) As per FAR 15.402 and 15.403-3.

7.)  FAR Table 15-2 (“Instructions for Submitting Cost/Price Proposals When Cost or Pricing Data Are Required”).

 8.) See FAR 15.403-4.

 9.) As per FAR 15.406-2.

 10.) Ibid.

11.) List derived from Brent Calhoon and Shingai Mavengere, presentation at the NCMA World Congress, Breakout Session #F03 (Nashville, TN: July 23, 2013). 

12.) Clarence T. Kipps Jr. and John Lloyd Rice, Living with TINA: A Practical Guide to the Truth in Negotiations Act (Washington, DC: Washington Legal Foundation, 1989). 

13.) Ibid.

 14.) 2014 World Congress presentation, see note 5.

15.) FAR 15.403-1.

16.) FAR 15.406-3 and 15.406-2(d).

 17.) See FAR 15.406-2(d).

18.) FAR 15.407-1.

19.) As per Pub. L. 87-653, as amended.

20.) Derived from Walter F. Pettit and Allan J. Joseph, “Government’s Obligation to Disclose Under the Truth in Negotiations Act,” William and Mary Law Review, 10: 1 (1968).

21.) FAR 15.406-2.

 22.) As per FAR 15.407-1.