Ultimately, the Contracting Officer elected to negotiated a price based a weighted average of the DO data produced by the contractor but without the lost efficiency factor, and that was significantly higher than its own independent cost estimate. The Army did not agree with the contractor’s assessment and instead developed an independent cost estimate that was based in part on its observations of the contractor’s procedures, including the new automated procedures. It disclosed to the government its performance data for those two delivery orders, rather than the DO 13 data. Thus, the contractor proposed a price based on two earlier DOs that did not reflect the recent automation, but that it contended would most closely reflect performance on the new DO and also included a 10% risk factor for lost efficiency. The Contracting Officer was aware of these plans. The contractor planned to hire new personnel and incrementally introduce the new production processes to perform DO 14, resulting in inefficiencies (at least initially) and a negative learning curve. While performing DO 13, the Army requested a proposal for DO 14, which would use the new automated processes and facilities and increase the production rate. During a prove-out of the automated system, the Army learned that it would likely increase efficiency. To account for that significant increase in demand, the contractor introduced a new automated process for the thirteenth delivery order (“DO 13”), while also rolling out new production facilities for future DOs. The contractor had performed a dozen delivery orders (“DOs”) under that contract, but the parties expected production to triple for future orders. If the agency knows of a shortcoming in its information during negotiation, it cannot ignore that fact by relying on its ability later to assert defective pricing.Īlloy Surfaces Company involved a fixed-price IDIQ contract for the manufacture of helicopter decoy flares. The government may not rely on the defective pricing clause as a substitute for diligent negotiation.However, that presumption can be overcome, and if the agency chooses a pricing approach that does not depend on the missing or inaccurate data, it cannot prevail. The government receives a legal presumption that it relied on the contractor’s data. There must be a causal nexus between a contractor’s supposedly defective data and the agency’s pricing decisions.
That remains true even if the contractor’s estimates or judgments about performance turn out to be accurate or are produced near the end of production.
The FAR defines “cost or pricing data” broadly to mean the “facts” that “prudent buyers and sellers would reasonably expect to affect price negotiations significantly.” The FAR goes on to state that cost or pricing data does not include “judgmental” information. TINA requires companies to disclose cost or pricing data to the government when negotiating contracts or contract modifications in excess of $2 million, unless an exception applies.
While the full effect of that enhanced focus on TINA compliance remains to be seen, a recent decision by the Armed Services Board of Contract Appeals (“ASBCA”) provides helpful guidance for navigating upcoming TINA audits and defending against defective pricing claims, particularly in situations involving an on-going program where documents contain both facts and judgmental estimates. Late last year, a spokesman for the Department of Defense announced without fanfare that the agency would increase audits of certified cost or pricing data under the Truth in Negotiations Act (“TINA”).