1 The Truth In Negotiations Act (TINA) Breakout Session # 505 Name:Kenneth Dawe Date:April 8, 2009 Time:9:45 – 11:15 The Road to Compliance
2 TINA Course Outline Background Background / Purpose Basis in Law / Evolution General TINA Requirements Applicability / Exemptions What is Cost or Pricing Data? Accurate, Complete and Current Cost or Pricing Data Subcontractor Cost or Pricing Data What is Defective Pricing? The Road to Compliance Training, Training, Training Adequate Disclosure Legal Presumption Cut-Off Dates Conducting Sweeps Certificate of Current Cost or Pricing Data Offsets Government Remedies for Defective Pricing Practices to Consider
3 Background / Purpose The Truth-in-Negotiations Act (PL 87-653; 10 U.S.C. §2306(a)), often referred to as TINA, was enacted in 1962 to place the government on equal footing in negotiating contract prices with commercial organizations.The Truth-in-Negotiations Act (PL 87-653; 10 U.S.C. §2306(a)), often referred to as TINA, was enacted in 1962 to place the government on equal footing in negotiating contract prices with commercial organizations. Prior to 1962, businesses submitting bids to the government were not held to any substantial requirement for disclosing all relevant cost or pricing information to the government prior to conclusion of negotiations.Prior to 1962, businesses submitting bids to the government were not held to any substantial requirement for disclosing all relevant cost or pricing information to the government prior to conclusion of negotiations. Government agencies later discovered that bids were not always based on the best information available to the company at the time of negotiations and consequently resulted in inflated contract price awards.Government agencies later discovered that bids were not always based on the best information available to the company at the time of negotiations and consequently resulted in inflated contract price awards.
4 Basis in Law / Evolution 194719411945 Prior to WWII Most Gov’t. Procurements conducted on Open Bid Basis Congress passes War Powers Act – Granted DOD authority to negotiate contracts and limit competition WW II Congress passes Armed Services Procurement Act - Permitted DOD to negotiate contracts and limit competition (10 USC §2301-2323) 1948 First edition of the ASPR contains requirement for Cost or Pricing Data ASPR revised to require Certificates of Current Cost or Pricing Data (Clause 3-807.3) 19511959 Congress amends ASPR to permit audits of negotiated contracts
5 Basis in Law / Evolution 196819611962 Public Law 87-653 (TINA) enacted – Applicable to DOD, Coast Guard and NASA (Currently codified at 10 USC §2306(a) ASPR revised - Gov’t. given the right to reduce contract prices if price was overstated due to defective cost or pricing data (Clause 7-104.29) TINA amended to make contractors liable for interest (and penalties) on overpayments resulting from defective cost or pricing data (PL99- 145) 1985 TINA amended to include right to examine contractor records (PL 90-512) 1986 TINA amended to provide a statutory definition of cost or pricing data; eliminate certain contractor defenses; affirmed that Gov’t. non-reliance on defective data is a legitimate defense; and clarify offset provisions (PL 99-500)
6 Basis in Law / Evolution 199019871988 Defense Authorization Act for 1988/89 (PL 100-180) amends TINA - slight change to cost or pricing data definition FY87 Defense Authorization Act : Made Government non-reliance on cost or pricing data a legitimate defense to defective pricing Enumerated unacceptable defenses Provided rules on offsets TINA threshold increased to $650,000 effective 9/28/2006 1994 FASA extended TINA application to all Executive Branch Departments and Agencies; (PL 89-369; 41 USC §254) 2000 FAR 15.403-4 revised to require review of TINA threshold every 5 years; TINA threshold increased to $550,000 effective 10/11/2000 2006 TINA threshold increased to $500,000 effective 12/1/1990
7 General TINA Requirements Submission of Cost or Pricing Data before contract or subcontract award Submission of Cost or Pricing Data before the pricing of a change or modification to a contract or subcontract Execution of a Certificate of Current Cost or Pricing Data
8 TINA Applicability TINA applies to negotiated prime contracts, modifications, and subcontracts where the Government required cost or pricing data Includes interdivisional work, final price re-determinations, equitable adjustments, and termination settlements Applies to modifications when the modification exceeds the applicable dollar threshold Applies to change orders when the absolute value of the increase and decrease exceeds the applicable dollar thresholds, even though the net change in price itself is under the threshold
9 TINA Thresholds $100,000 for contracts awarded before December 1, 1990 $500,000 for contracts awarded on or after December 1, 1990 $550,000 for contracts awarded on or after October 11, 2000 $650,000 for contracts awarded on or after September 28, 2006 Note: Contracting officers can request cost or pricing data for contract awards between the Simplified Acquisition Threshold of $100,000 and the cost or pricing data threshold with the approval of the Head of the Contracting Activity, provided that none of the exemptions apply.
10 TINA Thresholds One must consider both price adjustment increases and decreases in terms of absolute values to determine if the adjustment requires the submittal of cost or pricing data. For example – A price reduction of $500,000 and a price increase of $300,000 result in a net reduction of $200,000. However, if the sum of the absolute values exceeds the current TINA threshold cost or pricing data must be submitted.
11 TINA Exemptions Per FAR 15.403-1(b), Contracting officers shall not require submission of cost or pricing when: Contracting officer determines that prices agreed upon are based on adequate price competition Contracting officer determines that prices agreed upon are based on prices set by law or regulation A commercial item is being acquired When a waiver has been granted When modifying a contract or subcontract for commercial items
12 What is Cost or Pricing Data? The current definition per Title 10 U.S.C. Subtitle A Part IV Chapter 137 §2306(a)(h)(1) is as follows: The term “cost or pricing data” means all facts that, as of the date of agreement on the price of a contract (or the price of a contract modification), or, if applicable consistent with subsection (e)(1)(B), another date agreed upon between the parties, a prudent buyer or seller would reasonably expect to affect price negotiations significantly. Such term does not include information that is judgmental, but does include the factual information from which a judgment was derived.
13 What is Cost or Pricing Data? Per FAR 2.101, Cost or pricing data are factual, not judgmental; and are verifiable. While they do not indicate the accuracy of the prospective contractor’s judgment about estimated future costs or projections, they do include the data forming the basis for that judgment. Cost or pricing data are more than historical accounting data; they are all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred.
14 What is Cost or Pricing Data? Cost or Pricing Data includes such items as: Vendor quotations; Nonrecurring costs; Information on changes in production methods and in production or purchasing volume; Data supporting projections of business prospects and objectives and related operations costs; Unit-cost trends such as those associated with labor efficiency; Make-or-buy decisions; Estimated resources to attain business goals; and Information on management decisions that could have a significant bearing on costs.
15 Information Other than Cost or Pricing Data Per FAR 15.403-3, Contracting officers must require submission of information other than cost or pricing data when the contracting officer cannot obtain adequate information from sources other than the offeror to determine a fair and reasonable price. Information other than cost or pricing data means any type of information that is not required to be certified in accordance with 15.406-2 and is necessary to determine price reasonable- ness or cost realism. Such information may include pricing, sales, or cost information.
16 Accurate, Complete and Current Cost or Pricing Data Accurate: Cost or pricing data is free of error or misstatement Complete: All reasonably available data relevant to the pricing action is submitted or disclosed Current: The most recent data available up to the date of agreement, or other agreed to date, is submitted or disclosed Note – relevant data is not limited to data actually used in developing the proposal. It includes all facts that a prudent buyer or seller would reasonably expect to affect price negotiations significantly.
17 Subcontractor Cost or Pricing Data Contractors required to submit cost or pricing data and a certificate must also obtain cost or pricing data from subcontractors. This requirement applies for any subcontract, purchase order, or modification expected to exceed the dollar threshold. The prime contractor must submit subcontractor data to the Government if one of the following conditions applies: 1.subcontract cost estimate is $10 million or more; 2.estimate exceeds dollar threshold for cost or pricing data and is more than 10 percent of the prime contractor's proposed price; or 3.Contracting officer considers submission necessary for adequately pricing the prime contract.
18 What is Defective Pricing? Defective pricing occurs when a contractor does not submit or disclose to the Government cost or pricing data that is accurate, complete, and current prior to reaching a price agreement. Defective pricing is usually discovered during post-award audits during which records and data are examined and analyzed. The objective of a post-award audit is to determine if the negotiated contract price was increased by a significant amount because the contractor did not submit or disclose accurate, complete, and current cost or pricing data.
19 What is Defective Pricing? To demonstrate that defective pricing exists, and to support recommended price adjustments, each of the following five points must be established. 1.The information in question fits the definition of cost or pricing data. 2.Accurate, complete, and current data existed and were reasonably available to the contractor before the agreement on price. 3.Accurate, complete, and current data were not submitted or disclosed to the contracting officer. 4.The Government relied on the defective data in negotiations. 5.The Government's reliance on the defective data caused an increase in the contract price.
20 Truth In Negotiations Act The Road to Compliance
21 Training, Training, Training Training is absolutely essential to fulfilling the requirements of TINA. It is the first line of defense to prevent findings of defective pricing. To be effective, TINA training should: Be provided to all people involved with proposal development − Training may be tailored for selected groups − Consider having subcontractors attend training Be provided to people prior to joining a proposal team Cover all systems that effect proposed costs Cover all relevant policies and procedures Be provided on a recurring / refresher basis Be updated in a timely manner to address issues and prevent reoccurrences of problems / defective pricing
22 TINA Compliance Environment Proposal Actual Costs Cost Estimating System Purchase History Files Vendor Quotes MMAS Accounting System Labor Distribution Disclosure Statement ECN’s & Make vs. Buy ODC’s Subcontractor Data Indirect Costs Company Initiatives Inter- Divisional Transfers Plus Others …
23 Adequate Disclosure What constitutes Adequate Disclosure? The goal of adequate disclosure is to disclose all potentially relevant cost or pricing data prior to and during negotiations. Note – a contractor does not have to disclose more accurate, complete and current cost or pricing data that becomes available after the price agreement date or another agreed upon cutoff date.
24 Adequate Disclosure TABLE 15-2—INSTRUCTIONS FOR SUBMITTING COST/PRICE PROPOSALS WHEN COST OR PRICING DATA ARE REQUIRED There is a clear distinction between submitting cost or pricing data and merely making available books, records, and other documents without identification. The requirement for submission of cost or pricing data is met when all accurate cost or pricing data reasonably available to the offeror have been submitted, either actually or by specific identification, to the Contracting Officer or an authorized representative.
25 Adequate Disclosure TABLE 15-2—INSTRUCTIONS FOR SUBMITTING COST/PRICE PROPOSALS WHEN COST OR PRICING DATA ARE REQUIRED Must include an index of all the cost or pricing data and information accompanying or identified in the proposal. Identify cost or pricing data and submit any information reasonably required to explain your estimating process, including: (1) Judgmental factors applied and the mathematical or other methods used in the estimate; and (2) The nature and amount of any contingencies included in the proposed price.
26 Adequate Disclosure TABLE 15-2—INSTRUCTIONS FOR SUBMITTING COST/PRICE PROPOSALS WHEN COST OR PRICING DATA ARE REQUIRED As later information comes into your possession, it should be submitted promptly to the Contracting Officer in a manner that clearly shows how the information relates to the offeror’s price proposal. The requirement for submission of cost or pricing data continues up to the time of agreement on price, or another date agreed upon between the parties if applicable.
27 Adequate Disclosure Common Pitfall: Failure to disclose cost or pricing data that becomes available after submission of the initial proposal, but prior to agreement on price. Common Situation: Updated proposals reflecting revised cost estimates are submitted throughout the fact-finding / negotiation process without the disclosure of more current cost or pricing data Increased susceptibility during protracted negotiations
28 Legal Presumption The ASBCA and the Court of Claims have held that the presumed natural and probable consequence of defective data is an increase in the contract price of the defective amount plus related burden and profit or fee unless there is evidence that shows otherwise. The "natural and probable consequence" presumption, if not rebutted by the contractor, relieves the contracting officer of the burden to reconstruct negotiations to demonstrate the impact of defective data on contract price. However, a contractor may offer a rebuttal to this presumption and present evidence showing that the contract price did not increase as a result of the defective data.
29 Cut-Off Dates FAR 15.403-4 requires contractors to submit a Certificate of Current Cost or Pricing Data that certifies that the cost or pricing data is accurate, complete, and current. The Certificate of Current Cost or Pricing Data covers all cost or pricing data reasonably available to the contractor as of the date of final price agreement or, if applicable, another date agreed upon between the parties that is as close as practicable to the date of agreement on price.
30 Cut-Off Dates The ability to establish a date other than the date of agreement on price on which to certify cost or pricing data is an attempt to reduce the need for proposal updates and sweeps since certain data may not be reasonably available before normal periodic closing dates ( e.g., month-end close, posting of actual indirect costs, etc.).
31 Conducting Sweeps A sweep is the process undertaken by a contractor to review its records to determine if cost or pricing data, that were reasonably available at the time of price agreement, were not submitted or disclosed before price agreement. Sweeps usually occur after agreement on price, but prior to contract award. If discovered, the additional cost or pricing data is provided to the Government with the executed Certificate of Current Cost or Pricing Data. The impact on cost/price (if any) should be provided to the Government.
32 Certificate of Current Cost or Pricing Data When cost or pricing data are required, the contracting officer will require the contractor or prospective contractor to submit to the contracting officer (and to have any subcontractor or prospective subcontractor submit to the prime contractor or appropriate subcontractor tier) the following in support of any proposal: (1) The cost or pricing data. (2) A certificate of current cost or pricing data, in the format specified in 15.406-2.
33 Certificate of Current Cost or Pricing Data This is to certify that, to the best of my knowledge and belief, the cost or pricing data […] submitted, either actually or by specific identification in writing, to the Contracting Officer or to the Contracting Officer's representative in support of ____________ are accurate, complete, and current as of __________.
34 Certificate of Current Cost or Pricing Data The certificate does not constitute a representation as to the accuracy of the contractor’s judgment on the estimate of future costs or projections. It applies to the data upon which the judgment or estimate was based. Failure to submit a Certificate of Current Cost or Pricing Data does not shield a contractor from findings of defective pricing, because contractors are statutorily liable if they furnish defective cost or pricing data.
35 Gov’t. Remedies for Defective Pricing Per FAR 15.407-1, If, after award, cost or pricing data are found to be inaccurate, incomplete, or noncurrent as of the date of final agreement on price or an earlier agreed upon date, the Government is entitled to a price adjustment (including profit or fee) of any significant price increase resulting from the defective data. The ability to affect price adjustments resulting from defective pricing arises from the inclusion of either of the following FAR clauses into the contract. 52.215-10, Price Reduction for Defective Cost or Pricing Data; or 52.215-11, Price Reduction for Defective Cost or Pricing Data – Modifications.
36 Gov’t. Remedies for Defective Pricing In addition to price adjustments, the Government is entitled to recover interest on any overpayment. Overpayment occurs when payments are made for supplies or services accepted by the Government. Note – overpayments do not result from amounts paid for contract financing (e.g., advance payments, performance- based payments, progress payments, Interim payments under a cost reimbursement contracts, etc.). The Government is also entitled to levy penalties on certain overpayments. In cases where the submission of defective cost or pricing data was known at the time of submission, the amount of the penalty shall be equal to the amount of overpayment made.
37 Gov’t. Remedies for Defective Pricing Defective pricing may result in criminal acts under two statutes: −18 U.S.C. 1001 False Statements; and −18 U.S.C. 287 False Claims It may also be subject to civil penalties under 31 U.S.C. 3729, the civil False Claims Act. A false statement results when a contractor willfully makes a statement knowing that it contains false information. Submission of a Certificate of Current Cost or Pricing Data is an example of a statement subject to 18 U.S.C. 1001.
38 Gov’t. Remedies for Defective Pricing A violation of 18 U.S.C. 287 occurs when a contractor willfully submits a claim for money or property knowing that the claim is false, fictitious, or fraudulent. Submitting an invoice on a contract that is defectively priced can be a violation. A violation of the civil False Claims Act, 31 U.S.C. 3729-3733, occurs when a contractor or subcontractor knowingly presents, or causes to be presented to the Government, a false or fraudulent claim for payment or approval. “Knowingly” is defined in the statute as either: (1) has actual knowledge; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information.
39 Gov’t. Remedies for Defective Pricing Unlike the criminal statutes, the civil statute provides that “...no proof of specific intent to defraud is required.” Civil penalties include damages of 2 to 3 times the amount of damages sustained by the Government, plus $5,000 to $10,000 for each voucher submitted based on the defective pricing.
40 Offsets Per FAR 15.407-1, contracting officers shall allow an offset for any understated cost or pricing data submitted in support of price negotiations, up to the amount of the Government’s claim for overstated pricing data arising out of the same pricing action. An offset shall be allowed only in an amount supported by the facts and if the contractor— Certifies that, to the best of the contractor’s knowledge and belief, the contractor is entitled to the offset in the amount requested; and Proves that the cost or pricing data were available before the “as of” date specified on the Certificate of Current Cost or Pricing Data, but were not submitted.
41 Offsets Offsets shall not be allowed if— The understated data were known by the contractor to be understated before the “as of” date specified on the Certificate of Current Cost or Pricing Data; or The Government proves that the facts demonstrate that the price would not have increased in the amount to be offset even if the available data had been submitted before the “as of” date specified on the Certificate of Current Cost or Pricing Data.
42 Practices to Consider Develop and administer TINA training to all personnel involved in the proposal development process, including management and executives Evaluate subcontractor knowledge / ability to fulfill TINA requirements. Consider including subcontractors into your training Provide TINA training to personnel prior to or shortly after joining proposal development teams Determine if the submission of Cost or Pricing Data is required at the beginning of the proposal development process
43 Practices to Consider If Cost or Pricing Data is required, communicate requirement to all involved in the proposal development process Cost estimating manuals should contain a section detailing TINA requirements, the definition of Cost or Pricing Data with examples, and the process / procedures for properly identifying and indexing Cost or Pricing Data in Basis of Estimates (BOEs)/ rationale Functional leads should be responsible for providing and reviewing Cost or Pricing Data from the systems under their control. For example:
44 Practices to Consider Purchasing: purchase order history data; vendor contracts / agreements / quotations / estimates / ROMs from qualified and unqualified suppliers, even if not used to develop cost/price estimates; any cost or price analyses; etc. Subcontracts: Cost or Pricing Data provided by subcontractors; any cost or price analyses; purchase history data; subcontracts / agreements / quotations / estimates / ROMs from qualified and unqualified subcontractors, even if not used to develop cost/price estimates; etc.
45 Practices to Consider Cost Estimating / Pricing: actual costs from relevant (prior or similar) contracts/programs for all cost elements (direct and indirect costs); application of escalation factors, Cost Estimating Relationships (CERs), and indirect rates; learning curve and lot size adjustment calculations; interdivisional transfers; etc. Materials: cost estimates for material; rework, scrap and yield factors; etc. Engineering/Manufacturing: Labor estimates for design and manufacture; Make versus Buy decisions and supporting data; Engineering Change Notices; etc.
46 Practices to Consider Quality: Labor estimates for inspection and testing; etc. Finance/Compliance: Disclosures (whether the impact is quantified or not) pertaining to corporate, segment or business unit initiatives that could potentially have an impact on proposed cost/price. The Proposal Manager should appointment someone with TINA experience to review all BOEs to ensure that Cost or Pricing Data is properly identified, indexed to the proposal and disclosed. This person should review all cost estimate/price revisions made after initial proposal submittal to ensure the most current Cost or Pricing Data is disclosed.
47 Practices to Consider Establish a certification Cut-off date as close to the actual date of price agreement as possible that allows for the inclusion of periodic system data, such as actual indirect costs after month- end close Involve the same personnel used to develop cost estimates in the sweep process. Do not delegate one or two people to conduct the sweep. As each lead completes their sweep have them sign an internal certificate of current cost or pricing data. All internal certifications should be signed and reviewed prior to executing the Certificate of Current Cost or Pricing Data.
49 Contact Information Ken is a Director in KPMG’s Advisory Services practice specializing in the Aerospace and Defense industry. He has extensive experience with DoD procurement, finance, and Government accounting and compliance. Kenneth Dawe, CMA, CFM Director, KPMG LLP Advisory Services firstname.lastname@example.org Cell (315) 373-1513 Fax (315) 410-5346