Truth in Negotiations Act (TINA)
Essentials
Brent Calhoon, CPA
and
Jamie Sybert
Date:
Time:
June 5, 2012
12pm - 1:30pm Eastern
Discussion Topics
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Introductions
Truth in Negotiations Act (TINA) Background and Overview
Applicability & Exemptions
What is “cost or pricing data”?
What is “certified cost or pricing data”?
What is “data other than certified cost or pricing”?
Disclosure
Government Reliance
How to Challenge/Avoid Applicability
Compliance Best Practices
Defective Pricing Liability
Potential Defenses
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TINA Background and Overview
Truth-In-Negotiations Act; P.L. 87-653; 10 U.S.C. § 2306(a)
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Passed in 1962 and has been amended several times. Most
recently amended by 1987 DoD Authorization and Appropriation
Acts (P.L. 99-661, P.L. 99-500, P.L. 00-591)
Made applicable to civilian agencies by Competition in
Contracting Act, P.L. 98-369, 41 U.S.C. § 254(b)
Came to life in the mid-1980s when the Government started
treating defective pricing as an indication of criminal fraud
Implemented in Regulations at FAR subpart 15.4
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TINA Background and Overview
(cont’d)
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TINA is intended to protect the Government when a contractor’s
cost is a significant factor in negotiating contract price
In the absence of some objective indication or price
reasonableness – e.g., competition – the Government needs a
mechanism to ensure it pays a fair and reasonable price
TINA seeks to put the Government in same position as
Contractors regarding access to contractor cost data so that
Government can perform an effective, independent evaluation
of the reasonableness of the contractor’s price proposal
However, TINA does not create an “equal position” between the
Government and the contractor. There is no corresponding
obligation on the part of Government to disclose anything to the
contractor
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TINA Background and Overview
(cont’d)
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Implemented in Regulations at FAR subpart 15.4
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Describes the contracting officer’s responsibility to purchase supplies
and services at fair and reasonable prices
Establishes requirements for the submission of “cost or pricing data”
(whether or not “certified”)
Establishes the circumstances under which a contractor must certify
the accuracy, completeness and currency of cost or pricing data
If certified cost or pricing data is required, establishes:
ƒ What the contracting officer must do with that data
ƒ How to document the extent to which the contracting officer relied on the
contractor’s certified data to negotiate the contract price
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TINA Background and Overview
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After all this time, considerable confusion remains:
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What is cost or pricing data?
What must be done with it? (contractors and Government)
When and under what circumstances can the Government request
cost or pricing data – and when must a contractor provide it?
When and under what circumstances must contractors “certify” their
cost or pricing data?
Do contractors certify their proposal?
What is the difference between “certified cost or pricing data” and
“other than certified cost or pricing data”?
What risks do contractors face when certification is required – and
when it isn’t – but data is nevertheless requested by the
Government?
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Exemptions from TINA
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Adequate Price Competition
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Prices Set by Law or Regulation
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Commercial Items
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Pricing Actions Less Than $700,000
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Exceptional Cases - Waiver by Head of Contracting Activity
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Waivers are Generally Rarely Given
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Applicability of TINA
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Negotiated prime contracts > $700,000
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Prime contract modifications or changes > $700,000
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Negotiated subcontracts > $700,000 at any tier, if prime
contract and higher-tier subcontract(s) were required to
provide certified cost or pricing data
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Subcontract modifications or changes > $700,000 at any tier,
if the prime contractor and higher-tier subcontractor(s) were
required to provide certified cost or pricing data
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Applicability (cont’d)
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A prime must obtain cost or pricing data for any covered
subcontract greater than $700,000
A prime must submit (or cause submission of) the sub’s data to
the Government on a covered subcontract with a value that is
either –
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Applies to contract modifications greater than $700,000
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$12.5 million dollars or more, or
$700,000 and more than 10% of the prime’s proposed price
A series of unrelated changes issued as a single modification for
administrative convenience will not be aggregated to determine
threshold.
However, related additive and deductive changes cannot be
“netted” to escape the threshold
The exercise of an option with previously-agreed pricing scheme
is not a contract pricing action subject to TINA requirements
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Applicability (cont’d)
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FAR 52.215-20 and 52.215-21
Require disclosure and certification of current, accurate, and
complete cost or pricing data to the contracting officer
Grants government right to audit
Specifies proposal format (FAR Table 15-2 Instructions for
Submitting Cost/Price Proposals)
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General information
Index and cross reference
Identify cost or pricing data
Identify forward pricing rates/factors
Breakdown of cost elements – e.g., material, labor
Provide cost or price analysis of subcontractors
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What is Cost or Pricing Data?
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“All facts that, as of the date of price agreement, or, if
applicable, an earlier date agreed upon by the parties that is as
close as practicable to the date of price agreement, prudent
buyers and sellers would reasonably expect to affect price
negotiations significantly”
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The concept of “significant affect” is not defined in the FAR and
often is ignored by Government auditors; almost every dollar is
considered significant – no amount is too small to pursue
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But, the DCAA Audit manual states that TINA price adjustments
of up to 5% of the contract value or $50,000, whichever is
less, normally should be considered immaterial
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Cost or Pricing Data (cont’d)
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What are “facts”?
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Objective, verifiable information
Cannot be determined based solely on the type of document.
You must consider the nature of the information in the context
of the particular negotiation in question.
Each disclosure situation should be separately analyzed. Some
things as a matter of common sense should be considered
“data”. Other cases are much more difficult to assess
Judgments and pure estimates are not cost or pricing data
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This has always been the law – the statutes of implementing
regulations have always so provided ,and this was affirmed in
1986 amendments to TINA and in the Texas Instruments case
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Cost or Pricing Data (cont’d)
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Cost or pricing data includes more than just historical
accounting data; they are all the “facts” reasonably relevant
to evaluate estimates of future costs and to the validity of
costs already incurred. This may include, but is not limited to:
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Vendor quotes;
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 yield rates and labor efficiency;
Make-or-buy decisions;
Estimated resources to attain business goals; and
Some information on significant management decisions
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Cost or Pricing Data (cont’d)
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Under some precedent, there may be a duty to disclose information that is a
mix of fact and judgment, if judgment is necessary to understand the facts
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Contractors are not liable for the accuracy of any judgmental estimate
included in a price proposal or disclosed in negotiations, but must disclose all
underlying data relating to those judgments, even if such data was not
actually used in preparing estimates
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Contractors must disclose all facts necessary for the Government to (a)
evaluate contractors estimates, and (b) form its own estimates and
judgments
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The fact that a management judgment has been made may be disclosable –
e.g., a decision to invest in new equipment, a decision on make vs. buy
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Your “bottom line for negotiations” is not cost or pricing data. Similarly, the
fact that someone is given a particular negotiation objective is not cost or
pricing data subject to disclosure
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Cost or Pricing Data (cont’d)
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“Estimates” can be cost or pricing data, especially if they
essentially are verifiable, mathematical calculations rather than the
result of applied judgment
Judgmental forecasts of future business are not cost or pricing
data
The fact that you have other bids outstanding or in the process
may be data
Forward Pricing Rate Proposals
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If rates are agreed, a contractor can update via ACO, for significant changes.
Technically, the PCO must use the agreed rates.
If rates are not agreed, a contractor must update rates for each negotiation,
via the PCO unless there is an agreement or clear course of conduct to
update another way.
Remember: even if rates are agreed, you must advise the ACO of any
changes that might impact agreed rates.
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What is “Certified Cost or Pricing
Data”?
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Cost or pricing data that were required to be submitted in
accordance with FAR 15.403-4 and 15.403-5 and are required to
be certified, per FAR15.406-2. See also, 10 U.S.C. 2306a and 41
U.S.C. 254b
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Certification states that, to the best of the signatory’s knowledge
and belief, the cost or pricing data are accurate, complete, and
current as of a date the date of agreement on contract price (or
other agreed-upon date)
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The obligation to provide “certified cost or pricing data” creates
potential “defective pricing” liability and increased risk of fraud
and false claims allegations for non-compliance
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What “Data other than Certified Cost
or Pricing Data” means…
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Pricing data, cost data, and judgmental information necessary for
the contracting officer to determine a fair and reasonable price or
to determine cost realism
Such data may include the identical types of data as certified cost
or pricing data, but without the certification obligation
The data may also include, for example, sales data and any
information reasonably required to explain the offeror’s estimating
process, including, but not limited to –
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The judgmental factors and the mathematical or other methods used
in the estimate, including those used in projecting from known data;
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The nature and amount of any contingencies included in the
proposed price
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When and why “Data other than Certified Cost
or Pricing Data" may be requested
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When certified cost or pricing data are not required, contracting
officers shall obtain data other than certified cost or pricing data
as necessary to establish a fair and reasonable price, generally
using the following order of preference in determining the type of
data required:
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No additional data from the offeror, if the price is based on adequate
price competition
Data other than certified cost or pricing data such as –
A. Data related to prices – e.g., established catalog or market prices, sales
to non-governmental and governmental entities – relying first on data
available within the Government; second, on data obtained from sources
other than the offeror; and, if necessary, on data obtained from the
offeror
B. Cost data to the extent necessary for the contracting officer to determine
a fair and reasonable price
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When and why “Data other than Certified Cost
or Pricing Data" may be requested” (cont’d)
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COs are required to obtain the type and quantity of data
necessary to establish a fair and reasonable price, but not more
data than is necessary
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Requesting unnecessary data can lead to increased proposal
preparation costs, generally extend acquisition lead time, and
consume additional contractor and Government resources
If a fair and reasonable price cannot be established by the
contracting officer from the analyses of the data obtained or
submitted to date, the contracting officer shall require the
submission of additional data to support the determination of a fair
and reasonable price
ƒ Such data may include the identical types of data as certified cost or pricing
data, but without the certification. The data may also include –
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The judgmental factors applied and the mathematical or other methods used in the
estimate, including those used in projecting from known data; and
The nature and amount of any contingencies included in the proposed price
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Disclosure
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What is “Meaningful Disclosure” ?
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Affirmative Disclosure Obligation
ƒ Contractors have an affirmative obligation to root out and produce data; they
cannot sit back and wait for the Government to “ask the right question”
ƒ Disclosure should be to PCO or his authorized representative unless there’s an
acknowledged practice to the contrary – e.g., disclosure to auditors or ACO
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Contractors may disclose by actual delivery of cost or pricing data or
written disclosure with notice to the Government that the data is
available for review
Data cannot be buried/cannot just give access to files; must be
useful
However, contractors have no affirmative obligation to use its cost or
pricing data to develop its proposed price(s)
What does “reasonably available” mean?
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Almost everything, anywhere in your company is assumed to be
“reasonably available” to and known by the contractor’s negotiators
There are exceptions, however, decided on a case-by-case basis.
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Government Reliance
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When an offeror is required to disclose and certify its cost or
pricing data, the Government is required to –
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Perform a “cost analysis” of the offeror’s individual cost elements
(FAR 15.404-1(a)(3))
Review to determine whether any cost data or pricing data,
necessary to make the offeror’s proposal suitable for negotiation,
have not been either submitted or identified in writing by the
offeror. If there are such data, the contracting officer shall
attempt to obtain and use them in the negotiations or make
satisfactory allowance for the incomplete data (FAR 15.4041(c)(2)(v))
Document in the PNM each major cost element where the
determination of a fair and reasonable price was based on a cost
analysis (FAR 15.406-3(a)(7))
Possession of a Certificate of Current Cost or Pricing Data is not a
substitute for examining and analyzing the contractor’s proposal
(FAR 15.406-2(d))
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How to Challenge/Avoid Applicability
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Contracting officers are not to insist on contractor certified cost or
pricing data where competition gives adequate assurances of
price reasonableness
Therefore –
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Contractors should actively challenge demands by the Government or
prime contractors for data/certification where price competition
exists – demand exemptions
Get the exemption in writing. At least document your understanding
that the exemption applies
**Note: Ultimately the law gives contracting officers discretion to
require cost or pricing data in any appropriate circumstance, even
where there is indication of price competition. Contractors should
emphasize the FAR policy statement that it is not in the
Government’s best interest to unnecessarily require submission of
data
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Compliance Best Practices
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Challenge/Avoid Applicability
Contractors should aggressively pursue “cut-off date” agreements
allowed by regulations. These are not often used, but a good
solution for both sides
Multiple Certifications (Pre-agreement, Post-agreement)
No certifications “in blank” – specify what data is being certified
Prepare for Proposal submission, TINA sweeps and certificate
submission
Submit proposal IAW FAR Table 15-2
Knowledge/education of senior leadership – impact of Certificate
Clear roles for certificate signatory(s)
Established Estimating System/process (See DFAR Business Rules)
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Certificate of Current Cost or Pricing
Data (FAR 15.406-2)
This is to certify that, to the best of my knowledge and belief, the cost or pricing data
(as defined in Section 2.101 of the Federal Acquisition Regulation (FAR) and required
under FAR subsection 15.403-4) 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
_____**. This certification includes the cost or pricing data supporting any advance
agreements and forward pricing rate agreements between the offeror and the
Government that are part of the proposal.
Firm__________________________________________
Signature______________________________________
Name_________________________________________
Title__________________________________________
Date of execution**______________________________
*Identify the proposal, request for price adjustment, or other submission involved, giving
the appropriate identify number (e.g. RFP No.).
**Insert the day, month, and year when price negotiations were concluded and price
agreement was reached, or, if applicable, an earlier date agreed upon between the
parties that is as close as practicable to the date of agreement on price.
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Defective Pricing Liability
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Government gets price reduction for relying, to its detriment, on
defective cost or pricing data. Under current regulations, the
Government also may
1) Collect interest from the date of overpayment, and
2) Assess penalties for “knowing” submission of defective data
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Liability is statutory. A prime contractor may be liable regardless of
whether data was submitted or a certificate was signed.
While the law applies to subcontractors, there is no direct liability
from subcontractors to the Government
The Government may audit subcontractors and assess price
reductions – but against primes
A prime contractor’s ability to pass price reductions on to
subcontractors depends on whether there are effective flowdowns
and indemnities in the subcontract
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Possible Defenses
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Show TINA does not apply
Show that the data at issue is not factual
Show there was disclosure of facts.
Show that the Government actually knew the facts, even if you didn’t
disclose (asserting a government should have known is not a defense)
Show that there was no reliance on the “defective data”
Show there would have been no impact on price if data were disclosed
Challenge DCAA’s use of data in calculating recommended reductions
Challenge DCAA “sampling” techniques
Double-check DCAA’s math and assumptions for consistency with your
own or those established in negotiations
Insist on use of negotiated rates, overheads and profits to calculate
refunds, rather than proposal rates. This is consistent with the DCAA
Audit Manual.
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Possible Defenses (cont’d)
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Establish Offsets
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No affirmative recovery; just offsets
Do your own reverse audits; look for undisclosed, “higher” data
Can only offset for defective facts; not mistaken judgments.
Data must have been reasonably available at handshake date
No offsets for intentional decisions not to use/disclosure higher
priced data
No offsets for bottom-line reductions
May have offsets for negotiation reductions that are attributed –
e.g., to labor, material, overhead rates
May offset cross category – e.g., offset material costs with labor
costs
No cross-contract offsets; but possible arguments regarding
multiple orders handled via single bottom line negotiation.
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Questions, Comments & Banter
Brent Calhoon, CPA
Partner
Jamie Sybert
Director
[email protected]
[email protected]
Baker Tilly
Government Contractor Advisory Services
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