Truth in Negotiations Act (TINA) Essentials

Transcription

1 Truth in Negotiations Act (TINA) Essentials Brent Calhoon, CPA and Jamie Sybert Date: June 5, 2012 Time: 12pm - 1:30pm Eastern

2 Discussion Topics 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 2

3 TINA Background and Overview Truth-In-Negotiations Act; P.L ; 10 U.S.C. 2306(a) Passed in 1962 and has been amended several times. Most recently amended by 1987 DoD Authorization and Appropriation Acts (P.L , P.L , P.L ) Made applicable to civilian agencies by Competition in Contracting Act, P.L , 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

4 TINA Background and Overview (cont d) 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 4

5 TINA Background and Overview (cont d) Implemented in Regulations at FAR subpart 15.4 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: What the contracting officer must do with that data How to document the extent to which the contracting officer relied on the contractor s certified data to negotiate the contract price 5

6 TINA Background and Overview After all this time, considerable confusion remains: 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? 6

7 Exemptions from TINA Adequate Price Competition Prices Set by Law or Regulation Commercial Items Pricing Actions Less Than $700,000 Exceptional Cases - Waiver by Head of Contracting Activity Waivers are Generally Rarely Given 7

8 Applicability of TINA Negotiated prime contracts > $700,000 Prime contract modifications or changes > $700,000 Negotiated subcontracts > $700,000 at any tier, if prime contract and higher-tier subcontract(s) were required to provide certified cost or pricing data 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 8

9 Applicability (cont d) 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 a) $12.5 million dollars or more, or b) $700,000 and more than 10% of the prime s proposed price Applies to contract modifications greater than $700,000 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 9

10 Applicability (cont d) FAR and 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) 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 10

11 What is Cost or Pricing Data? 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 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 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 11

12 Cost or Pricing Data (cont d) What are facts? 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 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 12

13 Cost or Pricing Data (cont d) 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: 1) Vendor quotes; 2) Nonrecurring costs; 3) Information on changes in production methods and in production or purchasing volume; 4) Data supporting projections of business prospects and objectives and related operations costs; 5) Unit-cost trends such yield rates and labor efficiency; 6) Make-or-buy decisions; 7) Estimated resources to attain business goals; and 8) Some information on significant management decisions 13

14 Cost or Pricing Data (cont d) 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 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 Contractors must disclose all facts necessary for the Government to (a) evaluate contractors estimates, and (b) form its own estimates and judgments 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 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 14

15 Cost or Pricing Data (cont d) 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 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. 15

16 What is Certified Cost or Pricing Data? Cost or pricing data that were required to be submitted in accordance with FAR and and are required to be certified, per FAR See also, 10 U.S.C. 2306a and 41 U.S.C. 254b 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) 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 16.

17 What Data other than Certified Cost or Pricing Data means 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 1) The judgmental factors and the mathematical or other methods used in the estimate, including those used in projecting from known data; and 2) The nature and amount of any contingencies included in the proposed price 17

18 When and why Data other than Certified Cost or Pricing Data" may be requested 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: i. No additional data from the offeror, if the price is based on adequate price competition ii. 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 18

19 When and why Data other than Certified Cost or Pricing Data" may be requested (cont d) 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 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 Such data may include the identical types of data as certified cost or pricing data, but without the certification. The data may also include 1) The judgmental factors applied and the mathematical or other methods used in the estimate, including those used in projecting from known data; and 2) The nature and amount of any contingencies included in the proposed price 19

20 Disclosure What is Meaningful Disclosure? Affirmative Disclosure Obligation 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 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 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? 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. 20

21 Government Reliance When an offeror is required to disclose and certify its cost or pricing data, the Government is required to Perform a cost analysis of the offeror s individual cost elements (FAR (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 (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 (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 (d)) 21

22 How to Challenge/Avoid Applicability Contracting officers are not to insist on contractor certified cost or pricing data where competition gives adequate assurances of price reasonableness Therefore 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 22

23 Compliance Best Practices 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) 23

24 Certificate of Current Cost or Pricing Data (FAR ) This is to certify that, to the best of my knowledge and belief, the cost or pricing data (as defined in Section of the Federal Acquisition Regulation (FAR) and required under FAR subsection ) 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. 24

25 Defective Pricing Liability 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 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 25

26 Possible Defenses 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. 26

27 Possible Defenses (cont d) Establish Offsets 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. 27

28 Questions, Comments & Banter Brent Calhoon, CPA Partner Jamie Sybert Director Baker Tilly Government Contractor Advisory Services 28