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The Truth in Negotiations Act Essay Sample

The Truth in Negotiations Act Pages
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Truth In Negotiations Act (TINA) was enacted in September 1962. As one might expect from a regulation that has been in existence from fifty years, major revisions have been made in order to reflect the changes in the marketplace as well as address the risk involved for all parties. TINA requires the submission of cost or pricing data for all offerors for a prime contract that is entered into using procedures other than sealed-bid if the contract amount exceeds $700,000. Not only does TINA require the submission of cost or pricing data, but it requires that contractors or subcontractor certify the data. When a contractor or subcontractor certifies the cost or pricing data they are asserting that to the best of their knowledge and belief that the cost or pricing data submitted is accurate and complete. Arguably the most contentious issue concerning TINA is the definition of “cost or pricing data”.

The definition has been through many revisions and while it is has come a long way in defining cost or pricing data; it has created a standard that is too restrictive and often times unachievable given the marketplace. Additionally, while it has a provision that allows the Government to recoup the overpayment associated with overstated prices on the contractors behalf; it does not fairly give the contractor the same ability to recoup underpayments as a result of understated prices from the Government. If TINA addresses these issues in the future, it can become an even more powerful tool in “leveling the playing field” between the private sector and the Government. The History of TINA

Public Law 87-653, Truth In Negotiations Act (TINA), was enacted on September 10, 1962. The intent behind the act was to place the Government on equal footing with the contractor by requiring the contractor to provide the Government access to all cost or pricing data the contractor used in making its offer. It required that every prime and subcontractor submit cost or pricing data. They were also required to certify that all such data was current, complete and accurate prior to award of any negotiated contract or subcontract. The contract threshold that was established for adherence to TINA regulations was $100,000. Additionally, TINA stipulated that if relevant cost or pricing data was withheld resulting in overstated prices, that the Government would be able to recoup the excess prices from the overstated costs. A chief complaint from the private industry is that TINA did not deal with was the issue of understated costs. (Di Guiseppe 2011, p.2) Major Changes/Amendments

The 1980’s
In the 1980’s the Government sought to strengthen TINA; during Fiscal Year (FY) 1986 the Defense Authorization Act added the requirement for the collection of interest on overpayments as well as doubling the amount paid to the Government for contractors knowingly not disclosing cost or pricing data. In FY 1987 the authors added that the contractor could not utilize the Government’s non-reliance on cost or pricing data as a legitimate defense to defective pricing. Additionally, the Defense Authorization Act made (1) sole source or superior bargaining, (2) Contracting Officer should have known date was defective, (3) agreement was reached on total cost basis and (4) certificate was not submitted unacceptable defenses for violation of TINA. Finally in FY1988/1989 the Defense Authorization Act provided a definition for cost or pricing data.

The 1990’s
The 1990’s saw continual strengthening of TINA, particularly in 1994 with the introduction of the Federal Acquisition Streamlining Act (FASA) and the Clinger-Cohen Act. The significant changes to TINA with enactment of these Acts were (1) the creation of the “commercial item” exception, (2) addition of the prohibition on obtaining cost or pricing data when an exception applied, (3) creation a hierarchy for obtaining info, (4) increased TINA threshold every 5 years and made it $550,000 for all agencies, (5) changed the approval level for TINA waivers, and (6) the addition of “other than cost or pricing data”.

The 2000’s
In the Government’s pursuit to strengthen TINA, more significant changes were made then in previous decades. In 2001, the idea of the Contracting officer’s determination of price reasonableness when cost or pricing data was not obtained was enacted. In 2002, more guidance was provided on granting waivers for certified cost or pricing data. In FY 2003, the Government directed that only the HCA may issue waivers based upon their determination. The result was a significant decrease in the number of TINA waivers. The industry reacted with the formation of the Acquisition Reform Working Groups Legislative Package for Year 2004 which recommended repealing the limitations on waivers. Applicability

The submission of cost or pricing data applies to all offerors for a prime contract that is entered into using procedures other than sealed-bid if the contract amount exceeds $700,000. Additionally, the submission of cost or pricing is required when the price adjustment of a change or modification exceeds $700,000. In the case of a change or modification, the $700,000 threshold is applied to the absolute value (cumulative value) of the modification or change. For instance, if an $110,000 modification resulting from a $300,000 reduction and an increase of $410,000; submission of cost or pricing data would be required because the cumulative value of the modification is $710,000. The submission of cost or price data also applies to any tier subcontract in which the prime contractor is required to submit cost or pricing data. Exemptions

Several exemptions to the submission of certified cost or pricing data are listed in FAR 15.403-1. The exceptions include when the prices agreed upon (1) are based on adequate competition, (2) are set by law or regulation, (3) when a commercial item is being used, (4) when a waiver is granted, and (5) when modifying a contract or subcontract with commercial items. Evolution of the definition of “Cost or Pricing Data”

Arguably at the heart of the TINA is the definition of cost or pricing data, so it stands to reason that a public law that has been enacted for almost 50 years would see many amendments. No other portion of the law has seen more dramatic evolution than the definition of cost or pricing data. In fact, TINA was enacted for twenty-plus years before “cost or pricing data” was first defined. In a 1986 amendment to TINA, regulators attempted to provide a definition of cost or pricing data in 10 USC § 2306a(g) : (g) Cost or pricing Data Defined.— In this section, the term “cost or pricing data” means all information that is verifiable and that, as of the date of agreement on the price of a contract (or the price of a contract modification), a prudent buyer or seller would reasonably expect to affect price negotiations significantly. Such term does not included information that is judgmental, but does include factual information from which a judgment was derived. The definition was again amended in 1987 with a subtle change in which cost or pricing data was defined as “all fact” as opposed to “all information that is verifiable”. Issues Facing “Cost or Pricing Data” Definition

While the Government has made many significant strides in authoring a usable definition of cost or pricing; as Walker (2003) claims “Perhaps the most ambiguous aspects of TINA are the requirement for and definition of “cost or pricing data.” The three major elements of the definition are: (1) all facts (not judgments), (2) existing at the date of agreement on price, (3) that are significant to the price negotiations. Of these elements, the most contentious issue by far is the definition of facts. A landmark decision relating to this element came in 1995 when the Armed Services Board of Contract Appeals (ASBCA) after hearing the appeals from Lockheed Corporation, decided that “management decisions” do not become cost or pricing data until the contractor decides to act upon those decisions. Further, the board stated that management plans must have a significant effect upon costs and that there be evidence that appropriate company authorities have decided to act upon those plans. (Walker, 2003, p.47).

While projections contain a blend of judgmental estimates and historical factual data, the landmark decision reaffirmed the difference between cost or pricing data and judgment and held that only the historical factual data represented cost or pricing data. In Lockheed Corp., ASBCA Nos. 36420, 37495, & 39195, May 23, 1995, the ASBCA provides guidance on three previously unresolved issues concerning disclosure of business plans and projections: First, the ASBCA determined that business plans and projections do not become cost or pricing data until the contractor decides to act upon them. Second, the ASBCA articulates a two-part objective test for determining what constitutes a “management decision” that triggers the TINA disclosure obligation. Rejecting arguments that a plan or projection becomes a “management decision” as soon as a company gives it serious consideration, the ASBCA ruled that: (1) the plan must bear a substantial relationship to costs, and (2) a company official with requisite authority must have decided to act on the plan. Finally, the ASBCA reaffirms that purely judgmental estimates are not cost or pricing data, and it holds that projections containing a mix of facts (historical accounting data) and judgments (forecasts of future costs) need not be disclosed as long as the factual data have been previously disclosed.

The later ruling limits earlier cases holding that mixed fact/judgment documents must be disclosed to explain the significance of the factual data. (Kilcullen, 1995) While the Lockheed case was significant in terms of defining what is fact and what is judgment, the definition is too strict to take into account the contractor’s needs. For instance, how does a contractor categorize the revenue baseline forecast which may be comprised of current contracted work and anticipated? Furthermore, the labor and indirect rates that are used in outstanding bids or proposals; but will they be winners or losers. Finally, should the contractor get penalized for not using the vendor quote used to establish their prices due to the changing marketplace? It is unfair to have a contractor submit cost or pricing data with such rigidity when the reality of the marketplace is much more fluid. Submission & Certification of Cost or Pricing Data

TINA sets forth that cost or pricing data must be submitted on Standard Form 1411, “Contract Pricing Proposal Cover Sheet”, along with supporting documents. There are no hard and fast rules that detail what proper submission of data is; but submission of data is not satisfied by just merely providing the Government with records for inspection. Additionally, since the duty to furnish accurate and complete data is imposed by statute it can’t be waived or modified by the Contracting Officer. (Tiefer & Shook, 2004, p. 184)

TINA not only requires that contractors and subcontractors submit all cost
or pricing data that are significant to price negotiations, but it also requires that the data is “certified”. When a contractor or subcontractor certifies the cost or pricing data they are asserting that to the best of their knowledge and belief that the cost or pricing data submitted is accurate and complete. The FAR requires that the contractor certifies the cost or pricing data through the use of the “Certificate of Current Cost or Pricing Data” in FAR 15.406-2. Defective Cost or Pricing Data

Defective cost or pricing data is defined in FAR 15.407-1, which defines defective cost or pricing data as it applies in two distinct instances-before price agreement and after award. In both instances the cost or pricing data either prior to price agreement or after award is deemed defective if any certified cost or pricing data submitted are determined to be inaccurate, incomplete, or noncurrent. (FAR 15.407-1(a),(b)(1), n.d.)

In his paper, Di Guiseppe (2011) offers several do’s and don’ts for contractors to heed in order to avoid defective cost or pricing data. Most notably: Do:
• Remember that the overall burden of proving defective pricing is with the Government.
• Require the contractor to update all data as of the latest dates for which information is reasonably available. Don’ts:

• Accept subcontract prices that are negotiated before the prime contract is negotiated as the sole evidence that these prices are reasonable. • The duty to furnish accurate, complete and current cost or pricing data when such data are otherwise required by law or regulation can’t be waived by a Government agent. Overstated and Understated Costs

Subsection F of TINA gives the Government an avenue to recoup the money paid to a contractor based on an overpayment. 10 USC § 2306a(f) states: (f) (1) if the United States makes an overpayment to a contractor under a contract subject to this section and the overpayment was due to the submission by the contractor of defective cost or pricing data, the contractor shall be liable to the United States.

While TINA provides a provision for the Government to recoup overpayment as a result of defective cost or pricing data; very liberally as seen in Aerojet Solid Propulsion Co. v. Secretary of the Army, it makes no such provision to protect the contractor in cases of understated prices. Only when the cost or pricing data is deemed defective does the Government take into consideration increases and decreases (overstated or understated) in contract prices based on the defective cost or pricing data.

A similar section should be added to protect the contractor against major market fluctuations. While most will claim that it is an inherent risk in the marketplace, the contractor should be given an opportunity to mitigate that risk much the same way the Government mitigates its risk by applying TINA and seeking payment when overpayments occur. Conclusion

The definition of “cost or pricing data” has undergone significant revisions in an attempt to clearly define what constitutes cost or pricing data. The authors have not appropriately allowed contractors to forecast and adapt to changes in the marketplace and allow them to certify and submit this data under TINA. The definition should be adapted to allow contractors to forecast indirect costs based on their forecasted workload. Whereby allowing them to be more responsive/realistic in their bidding based on changes in the marketplace. Additionally, a subsection should be added to allow the contractor or subcontractor to seek compensation from the Government for understated prices. These changes would allow the contractor to adapt to changes in the marketplace.

References

Reimer, J. (1997, November-December). Truth in Negotiations Act-What is Fair and Reasonable? Program Management Magazine, 50-53.

Walker, Darryl L. (2003, May). The Cost or Pricing Data Dilemma. Contract Management Magazine, 46-49.

Muskopf, J. Truth in Negotiations Act (TINA) 2006, Making a Comeback?
[PowerPoint Slides]. Retrieved from https://acc.dau.mil/docs.

Diguiseppe, T. (2011). Understanding the Truth in Negotiations Act in Federal Procurement

Federal Acquisition Regulation. (n.d). Retrieved from https://www.aqusisition.gov/far/html

United States Code. (n.d). Retrieved from http://www.gpoaccess.gov/uscode/

Kilcullen. (1995) When Does a Management Decision Have to be Disclosed Under TINA? Retrieved from http://www.attny.com/cpgpage1.html

Aerojet Solid Propulsion Company v. Secretary of The Army, 291 F.3d 1328 (2002).

Michael W. Wynne, Secretary of the Air Force v. United Technologies, 463 F.3d (2006).

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