Understanding the Truthful Cost or Pricing Data Act: A Guide for Government Contractors

BRENDAN HALLORAN: Hello, and welcome to the Cherry Bekaert Government Contractors podcast, where we discuss current Government Contracting trends, compliance matters, and best practices to guide federal contractors forward.

My name is Brendan Halloran, and with me today is Jeff Anessa. We are both from the Cherry Bekaert Government Contractor Services Group.

Today, we will be talking about the Truthful Cost or Pricing Data Act, which is formally known as the Truth in Negotiations Act, or TINA. We will take a deeper dive into the requirements by providing some background and history.

We will explain cost or pricing data, thresholds, and exceptions to the Act. We will also discuss the certification and disclosure process, defective pricing, and some best practices for contractors to consider. Jeff, thanks for joining me today.

JEFF ANESSA: Yeah, glad to be here.

BRENDAN HALLORAN: We will start with a brief background on the Truthful Cost or Pricing Data Act. Most folks are more familiar with its previous name, the Truth in Negotiations Act, or TINA.

Most folks probably still refer to it as TINA. Essentially, the Act requires contractors to certify cost or pricing data as accurate, current, and complete.

Contractors really need to be aware of where this applies and what exceptions might exist where certified cost or pricing data would not be required.

While this is updated periodically, the current threshold for certified cost or pricing data is $2 million. This threshold has gradually increased over the years.

To understand more about what we are talking about, Jeff, can you expand a bit on what constitutes cost or pricing data?

JEFF ANESSA: Definitely. Cost or pricing data is a broad term used to refer to factual information that could significantly affect price negotiations.

This includes information that is verifiable and factual, but not judgmental. Judgments do not actually count as cost or pricing data.

However, all of the facts and data utilized to make a judgment can be counted as cost or pricing data to support that cost.

Cost or pricing data is more than just historical accounting data. It includes any information that can be used to estimate future costs and determine the validity of costs that have already been incurred.

Examples include vendor quotes, data supporting projections for rates, salary information, and any known changes.

If you have planned raises or amounts that are going to increase for the next year, that would be considered cost or pricing data for the rates you are projecting forward.

Something like a union agreement that shows a percentage increase year-over-year would be utilized for projecting those out-year rates.

Other examples include trend data, historical pricing, escalation, and non-recurring costs. There are many things that can be considered cost or pricing data.

There is also another term called "other than cost or pricing data," which applies when the Truthful Cost or Pricing Data Act does not apply.

As you mentioned, Brendan, the threshold for the Truthful Cost or Pricing Data Act is $2 million. When that threshold is not met, the Contracting Officer is required to gather "other than cost or pricing data."

The government will typically try to rely on any other information available within the government, such as price history for the same parts or National Stock Numbers (NSNs).

Second, they will look for other sources of data other than that from the offeror. They will perform market research and look for commercial prices.

If the government is unable to obtain data to determine that the pricing is reasonable, they will go back to the contractor and ask for "other than cost or pricing data."

A lot of times that data can be very similar to cost or pricing data. It can include your historical data, projections, and vendor quotes that you were not required to submit because you did not hit that threshold.

Brendan, you mentioned the $2 million threshold. Can you talk about when it applies and some of the exemptions that exist even when you trip that threshold?

BRENDAN HALLORAN: Definitely. That is a key for contractors to have a clear understanding.

The government frequently requests as much information as possible, but that does not always apply. This is particularly important when you are talking about releasing detailed cost or pricing data.

Common exceptions to certified cost or pricing data include cases where there is adequate price competition.

One thing to consider is that a number of bids may not actually be received, but you can rely on the expectation that there would be an adequate number of responsible offerors.

Commercial products or services are another key exception. A lot of time is being spent on that currently because the government is trying to update its basis for commercial product or service determinations.

Contractors should make sure they have a good basis for determination if they are asserting that a product or service is commercial.

Other less frequent exceptions include cases where a price is set by law or regulation. Another circumstance would be a waiver for the requirement for certified cost or pricing data.

That waiver must be granted by the Head of the Contracting Activity for that specific government buying office. This is not very typical and not something you would expect to get in a timely manner.

Regarding the mechanics, if certified cost or pricing data applies, FAR 15.406-2 provides the standard format for the Certificate of Current Cost or Pricing Data.

This certification requires a contractor to state that the data provided are accurate, complete, and current as of the date the certification is made.

This should be as close to negotiations or finalization as possible. Because negotiations can take an extended period, contractors perform what are typically referred to as TINA sweeps.

This involves ensuring that something more current has not been made available, whether it be a quote, a definitized subcontract, or an update to forward pricing rates.

TINA sweeps are key to ensuring that, at the date of signature, you have assurance that what you are supplying is the most current, accurate, and complete.

If an update occurs prior to a negotiation being finalized, there should be a requirement to update that information if it is impactful to the cost or price.

Jeff, what is the government trying to accomplish with the certification, and what is the risk of defective pricing?

JEFF ANESSA: Defective pricing occurs when a contractor fails to provide the government with accurate, current, and complete cost or pricing data as required by the certification.

To be considered defective, it must result in a significant increase to the contract price.

If a contractor finds recent information that was not included, they should disclose that to the government if they had it at a certain point in time.

The Truthful Cost or Pricing Data Act establishes the government's rights in these situations as well as the requirements for the contractor.

Contractors are required to certify as of a certain date, typically when submitting a proposal and again prior to entering negotiations.

By certifying to that cost or pricing data, there is potential for a post-award audit or review by the government.

The Defense Contract Audit Agency (DCAA) conducts Truthful Cost or Pricing Data audits, also known as defective pricing audits.

They determine if the negotiated contract price was increased by a significant amount because the contractor did not disclose more current, accurate, and complete cost or pricing data.

The burden of proof is on the government in these types of audits to prove that several different criteria have been met.

There is typically coordination between DCAA and the buying commands for identifying which contract awards will go through a defective pricing audit.

DCAA uses a checklist to rank proposals by risk factors to identify if there is a likelihood of defective pricing occurring.

A lot of times, audits are at the request of the buying command depending on how negotiations went or if they have seen a history of a contractor negotiating with subs after the fact to significantly reduce prices.

The biggest thing contractors can do to prepare for a defective pricing audit is to enact best practices, policies, and internal controls.

Having good internal controls in your estimating, procurement, and accounting functions will mitigate the risk that defective pricing will even occur.

You should always ensure that all cost or pricing data is included with the proposal submission. It should be submitted in reference to the FAR Table 15-2 requirements.

You should have a process in place for the development, review, and approval of all proposal deliverables, including the basis of estimate and bill of materials.

A thorough and documented review process ensures that nothing will be missed. Utilizing checklists and templates is a good best practice.

These best practices also contribute to having a sound and compliant estimating business system.

When putting estimates together, you are pulling from your accounting system and procurement team. They need checklists for cost analysis and price analysis.

I also recommend the timely correction of any internal findings or external government findings. Regular internal reviews show due diligence in providing the government with reliable information.

BRENDAN HALLORAN: Jeff, those are key points regarding processes and documentation to support the development and submission of data.

Contractors also need a good process for subcontractors. They must identify where it is applicable to their subcontractors and ensure updates are being captured through the sweep process.

Detailed policies and procedures regarding the timing and documentation of support are key.

Another consideration is the authority to sign certificates. We often see that authority held at a very high level, sometimes as high as the CFO.

Depending on the size of the company, that may make sense. However, we also recommend delegating that authority to an appropriate organizational level, such as the contracts manager level.

This should be someone closely involved with preparing the proposal who understands that data. This also provides a shield against things that may be unknown when pricing is being developed.

Any other thoughts, Jeff?

JEFF ANESSA: If an audit comes up, do not be afraid to push back. It can be frightening when the government audits, but you should understand your cost data and everything that went into it.

Be aware, prepare for it, and do not put it off to the last minute. Be firm and push back where necessary.

BRENDAN HALLORAN: Thanks, Jeff. That is all the time we have today.

If you have any questions, please feel free to reach out to Jeff Anessa or myself, Brendan Halloran.

Thank you everyone for tuning in and listening. Please make sure to follow us wherever you get your podcasts.