Contract pricing

Army Lawyer, Jan-Feb, 2003

GAO Questions DOD's Use of TINA Waivers (1)

To determine whether proposed purchase prices are fair and reasonable, contracting officers can, under certain conditions, request certified cost or pricing data in accordance with the Truth in Negotiations Act (TINA). (2) The usual scenario for requiring certified cost or pricing data is sole-source contract actions that exceed $550,000. (3) The head of the contracting activity (HCA), however, can grant a waiver from requiring submission of cost or pricing data under Federal Acquisition Regulation (FAR) section 15.403-1(b)(4), if there is sufficient information available to determine price reasonableness. (4) The General Accounting Office (GAO), however, recently reported that "[t]here was a wide spectrum in the quality of the data and analysis being used" to determine price reasonableness when the HCA waived certified cost or pricing data. (5)

The GAO recently noted that Congress expressed concern "that regulations do not provide adequate guidance on when waivers should be used." (6) The GAO reviewed "[twenty] waivers valued at more than $5 million each in fiscal year 2000" totaling approximately $4.4 billion. (7) To determine price reasonableness for these contracting actions with cost or pricing data Waivers, the GAO found that most contracting officers conducted a price analysis by reviewing the proposed price without a supporting cost breakdown. (8) Although some of the price analyses involved complex price analysis methods or a review of uncertified cost data, (9) the GAO concluded, "[the Department of Defense (DOD)] is at a greater risk of inflated pricing because it is waiving the requirement [for certified cost or pricing data]." (10) The GAO ultimately recommended amendments to the FAR to "(1) clarify situations in which an exceptional case waiver may be granted, (2) identify what type of data and analyses are recommended for arriving at a price when waivers are granted, and (3) identify what kinds of outside assistance should be obtained." (11)

The DOD generally agreed with the GAO's findings, but disagreed with the recommendation to incorporate the guidance in the FAR. Instead, the DOD plans to incorporate the GAO's guidance in its Contract Pricing Reference Guides. The GAO, however, still believed that incorporating the guidance into the FAR "would help clarify the regulation" and is appropriate because the FAR "is the definitive source for contract management." (12)

"I Think I'll Take a Mulligan" The ASBCA Reverses Its Defective Pricing Entitlement Decision in Its Quantum Decision

In the original Black River Limited Partnership (13) entitlement decision, the Armed Services Board of Contract Appeals (ASBCA) found that the appellant, Black River, was entitled to the reinstatement of a withdrawn equitable adjustment under a tax adjustment clause. (14) The tax adjustment clause provided for an upward adjustment to Black River's monthly capacity charge for a high temperature water (HTW) facility at Fort Drum when certain tax law changes affected their after-tax rate of return on the investment. (15) The originally withdrawn equitable adjustment had provided for a rate of 68.6%. (16) The ASBCA, however, also determined that "[the] data supplied by appellant in support of its tax adjustment request ... was not current, complete and accurate, as required by TINA, and thereby entitled the Government to a price adjustment under the contract." (17)

Due to the findings of entitlement for the government and Black River, the ASBCA remanded the case to the parties for quantum negotiations. (18) As often happens, Black River and the government were unable to agree on an adjusted amount for the capacity charge; accordingly, Black River brought a subsequent quantum appeal to the ASBCA. (19) In preparation for the hearing, Black River introduced proposed trial exhibits and testimony that related to the adequacy of its cost or pricing data submitted for the modification related to the tax adjustment clause. (20) Before the quantum appeal hearing, the government filed a motion in limine to exclude evidence of the cost or pricing data's adequacy because the earlier entitlement decision had ruled on that issue. The presiding judge denied the motion, but permitted the government to renew the motion in its post-hearing brief. (21)

In its brief, the government argued that the doctrines of law of the case and res judicata prevented Black River from relitigating matters presented and decided in the prior entitlement hearing. (22) Unfortunately for the government, this argument did not persuade the board. Specifically, the board decided that its prior ruling in the entitlement decision was not binding and considered the evidence necessary for resolving a central quantum issue before the board. (23) The board described this responsibility by stating, "The fact that our findings and conclusions here differ in some respects from those in our earlier decision does not stand in the way of our obligation to resolve the quantum issue." (24)