Defective Pricing

The government contracting industry provides a profitable source of business for an array of companies. While some commercial entities working in the government contracting space are large multi-national corporations, other businesses are mid-sized or even small. In fact in recent years, many businesses entering into the government contracting space have been Small Disadvantaged Businesses (SDBS), Women-Owned Small Businesses (WOSBS), and Service Disabled Veteran-Owned Small Businesses (SDVOSBS). However, regardless of the type of business entity or the characteristics of the commercial venture, certain government contracting rules apply.

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Some of these rules are set forth by the Truth in Negotiations Act or TINA. TINA places the government on equal footing with contractors and requires the contractor to make certain certifications and to provide the government with certain types of information. Contractors that fail to understand or adhere to the responsibilities and obligations set forth in TINA and other laws and regulations may find themselves facing an action for defective pricing.

Government Contracting Price Data Must Be Credible

For government contracts greater than $700,000, TINA requires certified pricing data. The pricing information must be accurate, complete, and up-to-date as of the date where the parties agree to the pricing terms. Furthermore, the contractor must provide certification that the information provided meets these requirements. Furthermore, government contracts with the U.S. Coast Guard, Department of Defense (DoD), or with NASA must also be accompanied with pricing information concerning potential modifications to the contract. This requirement applies if the total cost for the changes would be in excess of 5% of the contract price or greater than $500,000. Other obligations set forth by TINA include:

  • A government right to access and analyze contractor records.
  • The requirements for obtaining pricing data.
  • How to submit data for pricing.
  • Sets forth rules governing rights and remedies in defective pricing claims.
  • A right for the government to recover overpayments including cost, profit, and interest.
  • Actions under TINA can include not only the prime contract, but also subcontracts and modifications.

TINA Applies to all government contracts and its applicability is not impacted by the type of government contract.

When Is a defective Pricing Action Likely to Arise?

An action to recover defective pricing can only be filed when a certain set of circumstances is true. These circumstances are:

  • The government contact in question is in excess of the $700,000 threshold and is otherwise compatible with the applicability of TINA.
  • The government contractor had accurate, complete, and current data available at the time of and leading up to an agreement on price.
  • The government contractor failed to submit accurate, complete, and current pricing data to the contracting officer.
  • The government used the inaccurate data to negotiate the price and to make a decision on the contractual pricing.
  • The use of such data resulted in increased costs to the government.

While the government is not obligated to bring a defective pricing action, it is free to do so and is likely to do so if the pricing issue resulted in a substantial loss to the government.

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How Can I Manage the Risk of a Defective Pricing Action?

A thorough understanding of the circumstances where a TNIA defective pricing claim can arise can help businesses take steps to avoid such an event. The careful and strategic guidance of a trusted government contracting attorney can help government contractors facing an array of situations including:

  • Identification of contractual provisions under Federal Acquisition Regulations that invokes TINA and its duties.
  • Understanding the policies and approach DCAA uses to audit.
  • Understanding the auditing programs in place.
  • Identifying and understanding the specific factors and risks that can result in a defective pricing action.
  • How to handle a defective pricing action once it has been commenced by the contracting officer.

Facing a Defective Pricing Action under the Truth in Negotiations Act?

If your business is facing a defective pricing action, an improper handling of this challenge can significantly impact your company’s bottom-line. The experienced and dedicated government contracting and defective pricing action defense attorneys of Meredith & Narine can protect your business from government overreach.  To schedule a confidential initial consultation call (215) 995-2769 or contact us online.

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