DoD proposed amendments to DFARS to reduce unnecessary TINA regulatory actions

December 16, 2015

Government Contracts Alert

Author(s): Vincent J. Napoleon, Nia Newton

The DoD is continuing its efforts to increase efficiency in its acquisition, technology and logistics efforts. This alert discusses the latest proposed amendments to the DFARS and how it may affect contractors.

Over the last several years, the Department of Defense (DoD) has been engaged in an initiative to increase its ability to acquire products in support of the warfighter with an emphasis on innovation, technical excellence and quality. To this end, the Better Buying Power (BPP) initiative focuses on the DoD’s continuous effort to ensure productivity, efficiency and effectiveness in its acquisition, technology and logistics efforts. Among the many areas, the BBP initiative focus is to eliminate or minimize actions—including statutes or regulations—that are unnecessary or unproductive and add little value in delivering warfighter capability. Within the last year, BBP 3.0 under the overarching theme, Achieving Dominant Capabilities through Technical Excellence and Innovation,[1] identified unproductive or non-value added regulatory activity, which if eliminated, could reduce acquisition costs, cycle times, and eliminate industry uncertainty regarding regulatory compliance. Submission and resubmission of cost or pricing data pursuant to the Truth in Negotiation Act (TINA) and FAR 15.407-1(c), which requires the contracting officer to request an audit to evaluate the accuracy, completeness and currency of cost data, is usually provided by contractors to avoid defective pricing liability. Submission and resubmissions have been one of the longstanding concerns expressed by industry due to its impact on cost and efficiency in the delivery of warfighting capability to the DoD. In response to the BBP and industry concerns, the DoD on November 20, 2015 published a proposed rule designed to minimize the submission and resubmission of cost or pricing data. This proposed rule amends the Defense Federal Acquisition Regulation Supplement (DFARS) requiring contracting officers to request a limited-scope audit when a contractor voluntarily discloses defective pricing, “unless a full scope audit is appropriate for the circumstances.”

The proposed rule

This proposed rule amends DFARS 215.407-1(c) to:

  • Require DoD contracting officers to request a limited-scope audit when a contractor voluntarily discloses defective pricing post-contract award, unless a full-scope audit is appropriate for the circumstances;
  • Direct officers to consult with the Defense Contract Audit Agency (DCAA) to determine the appropriate scope of the audit, permitting DCAA to evaluate:
    • §  The completeness of the contractor’s voluntary disclosure.
    • §  The accuracy of the contractor’s cost impact calculation for the affected contract.
    • §  The potential impact on existing contracts, task orders, delivery orders or other proposals submitted by the contractor; and
  • Clarify that voluntary disclosures of defective pricing:
    • §  Are not voluntary refunds by the contractor;
    • §  Do not waive the government’s entitlement to recovery of any overpayment plus interest on the overpayments; and
    • §  Do not waive the government’s rights to pursue defective pricing claims.

Analysis & discussion

In effect, the DoD would permit DoD contracting officers the flexibility to focus an audit only on the defective portions disclosed by the contractor, rather than reexamining all previously provided pricing data. The purpose of the proposed rule is to reduce unnecessary and repeated submissions of certified costs or pricing data; however, the way in which the proposed rule is currently drafted does not appear to accomplish this scheme. In fact, it can be argued the proposed rule encourages more audits especially under the two-tiered limited-scope and full-scope audit regime. Although audits would be condensed in some cases, there is no real change for the government or the contractor because audits will continue to be conducted and contractors will still be required to update their pricing data if they see changes in rates or strategy.

There may be a number of negative consequences associated with the DoD’s bifurcation of the auditing process. Firstly, expediting the audit process by implementing a limited-scope audit option could encourage more contractors to update pricing data more often than anticipated, thereby creating greater inefficiency and cost in the contracting process. Defective pricing audits can be time consuming and burdensome on government contractors. Potentially eliminating the risk of an audit to all previously provided pricing data makes updating easier, and thus may result in contractors updating their pricing data more frequently.

There is also an issue of discretion. The proposed rule directs officers to consult with the DCAA to determine the appropriate scope of the audit and explains what the DCAA will evaluate; however, there are no concrete standards or thresholds laid out for the contracting officers making these determinations. Government contractors will have to submit their pricing updates with no definitive understanding of whether contracting officers are going to conduct a limited-scope or full-scope audit. This proposed approach allows for significant subjectivity by contracting officers in the way they judge certified cost or pricing data submissions and subsequent updates. Indeed, the risk of subjectivity in contracting officer decision making is exasperated by the proposed rule.

Ensuring efficiency in TINA submissions and re-submissions

While some may argue there is utility in implementing the proposed rule, others may conclude that it does not create the kinds of efficiencies desired by the BBP initiative. Contractors have concluded, as outlined in a September 2015 report by the Under Secretary of Defense (Acquisition, Technology, and Logistics)[2], that there are other recommendations that address the issues related to the submission and resubmissions of certified cost or pricing data. For example, one recommendation is for the DoD to return to the 1980s’ practice of allowing contractors the option to voluntarily disclose defective pricing data post-award and provide the DoD with refunds for overpayment, without the contractor being subjected to a defective pricing claim and an audit by the government. This could reduce the burden on government contractors and contracting officers.

Another recommendation calls for increasing statutory TINA thresholds for prime contractors from $700,000 to $5,000,000. This change would reduce the number of contractors subject to the preexisting rule and as a result reduce the number of submitted certified cost or pricing data certifications the government must review.

Reducing government burdens can also be accomplished by simply limiting the resubmission of certified cost or pricing data to items that change by a given threshold (e.g., 10 percent). For example, if a contractor’s change in price is 5 percent, there would be no need to send updated certifications versus a contractor whose change in price is 11 percent. In the latter case, a resubmission of cost or pricing data would be required.

Another contractor recommendation is for the government to consider certified cost and pricing data to remain current for a specified period (e.g., 90 days).

Looking ahead

Although the proposed rule has the right intentions, its language arguably does not address the real issue, which is to ensure efficiency in the acquisition process by removing unproductive and unnecessary requirements imposed on industry. This includes reducing the number of repeated submissions of certified cost or pricing data by government contractors. The bifurcated audit process the DoD has presented in the proposed rule could in fact increase the number of repeated submissions while providing no clear guidance to contracting officers as they exercise their judgment in determining whether a limited-scope or full-scope audit is appropriate. Arguably, the proposed rule may not be as effective as intended. However, in getting this right, the DoD is accepting comments until January 19, 2016 to be considered as it formulates its final rule.

  1. Implementation Directive for Better Buying Power 3.0 - Achieving Dominant Capabilities through Technical Excellence and Innovation, Under Secretary of Defense, Acquisition, Technology, and Logistics, (April 09, 2015), available here.
  2. D. Mark Husband, David J. Nicholls, Eliminating Requirements Imposed on Industry Where Costs Exceed Benefits, Under Secretary of Defense, Acquisition, Technology, and Logistics, (September 29, 2015), available here.

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