ETHICS CORNER DEFENSE DEPARTMENT
DoD Policy Memorandum Rejects ‘Sweeps’ Data
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Complying with the Truth in Negotiations Act, 10 U.S.C. § 2306a, just became a whole lot harder for defense contractors.
The law, also known as TINA, was originally enacted by Congress in 1962. It aims to place the government on a level playing field with contractors in price negotiations. Subject to certain exceptions, the statute requires contractors to disclose cost or pricing data that are current, accurate and complete as of the date of agreement on price — sometimes called the “handshake” date. It also requires contractors to submit a certification of compliance with this requirement.
Cost or pricing data are defined broadly as facts that reasonably prudent buyers and sellers would expect to affect price negotiations significantly and contribute to the soundness of estimates of future costs. They include vendor quotes, production costs, learning curves, estimates to achieve business objectives, and management decisions.
Recognizing the inherent lag time between the creation of the data and its availability to the contract negotiator, contractors have customarily performed immediate post-handshake “sweeps” of their databases and functional organizations to provide the government with any data that may have escaped the pre-handshake dragnet. The government, in turn, has customarily accepted the information, evaluated its impact on price, and negotiated, if and as appropriate, an adjustment to the price.
The net result was that the government had all the data, its impact on price was addressed, and the contractor avoided liability under the Truth in Negotiations Act and the False Claims Act.
Everyone was happy.
In a memorandum dated June 7, the Defense Department reversed decades of procurement practice that has been embraced by industry and the government alike.
The memo, issued by Director of Defense Pricing/Defense Procurement and Acquisition Policy Shay Assad, aims to reduce acquisition lead time by eliminating the time honored practice of conducting Truth in Negotiations Act sweeps after the handshake date.
"The new policy also exposes contractors to an increased risk of liability under the False Claims Act."
Data that are not current, accurate and complete as of the handshake date are said to be defective. The consequences of defective pricing can include price reductions, penalties and even False Claims Act allegations based on false certification.
It is impossible for most contractors to provide up-to-the-minute cost or pricing data. Even in the information age, it takes time to make its way to the individual responsible for contract negotiations.
This is particularly true in the case of large contractors with multiple sites, thousands of employees and numerous subcontractors.
Assad’s memo directs contracting officers to “request” offerors to execute the TINA certificate within five days of the agreement on price. In addition, contracting officers are directed to ignore any sweeps data furnished after the date of agreement on price until the contract action has been awarded. At that point, the contracting officer must evaluate the sweeps data to determine whether it rendered the pre-handshake data defective and entitles the government to a price adjustment.
This is absurd. The Pentagon is telling contracting officers to ignore data being proffered by contractors to ensure compliance with the Truth in Negotiations Act for the purpose of manufacturing post-award TINA claims against the contractor. Ironically, Assad’s stated objective is to streamline the acquisition process — an objective that is ill-served by substituting the claims process for an additional, limited round of negotiations.
The new policy also exposes contractors to an increased risk of liability under the False Claims Act. Contractors will be encouraged and perhaps required to execute the TINA certificate without sufficient time to complete the sweep and address the price impact. Enterprising plaintiffs’ attorneys will argue that this is sufficiently “reckless” to justify a False Claims Act complaint and, with it, the threat of treble damages.
However, risk mitigation strategies are available to the contractor. One is to postpone agreement on price until the sweep has been completed, and establish a provisional price and make the government wait for the handshake date. There may still be some data that lag, but they will be far more limited.
Another strategy is to agree on an effective date for the TINA certificate that is earlier than the handshake date. This is permissible under FAR 15.403-4(b)(2) and could eliminate from the scope of the certificate some of the lag time data that sweeps are designed to capture.
Additionally, contractors could “just say no.” They can advise the government prior to award that there is no longer an agreement on price unless and until the government accepts, evaluates and negotiates the impact of the sweeps data. This may be the only way to avoid a violation when additional data comes to light after the handshake date.
None of these strategies is particularly conducive to a cooperative customer and supplier relationship. But they may be preferable to a post-award TINA claim, which also is not ideal for customer relations.
John Chierichella and Keith Szeliga are partners resident in the Washington, D.C. office of Sheppard, Mullin, Richter & Hampton LLP, and members of the firm’s government contracts practice group and aerospace and defense industry team. They can be reached at email@example.com and firstname.lastname@example.org, respectively.