By Government Contracts Editorial Staff
The Armed Services Board of Contract Appeals sustained an appeal of a government defective pricing claim because the contractor’s cost proposal did not possess the requisite degree of certainty necessary for providing certified cost data to the government. The appeal involved a dispute over the pricing of a delivery order for the manufacture of infrared countermeasure decoy flares issued under an indefinite quantity/indefinite delivery contract. When the government requested a proposal for additional flares, the contractor was in the process of automating its manufacturing processes and bringing two additional plants on-line. The contractor had completed the previous DO utilizing its automated manufacturing processes at its original plant. The contractor’s proposal for the new DO did not contain any material and labor usage data related to the prior DO. Instead, the proposal contained similar data from earlier jobs that the contractor had produced without the automated processes. The government argued it relied on defective material and usage rates when it negotiated the price for the second DO and that it agreed to a higher price than it would have if it had access to the prior DO’s data.
TINA Requirement. The Truth in Negotiations Act requires contractors “to certify that, to the best of … [their] knowledge and belief, the cost or pricing data submitted was accurate, complete and current” (10 USC 2306a(a)). The term “cost or pricing data” means “all facts that, as of the date of agreement on the price of a contract … a prudent buyer or seller would reasonably expect to affect price negotiations significantly” (10 USC 2306a(h)). The “term does not include information that is judgmental, but [it] does include the factual information from which a judgment was derived” (Id.). Here, the job cost sheets prepared by the contractor during the production of the prior DO were management tools that contained both factual and judgmental information. The reports did not possess the requisite degree of certainty necessary for providing certified cost data to the government. In particular, at the time of price agreement, the reports were based on estimates and not sufficiently certain to be certified as “cost and pricing data” under TINA. Moreover, the government was aware of the effect of automation on the pricing for the flares, but chose instead to rely on manufacturing data from earlier, non-automated jobs. As the government acknowledged during its negotiations, the pricing of the non-automated jobs best reflected a compromise between the increased efficiency of automation and the inefficiency of increasing production. The board concluded that having the data from the prior DO would not have shed light on the anticipated inefficiencies of qualifying new plants, installing new equipment, and hiring new workers, and, ultimately, would not have changed the price the government negotiated with the contractor. (Alloy Surfaces Co., ASBCA, ¶96,007)
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