TRUTH IN NEGOTIATIONS—COMPETITIVE COST-TYPE PROPOSALS AND ALL NONCOMPETITIVE PROPOSALS

The Truth in Negotiations Act, Public Law 87-653, is of primary importance to contractors as it relates to the development and submittal of cost and pricing data for negotiated contracts. Unless certain exceptions apply, this act requires that both prime contractors and subcontractors submit cost or pricing data and certify that, to the best of their knowledge and belief, the cost or pricing data submitted are accurate, current, and complete, in certain situations:

1. Before award of a negotiated prime contract over $700,000

2. Before pricing of a contract change or modification over $700,000

3. Before award of a negotiated subcontract in excess of $700,000, at any tier, if prime and higher tier subcontractors have furnished certified cost or pricing data

4. Before pricing of a change or modification over $700,000 to such a subcontract.

The thresholds for submission and certification of cost or pricing data should not be confused with government agency practices regarding the audit of price proposals. Beginning in late 2010, the Defense Contract Audit Agency (DCAA) determined that cost-type proposals under $100 million and fixed-price type proposals under $10 million will no longer be reviewed. However, these proposals are still subject to the Truth in Negotiations Act and are subject to an after-the-fact review to determine if accurate, current, and complete cost or pricing data were disclosed.

Given the requirements of the Truth in Negotiations Act, it is important to define cost analysis and price analysis. Cost analysis involves the evaluation of the judgmental factors used by the contractor in estimating costs. Profits are also subjected to separate review using specific criteria. Cost analysis includes the following considerations: (1) verification of cost or pricing data; (2) evaluation of the effect of the offeror’s current practices on future costs; (3) comparisons of costs proposed for individual cost elements; (4) compliance with government cost principles and regulations; (5) analysis of make-or-buy programs; and (6) should-cost analysis, which is a technique that evaluates contractor prices based on what an item should cost rather than based on historical costs.

Price analysis is the process of examining and evaluating a contractor’s proposed price without separately evaluating individual cost and profit elements. Some methods of price analysis include: (1) comparison of prices submitted by various contractors; (2) comparison with prices of prior quotations for similar items; (3) comparison with prices set forth in published price lists, published market prices of commodities, etc.; and (4) comparison with estimates of cost developed independently by government personnel.