Nontraditional Defense Contractor Certified Cost and Price Data Exception

Atlas STS said:

we cannot provide Certified Cost and Pricing Data due to our non-CAS compliant accounting system

I don't see a problem here.  When you submit certified cost or pricing data all you are doing is submitting cost or pricing data that you have to the government and certifying that the data is current, complete and accurate.  This has nothing to do with whether your accounting system is in compliance with the CAS or not.  In fact, as a small business, you are exempt from all CAS requirements.  Thus, the CAS do not apply to you and you do not have to comply with any CAS requirement unless a requirement is made applicable to you by some part of the FAR other than Part 30.

Thank you for your response Retreadfed, I really appreciate it.  Can you help me understand your feedback a little better?  Are you saying that our interpretation of the NTDC exception is incorrect or are you saying that certifying cost and pricing data is not as big a deal as I'm expecting?

My key concern is that I don't know what I don't know.  I have shown what I read as a clear and direct exception, but the responses I'm getting from others, including yours, has me concerned I'm missing something.  Do we not qualify for an exception in your estimation?

If we do qualify for exception, but I certify our data anyway, I am subjecting our company to a potential audit and price reductions right?  With no experience with either of those possibilities, I'm unsure how concerned I should be that my current accounting system is capable of meeting the reporting requirements of an audit, how much the audit would cost us, or what the potential outcome of an audit could do to our small business.  My point being that my understanding is that certifying data is significant and has some potentially very expensive repercussions.  Maybe these are overblown concerns based on inexperience, but I don't think they are without some merit.  I can't imagine most companies voluntarily open themselves up to these types of risks if they meet any other exception.

We here do not know what your company's written request for an exception said, and what if anything the Government thought of it. It is an exception. If it were me, I would ask if the written request for an exception contained adequate information and if so, what the exception granting process is and its status.

On 8/24/2023 at 1:38 PM, Atlas STS said:

Do we not qualify for an exception in your estimation?

I cannot answer that question because I do not have all the facts, such as a copy of the RFP, what discussions have taken place between your company and the government, exactly what your position on submission of certified cost or pricing data is, etc.  What I was trying to convey to you is that there is no correlation between being able to certify cost or pricing data and having a CAS compliant accounting system.  I simply don't understand what your concern is in this regard.  As you have noted, you are a small business.  As such you do not have to comply with the CAS, except to the extent that a portion of the CAS are incorporated in some other part of the FAR.  For example, some of the cost principles in FAR Part 31 incorporate portions of some of the Standards.  If you have a contract subject to the cost principles, you would have to comply with the portion of the CAS incorporated there, but no more.  Further, you cannot be cited for a CAS non-compliance for failure to comply with the portions of the CAS included in the cost principles.  Instead, you could have the cost disallowed.  However, FFP contracts are not subject to the cost principles and they do not control what a contractor is paid under such contracts.  Instead, the contractor is paid the fixed price regardless of what costs it incurs in performing the contract.

But getting back to cost or pricing data, as mentioned before, your only obligation in this regard is to submit data that are current, complete, and accurate.  The purpose behind this is to provide the government with the same information you have in regard to estimating what is a fair and reasonable price.  If you meet this requirement, you really have little to be worried about.  While you can be audited, that audit will be conducted by the government and is limited to the question of whether the data you submitted was current, complete and accurate.   The audit does not measure whether your accounting system is compliant with the CAS.  Because the audit will be conducted by the government, you do not pay for it, although you will incur some costs to support the audit, such as the cost of making your records available to the auditors and the time of personnel who interact with the auditors.

Retreadfed said:

The audit does not measure whether your accounting system is compliant with the CAS.

@Atlas STS may be concerned with this small businesses' accounting system itself, not with whether it is compliant with CAS. Shouldn't the accounting system in use be capable of and report certain financial data to support the cost or pricing data requirements. What would a goverment audit report likely say if the accounting system is a shoebox that you have to sift through to hopefully find the support for the cost or pricing data submitted to the government?

On 8/24/2023 at 10:38 AM, Atlas STS said:

I'm unsure how concerned I should be that my current accounting system is capable of meeting the reporting requirements of an audit,

@Atlas STS, does your company have a certified public accountant (CPA) report that it meets Generally Accepted Accounting Principles (GAAP)?

Retreadfed said:

However, FFP contracts are not subject to the cost principles

This is an over generality and not necessarily correct if you are referring to the cost principles in Part 31.

See, for example 31.102 “Fixed-price contracts”, when cost analysis is used.

Cost analysis isn’t confined to certified cost or pricing. It may be used when evaluating data other than certified cost or pricing to determine cost reasonableness when a fair and reasonable price cannot be determined through price analysis alone. (15.404-1 Proposal analysis techniques. (a)(4)).

Edit: It would seem to me that a manufacturing company ought to be able to determine how much it costs to make something or buy something that it sells…

Atlas said that it isn’t necessary to treat  these items as commercial supplies or services.

@Retreadfed what other facts are relevant for an exception for NTDC other than whether or not we're NTDC?  What nuance am I missing?  Do other exceptions, like commercial products and services have to prove anything other than they're commercial?  I fully understand that CAS is not an issue here and I think the buyer concurs.  I do appreciate the emphasis on ensuring we're submitting data that are current, complete, and accurate.  If I only have to defend that what I have submitted adheres to those requirements as of this moment, perhaps certifying isn't as onerous as I'd thought.  I do still hesitate that someone thought it important enough to carve out exceptions for the requirement for a variety of suppliers, including NTDC.  Someone way more familiar with this than me thought that certifying data might prevent companies like ours from supplying DOD if we didn't have an exception.  I still cannot fathom how any company would ever submit to a requirement when something specifically exempts it.  I did take your advice and ask the buyer if they require anything beyond what we've submitted to process our exception.  It is not the first time we've done so which is why my question for this forum was if I should be doing more or doing it differently.

@Neil Roberts I cannot verify if our accounting method meets GAAP as I am not familiar with those requirements.  We use software typical for very small businesses that don't routinely perform work for the government.  It has been sufficient for our intermittent, smaller FFP contracts with the government.  I thank you for understanding that this is a reason why I'm hesitant.  I think everyone assumes anyone who does business with the government has dedicated CPAs/accountants, but in our case it has not been cost effective.  We do plan on upgrading our system if we win this contract.  If we were audited, I have quotes/email/etc. that I could provide on how we generated our estimate.  What I won't have is a high grade accounting system that shows how we estimated our labor pools, rates, etc.

@joel hoffman we absolutely know how much it costs to make something that we sell, but of course certified cost and pricing data asks for MUCH more than that.  Even other than certified can ask for data in the same format as certified, which is what we provided in an effort to ensure the buyer has what they need in the format they need (although they didn't specify a format).  All we asked is that it not be required to be certified data.  It isn't necessary to treat these items as commercial, but per the FAR, they could.  And that would also negate the need for certified data.  Interestingly enough, everyone understands and readily accepts the exception for commercial; so what's the pushback for the exception for NTDC?

I do appreciate everyone's feedback especially if my concerns are excessive or irrelevant based on how this stuff actually works.  That being said, why is the answer to my question on how I communicate to the buyer that we want to exercise our clear exception met with pushback?  I could certify our data, but why on earth should I if I don't have to?  Why does this specific exception, which should apply to nearly every small business in the US, not merit the same consideration as any other?  Shouldn't I advocate for my business to not unnecessarily accept costs and risks, even if they're trivial to larger businesses?

As I considered just caving and certifying the data, I read FAR 15.406-2(e) and 15.403-4(c) which state that if an exception is later found to apply, the data must not be considered certified cost and pricing data, even if we certify it.  Perhaps that further reinforces @Retreadfed point that certifying is really not a major issue?

ATLAS., let me clarify. I don’t disagree with you that you don’t have to provide and certify “cost or pricing data”, here. No pushback on my part.

By the way- If your labor, for example, is based upon best estimates because you don’t have exact costs, even with (or without) “cost or pricing data”, you could identify what is judgmental  data within your estimate and explain the basis of the estimate. Such judgmental data is not considered to be “cost or pricing data” for purposes of certification.

On 8/24/2023 at 10:59 AM, Atlas STS said:

DFARS 252.215-7010 (especially (b)(ii)(E)) which states that NTDC qualify for an exception from certified cost or pricing data

ATLAS, is this DFARS clause in the solicitation? If yes, what is the government’s interpretation of it?

If not in the solicitation, I suggest that you insist on its inclusion as part of the negotiation.

Atlas STS said:

As I considered just caving and certifying the data,

I don't know your place in this company. I sympathize with your reservations about the risk. Should you do so, In this case, I think you should consider having a company official sign it, if that is not already the practice.

Atlas STS said:

why is the answer to my question on how I communicate to the buyer that we want to exercise our clear exception met with pushback?

What exception are you talking about?  Supplies or services provided by an NTDC are not automatically treated as commercial products or services.  You acknowledged this in your original post when you cited to DFARS 252.215-7013.  Also, see DFARS 212.102.  Unless the contracting officer exercises the discretion granted by 212.102 to treat your product as a commercial product, you are not exempt from the requirement to submit certified cost or pricing data unless another exception applies.

So I think this is true: GVT & you agree that they cannot require you to provide certified cost/price data.  Rather than demanding certification, they are asking for it.  That is, they want you to voluntarily certify the data you have already provided to them.  Correct?

If this is what's going on, the path of least resistance for you is to have the company owner (not you) certify the data and be done with it.     

Speculation: They are struggling to get to fair and reasonable pricing.  This is unfamiliar territory for a lot of contracting folks - over-budget for a non-commercial product, from a sole offeror, who is a very small non-traditional new-to-the-DoD company.  This eliminates the easy and routine ways to get to fair and reasonable pricing.  They are down to the seventh and "final" price analysis technique (FAR 15.404-1 b 2 vii) - other than certified cost or pricing data.  So what is normally a very straightforward and simple analysis is, in your case, unusually complicated and looks, at a glance, like it probably should have certified data. Some approving official unfamiliar with this complicated situation (mistakenly) skims the award docs, and kicks them back for missing the certification letter.  Rather than push back against that official, CO is going path of least resistance, and asking you for the certification so they can add that single-page file to the package, change nothing else, and re-route for approval.  We will never know, but that's my guess.

Aside: "Final" pricing technique in quotes because the FAR explicitly states these are examples, not an exhaustive list, but in practice, its sometimes treated as an exhaustive list.  Like everyone assumes a written pricing analysis MUST refer to one of those techniques.  Or worse - I've seen a checkboxes for which techniques were used, and there was no box for 'other.'  (This was not my office, btw)

All, I really appreciate the feedback and I think you've convinced me that certifying the data isn't as problematic as I was expecting.  I wanted to respond to everyone's points so far in case future questioners run across this thread, but there doesn't seem to be a magic bullet for this situation like I was hoping!

@joel hoffman Thank you for clarifying.  I think my biggest hesitation is that other than my material and subcontracting costs, which have defendable quotes, I don't know if I have the right documentation to defend an audit.  It's based on a best estimate from previous jobs, but I don't know what an audit requires having never been through one.  If my best estimates, as communicated in my proposal, are sufficient then that does take some pressure off of certifying.  DFARS 252.215-7010 wasn't in the solicitation, but it referenced by 252.215-7008 (Only One Offer) which was.  I will ask that it be added along with FAR 15.403-5 (Instructions for submission of certified cost or pricing data and data other than certified cost or pricing data).

@Neil Roberts It's not a personal concern on certifying the data as we're so small that we're all intimately involved.  I just don't want to recommend to our team, including our owner, that we certify and then it come back to bite us.  Sometimes all it takes is one mistake to put a small business out of business for good.

@General.Zhukov I imagine your assessment is pretty accurate.  The buyer's team laughed when I said I didn't need to certify until I pointed out the clause excepting NTDC and then they were kind of intrigued because they'd never seen it before.  They said they needed to research it, but that was months ago and they still seem to be expecting me to certify.  They haven't firmly denied my request yet, but I think it's holding up progress toward award.

It seems clear to me that my company is excepted per 252.215-7010 and further that FAR 15.403-5 clearly states that even if certified, excepted company data will be treated as uncertified.  In my mind, that makes an audit either less likely or easier to defend.  Further, if "certifying" just means this is the best info we have right now and doesn't hold me to changes once we start producing our product, that also seems to reduce the impact of certifying.  Perhaps we've already incurred the most difficult part of certification by providing our data in the same format as certified data.

Again, thank you all for your advice!

Atlas STS said:

All, I really appreciate the feedback and I think you've convinced me that certifying the data isn't as problematic as I was expecting.  I wanted to respond to everyone's points so far in case future questioners run across this thread, but there doesn't seem to be a magic bullet for this situation like I was hoping!

@joel hoffman Thank you for clarifying.  I think my biggest hesitation is that other than my material and subcontracting costs, which have defendable quotes, I don't know if I have the right documentation to defend an audit.  It's based on a best estimate from previous jobs, but I don't know what an audit requires having never been through one.  If my best estimates, as communicated in my proposal, are sufficient then that does take some pressure off of certifying.  DFARS 252.215-7010 wasn't in the solicitation, but it referenced by 252.215-7008 (Only One Offer) which was.  I will ask that it be added along with FAR 15.403-5 (Instructions for submission of certified cost or pricing data and data other than certified cost or pricing data).

@Neil Roberts It's not a personal concern on certifying the data as we're so small that we're all intimately involved.  I just don't want to recommend to our team, including our owner, that we certify and then it come back to bite us.  Sometimes all it takes is one mistake to put a small business out of business for good.

@General.Zhukov I imagine your assessment is pretty accurate.  The buyer's team laughed when I said I didn't need to certify until I pointed out the clause excepting NTDC and then they were kind of intrigued because they'd never seen it before.  They said they needed to research it, but that was months ago and they still seem to be expecting me to certify.  They haven't firmly denied my request yet, but I think it's holding up progress toward award.

It seems clear to me that my company is excepted per 252.215-7010 and further that FAR 15.403-5 clearly states that even if certified, excepted company data will be treated as uncertified.  In my mind, that makes an audit either less likely or easier to defend.  Further, if "certifying" just means this is the best info we have right now and doesn't hold me to changes once we start producing our product, that also seems to reduce the impact of certifying.  Perhaps we've already incurred the most difficult part of certification by providing our data in the same format as certified data.

Again, thank you all for your advice!

If your estimates are judgmental, not based upon exact costs (but rather best estimates), you simply identify what is judgmental within the estimate/proposal.

Judgmental data generally isn’t considered to be “cost or pricing data” for the purposes of certification.

On 9/3/2023 at 2:41 PM, Atlas STS said:

If my best estimates, as communicated in my proposal, are sufficient then that does take some pressure off of certifying.

Atlas, Joel is correct in stating that estimates are not cost or pricing data.  However, the facts upon which those estimates are based are cost or pricing data.  See FAR 2.101 definition of cost or pricing data "While they do not indicate the accuracy of the prospective contractor’s judgment about estimated future costs or projections, they do include the data forming the basis for that judgment." Thus, the facts relating to your "previous jobs" that were used to formulate your estimates are probably cost or pricing data that should be disclosed to the government.  If they are not, you may get a finding of defective pricing if this contract is audited for that purpose.

On 9/3/2023 at 2:41 PM, Atlas STS said:

DFARS 252.215-7010 wasn't in the solicitation,

Is FAR 52.215-20 in the solicitation? 

On 9/3/2023 at 2:41 PM, Atlas STS said:

It seems clear to me that my company is excepted per 252.215-7010

What language in this provision exempts an NTDC from submission of certified cost or pricing data?  I can find no such language.  The only mention of an NTDC in that provision deals with the CAS.  However, if you can convince the government that you are exempt, more power to you.

On 9/3/2023 at 2:41 PM, Atlas STS said:

I will ask that it be added along with FAR 15.403-5

FAR 15.403-5 is not a solicitation provision or contract clause.  It is a FAR section that provides guidance to contracting officers.  The instructions for submission of certified cost or pricing data are contained in FAR Table 15-2.  That Table is incorporated by DFARS 252.215-7010.

Retreadfed is correct  that the provisions you are referring to don’t exempt you from  the requirements for cost or pricing data if your items are not commercial products.

On 8/24/2023 at 8:59 AM, Atlas STS said:

DFARS 252.215-7010 (especially (b)(ii)(E)) which states that NTDC qualify for an exception from certified cost or pricing data

My take on (E) is that it is a subparagraph of commercial product or commercial service and only one of several pieces of potential information (see subparagraphs above it), for those who are applying to have an exception granted for its commercial product or service. In any event it is government discretionary to grant it, not a contractor right. I read (A) thru (E) as if the words "commercial product or commercial service" appeared in front of the word "items."

@Retreadfed thank you for clarifying on needing to supply underlying data to go into predicted data.  FAR 52.215-20 is NOT in the solicitation.  252.215-7010 excepts NTDC from cost and pricing data based on their lack of CAS.  Thank you for clarifying on 15.403-5.  I've had a hard time distinguishing between contract clauses and CO instructions.  Many clauses aren't in the solicitations, but are part of FAR/DFARS so I'm not certain what applies.

@Neil Roberts and @joel hoffman I concede that (E) falls under the commercial items and services and that might sink my case.  However, it makes zero sense to have an exception for NTDC under the commercial exception.  Why would NTDC need an exception if they're already excepted as commercial parts and services?  My guess is that it was intended to be 252.215-7010(b)(iii) so that it stands coequal with "prices set by law" and "commercial".  That's the only thing that makes logical sense if you research the intent of the NTDC exception (bringing in other suppliers of non-commercial products and services by recognizing small business suppliers won't have the same administrative infrastructure as traditional defense contractors).

I guess it would take pairing 252.215-7013 (Supplies and Services Provided by Nontraditional Defense Contractors) which allows (but not require) CO to treat NTDC as if they were commercial and 252.215-7010(b)(ii) which makes commercial parts and services excepted (as well as NTDC excepted).  Again, no logical reason to have NTDC excepted if CO already has the ability to treat NTDC as commercial which has its own separate exception.

Atlas STS said:

252.215-7010 excepts NTDC from cost and pricing data based on their lack of CAS.

That is not true.  DFARS 252.215-7010 contains no exemption from submission of certified cost or pricing data by NTDCs.  What the clause does is require NTDCs to provide a statement that they are not performing and have not performed a CAS covered contract in the past year.  This is nothing more than a statement that the NTDC is such a creature.  Moreover, the mere fact that a contractor is not performing a CAS covered contract does not exempt the contractor from submission of certified cost or pricing data.

If you think DFARS 252.215-7010 exempts NTDCs from submission of certified cost or pricing data, please quote the specific language that does so.

@Atlas, an audit of certified cost or pricing data appears to be the cause of your primary anxiety from rereading your posts.

Let me try to put you at ease. I don’t think that the odds of a post-award audit by DCAA on a FFP contract for $2 million are very high these days. 

And a pre-award audit would be on uncertified data. I doubt if DCAA will bother to agree to perform an audit on this low a price. Even if they do a pre-award audit, you don’t certify cost or pricing until after agreement on the contract price. There is no such thing as “defective uncertified cost or pricing data”. 

Unless you are obviously, grossly lying, the auditors would likely simply question costs or state that they are unsupported during a pre-award audit.

I think your concerns are unrealistic here, especially if you identify the judgmental aspects of your proposal estimate.

Based upon my experience over the past 25 plus years, we weren’t able to get much if any DCAA audit assistance on larger proposal amounts than what you identified here.  That included requests for desk audits of G&A or audits of key subs by their plant DCAA auditors.

I don’t think that their workload or resources are any better today…

I miss the days when we had our own USACE auditors up to the mid 90’s for civil works projects and resident, in Kingdom DCAA auditors on our Saudi Arabian Assistance Program in the 1980’s.

Realize also that they revised “TINA” to “Truthful Cost or Pricing Data”. So if you are truthful, you shouldn’t worry too much… 🤠

@Retreadfed DFARS 252.215-7010(b) is titled "Exceptions from certified cost or pricing data."  (1)  In lieu of submitting certified cost or pricing data, the Offeror may submit a written request for exception by submitting the information described in paragraphs (b)(1)(i) and (ii) of this provision.  The whole purpose of (b) is to list all the exceptions from certified data and it includes an exception for NTDC with their CAS current/history as the basis for claiming that exception.  (c) explains what is required for certified data and (d) does the same for uncertified data.

@joel hoffman We had a DCAA auditor spend about 3 full days inspecting our last order which was a major blow to my schedule and it was for an order under $500k.  He never found any issues, but just the inspection, which I didn't adequately account for, was not trivial.  I'm trying to envision the admin/financial version of that and it gives me nightmares!  I'm not worried about being dishonest.  I'm worried that I won't have documented an assumption or a calculation sufficiently to be accepted and they'll find a way to find us delinquent.  Again, the fear is of my ignorance of the process, not the process itself.  I'll research how to avoid defective data.  I have to be honest, reading this does not give me a happy feeling:

https://www.cohnreznick.com/insights/what-is-defective-pricing-what-does-an-auditor-look-for

Must be current, accurate, and complete.  How will I know if they're complete until I'm audited?  Does my accounting system or cost estimation system even meet the standards for being complete?  How would I know?  If we're found to be deficient, we'll pay price change plus interest.

Atlas STS said:

Does my accounting system or cost estimation system even meet the standards for being complete?  How would I know?

@Atlas STS, this is why I previously said :  does your company have a certified public accountant (CPA) report that it meets Generally Accepted Accounting Principles (GAAP)? Having such a successful review is about as good a warm and fuzzy as you could reasonably expect, and I think you will find many small businesses doing business with the government have done so. Spend the money.

Wow, three work days auditing a $500k order. No wonder they don’t have the resources to perform pre-award audits of construction contracts and mods, or to audit claims, etc… Sheesh.

Edit: @Atlas STS was this a post award audit?

Atlas STS said:

DFARS 252.215-7010(b) is titled "Exceptions from certified cost or pricing data."  (1)  In lieu of submitting certified cost or pricing data, the Offeror may submit a written request for exception by submitting the information described in paragraphs (b)(1)(i) and (ii) of this provision.

Atlas, you are misreading this provision.  It clearly does not exempt any potential contractor from being required to submit certified cost or pricing data.  Note that this sentence states that an offeror "may submit a written request for exception" from the requirement to submit such data.  This sentence identifies some of the information that is to be included in any such request.  One of the bits of information that an NTDC is required to submit is a statement by an NTDC that it meets the criteria to be considered an NTDC.  However, as a condition precedent to an NTDC being able to request an exception under DFARS 252.215-7010, the government must have first determined that the supply or service to be provided by the NTDC is considered to be a commercial product or service as described in DFARS 252.215-7013.  Note that this clause references 10 U.SC. 3457.  That statute states " products and services provided by nontraditional defense contractors (as that term is defined in section 3014 of this title) may be treated by the head of an agency as commercial products and commercial services, respectively, for purposes of" the requirement to submit certified cost or pricing data.  Also, see DFARS 212.102 which says that contracting officers "may treat supplies and services provided by nontraditional defense contractors as commercial products or commercial services." Thus, there can be no doubt that the decision to treat supplies or services provided by an NTDC as commercial rests with the government and not the contractor.  By permitting an offeror to submit a request, the clear implication is that the government may deny the request and require the submission of certified cost or pricing data.

Atlas STS said:

The whole purpose of (b) is to list all the exceptions from certified data and it includes an exception for NTDC with their CAS current/history as the basis for claiming that exception.

Again, this is an inaccurate statement.  The exceptions to the submission of certified cost or pricing data are set forth in 10 U.S.C. 3703.  These statutory exceptions are restated in FAR 15.403-1.  Notably, there are more exceptions listed in the statute and FAR than are mentioned in 252.215-7010.  Neither the statute nor the FAR mentions an exception for NTDCs.  Further, neither provides an exception for any contractor that is not performing or has not performed a CAS covered contract.  Because the exceptions from the requirement to submit certified cost or pricing data are statutory, the DFARS cannot create an additional exception without statutory authority.  DFARS 252.215-7010 does not create an exception for NTDCs.  Instead, it allows the government to apply the commercial product/service exception to items provided by NTDCs when DoD has decided to treat such items as commercial in accordance with 10 U.S.C. 3457 and DFARS 212.102. 

Atlas STS said:

Must be current, accurate, and complete.  How will I know if they're complete until I'm audited?  Does my accounting system or cost estimation system even meet the standards for being complete?  How would I know?

You meet this requirement by giving the government everything you have relating to a proposed contract.  If you don't have something, you don't have it.  You merely have to give the government what you have in the form you have it.  You do not have to create anything for the government in this regard.

@Neil Roberts I did engage a CPA to help me categorize our costs so it was somewhat helpful.  I don't think I did a good job explaining how small we are or how much our business operations will change AFTER this award.

@Retreadfed Ok, I think you convinced me by going back to the legal code.  It sounds like my only hope of not certifying is getting treated as if commercial on various clauses, but that the exception request is only an instruction of how to request that, not a separate exception outside of the commercial one.  I'm struggling with it being so easy to comply with the other stuff I'm reading online of some very aggressive auditors finding fault that is later overturned if a company fights it, but I really hope you're right.

@joel hoffman this was a post award / predelivery inspection.  It was of our quality management system which was thankfully done via email, but then three onsite visits at various stages of construction.  I thought it was overkill and it kept forcing us to stop production right near the end of our work so it was very disruptive.  Very nice guy though!  On a related note, I read online that in 2022 they really increased the random DCAA post award audits from prior years.  I think DCAA is really trying to do more audits overall.

Thank you all again, I guess at least now I can clearly ask the buyer without getting caught up in the exception and/or more confidently certify our data assuming I give them everything.

Retreadfed said:

However, as a condition precedent to an NTDC being able to request an exception under DFARS 252.215-7010, the government must have first determined that the supply or service to be provided by the NTDC is considered to be a commercial product or service as described in DFARS 252.215-7013.

No, that’s not what DFARS says.

@Atlas STS  Can you justify price reasonableness through other means to the contracting offices satisfaction?  Often companies can prepare justifications by using information in FAR 15.403-3.  I think Joel mentioned this early in the thread.  I had to do something similar working for a contractor.  I used a variety of online cost and pricing information, including overhead and G&A rates from the closest marketplace sector as well as estimates of labor that a government technical person could analyze.  I stressed it was in the governments best interest in terms of time, effort, and administrative expense to accept our price with certifying data and related audit.

Atlas STS said:

…this was a post award / predelivery inspection.  It was of our quality management system which was thankfully done via email, but then three onsite visits at various stages of construction.  I thought it was overkill and it kept forcing us to stop production right near the end of our work so it was very disruptive.  Very nice guy though!  On a related note, I read online that in 2022 they really increased the random DCAA post award audits from prior years.  I think DCAA is really trying to do more audits overall.

Thank you all again, I guess at least now I can clearly ask the buyer without getting caught up in the exception and/or more confidently certify our data assuming I give them everything.

@Atlas STS I’m a bit confused. Can you elaborate somewhat, please? You said that the audit was a pre-delivery inspection of your “quality management system” plus three on-site inspection visits at “various stages of construction”.

Do you fabricate or manufacture systems, equipment, modular construction or something?

I didn’t know that DCAA auditors inspect quality management systems but I don’t know everything about manufacturing operations either…

Edit: Ah, your original post said that your company  “manufacture[s] equipment for the Navy”.

If the Navy is your customer, not for commercial sales, then would your equipment be commercial products? I would question that premise…

However, if you are going to manufacture the same items, then you may indeed have some cost and pricing history. Of course, that is not to say that the cost or effort would be the same for follow on production after tooling, set-up and initial production, tweaking, learning curves, etc.

I have a feeling DCMA and not DCAA reviewed Atlas’s quality control and performed the inspections.  DCMA does inspection while DCAA does financial audits.

formerfed said:

I have a feeling DCMA and not DCAA reviewed Atlas’s quality control and performed the inspections.  DCMA does inspection while DCAA does financial audits.

I would agree with that postulate, formerfed.

@joel hoffman My apologies, yes I meant DCMA inspection.  I just mentioned it to show how inspections have greatly impacted us in the past, predominately because I wasn't expecting something so thorough.  Also, when you're small and inexperienced, you don't know when you can tell the inspector enough is enough.  You are correct that our product likely cannot be considered commercial, but the NTDC is allowed to be treated AS IF our products and services were commercial without a determination that they are.  After @Retreadfed got me straight, that is the path we are asking the buyer to take, but it is at the contracting officer's discretion.

@formerfed They seem pleased with our uncertified data as sufficient for pricing analysis.  They just want us to certify it.  With what I know now, when they first reached out for market research, I should have stated that we can supply the product, but only if we were treated as if our product was commercial and referenced 252.215-7013.  This would have made everyone's life much easier.  As it is now, the buyer has done all the work for Part 15 purchase, I've done all the work of generating certified cost and pricing data, and now I'm trying to get them to go Part 12 instead which maybe means they start all over?  They see that I've done all the work for certified data, have accepted the data, and can't understand why I won't just certify it so we can close this out.  I'm hesitant because all of the legal blogs designed to help people respond to audit say "the best way to not lose an audit, is to not be auditable".

My plan is discuss one final time with the buyer to at least consider our request to implement NTDC supplied product to be treated as commercial and explain why it's not trivial for us to certify the data.  If they say no, we'll have to decide if certifying is in our best interests and either retract our proposal or certify our data.  The folks on the forum have me convinced it's not the end of the world to certify, but the internet horror stories have an alternate view.  If the audit process didn't sound so subjective, I think I'd be just fine, but I read one case where a pre-award audit stated defective data was unlikely, post-award audit found it to be defective, but then the ASBCA sided with the vendor.  To me, that shows that you can do it right from start to finish and still be drug through a long audit, likely have significant legal fees to appeal to the ASBCA, etc.  For a small business, just the process not the penalties if we lose, could shut us down for weeks!

Good Gracious, @Atlas STS, I WISHED we could have had pre-award audit support for much larger acquisitions than this one. The DCAA just wasn’t available.  I’d almost be willing to bet money that - since they aren’t auditing your proposal, they won’t bother to post audit it either. If you think that your data is truthful, I respectfully suggest you quit worrying about it.

P.S.

“complete” essentially means you didn’t omit factual information that you are aware of that would affect the price 

Edit: P.P.S

In reading your last post, you said that “they” (Navy? DCMA?) “seem pleased with our uncertified data as sufficient for pricing analysis”.  And “They just want us to certify it.”

Have you actually negotiated and settled upon the price?? It appears that they are “analyzing” the price, prior to start or completion of price negotiations (?)

There is no certification required until after you negotiate and settle on the price.

If you are worried about any aspect of your proposed pricing data, you can revise the proposal and continue or start negotiations,  before certifying it upon conclusion of negotiations. And make sure that you clearly identify any judgmental aspects of the proposed pricing , preferably-prior to - or otherwise during negotiations - but prior to concluding negotiations.

The reason that I ask these questions is that you have previously inferred, in response to my observations on the probability of a DCAA post-audit,  that DCAA spent three days visiting your company in a post audited. You later explained that the visit and interaction was simply DCMA administering the contract. 

it is important that we better understand the actual stage of the price negotiations (if any) to interpret your explanation and concerns. You are saying that they have enough info to analyze the price but they want you to certify the cost or pricing data. Certification ONLY occurs after negotiations are complete.

Firms have performed “sweeps” (reviews) of the accuracy and currency of their cost or pricing data after negotiations, but before certifying it. They have occasionally come back to notify us and revise some aspect of their proposal after the sweep… 

🤠

@Atlas STS, I apologize for editing my last response this morning after you last visited the site yesterday, shortly after I posted it.

Please review my edited post, thanks!

@Atlas STS,  if you aren’t comfortable enough with your submitted price and the supporting data for the proposed price to justify and certify it, you certainly have the opportunity to negotiate and update/revise/clarify it before finalizing the contract negotiations.

Edit: [You are not locked in to your original proposal even if “they” aren’t actively negotiating the actual price with you but merely want you to “certify” it before awarding the contract.

The act of certifying it signifies that a negotiation has taken place.]

Truthfulness shouldn’t be dependent upon whether or not you have to certify  it.

joel hoffman said:

@Atlas STS

…The act of certifying it signifies that a negotiation has taken place.

@Atlas STS, Sorry - One more clarification… It’s DoD policy to negotiate single proposal responses to solicitations.

So, even if “they” are in the process of simply accepting your proposed price as “a price agreement”, subject to certification, those ongoing “discussions” you have referred to amount to pre-award “negotiations”.

You can revise or withdraw your offer any time prior to award. It appears that their present position is that you must certify before award. Thus, the on-going discussions amount to negotiations.

Atlas, Joel is giving you some good information.  You need to understand that you do not have to base your proposal on the cost or pricing data you have and submit to the government.  Your only obligation is to submit that data to the government in a meaningful way, i.e., in a way so that the government is placed on an essentially equal footing with the contractor in regard to making judgments as to what would be a reasonable price.  Also, look at the definition of cost or pricing data.  It only involves facts that could reasonably be expected to have a significant impact on price negotiations.  For example, the B-52 has been around since the 1950's.  It is obvious that cost data from the 1950's would not be relevant in regard to a contract to be awarded today and would not be considered cost or pricing data.  Finally, you do not certify your proposed price (your proposal is not cost or pricing data) nor do you certify the price you agree upon with the government.  Instead, you certify the data that relates to the acquisition.

@joel hoffman I'm really sorry for the confusion.  When I said a DCAA inspection, I meant a DCMA inspection of our last order before delivery.  I only mentioned it to show how difficult these types of audits/inspections can be for those inexperienced in dealing with them.  I have NO IDEA where I am in negotiations for this order.  I submitted an original response to the RFP and was notified since I was the sole offeror, I had to submit certified cost and pricing data.  I asked for exception to certify as a NTDC.  There were also some requests to use alternate parts for a couple that were obsolete.  They said they'd research and get back to me.  In the interim, I revised our proposal to include other than certified cost and pricing data in the same format as certified (Table 15-2) in the hopes that in going to the greatest level of detail possible, it would expedite the process once the obsolete part replacements were approved.  At that point, they still hadn't resolved the obsolete part request.  However, this week they have approved our part replacements and I am updating my proposal again to respond to the amendment.  They've asked me to certify in that proposal, but i have continued to ask to be treated as commercial and not certify my data.

I am in no way concerned with truthfulness of our data.  I am only concerned with "completeness" and more specifically, if audited, how do I prove that it was complete?  What information SHOULD I have that I might not that will cause me to fail an audit?  Either way, I will definitely make it crystal clear what parts of my data are judgmental, but then "completeness" means I have to have data showing how I arrived at those judgements and I don't know that I have that adequate to respond to an audit.  That's my only concern with certifying the data.  I keep going back to the fact that there is a reason someone made NTDC able to get an exception from this data and thinking I am definitely the type of company it was designed for...despite having no idea what the actual risk is!

So, I don't know if the government approves our price, I don't know if I should be sweeping our data or what that means.  I don't know if we've been in negotiation or if negotiations have started or if negotiations are complete.  The only response is "please certify your data".  I'll try to ask these questions Monday when I have my second telcon in four months with them.  I think the assumption is that we know how to navigate this process when we clearly don't.

@Retreadfed I definitely appreciate the help from you all!  I'm going to be honest, I really don't understand what you're saying in regards to separating our proposal from our data and it sounds important!  Isn't the FAR Table 15-2 how we submit our certified data and that leads directly to our proposal price?  I don't see how to separate those two things.

Atlas STS said:

I am only concerned with "completeness" and more specifically, if audited, how do I prove that it was complete?

You don't have to prove that it is complete.  The government has to prove that it is incomplete.  As stated before, "complete" simply means you provide the government with the cost or pricing data you have.  There is no other standard for determining completeness.  You seem to be worried that there is some data that you are required to have.  There isn't.  You have policies and procedures that state what data you accumulate.  If that data meets the definition of cost or pricing data, that is what you submit.

Atlas STS said:

Isn't the FAR Table 15-2 how we submit our certified data and that leads directly to our proposal price?

Some people have the misperception that contractors have to base their proposed prices on the cost or pricing data they submit to the government.  As a general rule, contractors can base their proposed prices on whatever they choose.   The proposed price can merely be what the contractor feels is a reasonable price.  That price does not have to have any correlation to the cost or pricing data submitted to the government.

Retreadfed said:

Some people have the misperception that contractors have to base their proposed prices on the cost or pricing data they submit to the government.  As a general rule, contractors can base their proposed prices on whatever they choose.   The proposed price can merely be what the contractor feels is a reasonable price.  That price does not have to have any correlation to the cost or pricing data submitted to the government.

That is a very debatable statement but I’m not going to spend the time to debate you. 

The short answer is that, for a sole source negotiated contract action,  cost or pricing data and/or judgmental and other data are required to support the basis of the price proposal presented to the government. The purpose of whatever data you provide to the government is to support the proposed price in order to establish a fair and reasonable price for the contract.

“That price does not have to have any correlation to the cost or pricing data submitted to the government.” That is a dangerous assertion that can cause Atlas STS a lot of trouble.

if that were true, then there is no reason to submit C and P or any other data to support the proposed price for negotiations.

Atlas, see, for instance,  https://www.fai.gov/sites/default/files/CPSG_Activity44.pdf

Joel, you're usually on the mark, but I disagree with posting a link to a defective data training module in response to Retreadfed's assertion that there is no connection between the data and the price. I agree with Retreadfed. As long as the data is complete and accurate, the government has the same information that the contractor has, and they are therefore on equal footing in negotiations. That is the purpose of TINA. If the total cost of production is $10 and the contractor says its price is $20, the government knows that the contractor wants $10 in profit. There's nothing defective about that. Start negotiating.

Assuming that the data is accurate, there is no issue of defective data.

The statement “That price does not have to have any correlation to the cost or pricing data submitted to the government” is wrong.

FAR 15.408 describes the requirements for submission of cost or pricing data. The government should have amended the solicitation to add the provision at 52.215-20 Requirements for Certified Cost or Pricing and Data and Other Than Certified Cost or Pricing Data when it required the sole offeror to provide cost or pricing data  -and/or data other than cost or pricing data. This provision also specifically incorporates Table 15-2 of FAR 15.408 and instructions by reference, unless the government specifies an alternate format.

The 15-2 format clearly requires a breakdown of the specifically identified proposed costs and specifically identified profit in the proposal.

If the DOD agency wants you to provide certified cost or pricing data OR EVEN DATA OTHER THAN CERTIFIED COST OR PRICING DATA for a negotiated acquisition with a sole offeror, then it must amend the solicitation and provide applicable instructions.

I won’t go into detail concerning the cost principles in FAR Part 31 Contract Cost Principles and Procedures for non commercial products and services other than to say here:

FAR 31.102 and 31.103 state that the applicable parts of Part 31 and agency supplements shall be used in the pricing of negotiated fixed-price contracts and subcontracts whenever cost analysis is performed (15.404-1(c),  as required by  15.404-1 (a)(3) and as allowed in 15.404-1(a)(4) for contracts for commercial products and services.)

See also the Pricing policy at 15.402 (a) and (b).

@Atlas STS, I am curious.

Of course, we don’t know much from your posts about the nature or or what type products you are producing and wish to be considered as commercial products.

Q: Have you manufactured and sold these products to commercial or other non-government buyers?

Q: Since you are the only respondent offeror to the solicitation are you the only source for these products? 

I’m sorry for your confusion concerning the DoD acquisition processes, especially the negotiation process when you are a sole offeror for products.

I suggest that you review the DFARS PGI 215.4 Contract Pricing and its sub parts. It covers many aspects concerning sole offerors to a solicitation and pricing of commercial products or non-commercial products .

https://www.acquisition.gov/dfarspgi/pgi-215.4-contract-pricing

It isn’t as simple as the two provisions you have relied on in your approach to the buyer agency to have them considered to be commercial products.

I hope you also better understand what the nature and purpose of data to support your proposed pricing for a $2 million dollar Defense contract is.

It is definitely relevant. It has a direct correlation to your pricing, whether or not it is considered to be “cost or pricing data” subject to the Truthful Cost or Pricing Statute and implementing regulations.

In simple terms, it is essentially a price breakdown, explaining the basis of your price proposal as a sole offeror to a DOD acquisition.

For DoD, there is no presumption of anticipation of adequate price competition for an exception to an applicable requirement to provide cost or pricing data for a non-commercial product or service. 

Even if there is sales data for the same products to commercial or government agencies, the government would have to be able to compare and/or distinguish any market pricing differences between this sale and previous sales.

@Atlas STS  Lots of comments here to consider.  Joel has done an excellent job of explaining and describing the situation you face and offering sound advice.

If I were in your position I would layout the situation as you previously described - you are a NTDC with no experience or capabilities in preparing detailed cost or pricing data to the government.  You have submitted a request for exemption which you feel is applicable but the government hasn’t responded.  Furthermore you have prepared data showing reasonableness of your proposed price which the government has not objected to.  But they now want you to certify.

I would reluctantly certify the data carefully explaining the data is the best you can do and lay out what is judgmental.  I would conclude this is the very best you can do given the demands being placed on your company.

As far as “completeness,” what an auditor looks for is does your company have pertinent data that wasn’t disclosed.   They aren’t out for “gotcha’s” but just verify you provided everything that supports your estimate.  The information they examine are what’s in your company records so it’s fairly easy to identify upfront the limits of their audit.  If certain elements of cost are based on judgements, you explained that.  What they typically get companies on, excluding fraudulent claims, is omissions.  An example is a supplier quote that was lower than what was used in the estimate.

You seem very conscientious and sincere so I think you have nothing to worry about.

formerfed said:

@Atlas STS  Lots of comments here to consider.  Joel has done an excellent job of explaining and describing the situation you face and offering sound advice.

If I were in your position I would layout the situation as you previously described - you are a NTDC with no experience or capabilities in preparing detailed cost or pricing data to the government.  You have submitted a request for exemption which you feel is applicable but the government hasn’t responded.  Furthermore you have prepared data showing reasonableness of your proposed price which the government has not objected to.  But they now want you to certify.

I would reluctantly certify the data carefully explaining the data is the best you can do and lay out what is judgmental.  I would conclude this is the very best you can do given the demands being placed on your company.

As far as “completeness,” what an auditor looks for is does your company have pertinent data that wasn’t disclosed.   They aren’t out for “gotcha’s” but just verify you provided everything that supports your estimate.  The information they examine are what’s in your company records so it’s fairly easy to identify upfront the limits of their audit.  If certain elements of cost are based on judgements, you explained that.  What they typically get companies on, excluding fraudulent claims, is omissions.  An example is a supplier quote that was lower than what was used in the estimate.

You seem very conscientious and sincere so I think you have nothing to worry about.

I agree with formerfed here.

I would hope that the DCMA knows what they are doing.  They should have amended the solicitation to give the proper instructions for submitting cost or pricing data and/or data other than cost or pricing data.

Do NOT certify cost or pricing data until after negotiations are (conducted?) , completed and there is an agreement on the price.

Good luck.

On 9/8/2023 at 11:05 PM, joel hoffman said:

The statement “That price does not have to have any correlation to the cost or pricing data submitted to the government” is wrong.

" the complaint seems to allege that Martin-Baker's certificates of cost or pricing data were false because the company failed to use historical actual costs during negotiations with the government. Yet we have found no case or regulation — nor has Williams pointed to any — requiring the use of such data during negotiations. Instead, aiming to put negotiating parties on equal footing by mandating disclosure of cost data, the FAR and TINA only require that contractors identify and make the information available to the government. See, e.g., Hughes Aircraft Co., ASBCA No. 30144, 90-2 BCA ¶ 22,847, 1990 WL 42047 (1990) (stating that a contractor is not obligated to use cost data so long as the government has the option of analyzing the data). Having done so, negotiating parties need not reach agreement based on the disclosed data. Id."   U.S. ex re. Richard Williams v. Martin-Baker Aircraft Co. LTD., et al., 389 F.3d 1291 (D.C. Cir. 2005).   If you have access to the Hughes case, I suggest everyone read it as it is a good primer on cost or pricing data.  Also, see  United Technologies Corporation, ASBCA Nos. 51410, 53089, 53349 (Feb. 27, 2004), where the Board said "the government contends that appellant violated its obligations under TINA by failing to use certain cost or pricing data in its BAFO. We reject this contention for a number of reasons. The plain language of the Act does not obligate a contractor to use any particular cost or pricing data to put together its proposal. Indeed, TINA does not instruct a contractor in any manner regarding the manner or method of proposal preparation. TINA is a disclosure statute. It requires a contractor under certain circumstances to disclose and to furnish cost or pricing data to the government and to certify that the data are accurate, current and complete. . . . once a contractor has furnished accurate, current and complete data, it has fulfilled its TINA obligations. The statute does not require that all or any of that data be used to prepare the proposal. One would think that any contractor with the desire to obtain a contract award would use credible, historical cost data so as to demonstrate to the government that its proposed price is consistent therewith. However this is a matter for the contractor to decide, and for the Government to evaluate as part of the proposal review process, and is not a mandate under TINA."

On 9/8/2023 at 11:05 PM, joel hoffman said:

The government should have amended the solicitation to add the provision at 52.215-20 Requirements for Certified Cost or Pricing and Data and Other Than Certified Cost or Pricing Data when it required the sole offeror to provide cost or pricing data  -and/or data other than cost or pricing data.

Atlas is dealing with a DoD contract.  DFARS 215.408 states in part "When reasonably certain that the submission of certified cost or pricing data or data other than certified cost or pricing data will be required or when using the provision at 252.215-7008 -(i) Use the basic or alternate of the provision at 252.215-7010, Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing Data, in lieu of the provision at FAR 52.215-20."  Despite this requirement, Atlas states that DFARS 252.215-7010 is not in the RFP.  However, ATLAS stated DFARS 252.215-7008 is in the RFP.  That provision requires submission of cost or pricing data in accordance with the version of DFARS 252.215-7010 incorporated in "this solicitation."  Because 252.215-7010 is not in the solicitation, we don't know what the submission requirement actually is, if any.

On 9/8/2023 at 11:49 PM, joel hoffman said:

I won’t go into detail concerning the cost principles in FAR Part 31 Contract Cost Principles and Procedures for non commercial products and services other than to say here:

FAR 31.102 and 31.103 state that the applicable parts of Part 31 and agency supplements shall be used in the pricing of negotiated fixed-price contracts and subcontracts whenever cost analysis is performed (15.404-1(c),  as required by  15.404-1 (a)(3)

FAR 31.102 and 103 provide guidance to contracting officers.  They do not apply to contractors or tell contractors how to prepare proposals.  Also note there is an inconsistency between 31.102 and .103 and FAR 15.404-1(c)(2).  Part 31 says the government shall apply the cost principles when conducting cost analysis while 15.404-1 makes such use discretionary.

On 9/8/2023 at 11:05 PM, joel hoffman said:

The 15-2 format clearly requires a breakdown of the specifically identified proposed costs and specifically identified profit in the proposal.

Proposed costs are not cost or pricing data.  Nothing in 15-2 tells a contractor how to prepare a proposal.

On 9/8/2023 at 6:14 PM, joel hoffman said:

“That price does not have to have any correlation to the cost or pricing data submitted to the government.” That is a dangerous assertion that can cause Atlas STS a lot of trouble.

if that were true, then there is no reason to submit C and P or any other data to support the proposed price for negotiations.

The purpose of TINA is to establish a level field for price negotiations by requiring a prospective contractor to furnish factual cost or pricing data significant to the price negotiations known to it so that the contracting officer will have the same knowledge during negotiations. M-R-S Manufacturing Company v. United States, 203 Ct. Cl. 551, 563-64, 492 F.2d 835, 842 (1974).

Retreadfed said:

Because 252.215-7010 is not in the solicitation, we don't know what the submission requirement actually is, if any.

EDIT:

I missed where @Atlas STS stated that 252.215-7010 is not in the solicitation.  Atlas did refer to that provision. 

The initial solicitation included or should have included  the provision at 252.215-7008 Only One Offer. This provision specifically refers to the provision at 252.215-7010.  That provision refers to Table 15-2…

If 252.215-7010 wasn’t in the initial solicitation, the government should have amended the solicitation to include it after receiving the only one offer.

Table 15-2 specifies how to provide cost or pricing data or data other than cost or pricing data.

The government could have specified alternative format in lieu of Table 15-2.

@Atlas STS, the Truthful Cost and Pricing statute (codified at 10 U.S.C. Chapter 271 and 41 U.S.C. Chapter 35) is fundamentally about a disclosure of data owed to the federal Government when, in its role as a buyer, certain conditions are met for a purchase and none of the authorized exceptions to the required disclosure applies. Some form of this law will probably always exist, fortunately or unfortunately, although the conditions and/or exceptions do change. But again, it is about disclosing data, and that is what you are ultimately certifying to when you complete/provide the certificate as prescribed by FAR 15.406-2 to the contracting officer.

Joel, I really don't want to leave this hanging out there, unanswered. You have stated, pretty bluntly, that it was 'wrong' and 'dangerous' to state that there is no connection between the price you want and the data you submit, as Retreadfed asserted. You have said that the price must be 'based on' the data submitted. What does that mean? The references you cited all talk about the data that must be submitted, and say nothing about price. If we follow your logic to its conclusion, you seem to be saying that the price must be within a certain range of (i.e., 'based on') the costs. Are you suggesting there is a limit on profit? 

If a contractor's current, complete, and accurate data shows a cost of $10 to make a product, and the contractor wants to charge $20 (a 100% profit), what prohibits that? That price is 'based on' the costs, just as charging $12 would be. If the government doesn't like $20, start negotiating. It has the data, it's on an equal footing with the contractor, and the purpose of TINA has been met.

Fara Fasat said:

Are you suggesting there is a limit on profit?

Fara, I think the issue goes deeper than profit.  Two examples, in the first case, contractor X looks at the actual labor costs incurred to perform a previous contract for the same item being procured.  X uses the actual cost data in developing its proposed price and discloses that data to the government.  However, if a learning curve analysis is applied to the data, it would become apparent that the per unit cost for later procured items is less than the average unit cost computed using the actual labor costs.  Using Joel's analysis, the contractor would be required to use the learning curve data to develop its proposed price instead of the actual labor cost data.

Example 2, Y has used a particular subcontractor for a part for several years.  When preparing a proposal for a government contract, Y discovers a potential new supplier for that part who can provide the part at a cheaper price.  Y is not certain that the new supplier can provide and acceptable part within the time required by the potential contract.  Y discloses the lower quote from the new vendor, but relies upon prices quoted by its usual supplier in developing Y's proposal.  The way I understand Joel's position, Y would be required to base its proposal on the new and lower quote although Y does not intend on using that vendor.

My takeaway from @Retreadfed and @joel hoffman is that you're not in dispute, but slightly different definitions of data maybe?  When I submitted my cost and pricing data, in the format of Table 15-2, it added up to my proposal total.  The spreadsheet included actually certifiable cost and pricing data, my judgmental data, and all of my other assumptions for cost and pricing (including profit).  It showed clearly how I arrived at our price which I think was ultimately Joel's point.

I think retreadfed is saying that not all data is treated equal and while all certifiable data should be submitted, it doesn't have to be used.  I think his examples mimic my situation.  I did a relatively small order three years ago for the same product so I have to provide that data.  But it would be inaccurate to use that data in my cost and pricing calculations for the current order being proposed.

Atlas STS said:

I think retreadfed is saying that not all data is treated equal and while all certifiable data should be submitted, it doesn't have to be used.

Not quite.  While all reasonably available cost or pricing data needs to be submitted and certified, the contractor does not have to use any of that data in formulating its proposed price, although, in my experience, many do use that data and base their proposed price on that data.  However, such use is not required.  As a DCAA auditor once testified in a deposition, a contractor can base its proposed price on the square root of the distance from the Earth to the Moon if it wants to.

Atlas STS said:

I did a relatively small order three years ago for the same product so I have to provide that data.  But it would be inaccurate to use that data in my cost and pricing calculations for the current order being proposed.

Why do you have to provide data that is inapplicable to your price? You could mention it then say that it isn’t applicable because…

@joel hoffman We have so little data that is not judgmental that I guess I'm erring on the side of caution.  I was reading all these post audit findings and it seems like auditors and contracting officers can expect even outdated information that wasn't used to develop the price if the government feels it SHOULD have been used to develop the price.  Hence my whole terror at the concept of "complete".

Retreadfed said:

Fara, I think the issue goes deeper than profit.  Two examples, in the first case, contractor X looks at the actual labor costs incurred to perform a previous contract for the same item being procured.  X uses the actual cost data in developing its proposed price and discloses that data to the government.  However, if a learning curve analysis is applied to the data, it would become apparent that the per unit cost for later procured items is less than the average unit cost computed using the actual labor costs.  Using Joel's analysis, the contractor would be required to use the learning curve data to develop its proposed price instead of the actual labor cost data.

Example 2, Y has used a particular subcontractor for a part for several years.  When preparing a proposal for a government contract, Y discovers a potential new supplier for that part who can provide the part at a cheaper price.  Y is not certain that the new supplier can provide and acceptable part within the time required by the potential contract.  Y discloses the lower quote from the new vendor, but relies upon prices quoted by its usual supplier in developing Y's proposal.  The way I understand Joel's position, Y would be required to base its proposal on the new and lower quote although Y does not intend on using that vendor.

Example 1: if it is “apparent that the per unit cost for later procured items is less than the disclosed, average unit cost computed using the actual [historical] labor costs” then the disclosed cost or pricing data used to price the contract isn’t “accurate, current or complete.” - to me it would be considered defective cost or pricing data. You are aware that the current cost will be lower than the disclosed cost. It isn’t Truthful.

Example 2: “The way I understand Joel's position, Y would be required to base its proposal on the new and lower quote although Y does not intend on using that vendor.”

That is not my position. As long as you explain the circumstances and disclose that you aren’t going to use the lower priced vendor in your second example , that is not defective pricing. You disclosed the vendor’s pricing that you intend to purchase and why you didn’t use the lower price.

joel hoffman said:

You are aware that the current cost will be lower than the disclosed cost. It isn’t Truthful.

Joel, in this hypo, all the data the contractor has (e.g. time cards, production data, etc.) was disclosed to the government.  The issue is that there are various ways that data can be analyzed.  The contractor chose one way that leads to a specific result.  However, the government has the same data as the contractor and can analyze it the way the contractor did or use another analytical method.  In any event, the contractor's duty in regard to cost or pricing data ended when it disclosed all the data it had.  The contractor is not responsible for what, if any, use the government makes of that data.  The proposed cost is not cost or pricing data and a contractor does not certify its proposed price.  Instead, the contractor certifies the cost or pricing data it disclosed to the government.  For there to be defective pricing, the contractor must have failed to disclose current, complete and accurate cost or pricing data.  Here the data disclosed met that test.

joel hoffman said:

As long as you explain the circumstances and disclose that you aren’t going to use the lower priced vendor in your second example , that is not defective pricing.

Out of curiosity, if the contractor merely disclosed the lower quote and did not provide any explanation as to why that subcontractor was not going to be used, would defective pricing exist?

Retreadfed said:

Joel, in this hypo, all the data the contractor has (e.g. time cards, production data, etc.) was disclosed to the government.  The issue is that there are various ways that data can be analyzed.  The contractor chose one way that leads to a specific result.  However, the government has the same data as the contractor and can analyze it the way the contractor did or use another analytical method.  In any event, the contractor's duty in regard to cost or pricing data ended when it disclosed all the data it had.  The contractor is not responsible for what, if any, use the government makes of that data.  The proposed cost is not cost or pricing data and a contractor does not certify its proposed price.  Instead, the contractor certifies the cost or pricing data it disclosed to the government.  For there to be defective pricing, the contractor must have failed to disclose current, complete and accurate cost or pricing data.  Here the data disclosed met that test.

Out of curiosity, if the contractor merely disclosed the lower quote and did not provide any explanation as to why that subcontractor was not going to be used, would defective pricing exist?

Retreadfed, we’re out of state this weekend on family business. I will respond next week. Have a good weekend!

On 9/15/2023 at 11:51 AM, Retreadfed said:

Out of curiosity, if the contractor merely disclosed the lower quote and did not provide any explanation as to why that subcontractor was not going to be used, would defective pricing exist?

Are you referring to post award review or discovery or to pre-award proposal review and negotiation (proposal adequacy)?

I will address proposal adequacy here. 

The proposed DoD contractor in the situation of only one offer received must provide breakdowns of all costs (EDIT: not addressing commercial products or services or other exceptions to certified cost or pricing here) in its proposal in enough detail for the KO to determine price reasonableness, per the numerous FAR and DFARS provisions and 15.4/215.4 references. This is not restricted to cost or pricing data. It also includes appropriate data other than cost or pricing data, if necessary.

FAR 15.408, Table 15-2, Section I Paragraph C(2)(i) requires that the proposal disclose the judgmental factors applied and the mathematical or other methods used in the estimate.

EDIT: BTW, this paragraph includes disclosing those methods used in projecting from known data - such as disclosing differences between known data and the current situation. Don’t merely disclose historical cost or pricing data, then change the pricing without disclosing how the current pricing varies or evolved from the historical data. This may include judgmental and/or factual differences. The “contractor’s  duty in regard to cost or pricing data [does NOT end] when it disclosed all the data it had”, then left it up to the government how it interprets the disclosed cost or pricing data. 

EDIT: The prime must perform and document price analyses for all proposed subcontracts per the Table 15-2 instructions at Ii A., in accordance with FAR 15.408 and the applicable Provision(s) for submission of current cost or pricing data. 

For those subcontracts based upon adequate price competition, this would include information concerning the competition, comparison of prices and the judgmental basis and rationale for selection of the source and price. And yes, you include the cost of the sub you intend to use in the proposal breakdown.

Thus, the price analysis obviously should address comparisons with the other prices, including the lower priced proposal.

Also - the cost principles in FAR 31 are applicable to negotiated FFP contracts when cost analysis is applicable, per 31.103. Subcontracts are “costs” to the prime.

Per FAR 31.201-3 (Determining Reasonableness): “A [prime contractor] Cost is reasonable, if in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business…No presumption of of reasonableness shall be attached to the incurrence of costs by a contractor.  If an initial review of the facts results in a challenge of a specific cost by the [KO or COR], the burden of proof shall be upon the contractor to establish that such cost is reasonable.”

In my opinion, reasonableness  of subcontractor competitive selection should be based upon the standard as though there is competition at the prime contract level.

To assert adequate competition as the basis for subcontract pricing, the contractor should justify why a higher priced subcontractor proposal is necessary.

Assuming that the prime actually used the higher priced subcontract without explaining it in its price analysis, I don’t know if there would be “defective pricing”. But it would appear to be an inadequate proposal (withholding required information) for the government to determine the reasonableness of the proposed price.

EDIT:

If the KO becomes aware of the lower offer without price analysis or justification before award, the KO should require the prime proposer to justify why it selected the higher price subcontract proposal, before awarding the contract.

If the prime didn’t reveal that there was/were lower priced offer or offers before award, I think that there could be a truthfulness issue. The government might have been able to negotiate a lower price…

If the prime awards to the lower priced subcontractor after negotiations concluded and effective date of the certification of current cost or pricing, but still included the higher price in its final proposal, there may be defective pricing.

I saw that situation occur in one of my Districts.

EDIT: I didn’t discuss the requirement for the prime to also conduct cost analysis of subcontract proposals, when applicicable. Here, I am responding to a specific scenario where a subcontract price is based upon adequate competition.

Let me finally (hopefully) add that the instructions for providing cost or pricing data require contractor to summarize all costs and separately show profit.

It’s not the government’s responsibility to interpret the differences between raw cost or pricing data and/or data other than cost or pricing data and the proposed contract or line item costs which may evolve from the raw data, to determine the amount of profit proposed.

Right.  Plus I will add as a contracting officer, if an offerors cost and pricing data including proposed profit/fee doesn’t add up with proposed prices, I would tell them to resubmit.  This discussion is just making things way too difficult.

formerfed said:

Plus I will add as a contracting officer, if an offerors cost and pricing data including proposed profit/fee doesn’t add up with proposed prices, I would tell them to resubmit.

On what basis?  What says, the proposed price has to match cost or pricing data plus profit/fee?  Isn't this what negotiations are for?  Remember, you are generally dealing with a sole source.

Retreadfed said:

On what basis?  What says, the proposed price has to match cost or pricing data plus profit/fee?  Isn't this what negotiations are for?  Remember, you are generally dealing with a sole source.

A company proposes a price or costs.  As a CO/KO I exhaust all the means to determine price/cost reasonableness so I resort to offeror submission of cost or pricing data and my analysis.  I want the offeror to support their proposed amount.  If the proposed amount is $20 and the offeror says their cost is $20, I expect them to show a 100% profit.  I don’t care about anything else.  What is their anticipated cost of performance and what is their data supporting that?  What good is a bunch of other stuff?

I would just tell them what I need and don’t waste both of our time.

If I was negotiating I need to understand the offerors proposal.  Unless data was submitted on the basis of the proposed amount, it’s difficult to determine reasonableness or come to agreement.

formerfed said:

If I was negotiating I need to understand the offerors proposal.

I agree and that is done through fact finding and discussions with the contractor.

formerfed said:

Unless data was submitted on the basis of the proposed amount, it’s difficult to determine reasonableness or come to agreement.

The purpose of submitting cost or pricing data is to place the government on the same footing as the contractor in regard to what is a reasonable price.  Nothing in the statute or FAR requires a contractor to base its price on the cost or pricing data the contractor submitted to the government.  The fact that a contracting officer finds it difficult to determine what is a reasonable price based on an analysis of the same data the contractor has is not the contractor's problem.  That is where support from DCAA, DCMA, cost/price analysts  and technical folks comes into play.  In many cases, the contracting officer should not try to analyze the cost or pricing data on his/her own, but should get help from people who specialize in such analysis.

Certainly but you’re missing my point.  What you’re saying is correct.  My point is if an offeror didn’t submit data that clearly supports his proposed amount in an easily to understand format, I would ask them to resubmit.  I also wouldn’t try to analyze myself.

On 9/23/2023 at 12:03 PM, formerfed said:

My point is if an offeror didn’t submit data that clearly supports his proposed amount in an easily to understand format, I would ask them to resubmit.

There are two thoughts here. First, you seem to be saying that the cost or pricing data has to support the price proposed.  I disagree with that premise.  The price proposed does not have to be based on the cost or pricing data disclosed to the government, although contractors frequently do so.  All the contractor has to do is disclose the data to the government in a manner that reveals the significance of the data to the particular procurement.  That leads to the second thought concerning the format in which cost or pricing data is submitted.  The solicitation provisions in the FAR and DFARS both refer to FAR Table 15-2 as the default format for submission of cost or pricing data.  As an alternative, the contracting officer can permit another format to be used.  As long as the contractor submits cost or pricing data in the format required by the solicitation, I think the contractor is good to go and the contracting officer should have no complaints because the contractor has done precisely what the contracting officer asked it to do.

From the contractor side, I would gladly furnish the contracting officer an easy to understand chart displaying the rationale and dollar delta of each element between the cost or pricing data and the price proposed. However, I would not resubmit a Table 15-2 proposal.

Neil Roberts said:

From the contractor side, I would gladly furnish the contracting officer an easy to understand chart displaying the rationale and dollar delta of each element between the cost or pricing data and the price proposed. However, I would not resubmit a Table 15-2 proposal.

Exactly.  My problem with some of the prior responses is the implication that cost or pricing data doesn’t add up to the proposed amount, including the profit.  The bottom line is supporting the proposed amount to perform as well as allow a structured approach to analyze profit/fee.

@Retreadfed I said what you’re saying is correct.  Look a couple posts above.  Again my point as a contracting officer is I would want it in something I could relate to anticipated cost of performance including profit.  I’ve never had a contractor not provide it in that manner nor ever heard of that situation anywhere.

Quote

First, you seem to be saying that the cost or pricing data has to support the price proposed.  I disagree with that premise.  The price proposed does not have to be based on the cost or pricing data disclosed to the government, although contractors frequently do so.  All the contractor has to do is disclose the data to the government in a manner that reveals the significance of the data to the particular procurement.

Edit:  I think the difference here is partially based on my not explaining my thought adequately.  Suppose a proposal is based on 30 hours of labor but the cost or pricing data using historical experience uses 20 hours.  As a contracting officer I expect the offeror to explain the assumptions used to arrive at 30 hours.

This is also getting way off topic from the original question.

Retreadfed said:

There are two thoughts here. First, you seem to be saying that the cost or pricing data has to support the price proposed.  I disagree with that premise.  The price proposed does not have to be based on the cost or pricing data disclosed to the government, although contractors frequently do so.  All the contractor has to do is disclose the data to the government in a manner that reveals the significance of the data to the particular procurement.  That leads to the second thought concerning the format in which cost or pricing data is submitted.  The solicitation provisions in the FAR and DFARS both refer to FAR Table 15-2 as the default format for submission of cost or pricing data.  As an alternative, the contracting officer can permit another format to be used.  As long as the contractor submits cost or pricing data in the format required by the solicitation, I think the contractor is good to go and the contracting officer should have no complaints because the contractor has done precisely what the contracting officer asked it to do.

Often a price for a non-commercial product or service may be based upon both judgmental cost data (e.g., number of mhrs when not known or firmly established, risk factors, etc.) and factual cost or pricing data (e.g., material quotes, manufacturing means and methods, labor rates, subcontracts, etc.).

EDIT: [In other words, cost or pricing data aren’t necessarily historical data. It can also be the non-judgmental cost components of prices developed for the current solicitation.]

Sometimes there are historical cost or pricing data that isn’t current and costs will be adjusted (evolve) for the instant acquisition. The basis for adjustment may be judgmental and/or factual. But it is a requirement to explain it in the proposal per the instructions for the default Table 15-2. ** in FAR 15.408.

Edit: [And yes, @Fara Fasat. The FFP contract and any line item price obviously includes both costs and profit. I’m only addressing the basis for proposed cost within the proposed price(s) here. Profit is separately identified. If the supporting cost breakdown is only 50% of the proposed price, then that will be or should be apparent -  not have to be deduced by the buyer.

For single source, negotiated DoD acquisitions of this magnitude, the cost principles in Part 31 apply when cost analysis is used in addition to price analysis.] 

formerfed said:

Edit:  I think the difference here is partially based on my not explaining my thought adequately.  Suppose a proposal is based on 30 hours of labor but the cost or pricing data using historical experience uses 20 hours.  As a contracting officer I expect the offeror to explain the assumptions used to arrive at 30 hours.

This is also getting way off topic from the original question.

It’s more than an expectation - it is a specific requirement in the Instructions for default Table 15-2. **

**From the Instructions for Table 15-2 

“C. As part of the specific information required, you must submit, with your proposal-

(1) Certified cost or pricing data (as defined at FAR 2.101). You must clearly identify on your cover sheet that certified cost or pricing data are included as part of the proposal.

(2) Information reasonably required to explain your estimating process, including-

(i) The judgmental factors applied and the mathematical or other methods used in the estimate, including those used in projecting from known data; and

(ii) The nature and amount of any contingencies included in the proposed price.

D. You must show the relationship between line item prices and the total contract price.You must attach cost-element breakdowns for each proposed line item, using the appropriate format prescribed in the "Formats for Submission of Line Item Summaries" section of this table. You must furnish supporting breakdowns for each cost element, consistent with your cost accounting system.”

We would also instruct the offeror or contractor (mods and claims) to designate judgmental data as (J) and actual or otherwise factual data as (F), for instance.

On 9/24/2023 at 1:34 PM, formerfed said:

This is also getting way off topic from the original question

I think that this discussion directly pertains to @Atlas STS stated concern with having to provide “certified cost or pricing data” that is accurate, current and complete (in particular, “terror” in relation to being “complete”) in support of its proposed Price.

And it shows how judgmental data  (which isn’t necessarily certified cost or pricing data) can be used when historical (I.e., actual/factual) cost or pricing data is used but needs to be adjusted for the current acquisition to fit the current conditions or circumstances.

I realize that @Atlas STS is upset that the KO won’t accept a commercial item exception to single offeror cost or pricing data since Atlas’ firm is a “Nontraditional Defense Contractor” (as are most small business DoD contractors).