General and administrative expense

Overhead generally refers to indirect expenses, i.e., those which cannot be directly assigned to a product (cost objective). The term stems from the need to pay for the roof and the lights that are over our heads and benefit more than one activity. In that respect, G&A is one of many "overhead" accounts. In most enterprise specific accounting applications the term "overhead" is usually applied to departmental expense accounts with names like "manufacturing overhead," or "engineering overhead," while other types of indirect expenses get process-related names such as "material handling.". At the top of the chain is the G&A account which is the "overhead" for running the entire business.

So, is that a "yes," the term "overhead" includes G&A? If so, we're talking about government contracts here, so can you support that with something from a regulation or policy statement? I know what indirect expenses are. The issue is whether government rules make a distinction between overhead and G&A. I'm dealing with a regulation that says that when making a certain calculation you have to include "applicable overhead and profit." Once side says overhead includes G&A. The other side says it does not.

Seeker, you should be able to easily look up the definitions of overhead and G&A in online business dictionaries to get verification. So that any answer provided can be given in proper context, can you tell us why it makes a difference?

Thanks for responding, but why do you ask why it makes a difference if all you can do is refer me to online business dictionaries? Simple curiosity? I already thought of online dictionaries.

The issue concerns the interpretation and application of a contract clause from FAR. FAR uses the word overhead in 17 clauses. Some clauses refer to "overhead and profit," others refer to "overhead, general and administrative expenses, and profit," ours says "overhead and profit." One party thinks the fact that some clauses mention G&A and some do not is significant. The other party thinks it's inadvertent and that each clause must be interpreted on its own. FAR defines G&A, but does not define overhead. Online dictionaries and other accounting materials are all over the map. Some make a distinction between overhead and G&A as different types of indirect cost, and some make no distinction. Almost all include a definition of overhead. Some include no mention of G&A, much less a definition.

What I need is a reference to authoritative material. I've already looked in the DCAAM and Karen Manos' book, which did not help. I'm not interested in a rambling debate among Wifconers based upon unfounded opinions.

Seeker,

I've been where you are before. The closest I got to a general answer is the Contract Pricing Reference Guides, which distinguishes overhead from G&A. Both are under the umbrella of indirect expenses. I don't know if that would be enough to convince a judge.

Let me guess, you are trying to interpret the Defective Pricing clause?

When I submitted my original response, I had glossed over your description of the issue. I apologize for that. However, the additional information you provided has led me to what I hope is something you may be able to use, and I am making the same guess Don is making concerning defective pricing.

In your description of the issue, you said that it concerned a regulation which says that when making a calculation you have to include "applicable overhead and profit." You later indicated the issue "concerns the interpretation and application of a contract clause from FAR." The only FAR clause I could find that uses the phrase "overhead and profit" is the defective pricing clause, and it uses the phrase when describing the price adjustment for defective pricing related to a prospective subcontractor which does not become the actual subcontractor (i.e., when the prime awards the subcontract to someone else).

10 USC 2306a implements TINA, and includes the following:

(e) Price Reductions for Defective Cost or Pricing Data.—

(1)(A) A prime contract (or change or modification to a prime contract) under which a certificate under subsection (a)(2) is required shall contain a provision that the price of the contract to the United States, including profit or fee, shall be adjusted to exclude any significant amount by which it may be determined by the head of the agency that such price was increased because the contractor (or any subcontractor required to make available such a certificate) submitted defective cost or pricing data.

Neither TINA nor the defective pricing clause define how to calculate the "significant amount by which ... such price was increased." However, the defective pricing clause says that "for defective data from a prospective subcontractor that was not subsequently awarded the subcontract," the price reduction shall be "limited to the amount, plus applicable overhead and profit markup, by which ..." What is interesting is that the FAR provision on this same issue does not say "applicable overhead and profit," it says "applicable indirect cost and profit." What is the impact of the change?

The FAR has definitions for both "indirect cost" and "General and administrative expense." The definition of "indirect cost" says it is "any cost not directly identified with a single, final cost objective, but identified with two or more final cost objectives or with at least one intermediate cost objective." There is nothing in the definition which excludes G&A as a type of indirect cost, and the fact that there is a FAR definition of G&A does not make it something other than an indirect cost (it is a specific type of indirect cost). Based on the context I think it is clear that "overhead" and "indirect cost" were being used interchangeably. Whether this is good writing is debatable, but it does not change the outcome.

If you are looking for something which says this specifically I doubt you will find it. In the absence of something specific, logic should lead you to my conclusion.

Overhead and G&A expense are not synonyms. From a financial statement perspective, overhead is cost of sales and used to calculate gross margin, while G&A is a period expense not part of cost of sales.

From a government contracts perspective, overhead correlates with the allocation method described at 31.201-4( while G&A expense correlates to the allocation method described at 31.201-4©. Both are flavors of indirect expense (see 31.203( .

Allocations of G&A expense are subject to CAS 410 requirements, but allocations of overhead are not--they are subject to CAS 418 requirements.

Hope this helps.

I found what I needed by doing a little careful reading in the FAR. Don and wvanpup were right that the issue is defective pricing. The part of the defective pricing clause at issue is paragraph ( b ), which is the part that uses the phrase "overhead and profit." We think "overhead" as used in the clause includes G&A, which sets the limit higher than it would be if you apply only material, engineering, and/or manufacturing overhead and not G&A. Looking at the TINA statute was no help. However, if you look at FAR 15.407-1(f)(1), which sets the policy implemented by paragraph ( b ) of the clause, it uses the phrase "indirect cost and profit." We have checked, and the FAR policy statement and the clause have been different since day one of the FAR in September 1983. We think the difference is inadvertent and due to different authors and careless editing. I think this information will be enough to convince the CO, who is reasonable, but has never handled defective pricing before, that "overhead" in the clause is being used in the widest possible sense to include G&A.

Generally the government distinguishes between "overhead" and G&A but not always. It seems clear to me that government documents -- regulations, policies, instructions, etc. -- are inconsistent in their usage and that one must rely on context to understand what "overhead" means. For instance, the DAU “Indirect-Cost Management Guide: Navigating the Sea of Overhead,” dated October 2001, clearly uses “overhead” as a synonym for “indirect cost” at the beginning, but later makes a distinction between overhead and G&A pools. The people who write the FAR should remedy this problem by defining “overhead” and then making sure that all usages are consistent. But maybe the confusion has not caused problems. We could not find a single defective pricing decision that implicated paragraph ( b ) of the clause.

Thanks for the comments. I should have done better research before coming here.

Another example of the disconnect between the FAR coverage of TINA and the implementing clause:

Goodness, where did you dredge that up? I must have been on Nyquill when I wrote that.

Let's face it, the FAR is a mess.

In his article (interestingly, it requires high doses of caffein to go through an article written under the influence of Nyquill), Vern wrote:

Assuming that we must rely on the clause, it appears that our choice for "the prospective subcontract cost estimate submitted by the Contractor" is either $18M or $19.8M. If the number is $18M, we can calculate the limit as follows:

L = [($18M - $17M) x 1.10] x 1.05

L = ($1M x 1.10) x 1.05

L = $1.1M x 1.05

L = $1,155,000

If the number is $19.8 million, we can calculate as follows:

L = [($19.8M - $17M) x 1.10] x 1.05

L = ($2.8M x 1.10) x 1.05

L = $3.08M x 1.05

L = $3,234,000

Note that the first outcome, a limit of $1.155M, would not permit the government to recover the entire $3M by which the contracting officer thinks that the contract price was increased due to defective data. Is that significant? (emphasis added to original)

I think it is highly significant. I cannot imagine why, in this specific case, actual cost of performance makes a difference. The fact of the matter is that we agreed to a price $3M higher than what we would have agreed to without defective data (I think the burden should be on the prime to prove it would not have had the same decrement to the proposed subcontract price that should have been offered (i.e., without defective data) that it had to the actual subcontract proposed price). Why give the prime a benefit based on actuals?

BTW, I understand the nightmare of the calculations, but is there an interpretation that allows including the prime's overhead twice when calculating L (it is part of the 19.8M and then added again as part of the formula)?

Seeker, that you did significant research before asking the question puts you ahead of many others seeking advice. I would suggest (subject to correction from Vern, Don, Joel, and the others who make far more significant contributions to the discussions than I), that future questions include more information about the specific issue so that those who would like to respond can focus more specifically on what you really need.

G&A is a category of overhead. Many construction contractors don't have separate overhead pools like manufacturers, multi-divisional companies and other firms. For those construction companies I have seen all of their indirect (non-project specific) expenses included in the G&A overhead item.

I looked up numerous references on-line to General and Administrative Expenses that include the word overhead, such as: "General and Administrative Overhead".

Regarding Defective Pricing, if you are asking if it makes any difference whether or not G&A is encompassed within the term "any applicable overhead", it doesn't matter. G&A is generally included as an indirect COST in the price of the original contract amount or in a modification. Thus the price to the government was based upon and affected by the amount of G&A included in the original (defective) price.

The defective price to the government would have included a markup for G&A, which would have increased (or decreased in the case of a credit) because

1. the G&A rate itself was based upon defective cost or pricing data; or

2. the G&A cost added to the amount of other costs has been increased (or decreased) by that amount of other costs resulting from defective cost or pricing; or

3. both the G&A rate and the other costs were affected by defective cost or pricing data.

How could one assume that the prime contractor's markup for G&A (plus any fee or profit on that G&A) which was increased (or decreased) by a subcontractor's defective cost or pricing or the primes defective pricing would not be included in the price reduction? A credit modification is generally priced to include a credit for G&A similar to an increase modification that was priced to include applicable G&A. See Nash and Cibinic's (any edition) Administration of Government Contracts" under the pricing of credit changes and modifications.

How could one assume that the prime contractor's markup for G&A (plus any fee or profit on that G&A) which was increased by a subcontractor's defective cost or pricing or the primes defective pricing would not be included in the price reduction?

Joel,

The issue in this thread was not the calculation of the amount of the price reduction, but the calculation of the limit on the amount of the price reduction based on paragraph ( b ) of the clause. It is in paragraph ( b ) that the phrase "plus applicable overhead and profit" appears. The part of the clause which is the basis for the determination of the price reduction itself does not mention overhead or profit.

As for your bold statement that G&A is a category of "overhead", that depends on the ways in which the terms are used, not on any absolute principles or definitions or inferences from stuff you found online. In some places in the regulations "overhead" includes G&A and in others it does not.

I should have said that G&A can be a category of overhead.

The government doesn't have exclusive rights to the definition of "overhead" either, as can be seen by the inconsistencies and inexact use of the term described in this thread.

When paragraph b says "applicable overheads", I would think that it refers to ANY overheads that were applied, relevant to, or appropriate to determine the price. If G&A would have been applied to a subcontract price that was included in a defective price given to the government but not used, then it would seem to be an applicable overhead here. If G&A or other overheads weren't applicable, then they would not be part of the price adjustment.

If paragraph b limits a price adjustment to applicable overheads and profit or fee, in the case of a construction contract, would it not allow recovery of any inflated performance and payment bond premiums that were based upon the total contract price covered by the bonds?

wvanpup, in response to your post 12, a defective pricing claim is a government claim against the contractor. As such, the government has the burden of proof on every element of its claim, including the amount of the overpricing. The contractor has to prove any defenses it has to the government claim such as an offset.

If paragraph b limits a price adjustment to applicable overheads and profit or fee, in the case of a construction contract, would it not allow recovery of any inflated performance and payment bond premiums that were based upon the total contract price covered by the bonds?

Read the clause, Joel.

Read the clause, Joel.

Sorry, I was referring to limiting the recovery of markups to applicable overheads and profit. The markups would be on the difference between the actual subcontract price or the cost to self perform the work and the subcontract price that the contractor submitted as part of its cost or pricing data). Would the government not be allowed recovery of any inflated performance and payment bond premiums? Those are valid markups, too.

This paragraph ( b ) covers defective pricing due to submitting one subcontractor's proposal as part of the contractor's proposal, then using another, lower priced subcontractor or by self-performing the work. Of course, the contractor would have to know at the date that the certification of current cost or pricing represents that the contractor intended to use another subcontractor or to self-perform the work, at lower cost than that represented to the government.

Joel,

You have misread the clause. Paragraph (a) states how the amount of the price reduction is to be determined. It is the amount by which the price was increased due to defective pricing, however that amount is determined. The clause provides no formula. (See the definition of price at FAR 15.401.) Paragraph ( b ) sets a limit on the price reduction in certain circumstances and states the method of calculating the limit. Read the two together and think about them.

As for these two statements of yours:

This paragraph ( b ) covers defective pricing due to submitting one subcontractor's proposal as part of the contractor's proposal, then using another, lower priced subcontractor or by self-performing the work. Of course, the contractor would have to know at the date that the certification of current cost or pricing represents that the contractor intended to use another subcontractor or to self-perform the work, at lower cost than that represented to the government.

That is incorrect in all respects. Paragraph ( b ) does not cover defective pricing "due to" submitting a prospective subcontractor's proposal and then using a lower priced subcontractor or self-performing the work. Its application is not dependent on any misrepresentation by the prime contractor of its intentions. I have no idea how you could have developed those ideas based on a reading of paragraph ( b ).

Seeker's question concerning an adjustment for G&A relates to paragraph b, which limits recovery of markups beyond what paragraph a would allow.

My question concerned bonding cost under the situation described in paragraph b. The bond premium is also a markup. If paragraph b limits markups to applicable overheads and profit, how would the government recover excess bond costs?

Since I apparently don't understand the situation that paragraph b covers under the defective pricing clauses, please explain what situation it would cover. Thanks

FAR 52.215-10 Price Reduction for Defective Certified Cost or Pricing Data

"( b ) Any reduction in the contract price under paragraph (a) of this clause due to defective data from a prospective subcontractor that was not subsequently awarded the subcontract shall be limited to the amount, plus applicable overhead and profit markup, by which (1) the actual subcontract or (2) the actual cost to the Contractor, if there was no subcontract, was less than the prospective subcontract cost estimate submitted by the Contractor; provided, that the actual subcontract price was not itself affected by defective certified cost or pricing data."

Flying to Seattle today so it may be awhile before I can get back to this thread.

Take your time. If you still don't understand paragraph ( b ) after you get to Seattle, write again and I'll explain it to you.

Read it carefully, Joel.

When a prime contractor includes defective subcontract data in arriving at the price but later awards the subcontract to a lower priced subcontractor or does not subcontract for the work, any adjustment in the prime contract price due to defective subcontract data is limited to the difference between the subcontract price used for pricing the prime contract, and either the actual subcontract price or the actual cost to the contractor, if not subcontracted, plus markups for applicable overheads and profit. This assumes that the data on which the actual subcontract price is based are not defective.

My question was whether the additional bond premiums would be recoverable under this paragraph. I believe that G&A is an applicable overhead.

Joel:

My question was whether the additional bond premiums would be recoverable under this paragraph.

If by "this paragraph" you meant paragraph ( b ) of the clause, then the answer is no, because nothing is recoverable under paragraph ( b ).

The government's recovery for defective pricing is provided for and determined under paragraph (a). Paragraph ( b ) limits the government's recovery. (Do you understand that?)

Bond premiums are a direct cost to the contract. Under paragraph (a), any increase in the proposed amount for bond premiums that was caused by defective pricing would be recoverable, and since the cost of the bonds is determined based on total contract value, it would almost certainly be increased by defective pricing.

Should bond premiums be included in the calculation of the limit on the government's recovery that is provided for in paragraph ( b ), since paragraph ( b ) does not mention bond premiums? If bond premiums were included in "the prospective subcontract cost estimate submitted by the contractor," then the answer would be yes, the premiums would be included in the calculation of the limit. Otherwise, the answer would be no.

I very much doubt that there is any case law on this particular point, and I can't take time to look.

Retread

In post 12, I wrote:

I think it is highly significant. I cannot imagine why, in this specific case, actual cost of performance makes a difference. The fact of the matter is that we agreed to a price $3M higher than what we would have agreed to without defective data (I think the burden should be on the prime to prove it would not have had the same decrement to the proposed subcontract price that should have been offered (i.e., without defective data) that it had to the actual subcontract proposed price). Why give the prime a benefit based on actuals?

Your comment to this was:

wvanpup, in response to your post 12, a defective pricing claim is a government claim against the contractor. As such, the government has the burden of proof on every element of its claim, including the amount of the overpricing. The contractor has to prove any defenses it has to the government claim such as an offset.

I am not sure if you are taking issue with my post, or clarifying it. Of course I agree with you that a defective pricing claim is a Government claim for which the Government has the burden of proof, including the burden concerning amount. However, the Government has the benefit of a rebuttable presumption concerning the dollar for dollar effect of defective data. That being the case:

• I do not question what the regulation says, but I still cannot understand why the regulation uses actual cost of performance in the formula that determines the limit on the Government's defective pricing recovery. The issue should be the price the Government agreed to vs. the price the Government would have agreed to without the defective data.
• The rebuttable presumption of a dollar for dollar impact is sufficient to meet the Government's burden of proof concerning quantum. The contractor has at least the burden of going forward to raise an issue that rebuts the presumption (e.g., that it would have used a different decrement had the subcontract price not been affected by defective data). I do not recall if the contractor also has the burden of persuasion to show that the presumption has been rebutted, or if raising the issue is sufficient to put the burden of persuasion concerning quantum back on the government (i.e., the Government must prove quantum without the benefit of the presumption concerning the effect of the defective data).

Bond premiums are a prime contractor cost markup on the overall subtotal price of a construction contract mod. The prime's bonding cost is not part of the subcontractor's proposal.

Wvanpup (post #7) and Seeker (post #9) found the disconnect between the policy in FAR 15.407-1(f)(1) and paragraph ( b ) of the clause at 52.215-10. The clause states that the adjustment limits markups to applicable OVERHEADS and profit. The explanation in 15.407-1(f)(1) limits the markups to applicable INDIRECT COSTS plus profit.

"(1) When a prime contractor includes defective subcontract data in arriving at the price but later awards the subcontract to a lower priced subcontractor (or does not subcontract for the work), any adjustment in the prime contract price due to defective subcontract data is limited to the difference (plus applicable INDIRECT COST and profit markups) between the subcontract price used for pricing the prime contract, and either the actual subcontract price or the actual cost to the contractor, if not subcontracted, provided the data on which the actual subcontract price is based are not themselves defective."

I would go for including it under the scenario of paragraph ( b ) since there probably isn't any case law disputing it and the intent seems to be to allow it as an indirect cost.

wvanpup, my comments were directed toward this sentence "I think the burden should be on the prime to prove it would not have had the same decrement to the proposed subcontract price that should have been offered (i.e., without defective data) that it had to the actual subcontract proposed price). The natural and probable consequences doctrine applies to the question of whether defective cost or pricing data caused an increase in contract price, not the amount of that increase. The government still has the burden of proving the amount by which the contract price was increased. Further, a contractor does not have to use any cost or pricing data in preparing its proposal. TINA is only a disclosure statute. I rely on United Technology Corp. ASBCA No. 51410, (Feb. 27, 2004)

Retread: I do not disagree that TINA is only a disclosure statute, nor do I disagree that a contractor is not required to use the cost or pricing data in preparing its proposal. United Technology was decided on the basis of lack of reliance, not on quantum. I still maintain there is a rebuttable presumption concerning the amount of the increase caused by the defective data.

The following is from material from a Fed Pubs defective pricing course I took in 2012:

The DFARS, courts, and Boards have developed a "dollar for dollar" presumption in defective pricing cases. It is presumed that the "natural and probable consequence" of defective data is a contract price increase in the dollar maount reflected by the defect. Thus, in the absence of contrary evidence, liability is generally determined by the difference between costs represented by the data disclosed to the Government and the costs represented in the undisclosed data, plus applicable overhead and profit.

For cases to this effect, see

Sperry Corp. Computer Systems, 88-3 BCA 20975 ("In these circumstances, we can only conclude that appellant's vague allusions to an overlooked credit are insufficient to overcome the presumption that the contract price should be reduced on a dollar-for-dollar basis. See Sylvania Electric Products, Inc. v. United States, 202 Ct.Cl. 16, 27–28, 479 F.2d 1342, 1349 (1973); DAR § 3–807.10(a)(2)" (emphasis added).)

Etowah Mfg. Co., 88-3 BCA 21054 ("The failure to disclose the purchase and intended use of the interim Mill–Max assembly machines increased the Government's justification for the definitive price by $115,933 or $.003 per fuze. Finding 37. Etowah has failed to rebut the presumption that the negotiated price was increased by this amount as a result of the non-disclosure" (emphasis added).)

Sylvania Elec. Products, Inc. v. U.S., 479 F.2d 1342, quoting the following from the Armed Services Procurement Regulation: "In establishing that the defective data caused an increase in the contract price, the contracting officer is not expected to reconstruct the negotiation by speculating as to what would have been the mental attitudes of the negotiating parties if the correct data had been submitted at the time of agreement on price. In the absence of evidence to the contrary, the natural and probable consequence of defective data is an increase in the contract price in the amount of the defect plus related burden and profit or fee; therefore, unless there is a clear indication that the defective data was not used, or was not relied upon, the contract price should be reduced in that amount” (emphasis added).

Oh it is more than a disclosure statute. Here is an interesting article from 1968 concerning the Act , including some history. It also discussed natural and probable consequence...

http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=2645&context=fss_papers

Joel:

Oh it is more than a disclosure statute.

What more is it? According to Ralph Nash, in a September 2013 article, "The Great Engine War: A Strange Sequel," The Nash & Cibinic Report:

TINA is a disclosure statute.

You can find many statements to that effect in articles in legal journals. So what more is it in your view? Please explain.

It is not "only a disclosure law". It also provided the government an administrative contract remedy, short of having to prove intent to mislead or defraud during negotiations, in order to obtain a price reduction.

TINA is only a disclosure statute because that is all that it requires a contractor to do. A contractor has fulfilled its obligation once it has disclosed. It has no further obligation. The fact that the law provides for a price reduction if defective pricing injures the government does not change the fact. That is nothing but a remedy for failing to disclose.

Here are what some people who know what they are talking about have said about the TINA, in addition to Prof. Nash. First, Brig. Gen. Richard J. Bednar, U.S. Army (Ret.), former judge advocate officer:

The Truth in Negotiations Act that passed in 1962 was simply a disclosure statute.

See "The Fourteenth Major Frank B. Creekmore Lecture," 175 Mil. L. Rev. 286 (2003).

See also Knight, "'Certified Estimates' and Mandatory Disclosure: A Bad Decision Makes for A Worse Regulation", 44-SUM Procurement Law 24 (2009):

TINA is a disclosure statute.

See also Bodenheimer, "Competition Trumps Defective Pricing Claim in the Great Engine War," 47 Govt Cont ¶ 86 (2005):

In a $299 million claim characterized by a Government pleading as “Garden Variety” defective pricing, the Air Force advanced novel, often unprecedented, propositions that would have transformed the Truth in Negotiations Act (TINA) from a disclosure statute into a post facto repricing exercise.

Here is Judge Jack Delman of the ASBCA in United Techologies Corp., ASBCA No. 51410, 04-1 BCA ¶ 32556:

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. This disclosure and certification obligation is not limited to that data actually used or relied upon by the contractor to prepare its proposal. Under the regulatory definition, the data to be provided consists of “all facts existing up to the time of agreement on price which prudent buyers and sellers would reasonably expect to have a significant effect on price negotiations... ” (finding 74). On the other hand, once a contractor has furnished accurate, current and complete data, it has fulfilled its TINA obligations.

See also Bodenheimber, Defective Pricing Handbook (2012-2013 Ed.) p. 2:

[T]he Truth in Negotiations Act simply requires a contractor to disclose cost or pricing data.

Finally, see Manos, Government Contract Costs and Pricing (2013) § 84:2:

The Truth in Negotiations Act (TINA) was intended to level the playing field by giving Government negotiators access to all of the cost or pricing data reasonably available to the contractor, even if the contractor's price is based on other facts and considerations. TINA requires contractors to disclose cost or pricing data and to certify that such data are accurate, complete and current. It also requires that prime contracts include a provision for a downward price adjustment if the negotiated price is significantly higher as a result of “defective” cost or pricing data (i.e., data that is inaccurate, incomplete or noncurrent as of the effective date of the contractor's certificate) regardless of whether the defect is intentional or unintentional. TINA is strictly a disclosure statute; it does not in anyway limit the price or fee a contractor can charge.

You're spreading misinformation, Joel. It is a very important legal point that TINA is only a disclosure statute, nothing more.

wvanpup:

I do not question what the regulation says, but I still cannot understand why the regulation uses actual cost of performance in the formula that determines the limit on the Government's defective pricing recovery. The issue should be the price the Government agreed to vs. the price the Government would have agreed to without the defective data.

The provision now in paragraph ( b ) was added to the defective pricing clause on November 4, 1971, 36 Fed. Reg. 21120, without explanation, word for word as it is today. I doubt that anyone around today knows why it was added or why it was written the way it is. It's obvious purpose is to limit the contractor's liability for a price reduction to, at most, the amount that it saved by awarding the subcontract to a different firm or by doing the work in-house. It is not liable for any amount in excess of that. That's simply the way that it is.

Adding to Vern's last post, paragraph ( b ) is something that was developed by regulation. There is not a similar provision in TINA.