FAR 15 Mistake After Award

If you will answer these questions, the community here will be better able to help you.

(1) Why did the contractor notify you of the mistake?

(2) Was the contract awarded competitively?

(3) Are you talking about construction contract with performance and payment bonds?  Or are you talking about advance payment, infringement, or fidelity bonds?

(4) What correction is the contractor asking for?

(5) Why did the contractor notify you of the mistake?

(6) if the answer to question number 2 is “no”,  was the negotiated price based upon certified cost or pricing?

If the negotiated price was based upon certified cost or pricing, the bond rate would likely be defective cost or pricing, thus subject to a price reduction, without any accusation of wrongdoing necessary. 

I don’t remember seeing a bond rate as high as 4 percent. That should probably have stood out as questionable, at least triggering discussion during negotiations. It is relatively easy to verify the proposed bond rate if it looks high. For that matter, a 0.4% rate for performance and payment bonds is somewhat low,  and would normally be associated with a large contract price for relatively low risk nature of the work.and excellent bondability of the contractor. 

For example: “The cost of a performance bond usually is less than 1% of the contract price; however, if the contract is under $1 million, the premium may run between 1% and 2%. Bonds may be more costly, depending upon the credit-worthiness of the contractor. Labor and material payment bonds are companions to the performance bond.”

https://www.nspe.org/sites/default/files/resources/pdfs/Licensure/FTC/FTC-Jun-02-GuideSuretyBonds.pdf

Wasn’t there a detailed government estimate for this negotiation and technical and cost analysis to prepare the prenegotiation objectives?  A difference of 3.6% on a large contract price would seems to me to be significant enough to notice. 

At any rate, the Truth in Negotiations Act was intended to provide an administrative method for price reductions due to misrepresented cost or pricing data, even when unintentional.

I am guessing that this is a construction contract and that the contractor notified the government of the discrepancy. Tthe contractor appears to be acting upfront but is posturing to try to deflect a price reduction. I probably would too, hoping to persuade the government not to reduce the price. 

See   15.407-1 Defective certified cost or pricing data.and the applicable clause for defective Cost or Pricing. 

Note too, per the clause and 15.407-1, that the contractor’s argument for not decreasing the price is not a valid defense. It’s simply posturing on their part. 

Be firm, if the assumed circumstances that I described are applicable. 

You can contact me if you want to discuss the situation in detail.

As an exception to the above discussion, if the government didn’t rely on the bond data during the price negotiations, depending upon the facts of the situation,  there might be a defense but we may need to know more about the context and do some more research.

Construction contract.

The project was sent to the MATOC but only one contractor bid (we were expecting more). Negotiations were held, final price agreed upon, and then we asked for a certificate of current cost or pricing data, which was provided. The task order was then awarded.

A couple weeks later the contractor provided its performance and payment bond, and then realized that had used an incorrect factor of $40 per $100 versus $4 per $1,000.

Here's where it gets tricky. When the Government learned of the mistake, we tried to do a unilateral mod for the difference.

I read through 15.407-1, and it seems to apply except my reading of that section requires us to do an audit first. That seems like a waste of time since the contractor informed us of the mistake.

Nevertheless, is that a hoop we have to jump through anyway?

The law, or in other words I would suggest case law, would suggest that 15.407-1 does not mean a thing unless FAR 52.215-10 and 11 give you the right in the awarded contract explained by 15.407-1.    The suggestion is then make sure the 10/11 clauses are in the contract (MATOC or task order?) before you go down the light fantastic too far!

TheLaw said:

A couple weeks later the contractor provided its performance and payment bond

To have defective cost or pricing data, the contractor must have been required to submit cost or pricing data that are current, complete and accurate as of the date of agreement on price or an earlier agreed upon date.  This means that the data must have been in existence at the time of agreement on price.  The above statement raises the question as to whether the contractor had the bond when the price was agreed to.  If it did not, proving defective pricing would be problematic.  If it did have the bond, but did not disclose it before agreement on price, defective pricing is more likely.

Good points. Thanks!

TheLaw said:

I read through 15.407-1, and it seems to apply except my reading of that section requires us to do an audit first. That seems like a waste of time since the contractor informed us of the mistake.

My memory is pinging me that there is either a class deviation or a proposed DFARS rule that waives the audit, or else leaves it to KO discretion based on perceived risk.

That's all I have.

TL, are you the agency lawyer?

The only information that you should need to verify is what information the contractor had at the time of proposal preparation and at the time of negotiation to base its proposed price on. The contractor inserted a number in its proposal - what was it based upon and how did it or could it have verified that information. Even if it was a typo in the estimating software, it was defective - in my opinion.  A "desk audit" by interview over the phone could take care of that requirement, I think. If the contractor informed you it was a mistake and explained the mistake, that might be all you should need. 

I don’t know the details of course. Im making an educated guess, based upon your description of the scenario. 

Quote

15.407-1 (c) If, after award, the contracting officer learns or suspects that the data furnished were not accurate, complete, and current, or were not adequately verified by the contractor as of the time of negotiation, the contracting officer shall request an audit to evaluate the accuracy, completeness, and currency of the data. The Government may evaluate the profit-cost relationships only if the audit reveals that the data certified by the contractor were defective. The contracting officer shall not reprice the contract solely because the profit was greater than forecast or because a contingency specified in the submission failed to materialize..

I don't think that the contractor has a valid defense, if it SHOULD have known what the bond was going to cost.  The contractor should have sent a copy of the bonding agent's invoice with the payment request and there should be enough info to determine who the agency was that provided the bond.

I'm assuming that overhead and profit were added to the bond price.  A 3.6% error in the price of the task order is significant.

Does the ID/IQ include the clause 52.215-10, Price Reduction for Defective Certified Cost or Pricing Data, and/or 52.215-11, Price Reduction for Defective Certified Cost or Pricing Data—Modifications?

There is much case law that I recommend the lawyer on your team research to fit the situation. 

An “Audit” doesn’t have to be a big deal. If this is a military contract, I would find someone in DCAA to speak with about how to verify what info is needed. Maybe someone other than an auditor can handle it.

joel hoffman said:

The only information that you should need to verify is what information the contractor had at the time of proposal preparation and at the time of negotiation to base its proposed price on. The contractor inserted a number in its proposal - what was it based upon and how did it or could it have verified that information.

Joel, I'm not sure what this means.  Are you saying that a contractor has to base its proposal on cost or pricing data?  Also, are you saying that FAR 15.407-1(c) requires contractors to verify their proposals in addition to the cost or pricing data that are disclosed to the government?

What it means is that rather than a detailed audit, the OP already knows that the contractor proposed a 4 percent performance and payment bond rate, the government relied on it for negotiations but the actual rate is only 0.4 percent. Thus,  the task order cost has been inflated by 3.6% due to defective cost data.

To prove that it is defective cost or pricing data and to be able to obtain a corresponding price reduction, the government needs to know that the contractor knew or should have been able to know what the actual bond rate was going to be at the time of the negotiation. 

joel hoffman said:

15.407-1 (c) If, after award, the contracting officer learns or suspects that the data furnished were not accurate, complete, and current, or were not adequately verified by the contractor as of the time of negotiation, the contracting officer shall request an audit to evaluate the accuracy, completeness, and currency of the data.

Retreadfed, the Contractor doesn't have to have the bond in hand to know what the rate will be.  The bonding agency will be able to tell the contractor what the rate will be and the contractor knows what it has paid in the past. The rate didnt' just suddenly shrink to 1/10 of what was proposed. I am not going to debate the OP about the wisdom of the negotiator accepting the proposed 4% rate, without further investigating. A competent government estimator will also have a good idea what bonds are going for.  We learned methods for estimating bond rates in my first government class and I often called local bond agencies for information.  That's a topic for another day.

There is a whole lot of caselaw on the subject of defective cost or pricing data and price reductions that the OP’s lawyer or the OP can review if he/she is the lawyer.

On 4/11/2019 at 10:48 AM, TheLaw said:

I have a FAR part 15 contract, firm fixed price. The contractor alerted us to a mistake after award - specifically that his bonding rate was submitted as 4%, when 0.4% is what was intended.

The contractor argues that no contract price correction is warranted because this is a firm fixed price contract that was negotiated, and he already lowered his price twice during negotiations.

The Government believes it should be entitled to a correction in the contract price for the difference between 0.4% and 4%.

Anyone have any thoughts on this? Could the Government possibly use FAR part 15.508 for Discovery of Mistakes (which then references 14.407-4), to correct this mistake? I understand that those sections are used by contractors to rectify mistakes they discover (in their favor), but it seems like the Government should have some recourse in this situation. I've come up empty on my review, however, so any advice would be welcome.

Thanks.

Seems like you may have a case for defective pricing. The contractor relied upon a set of facts/data to generate a proposal, which you then relied upon, in order to negotiate an award. You both agreed on a price. That company then duly certified that the data utilized was current/accurate/complete. But after award, it was discovered that this was not retroactively true.

When notified, you were almost distracted by the fact that the negotiation was complete/over.

Who cares. Uncle Sam may have paid more due to defective data.

As mentioned, definitely see that clauses 52.215-10/-11 are in the contract and/or task order and get clarity on the matter.

Joel, and Sunstrider, it seems to me that both of you are saying that a proposal is cost or pricing data.  Also, there is a hint that a contractor has to use cost or pricing data in preparing its proposal.  If this is what you are saying, I have to disagree.  Proposals are not cost or pricing data and contractors do not have to use cost or pricing data to prepare their proposals.  See, United Technologies Corp., 04-1 BCA 32556.

Ok, so you disagree. Fine. I’ve gotten three price reductions for defective cost or pricing data. It can work.

There is a whole lot of caselaw on the subject of defective cost or pricing data and price reductions that the OP’s lawyer or the OP can review if he/she is the lawyer.

joel hoffman said:

Ok, so you disagree.

If you are saying that a proposal is cost or pricing data and that a contractor has to base its proposal on the cost or pricing data it submits to the government, please provide some authority to support this statement.  I have given you a case citation that specifically addresses these issues and that demonstrates these positions are wrong.  If this is not what you are saying, clarify what your position is.   I don't care if you have gotten price reductions before.  This forum is to impart knowledge of what is proper contracting.  What you seem to be saying above is just plain wrong.

I don’t intend to debate you . The OP and his/her lawyer can read up and see if the specific circumstances will support a price reduction for defective pricing. 

I don’t know the specifics - the OP didn’t elaborate when I wondered how they wouldn’t  have questioned a whopping 4% proposed bond rate. Don’t know if they relied on the rate or not. Bond rate is a direct multiplier in a proposal . It ought to have been visible to to a proposal reviewer during a cost analysis for developing pre-negotiation objectives. If the government only performed price analysis, they they don’t know how to negotiate a sole source construction contract.

Back in the 1980’s, the Engineer IG investigates and found that the USACE often weren’t properly performing technical and cost analysis; they were often simply relying upon price comparisons between proposals and government estimates during proposal reviews and negotiations. We instituted major changes in policy and training on technical, cost and price analysis and and  how to develop pre-negotiation objectives. 

I am certain that contractors generally know what rates they pay for bonds before submitting a bid or proposal and that this one allegedly admitted that there was a math error.  

Construction contractors have to consult with their surety agents during the bidding or proposal stage. If a bid bond was involved (this started out as a task order competition), the bonding company would have investigated bonding capacity and pre-approved bonding the task order. A surety won’t issue a bid bond unless the contractor is bondable and has adequate bonding capacity for the job. 

Open proposals tie up that amount of a construction company”s bonding capacity for bidding other work. 

Contractors are well aware of what bonds cost before award of a task order or contract. I

Headed to Atlanta to visit daughter this week.

While like most of us I'm a bit in the dark about what really happened, I can easily envision a spreadsheet mistake where the decimal was in the wrong place. If the parties contracted on that basis, I would have a hard time thinking it was defective pricing.

Also, to Retread's points, I agree with him. A contractor's obligation is to disclose cost or pricing data, then certify that what was disclosed is accurate, complete, and current. Period. What used to be called TINA is a disclosure requirement, not a use requirement.

The contractor should want to move on from this situation quickly, as it calls into question the adequacy of its Estimating System. A bilateral mod based on mutual mistake would seem to be the fix. Of course, if there is some rule preventing a bilateral mod to correct a mutual mistake, I'm sure somebody will let me know.

PepeTheFrog agrees with a bilateral modification based on mutual mistake.

This does not seem like a classic or provable case of defective pricing (in the term of art for federal contracting, not in the general sense of the two words "defective pricing"). Nobody will disagree that the contractor priced their proposal wrong (and that the pricing was "defective" in some way), but that is different from satisfying the elements of a defective pricing case.

Here is the DCAA audit guidance, according to Briefing Papers article, on defective pricing:

"(1) The information in question fits the definition of certified cost or pricing data. (2) Accurate, complete, and current data existed and were reasonably available to the contractor before the agreement on price. (3) Accurate, complete, and current data were not submitted or disclosed to the contracting officer or one of the authorized representatives of the contracting officer and that these individuals did not have actual knowledge of such data or its significance to the proposal. (4) The Government relied on the defective data in negotiating with the contractor. (5) The Government’s reliance on the defective data caused an increase in the contract price."

https://www.crowell.com/files/Litigation-and-Proof-in-Defective-Pricing-Cases.pdf

Numbers (1) and (2) seem questionable.

Thank you, Pepe for listing the conditions for defective pricing which appear to perfectly fit the instant scenario. 

The contractor has admitted a mistake. This indicates that it knew the bond rate** at the time that the proposal was being prepared and a mistake was made in the proposal. I am fairly certain that the contractor knew or should have known the applicable bond rate when it prepared the proposal. As I said before, the contractor would have worked with the bonding company’s agent before submitting a price proposal.

An audit or desk audit could confirm whether or not the contractor specifically knew the rate or what it was paying for other bonds. 

[**The stated bond rate in the proposal is cost or pricing data that supports the cost of the bond. The contractor should identify the source and basis for the proposed bond rate, consistent with the instructions for submission of proposal information including cost or pricing data to support the proposed bond cost. 15.408]

The contractor could have inadvertently overlooked the error - an accidental misrepresentation of what the bonding rate would be, when  the proposal was being printed and delivered to the government. OK- Possible that it was a simple mistake. But it is defective data. 

However, the contractor had at least three  more opportunities to notice and correct the error/misrepresentation /mistake: 

1. during preparation for negotiations. 

2. during negotiations -especially when the negotiators for both parties   typically recalculate bottom lines as negotiations proceed to a settlement. 

3. during a sweep or even a cursory review of the supporting data after negotiations before certifying that the data were current, complete and accurate as of the date of agreement.

H2H is right in suggesting that the contractor ought to quickly move on and agree to a bi-lateral mod for “a mutual mistake”, rather than using arguments that are specifically impermissible by the (TINA) Statute and that could possibly raise other ramifications.

And yes - the contractor must truthfully identify a bond rate (cost) used to support its price if it is known - that’s not a judgmental cost - it’s factual.  Misrepresentation by accident or intentionally still produces defective cost or pricing data...

joel hoffman said:

Misrepresentation by accident or intentionally still produces defective cost or pricing data

Misrepresentation of cost or pricing data produces defective pricing.  A proposal is not cost or pricing data.  Defective pricing does not result from misrepresentation in a proposal.  That may be fraud, but it is not defective pricing.

Retreadfed said:

Misrepresentation of cost or pricing data produces defective pricing.  A proposal is not cost or pricing data.  Defective pricing does not result from misrepresentation in a proposal.  That may be fraud, but it is not defective pricing.

A cost proposal includes a breakdown of cost elements with supporting data either included or referenced. Here, the bond rate would be supporting cost or pricing data for the  breakdown of the bond cost. Thus cost or pricing data are part of the proposal. 

See, for example:  https://www.dla.mil/Portals/104/Documents/Aviation/IndustryDays/Cost and Price.pptx?ver=2018-06-04-085632-903

See also the Instructions for Table 15-2 in 15.408.

joel hoffman said:

A cost proposal includes a breakdown of cost elements with supporting data either included or referenced. Here, the bond rate would be supporting cost or pricing data for the  breakdown of the bond cost. Thus cost or pricing data are part of the proposal. 

See, for example:  https://www.dla.mil/Portals/104/Documents/Aviation/IndustryDays/Cost and Price.pptx?ver=2018-06-04-085632-903

@Retreadfed provided a citation to a Board of Contract Appeals case which is supposedly related to this issue. In response and in opposition, joel hoffman cites to a PowerPoint presentation by "Natarsha Goode" and "Dawn Hampton," two employees of Defense Logistics Agency.

Which is more persuasive as a source of reference or citation for a contracting professional? Natarsha and Dawn, or a Board of Contract Appeals case? The choice is yours!

By the way, even if Natarsha and Dawn, two employees of Defense Logistics Agency, are more persuasive than the Board of Contract Appeals, PepeTheFrog does not see where the PowerPoint slides support the assertion above. Slide 22 states "What is a Cost Proposal? A breakdown by cost element with supporting data..." Is this the magic slide? Or is it the colorful picture of a pyramid representing the "Cost Proposal Package" on slide 40?

joel hoffman said:

See also the Instructions for Table 15-2 in 15.408.

Here is the other citation: Instructions for Table 15-2 in FAR 15.408. Here is a quotation from that citation:

"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."

@joel hoffman Is this the section to support your assertion? Have you actually thought this through and considered each of Retreadfed's points?

I’m only stating that cost and pricing are part of the proposal. I gave two references. 

Retreadfed said a “proposal is not cost or pricing data. “ Not sure what he was trying to say. The FAR and the Statute both require the contractor to submit cost or pricing data with the proposal to support the proposed price. . 

Pepe, do you think that cost or pricing data aren’t part of the proposal? 

And do you think that the government must prove intent and fraud rather than administratively seek and obtain a price reduction due to defective cost or pricing data that increased the price?

Here is the timeline:

The contractor submitted a proposal with the mistaken bond percentage.

The contractor then submitted certified cost & pricing data with the mistaken bond percentage.*

After award, when the contractor was submitting the bonds, it discovered the error.

*The bond percentage was shown in a "general requirements" portion of the certified cost & pricing data, so the Government never saw it here.

Also, clause 52.215-10 is in the contract.

I will have to look into the case law, it appears.

Also, since no one has talked about it, the idea of the Government using the mistake after award clauses (typical used by contractors) to rectify the mistake is a non-starter?

TheLaw said:

Also, since no one has talked about it, the idea of the Government using the mistake after award clauses (typical used by contractors) to rectify the mistake is a non-starter?

Not necessarily.  But it would require mutual agreement, I think. H2H suggested that the contractor ought to move on and go with mutual mistake. 

However, the price reduction for defective cost or pricing clause would be simpler if it is clear that the contractor knew or should have known the actual bond rate at the time of negotiation completion. It has admitted a mistake, right?  The defenses that the contractor have apparently raised are non-starters if you read the US Code and the FAR. 

One of the reasons for TINA was to provide an administrative remedy without having to prove intent, fraud or False statements. As my poor memory serves me, Admiral Rickover wanted a bigger stick without having to prove civil negligence or intent or criminal intent under the Fraud and False Statements Statutes. 

I don’t understand what was meant by 

“*The bond percentage was shown in a "general requirements" portion of the certified cost & pricing data, so the Government never saw it here.”

The bonding was grouped in a category that says "general requirements." The contractor has since told us that the bond costs were included in there.

TheLaw said:

The bonding was grouped in a category that says "general requirements." The contractor has since told us that the bond costs were included in there.

Even if the government overlooked the data,in the general requirements,  the Statute says that the contractor can’t use that  as a defense or excuse.  A mistake in the spreadsheet isn’t a defense either. The Govt still needs to show that the contractor (the company, not necessarily the negotiator) knew what the bond rate would be. It apparently represented the rate basis for the cost of the bond in the supporting data for the bond cost. 

Whew - hope there are lessons learned here! Those administering and negotiating and/or performing technical and cost analysis  for construction contract actions must read the entire proposal and understand what they are reading. 

One must also perform some math checks! When negotiating one needs to keep up with the effects on the bottom line as well as possible.

joel hoffman said:

Whew - hope there are lessons learned here! Those administering and negotiating and/or performing technical and cost analysis  for construction contract actions must read the entire and understand what they are reading.

Yea, lets not even go down that rabbit hole...

TheLaw said:

Yea, lets not even go down that rabbit hole...

Righto. I can surmise what happened.

TheLaw said:

Also, since no one has talked about it, the idea of the Government using the mistake after award clauses (typical used by contractors) to rectify the mistake is a non-starter?

Actually, I do not know. My answer above was along the lines of a mutual mistake theory. That’s not what you were talking about.

 However, wouldn’t the contractor have to be the one to assert the mistake and ask for ean adjustment? How would that be in the contractors best interest?I certainly don’t think that the government would pursue a case concerning fraud.

Good luck with whatever you do.  

By the way, there was no need to be accusatory or confrontational in the three defective pricing cases that I was involved with.  We didn’t make it personal.  

Especially so here, when the contractor admits that it made a math error in the spreadsheet or in the rate expressed in the “general requirements”.  

Without seeing it, it may well be where all the global constants used in an estimating spreadsheet or estimating program are represented.

That’s how I used to build estimates and pre-negotiation objectives. Then, if one of the global values changed, I could quickly recalculate my estimate or a new negotiating position and bottom line counteroffer or bottom line negotiation upper limit. Learned that from a contractor. 😃

joel hoffman said:

I’m only stating that cost and pricing are part of the proposal. I gave two references. 

Retreadfed said a “proposal is not cost or pricing data. “ Not sure what he was trying to say. The FAR and the Statute both require the contractor to submit cost or pricing data with the proposal to support the proposed price. . 

Pepe, do you think that cost or pricing data aren’t part of the proposal? 

And do you think that the government must prove intent and fraud rather than administratively seek and obtain a price reduction due to defective cost or pricing data that increased the price?

PepeTheFrog wants to find the Truth with a capital T about whether or not the proposal itself is considered cost or pricing data (rather than, say, facts that prudent buyers or sellers would reasonably expect to affect price negotiations significantly and which may or may not be used to prepare the proposal itself). Like most on the this forum, PepeTheFrog wants to learn and gain a deeper understanding of key issues in government contracting. When people provide false or misleading or murky or questionable information, PepeTheFrog and others question it, as they should.

Retreadfed stated that a proposal is not cost or pricing data and provided a citation to a Board of Contract Appeals case. You responded by talking about your personal experiences and then posted a PowerPoint presentation by Natarsha and Dawn. 

Then you shifted the goalposts by saying that cost or pricing data is part of the proposal, which implies that you are walking back your assertion that the proposal itself counts as cost or pricing data that can be used as part of a defective pricing claim by the government. Of course, you are not walking back your assertion. You are doubling down and squirming around by shifting the terms of the debate. That is bad form.  

So far, PepeTheFrog finds Retreadfed to be persuasive and finds your various explanations and significant changes in argumentation/position to be severely lacking. @joel hoffman Please do not think that PepeTheFrog is picking on you, personally. Truth and order are very difficult and require significantly much more work and effort than lies and chaos. With no vigilance or curiosity, lies and chaos will win every single time. Finding Truth via negativa (by eliminating falsehoods or errors) is a great method and some people say it's the very heart of the scientific method.

For your final question, the government does not have to prove intent or fraud to administrative seek and obtain a price reduction based on an assertion of defective cost or pricing data. The proof of intent or fraud will come about in litigation, as you know. Now it seems like your position is that the government should try to get away with whatever it can, as long as it can fool the contractor into compliance, even if what the government is doing is not based on sound principles, case law, legislation about certified cost or pricing data, etc. Throw out scary words like "defective pricing" (even if that situation does not apply!) and just get it done because you won't have to prove intent or fraud unless the contractor moves the entire ordeal into litigation. Well, fine. That actually might work!

That is a form of advice you can provide on the forum, but you should make it clear that you're just telling the government to push around the contractor based on false, misleading, murky, or questionable information. Instead you keep trying to make it seem like your advice is based on something true or backed up by respected or acknowledge authorities, like laws, written policies, regulations like the FAR, or court cases.

joel hoffman said:

The FAR and the Statute both require the contractor to submit cost or pricing data with the proposal to support the proposed price. .

That is not true.  Here is what 10 U.S.C. 2306a says

The head of an agency shall require offerors, contractors, and subcontractors to make cost or pricing data available as follows:

(A) An offeror for a prime contract under this chapter to be entered into using procedures other than sealed-bid procedures that is only expected to receive one bid shall be required to submit cost or pricing data before the award of a contract.

Thus, the statute only requires contractors to submit cost or pricing data before award of a contract and then only if required by the head of the agency.

While Table 15-2 says contractors are to submit cost or pricing data with their proposal, it does not say that such data are part of the proposal or that the proposal is cost or pricing data, which the UTC decision tells us it is not.  Further, Table 15-2 says the obligation to submit cost or pricing data continues until award.  Thus, the Table itself does not require all cost or pricing data does not have to be submitted with a proposal.  In this regard, FAR 52.215-10 states that the government is entitled to a price reduction if the contractor "furnished certified cost or pricing data that were not complete, accurate, and current as certified in its Certificate of Current Cost or Pricing Data."  FAR 15.403-4 requires the contractor to certify that "the cost or pricing data were accurate, complete, and current as of the date of agreement on price or, if applicable, an earlier date agreed upon between the parties."  Based on this, the government is not entitled to a price reduction if cost or pricing data was not submitted with a proposal, but only if the contractor did not submit data that was current, complete and accurate as of the date of agreement on price of the contract or some earlier date.  Further, based on the language of the statute, this data can be submitted after agreement on price, but before award of the contract.

FAR 52.215-10 does not address the situation where there is a mistake or misrepresentation in a proposal.  It only addresses the situation where defective pricing has occurred.  If the government wishes to receive a price reduction for a mistake in a proposal or misrepresentation in a proposal, it will have to do so under some theory other than defective pricing.

Good luck trying to learn, Pepe. 

Cost or pricing data may be stated within the proposal. They may be submitted separately with the proposal They may be an attachment within the proposal. There is no one way to do it. 

If attached or separately referenced cost or pricing data indicate that the bond will cost 4% of the total direct costs,  plus overhead and Profit and then  “4%” is used to calculate the cost of the bond in the proposal breakdown - is the cost or pricing data part of the proposal?  It is certainly used to calculate the amount of the proposed price. 

I’m  not telling the government to “push around the contractor”.  A provision for a price adjustment due to the effect of defective cost or pricing is the law and in the contract. 

Hey, if the contractor goes bid shipping or finds a better deal after the price agreement, that isn’t necessarily a TINA violation.

Nice try, Retreadfed. In other words, C&P data submission is only a formality. Thus, it is not intended for any useful purpose by the government to evaluate a proposal to determine that it is fair and reasonable or that the data supporting the proposed amounts are complete, concurrent and accurate. 

The certification generally comes after the price agreement.  Cost or pricing data are to be provided before that for the benefit of the government in the proposal evaluation. It is updated, if necessary, as of the date represented in the certification.

Retreadfed said:

FAR 52.215-10 does not address the situation where there is a mistake or misrepresentation in a proposal.  It only addresses the situation where defective pricing has occurred.  If the government wishes to receive a price reduction for a mistake in a proposal or misrepresentation in a proposal, it will have to do so under some theory other than defective pricing.

If a mistake or misrepresentation in the cost or pricing data, thus not “accurate, current and complete “ it is defective. If it raises the proposed price, then the clause provides a means for a price reduction. The clause also permits certain offsets from the price reduction for other corrections, too.

At any rate, the OP can research the regs, laws, caselaw, etc.

PepeTheFrog said:

PepeTheFrog agrees with a bilateral modification based on mutual mistake.

This does not seem like a classic or provable case of defective pricing (in the term of art for federal contracting, not in the general sense of the two words "defective pricing"). Nobody will disagree that the contractor priced their proposal wrong (and that the pricing was "defective" in some way), but that is different from satisfying the elements of a defective pricing case.

Here is the DCAA audit guidance, according to Briefing Papers article, on defective pricing:

"(1) The information in question fits the definition of certified cost or pricing data. (2) Accurate, complete, and current data existed and were reasonably available to the contractor before the agreement on price. (3) Accurate, complete, and current data were not submitted or disclosed to the contracting officer or one of the authorized representatives of the contracting officer and that these individuals did not have actual knowledge of such data or its significance to the proposal. (4) The Government relied on the defective data in negotiating with the contractor. (5) The Government’s reliance on the defective data caused an increase in the contract price."

https://www.crowell.com/files/Litigation-and-Proof-in-Defective-Pricing-Cases.pdf

Numbers (1) and (2) seem questionable.

Why do you find (1) and (2) questionable?  If I understand the scenario:

On (1), the bond percentage did impact the proposed/negotiated price so it is cost or pricing data...aka a fact that one would reasonably expect to affect price negotiations significantly (the bond percentage is factual and verifiable which is how the contractor discovered it as a mistake).  The OP stated that the contractor provided a certificate of current cost or pricing data.

On (2) the correct bond percentage was available to the contractor before the agreement on price (they used 4% instead of 0.4% because of a typo).

Did I miss something?

On 4/11/2019 at 10:48 AM, TheLaw said:

Could the Government possibly use FAR part 15.508 for Discovery of Mistakes (which then references 14.407-4), to correct this mistake? I understand that those sections are used by contractors to rectify mistakes they discover (in their favor), but it seems like the Government should have some recourse in this situation. I've come up empty on my review, however, so any advice would be welcome.

Thanks.

Read 15.502 "Applicability" - while the subpart technically applies to competitive proposals it goes on to read "the procedures in...15.508...with reasonable modification, should be followed for sole source acquisitions..."  (Note: this is a crucial habit to learn - ALWAYS read the Scope, Applicability and Definitions [SAD] of any FAR Part/Subpart first).

I think the question at hand is, what do you think the right way to approach this situation is?  If the contractor was forthcoming with identifying the mistake and earnestly wants to rectify it, I don't know of a rule or regulation that prohibits you from doing so; however, if the contractor identified is not cooperating, I think you could make an argument for defective pricing to either encourage them to cooperate or else...

I would opt for the former vs either of the latter...a defective pricing battle is no way to start a contractual relationship (but if it is necessary, the Contracting Officer has an obligation to recoup the excess amount).

Thanks for the SIMPLE explanation, Matthew!!

joel hoffman said:

The certification generally comes after the price agreement.  Cost or pricing data are to be provided before that for the benefit of the government in the proposal evaluation

And what is the government's remedy if the contractor does  provide  data that is current complete and accurate as of the date of agreement on price but not until after agreement on price but before award of the contract?

TheLaw said:

The bond percentage was shown in a "general requirements" portion of the certified cost & pricing data, so the Government never saw it here.

What was the bond percentage that was shown here?  Was it verifiable by any information that the contractor had?  If so what was that information?  You said the certified cost or pricing data was submitted after the proposal was submitted.  Was it submitted before or after agreement on price?  Also, was the certificate provided before agreement on price?

Sure seems to be a lot of lawyers in this thread, or people trying to imitate lawyers. Not pointing any fingers, as I am frequently accused of practicing law without the requisite guild admission. I've been waiting for the phrase "rebuttable presumption" to be used because it seems to be the next step in our legal analysis of the case.

My point is that we were provided with a rather straightforward scenario. The government and contractor agreed on a price that was based on a mistake. The price needs to be adjusted to rectify that mistake.

What's the easiest and most straightforward way to acomplish that objective? Is it (a) allege defective pricing and refer the matter to DCAA for quantum and to Legal for action, or (b) bilaterally modify the contract to reduce the price to what it would have been, had the mistake not been made?

Everything else in this thread seems to be ... off point.

Retreadfed said:

And what is the government's remedy if the contractor does  provide  data that is current complete and accurate as of the date of agreement on price but not until after agreement on price but before award of the contract?

 I assume that you are saying that the contractor is now providing updated cost or pricing data that indicates that what the parties settled upon was incorrect. 

The remedy is to adjust the settled price to reflect the corrections before award.

PepeTheFrog said:

the government does not have to prove intent or fraud to administrative seek and obtain a price reduction based on an assertion of defective cost or pricing data.

This is a true statement.  The government does not have to prove intent to withhold pertinent data or that the contractor engaged in fraud in order for the government to recover for defective pricing.  However, a defective pricing claim is a government claim against the contractor.  A such, the government has the burden of proving every element of a defective pricing claim. The first element that the government has to prove is that the data in question are cost or pricing data.  Thus, contracting officers need to have a thorough understanding of what is cost or pricing data.  This means going beyond the mere language of the definition of cost or pricing data found in the FAR and statute, but how that language has been interpreted by the appeals boards and courts.  I learned a long time ago that laws regulations and contracts mean what the courts say they mean.

joel hoffman said:

The remedy is to adjust the settled price to reflect the corrections before award.

The parties have agreed upon a price.  The contractor says the agreed upon price is fair and reasonable, it has complied with the statute and it will not reopen negotiations.  What now?

H2H, , I am  aware that you worked for some of the large defense contractors who are used to confrontational relations. When I discussed lawyers I was referring to advice on how to obtain a price reduction if the KO doesn’t know how to. 

I did not mean to imply that the government is going to take any legal action against the contractor. Sorry if I left that impression.

Retreadfed said:

The parties have agreed upon a price.  The contractor says the agreed upon price is fair and reasonable, it has complied with the statute and it will not reopen negotiations.  What now?

I might consider a unilateral mod, adjusting the price to reflect the corrected data. I’d let the contractor know first and possibly reconsider.. Is the contractor going to base a claim on using mistaken or misrepresented cost or pricing data as the basis for it’s called fair and reasonable price?   

Who knows what might happen next? Obviously you operate in a much more combative and confrontational sphere than I have. Even my most difficult super-contractor didn’t act that way. They took forever to sweep and certify but they didn’t hesitate to address errors in their data. H2H knows who I’m speaking of. 

This is a circular debate.

joel hoffman said:

I might consider a unilateral mod, adjusting the price to reflect the corrected data.

Based on what authority?  The contractor disclosed certified cost or pricing data that was current, complete and accurate before award of the contract.  How can that be defective pricing? Also, what do you do if the contract has not been awarded when the contractor discloses its mistake?

joel hoffman said:

Obviously you operate in a much more combative and confrontational sphere than I have. Even my most difficult super-contractor didn’t act that way.

Joel, I work mostly with small business contractors.  Maybe you tried to treat them fairly, but my experience is that many contracting officers, DCAA and prime contractors try to push them around thinking that they do not have the resources or knowledge to resist.  Pushing back hard is a way to deter bullying.  If you think it does not happen, come over to my side for a while.

Retreadfed said:

The contractor disclosed certified cost or pricing data that was current, complete and accurate before award of the contract.  How can that be defective pricing?

What are you trying to say here?  Clearly the contractor's cost or pricing data was not accurate as they erroneously used 4% instead of 0.4% for the bond percentage.

here_2_help said:

(b) bilaterally modify the contract to reduce the price to what it would have been, had the mistake not been made?

We tried this approach. Sadly it failed...

Matthew Fleharty said:

Clearly the contractor's cost or pricing data was not accurate as they erroneously used 4% instead of 0.4% for the bond percentage.

You missed the point.  Joel and I were speaking of a hypothetical situation to demonstrate how cost or pricing data works.  In any event, we do not know what data was available to the contractor and at what point in time.  The fact that it may have used 4% in its proposal does not mean that defective pricing occurred.  As I have said before and the ASBCA in the UTC case, a proposal is not cost or pricing data.  Joel is assuming that the contractor knew what the bonding rate would be before the agreement on price.  However, we do not know that for a fact.  TheLaw has not been very clear on what the actual facts are.

Retreadfed said:

You missed the point.  Joel and I were speaking of a hypothetical situation to demonstrate how cost or pricing data works.  In any event, we do not know what data was available to the contractor and at what point in time.  The fact that it may have used 4% in its proposal does not mean that defective pricing occurred.  As I have said before and the ASBCA in the UTC case, a proposal is not cost or pricing data.  Joel is assuming that the contractor knew what the bonding rate would be before the agreement on price.  However, we do not know that for a fact.  TheLaw has not been very clear on what the actual facts are.

Well no wonder everyone is talking past one another on this thread...

TheLaw said:

We tried this approach. Sadly it failed...

Well, then. Not sure how big the contractor is ... but if 252.215-7002 is in the contract, you have options. If the dollars are big enough, you have options. If the dollars are small, you have CPARS and FAPIIS.

If cost or pricing is required, the action is at least $750k (Award on or before June 2018)?The difference in the price, using a discrepancy of 3.6% over charge would be at least $27,000. For a contract awarded affer June 2018, the threshold is $2 million. Thus, 3.6% of $2 million is $72,000. 

For the actual rate to be as low as 0.4%, the task order would probably exceed $2,000,000. 

“The cost of a performance bond usually is less than 1% of the contract price; however, if the contract is under $1 million, the premium may run between 1% and 2%. Bonds may be more costly, depending upon the credit-worthiness of the contractor.
Labor and Material Payment Bonds”

Source: National Society of Professional Engineers

https://www.nspe.org/sites/default/files/resources/pdfs/Licensure/FTC/FTC-Jun-02-GuideSuretyBonds.pdf

Matthew et al :  The reason I think that the contractor knew what the rate was - but must be verified, as I said several times, is that the contractor has admitted the mistake. But it wants to use a defense that doesn’t pass muster when one reads the Statute. It did not claim that the cost or pricing data was not defective or result in an increased price.

On 4/11/2019 at 10:48 AM, TheLaw said:

“...because this is a firm fixed price contract that was negotiated, and he already lowered his price twice during negotiations.”

here_2_help said:

Well, then. Not sure how big the contractor is ... but if 252.215-7002 is in the contract, you have options. If the dollars are big enough, you have options. If the dollars are small, you have CPARS and FAPIIS.

52.215-10 (a) (3):

“(3) Any of these parties furnished data of any description that were not accurate, the price or cost shall be reduced accordingly and the contract shall be modified to reflect the reduction.”

It’s not an optional choice on the part of the government. If the contract price was negotiated on the basis of cost, that bond cost wasn’t and NEVER would have been incurred - if the contractor knew what the bond rate would be. I  know that it would not have been anywhere near 4%.  EDIT: A mistake in the data entry would still result in inaccurate data or basis of calculating the cost.  Even if the general information in the proposal may have stated that the rate was 0.4% (we don't know that ), the actual cost reflected a 4% rate.  From my experience in reviewing construction proposals in computer spreadsheet program formats,  I'm just guessing that the general information indicated "4%" and was a global entry used in the proposal spreadsheet or cost estimating program. It's like making a math error such as adding 2+2 = 40.

Hopefully the government will know that next time and will actually examine and evaluate that aspect of a construction contract proposal. It can call the bonding agency to verify the rate, if necessary. If the organization does other construction contracting, there should be some examples of actual bond rates available by reviewing other invoices for reimbursing premiums paid. In our organization, it is usually the first progress payment or included in the first progress payment without any retention.

EDIT: It would be nice if the contractor would agree to a bilateral mod . However, the government is required to ("shall")  adjust the price, and  shall modify the contract - unilaterally, if necessary, to reflect the reduction due to the error in the proposal. Unfortunately, a claim by either party would cause both parties to expend unnecessary costs and resources. I recommend discussing the proposed action with the contractor from the perspective that, in accordance with the terms of the contract and the law, the government is required to reduce the price due to the error. Emphasize that it's not personal or bullying.

...and for the benefit of the contractors here, TheLaw won't need to take any legal action. It is an administrative contract action, not a civil or criminal investigation. It is totally unnecessary to investigate or accuse anyone of malfeasance, intent to deceive, cheat or misinform, etc., here. In fact, TheLaw has been pursuing a bilateral remedy via a "mutual mistake" action. That isnt bullying or personal.  

EDIT:  But I acknowledge that the TINA has obviously been used to bully or pursue other investigations and actions. In my first exposure to TINA, in contract admin classes,  I was taught, among other things, that it was intended to provide an administrative alternative, within the contract, to having to accuse, investigate, pursue and prove negligence, false statements (lying), intent to decieve, cheat, etc.   Hyman Rickover DID want an administrative  hammer in his epic battles with the BIG Boys and a fairer playing field.  Unfortunately, small contractors suffer fallout from that history. and from a misunderstanding by government officials of the administrative intent of the clause.

joel hoffman said:

It’s not an optional choice on the part of the government. If the contract price was negotiated on the basis of cost, that bond cost wasn’t and NEVER would have been incurred - if the contractor knew what the bond rate would be. I  know that it would not have been anywhere near 4%.   ...

It would be nice if the contractor would agree to a bilateral mod . However, the government is required ("shall")  to adjust the price, and  shall modify the contract - unilaterally, if necessary, to reflect the reduction due to the error in the proposal. Unfortunately, a claim by either party would cause both parties to expend unnecessary costs and resources. I recommend discussing the proposed action with the contractor from the perspective that, in accordance with the terms of the contract and the law, the government is required to reduce the price due to the error. Emphasize that it's not personal or bullying.

This makes perfect sense to me.

If the CO wants to "punish" the contractor, it should request a DCAA full-scope review of the contractor's estimating system, since obviously the controls to prevent errors did not function. The government should be able to rely on the contractor provide good estimates, and in this case it cannot.

We deal with matters like this all the time...most of the time the Ktr agrees to price adjustment bilaterally.  If not; we issue the price adjustment mod unilaterally.  Ktr can challenge following Disputes clause 52.233-1 procedures, but none ever have thus far.  It's nothing personal - just the nature of doing business with USG.

here_2_help said:

This makes perfect sense to me.

If the CO wants to "punish" the contractor, it should request a DCAA full-scope review of the contractor's estimating system, since obviously the controls to prevent errors did not function. The government should be able to rely on the contractor provide good estimates, and in this case it cannot.

Non-defense appropriated activities have limited access to DCAA audit services.I know that USACE has been required for years to fund DCAA audits of Civil Works.  contracts.  https://www.cbh.com/new-guidance-limited-role-for-dcaa-audit-of-non-dod-contracts/ 

A few years ago, they weren't even available for auditing $43 million proposal on a civil works contract that I was assigned to negotiate, regardless of whther or not we reimbursed them.

On ‎4‎/‎11‎/‎2019 at 10:48 AM, TheLaw said:

The Government believes it should be entitled to a correction in the contract price for the difference between 0.4% and 4%

On what basis does the government think it is entitled to a "correction?"

On ‎4‎/‎12‎/‎2019 at 10:52 AM, TheLaw said:

The project was sent to the MATOC but only one contractor bid (we were expecting more).

Have you considered what impact FAR 15.403-1(c) may have on this fact?

On ‎4‎/‎12‎/‎2019 at 10:52 AM, TheLaw said:

Negotiations were held, final price agreed upon, and then we asked for a certificate of current cost or pricing data, which was provided

Did you ask for submission of certified cost or pricing data?  If so, at what point in the order issuing process?

I don't expect an answer to these questions, but I think you need to consider the answers before proceeding.

On ‎4‎/‎16‎/‎2019 at 10:15 AM, TheLaw said:

The bond percentage was shown in a "general requirements" portion of the certified cost & pricing data, so the Government never saw it here.

So the contractor did submit current, complete and accurate data regarding the bond rate.  If that is the case, what is the defective pricing?  The fact that the government did not see the submitted data does not mean the contractor did not meet its submission burden.  The statutory definition of defective cost or pricing data is "For the purposes of this section, defective cost or pricing data are cost or pricing data which, as of the date of agreement on the price of the contract (or another date agreed upon between the parties), were inaccurate, incomplete, or noncurrent."

These are just some thoughts to consider for your next step.

@Retreadfed Your posts are confusing this issue - I think you're either missing or ignoring the information provided by the OP and the piecemeal posting plus the pseudo hypothetical debate you're having with joel is not providing coherent information or advice for the OP.

Retreadfed said:

So the contractor did submit current, complete and accurate data regarding the bond rate.

Emphasis added above - how did you arrive at this conclusion?  The contractor listed the incorrect bond percentage of 4%...why are you considering that "accurate" cost or pricing data?  I think you need to reread the OP's clarifying post:

On 4/16/2019 at 10:15 AM, TheLaw said:

Here is the timeline:

The contractor submitted a proposal with the mistaken bond percentage.

The contractor then submitted certified cost & pricing data with the mistaken bond percentage.*

After award, when the contractor was submitting the bonds, it discovered the error.

*The bond percentage was shown in a "general requirements" portion of the certified cost & pricing data, so the Government never saw it here.

Also, clause 52.215-10 is in the contract.

I will have to look into the case law, it appears.

Matthew Fleharty said:

I think you need to reread the OP's clarifying post

You are correct that I misread the complete post and focused on the *.  Upon rereading the entire post, it raises the issue of reliance which TheLaw should think about.  If the government did not notice the erroneous bond data, how did the government rely on that supposed defective data?

Good question. I am speculating here that the government could have relied on the identified cost of the bond in the proposal, which was based upon the incorrect data that they didn’t read. 

10 USC 2306a

e) Price Reductions for Defective or Pricing Data.—

“...(3)It is not a defense to an adjustment of the price of a contract under a contract provision required by paragraph (1) that—

...B. ) the contracting officer should have known that the cost and pricing data in issue were defective even though the contractor or subcontractor took no affirmative action to bring the character of the data to the attention of the contracting officer;”

Im speculating here that the government didn’t know what the bond should cost,.

Thus, they may have simply accepted at face value what the contractor indicated the cost would be. 

From the above Statutory language, I don’t think government ignorance of what a bond should cost would be a defense for a price reduction due to defective cost or pricing data. If the contractor mistakenly said the bond cost would be 4% of the marked up subtotal contract cost or if the contractor said it would cost 0.4% but the amount of the bond cost was mistakenly ten times that much in the cost proposal, it was defective cost or pricing data.

The following is also not a defense :

“(C) the contract was based on an agreement between the contractor and the United States about the total cost of the contract and there was no agreement about the cost of each item procured under such contract; “

I’m guessing that this would also apply to agreed total cost without agreement on individual cost elements.

joel hoffman said:

I am speculating here that the government could have relied on the identified cost of the bond in the proposal, which was based upon the incorrect data that they didn’t read.

This gets back to the fundamental question of what is a contractor's obligations in regard to certified cost or pricing data.  There is simply no requirement for a contractor to base its proposal on cost or pricing data.  In this regard, as I have stated before, the ASBCA informed us that a proposal is not cost or pricing data.  The contractor's obligation is to disclose the data to the government.  If that data is not current, complete and accurate, the government is entitled to a price reduction if the defective caused  an increase in contract price.  To show that the defective data caused an increase in the contract price, the government must show that it relied upon the defective data.  If the government did not rely upon the defective data, the government is not entitled to a price reduction.

The statutory language quoted by Joel does not change this burden of showing reliance.  What that language means is the contractor cannot rebut the government's assertion of reliance by arguing that the government should have known the data was defective therefore the government should not have relied on that defective data.