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Feb 5, 2025

Six Essential Tips for Complying with Defective Pricing Rules in Government Contracting

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In honor of the release of the 6th Edition of the Government Contracts Compliance Handbook, we’re sharing six essential tips for complying with defective pricing rules. Defective pricing, governed by the Truthful Cost or Pricing Data statute (formerly the Truth in Negotiations Act or TINA), is a critical compliance area for government contractors. Violations can lead to significant financial penalties, civil liabilities, or even criminal charges. Here’s how to ensure your organization meets federal requirements and avoids the pitfalls of defective pricing.

1. Understand the Requirements for Cost or Pricing Data

Compliance begins with a solid understanding of what constitutes cost or pricing data under the Truthful Cost or Pricing Data statute. This includes all factual information a prudent buyer or seller would expect to affect price negotiations significantly, such as: 

  • Historical costs 
  • Vendor quotes 
  • Changes in production methods 
  • Management decisions that impact costs 

Contractors must ensure all cost or pricing data is accurate, complete, and current as of the date of price agreement. This requirement applies to all contracts exceeding $2 million unless an exception applies. Failure to provide this data can lead to a reduction in the contract price or other penalties​.

2. Implement Rigorous Internal Controls for Data Collection

A strong internal control framework ensures the accuracy and completeness of cost or pricing data. This includes: 

  • Assigning responsibility to a specific team or individual for gathering and verifying data. 
  • Establishing procedures for data validation, ensuring consistency across departments. 
  • Conducting periodic audits of data used in pricing proposals. 

By proactively managing data collection, contractors reduce the risk of submitting incomplete or inaccurate information. This process also creates a clear audit trail, demonstrating compliance in the event of a government inquiry​.

3. Conduct Comprehensive Training for Key Personnel

Employees involved in pricing proposals, including contract managers, finance teams, and negotiators, must understand defective pricing rules. Training should focus on: 

  • Recognizing what qualifies as cost or pricing data. 
  • Identifying common errors, such as failing to update data or omitting relevant details. 
  • Emphasizing the importance of transparency in interactions with government officials. 

Regular training updates ensure employees stay informed about changes in regulations and reinforce a culture of compliance​.

4. Ensure Proper Certification of Cost or Pricing Data

Contractors must certify that all cost or pricing data submitted to the government is accurate, complete, and current as of the date of agreement on price, known as the “handshake date.” This certification is accomplished through submission of the “Certificate of Current Cost or Pricing Data.” To minimize risks associated with certification: 

  • Perform a final review of all data before signing the certificate. 
  • Cross-check information with relevant departments, such as procurement, engineering, and finance. This is known as a TINA sweep.  
  • Document all steps taken to verify data accuracy. 

Certification carries significant legal implications. A false certification, even if unintentional, can lead to allegations of defective pricing and result in penalties​.

5. Monitor Subcontractor Compliance

Prime contractors are responsible for ensuring that subcontractors submit accurate and complete cost or pricing data in certain instances. This includes: 

  • Verifying subcontractor data before incorporating it into proposals. 
  • Ensuring subcontractors understand their compliance obligations. 
  • Including indemnification clauses in subcontractor agreements to protect prime contractors against liability for a subcontractor’s defective pricing. 

Government auditors frequently examine subcontractor data as part of their evaluations, making this a critical area for compliance oversight​.

6. Address Issues Promptly to Minimize Liability

If a potential defective pricing issue is identified, contractors should act swiftly to address it. Steps include: 

  • Notifying the contracting officer (CO) immediately upon discovering inaccurate or incomplete data. 
  • Providing the CO with updated and accurate information as soon as possible. 
  • Cooperating fully with any subsequent audits or investigations. 

Proactively addressing issues can demonstrate good faith and potentially reduce penalties. Contractors should also seek legal counsel to navigate complex compliance challenges and determine the best course of action​. 

Defective pricing compliance is a cornerstone of responsible government contracting. By following these six tips, contractors can ensure they meet federal requirements, mitigate risks, and maintain positive relationships with government agencies. 

These strategies, drawn from the 6th Edition of the Government Contracts Compliance Handbook, reflect our commitment to helping contractors navigate the complexities of federal compliance. Our practice group is dedicated to providing guidance tailored to your unique challenges in the highly regulated world of government contracting.