FAR Council Eliminates Exception to Requirement to Submit Certified Cost or Pricing Data in Defense Procurements
One of the more onerous requirements of federal government contracting is the mandate to submit certified cost or pricing data. The exceptions to this requirement are limited but important. A Federal Acquisition Regulation (FAR) revision removes one such exception in defense procurements. See 84 Fed. Reg. 27,494 (June 12, 2019).
Contractors need not submit certified cost or pricing data "when the contracting officer determines that prices agreed upon are based on adequate price competition." FAR 15.403-1(b)(1). Prior law specified that "adequate price competition" exists in three scenarios: first, when two or more responsible offerors submit proposals; second, if there was "a reasonable expectation, based on market research or other assessment," that two or more responsible offerors would submit proposals; or third, when price analysis demonstrates the price is reasonable. FAR 15.403-1(c).
The revised FAR 15.403-1(c) eliminates the second possibility for "adequate price competition" in DoD, NASA, and Coast Guard procurements. This action finalizes and clarifies the proposed rule published on June 12, 2018 and that section 822 of the National Defense Authorization Act (NDAA) for fiscal year 2017 required.1 This means that DoD, NASA and the Coast Guard are now required to obtain certified cost or pricing data when only one offer is received and no other exception applies, regardless of whether a contractor reasonably expected competition, and priced accordingly. Therefore, a successful offeror may have to submit a second, TINA-compliant proposal if it was the only offeror for a procurement not meeting any other exceptions after receiving notice of award, an unhappy surprise in a usually happy moment.
A forthcoming DFARS clause will address the details of this change, but the draft clause released in June 2018 provides some guidance of what a DFARS rule might look like. The draft clause provides that—when no certified cost or pricing data was originally required due to the expectation of price competition, but only one offer was received—if no additional cost or pricing data are required to determine the offered price is fair and reasonable, the contracting officer shall require that any cost or pricing data provided in the proposal be certified. Otherwise, the contracting officer must obtain additional cost or pricing data to determine a fair and reasonable price, or enter into negotiations to establish such a price. See DFARS Case 2017-D009 at 83 Fed. Reg. 30,656 (June 29, 2018).
The removal of anticipated competition from the definition of "adequate price competition" for DoD, NASA and Coast Guard procurements is inconsistent with the underlying presumption in federal procurement policy that the market drives price reasonableness. If contractors submit their price proposals assuming they will be subject to price competition by other offerors, reason would suggest their ultimate offered price is just as reliable no matter how many offers the procuring agency ultimately receives. The final rule ignores this truism, to the detriment of contractors submitting proposals even when no one else did. Moreover, it would be unsurprising if this rule spells the death of anticipated competition as a basis for adequate price competition for civilian agencies as well.
© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.
See prior Arnold & Porter Advisory, Three Recent Developments Impact TINA Compliance.