Complications of Cost or Pricing Data

On August 26, 2014, Federal Times published an article by Michael Fischetti, executive director of National Contract Management Association, “The complications of cost and pricing.” Related to Monday’s post about Shay Assad’s demand for ‘fair prices,” Fischetti acknowledges the debate over cost or pricing data and the disparity of the parties in a refreshingly objective way.

What’s the debate? Taxpayers want confidence that the Government pays a fair and reasonable price. Contractors want fair consideration (both in terms of dollars and intellectual property rights) for the goods and services they deliver. At the center of the debate are commercial items which are exempt from certain government acquisition regulations such as TINA and certified cost or pricing data.

Frank Kendall, Undersecretary of Defense for Acquisition, Technology and Logistics recognizes, “Competition is the most valuable means we have to motivate industry to deliver effective and efficient solutions for the Department of Defense (DoD).” The Government entered the commercial marketplace for that very reason – they recognized that competition drives down prices and increases the speed at which new technologies are brought to market. Inherit in that marketplace are commercial companies that have invested millions of dollars developing products and services at private expense. And, they don’t want to share their cost data with the Government.

What is cost or pricing data and what does certification have to do with it? FAR 2.101 provides the following definitions:

Cost or pricing data means all facts that, as of the date of price agreement or, if applicable, an earlier date agreed upon between the parties that is as close as practicable to the date of agreement on price, prudent buyers and sellers would reasonably expect to affect price negotiations significantly

Cost or pricing data are factual, not judgmental; and are verifiable. While they do not indicate the accuracy of the prospective contractor’s judgment about estimated future costs or projections, they do include the data forming the basis for that judgment. Cost or pricing data are more than historical accounting data; they are all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred. They also include such factors as —

(1) Vendor quotations;

(2) Nonrecurring costs;

(3) Information on changes in production methods and in production or purchasing volume;

(4) Data supporting projections of business prospects and objectives and related operations costs;

(5) Unit-cost trends such as those associated with labor efficiency;

(6) Make-or-buy decisions;

(7) Estimated resources to attain business goals; and

(8) Information on management decisions that could have a significant bearing on costs.

Certification states that, to the best of the person’s knowledge and belief, the cost or pricing data are accurate, complete, and current as of a date certain before contract award [the date of price agreement].”

I agree with Fischetti that the issue is not new and has always been controversial. Both parties need to come to the table and work through a process that satisfies the needs of their respective stakeholders. The Government needs some assurance that the price is fair and reasonable (and a means to make that determination). Contractors need assurance that they will receive fair compensation and maintain intellectual property rights without being forced to “open their kimono.”

Left Brain Professionals exists to help contractors understand and navigate the complicated world of government regulations. Call today to see how we can help you through this and other topics!

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