Certified Cost and Pricing Data Thresholds to Increase July 1, 2018

Scott Arnold and Sara N. Gerber

On July 1, 2018, the threshold for obtaining certified cost and pricing data increases substantially from $750,000 to two million dollars. The change was authorized by the Department of Defense pursuant to a class deviation, pending official rulemaking and publication in the Federal Acquisition Regulation (“FAR”). The class deviation implements Section 811 of the National Defense Authorization Act (“NDAA”) for Fiscal Year 2018, which raised the certified pricing threshold contained in the Truthful Cost or Pricing Data Act (still commonly referred to as “TINA” based on the former name of the relevant statute, the Truth in Negotiations Act). The Civilian Agency Acquisition Council recently followed suit, advising other federal agencies that they “may authorize a class deviation to implement the threshold change.” In addition to the increase under the NDAA, the TINA threshold is also subject to adjustment every five years to keep pace with inflation. See 41 U.S.C. § 1908. The last adjustment for inflation, made in 2015, raised the threshold by $50,000.

The increased pricing threshold applies to negotiated prime contracts, subcontracts (if the prime contractor was required to furnish certified cost or pricing data), and the modification of any contract or subcontract entered into after June 30, 2018. For contracts entered into on or before June 30, contractors can request to modify the contracts, without consideration, to use the new threshold. 10 U.S.C.A. § 2306a(6). The critical date for determining whether the increased pricing threshold is applicable to modifications and subcontracts is the date the prime contract was awarded. If the prime contract was awarded prior to June 30, the $750,000 threshold continues to apply to any modifications or subcontracts awarded after June 30, unless the prime contract was modified to include the two-million-dollar threshold. 10 U.S.C.A. § 2306a.

To determine whether a contract modification exceeds the threshold, a contractor must include in the calculation both increases and decreases in price. For example, a modification that reduces price by $1.5 million and increases it by $1 million constitutes a total adjustment, or change, of $2.5 million, necessitating the submission of certified cost or pricing data, even though the net difference is only $500,000. See FAR 15.403-4(a)(1)(iii). This requirement does not apply to unrelated and separate changes to price included in a single modification for convenience. Id.

Under TINA, contractors are required to submit certified cost or pricing data when the price of the contract is likely to exceed the threshold amount, unless a statutory exemption applies, such as for the procurement of commercial items or where there is adequate price competition between two or more offerors responding to the solicitation. 10 U.S.C. § 2306a(b). The submission of certified cost or pricing data can be burdensome. Cost or pricing data is defined in the FAR as “all facts that…prudent buyers and sellers would reasonably expect to affect price negotiations significantly,” and “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.” 48 C.F.R. § 2.101. When certified data are required, the contractor must complete a Certificate of Current Cost or Pricing Data attesting, to the best of its knowledge, that its cost or pricing data are accurate, complete, and current. 48 C.F.R. § 15.406-2.

The two-million-dollar threshold for triggering the submission of certified cost or pricing data means that a greater number of lower priced contracts can be negotiated without the burden of complying with TINA requirements. This could reduce bid and proposal costs for contractors, as well as the transaction costs incurred by contractors and the Government in connection with gathering and reviewing cost and pricing data. The increased threshold should also reduce the risk to contractors of being subject to defective pricing liability or fraud or false claims allegations based on errors or omissions in certified data. While improving timelines for proposal submission, review, and award, the Government will be positioned to shift its focus to higher priced, higher risk contracts. Contractors should note, however, that even for awards below the two-million-dollar threshold, a contracting officer may still request cost or price data if necessary to determine whether the proposed cost or price is fair and reasonable. 10 U.S.C.A. § 2306a(d).