Effective immediately, the list of exceptions to certified cost or pricing data requirements at Federal Acquisition Regulation (FAR) 15.403-1(b) is expanded to include contracts, subcontracts, or modifications of contracts or subcontracts valued at less than $7.5 million awarded to a small business concern or nontraditional defense contractor pursuant to—
- A technical, merit-based selection procedure, such as a broad agency announcement (see FAR 35.016(b)(2));
- The Small Business Innovation Research Program; or
- The Small Business Technology Transfer Program.
In addition, contracts, subcontracts, and modifications of contracts or subcontracts valued at less than $7.5 million awarded to a small business concern or nontraditional defense contractor pursuant to a technical, merit-based selection procedure or the Small Business Innovation Research Program are exempt from the requirements for audit and records examination under the clause at FAR 52.215-2, Audit and Records—Negotiations.
That was a new class deviation coming out of the Director of Defense Pricing and Contracting, “Pilot Program for Streamlining Awards for Innovative Technology Projects.” I suppose Commercial Solutions Openings would also be covered by this deviation, as it allows for merit-based awards.
The Truth in Negotiations Act (TINA) is still the official name for the requirement of certified cost or pricing data in DoD. Other departments refer to the Truthful Cost or Pricing Data Act. But it is essentially the same thing, the requirement for the contractor to submit cost accounting data in order to justify a negotiated price.
Theoretically, if the vendor is providing a straight-up commercial product, it can submit invoice prices from commercial sales. But in most cases reference to accounting data is required. FAR 15.404-1(a)(3) states that “Cost analysis shall be used to evaluate the reasonableness of individual cost elements when certified cost or pricing data are required.”
There were already a number of exceptions to TINA. For example, commercial items and contracts with adequate price competition or those valued under $2 million. Raising the bar to $7.5 million for small business and nontraditionals helps it better coincide with the accounting regulations. The Cost Accounting Standards do not apply to small business. For other than small, modified CAS kicks in at the first negotiated contract greater than $7.5 million.
There’s a huge cottage industry on cost accounting and pricing associated with government regulations. But the point is that government wants a “fair and reasonable” price which is set at reimbursement of the costs associated with executing the contract plus 10 to 15 percent for profit. This made sense for industrial era commodities when the vast majority of cost was found in raw materials and assembly line labor which could be traced to units of output. But software, data, product designs and other intangible assets can be reproduced at zero marginal cost.
Information wants to be free, but creators have to get paid. And ideally, they would get paid relative to the value they generate, and not just 10 percent over the average local wages for their industrial category. Easier said than done.
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