The Truth Behind Truth in Negotiations Requests
DCAA “Annual Planning Process” – Recent Contractor Requests for Information
Several of our clients have recently received letters from their local Defense Contract Audit Agency (DCAA) offices requesting specific information on their government contract awards, which has raised concern because the letters do not disclose DCAA’s purpose, need or intended use of the information requested. Moreover, it is unlikely that contractors have ever seen this specific request in the past. For context, the contract awards for which the DCAA is requesting information should be limited to those contracts where the submission of certified cost or pricing data was required and is being requested for purposes of DCAA’s annual audit planning process; which, includes identification of planned DCAA activities and audit type assignments – specifically, in reference to this article, Defective Pricing Audits.
The discussion below provides some insight regarding the purpose, background and next steps contractors may expect:
DCAA will use the information collected from contractor requests to select contracting actions awarded during Government FY 2019 which will be the subject of audits colloquially known as “Defective Pricing Audits” (Truth in Negotiations Audits; DCAA Audit Program 42000). These audits were formerly called Truth in Negotiations Act (TINA) audits, but now are now known as TiN audits (Truth in Negotiations). The objective of the TiN audit is to assess contractor compliance with the statement required in FAR 15.406-2 that Certified Cost or Pricing Data submitted to the Government are “…accurate, complete, and current…” as of the date of agreement on price. That statement is of course only required when the Contracting Officer determines that no exception exists under FAR 15.403-1(b) and has required the contractor to submit Certified Cost or Pricing Data to support proposed costs. The DCAA letter requesting information on contracts awarded during FY 2019 is very specific in that regard, stating:
“…any U.S. Government negotiated fixed-price pricing actions awarded to your company between October 1, 2018 and September 30, 2019…and any anticipated…award…A negotiated pricing action includes any prime contract…modifications, and subcontracts where the Government required cost or pricing data per FAR 15.403-4…”
FAR 15.403-4 of course informs the Contracting Officer of the circumstances where Certified Cost or Pricing Data are required.
This initial information gathering step will result in a database developed by the DCAA from which the DCAA will select contracts to be subjected to TiN audits. It represents the kickoff of the DCAA’s audit focus for the coming year or years that it described in its 2018 Report to Congress, in which the DCAA stated:
“…With the backlog behind us, we will be returning to a more balanced mix of audits across our whole portfolio, including business systems, Truth in Negotiations, Cost Accounting standards, preaward surveys, claims, and terminations…” (emphasis added)
We have already seen an uptick in business systems audits; we anticipate an increase in TiN audit activity soon. Also, it is important to note that contracts awarded prior to the time-period referenced in the DCAA information request letter may nevertheless be audited by the DCAA for defective pricing. The DCAA information request is for their planning purposes; however, the government still may retain applicable rights to perform defective pricing audits on contracts awarded in earlier fiscal years.
The reason that contractors have not seen this specific request in the past is loosely based on two factors. The first is that, in the distant past, at the conclusion of a pricing proposal audit, the DCAA auditor, based on established criteria, would incorporate the contract information into a Regional Office database. That database would be the basis, in the “Annual Planning Process” for the selection of pricing actions to be selected for TiN audits for the coming Government FY. The contractors never saw this process. Next, we presume, based on the DCAA’s frantic effort during recent years to catch up on their incurred cost backlog, and the abandonment of TiN audit activity during that period, that their previous TiN database building activity was not maintained. They are now asking contractors to provide information to assist with rebuilding this database.
The next steps for the DCAA include selecting contracts for audit; and then, of course, completing the audits. The next steps for contractors providing the selected information may be nothing…except to provide the information. After all, providing the requested information does not guarantee that a contract will be audited. The DCAA will make selections from the database to audit…and certainly, there will not be a 100% review of the database created. Typically, when the DCAA was in the past more active in performing TiN audits, certain contract pricing actions because of sensitivity and risk, would be selected for audit. Other selections were made somewhat statistically, somewhat judgmentally, from the remaining database (stratified for contract award value).
Next, a little more on who will be conducting the audits: formerly, these audits were performed by auditors from the local DCAA offices. In some instances, that may still happen. However, the DCAA now has pulled this effort into the headquarters umbrella; and has established four audit teams throughout the U.S. It is possible that a contractor may encounter a TiN audit with a team or individuals with which they have no previous experience.
Although the current DCAA request relates to the previous Government Fiscal Year, contractors should identify and compile a list of contract awards from several prior fiscal year periods that required submission of certified cost or pricing data. From this list, contractors should perform some due diligence to determine if sufficient supporting documentation exists and is readily available, proper disclosures were made to the government and identify potential compliance risk situations. As a starting point, an important preparation action for contractors would be to observe, in the DCAA Audit Program, “Truth in Negotiations Audits,” Audit Program 42000, available at https://www.dcaa.mil/Home/AuditProgramsDirectory, Audit Step B-1, Preliminary steps, Item 15, where the following is suggested for collection and review:
“…Begin preparing the Chronology of Significant Events with key dates that may include the following:
- Certification date
- Date of last proposal before certification
- Date of final sweep, if applicable…”
Another critical item is a log of revised or additional cost or pricing data that was provided to the Government during negotiations to support the proposed costs, to include the information, submittal date, and documentation that supports that the information was in fact provided to the Government. If a log or documentation of this nature was not prepared by contractors at the conclusion of negotiations, we recommend that it be constructed based on current existing data, documents, and archived communications. Finally, another important item to consider going forward is to document, in narrative fashion, the correspondence, exchanges and critical decision points and events regarding price negotiations with the Government. The Government produces this type document for internal purposes and refers to it as a Price Negotiation Memorandum.
Our purpose here is to inform contractors of this recent DCAA trend and their purpose in asking for this information and to provide some preliminary heads-up recommendations on audit preparation if a contract or contracts is / are selected for a defective pricing audit. We are also available to provide additional assistance in this, or any other matters.
Contact Capital Edge Consulting for more information: