Defective Pricing: An Analysis of Factors Affecting the Significance Issue
Abstract
The Truth in Negotiations Act of 1962 was created to assure that the government obtains a fair and reasonable price for the goods and services it purchases by requiring contractors, in certain circumstances, to provide current, accurate, and complete cost or pricing data with which the government can establish a negotiation position. Failure to comply with the law normally constitutes defective pricing which entitles the government to a dollar for dollar reduction in the contract price based on the defective amount. One of the stipulations of the law is that the amount determined to be defective must have caused a significant increase in the contract price although the term 'significant' has yet to be clearly defined. This thesis examines the issue of significance in defective pricing audits. The objective was to demonstrate that significance should be viewed in terms of the value of the contract action being audited and that allegations of a small dollar value should not be issued because they detract from the overall effectiveness of the defective pricing program. To substantiate that, manpower costs were developed using manhour estimates for the activities involved in the process: audit, analysis and negotiation, and legal review. Study results showed that the contract value of the action being audited impacted the amount of time it took to settle a case and that the value of the allegation itself had little to do with the processing time. The information contained in this study will enable a contracting officer to make a more informed decision about whether a particular defective pricing audit should be pursued.
Document Details
- Document Type
- Technical Report
- Publication Date
- Sep 01, 1988
- Accession Number
- ADA201584
Entities
People
- Judith A. Volpe
Organizations
- Air Force Institute of Technology