Contract Management:

DOD Needs Better Guidance on Granting Waivers for Certified Cost or Pricing Data

GAO-02-502: Published: Apr 22, 2002. Publicly Released: Apr 22, 2002.

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Although most federal contracts are awarded through competition, the government also buys unique products and services, including sophisticated weapons systems, for which it cannot always rely on competition to get the best prices and values. Instead, it uses a single source for its procurements. In these cases, contractors and subcontractors provide the government with cost or pricing data supporting their proposed prices and certify that the data submitted are accurate, complete, and current, as required by the Truth in Negotiations Act. This ensures that the government has the data it needs to effectively negotiate with the contractor and avoid paying inflated prices. The government can waive the requirement for certified data in exceptional cases. In these instances, contracting officers use other techniques to arrive at fair and reasonable prices. Using the Department of Defense's (DOD) contract database, GAO found 20 waivers, each valued at more than $5 million, in fiscal year 2000. The total value of these waivers was $4.4 billion. In each case, the contract pricing or waiver documents stated that sufficient information was available to determine the price to be fair and reasonable without the submission of cost or pricing data. There was a wide variety in the quality of the data and analyses being used, from very old to very recent data. Despite the range of techniques employed to arrive at a price, DOD does not have guidance that would help buying organizations determine acceptable data and analyses and what kinds of outside assistance, such as contracting and pricing experts, should be obtained.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Section 817 of the Bob Stump National Defense Authorization Act for Fiscal Year 2003 (P.L. 107-314), required the Secretary of Defense to issue guidance on the circumstances under which it is appropriate to grant an exceptional case waiver with respect to certified cost and pricing data and established minimum requirements for such a waiver. On February 11, 2003, the Director, Defense Procurement & Acquisition Policy issued a memorandum, which directed compliance with the Section 817 requirements.

    Recommendation: The Secretary of Defense should work with the Office of Federal Procurement Policy to develop guidance to be included in the Federal Acquisition Regulation to minimize the risk of inflated pricing when waivers for certified cost or pricing data are granted to its contractors and subcontractors. This guidance should (1) clarify situations in which an exceptional case waiver may be granted, (2) identify what type of data and analyses are recommended for arriving at a price when waivers are granted, and (3) identify what kinds of outside assistance should be obtained.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: The February 11, 2003 memorandum from the Director, Defense Procurement & Acquisition Policy specifically noted the GAO recommendation, and addressed the two particular situations. First, a Truth in Negotiations Act (TINA) waiver may be made applicable to part of a contractor's proposed price when it is possible to clearly identify that part of a contractor's cost proposal to which the waiver applies as separate and distinct from the balance of the contractor's proposal. Second, because it has no price, an unpriced option cannot be subject to TINA certification requirements.

    Recommendation: The Secretary of Defense should develop guidance that clarifies whether the government can obtain a partial waiver and what should be done with contracts that have options that are not priced.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: Neither Section 817 of P.L. 107-314 nor the February 11, 2003 memorandum from the Director, Defense Procurement & Acquisition Policy, required a survey of buying organizations to assess whether additional specific issues not covered within existing guidance needed to be clarified. However, Section 817 required, and the memorandum implemented, a requirement for the submission of an annual report to Congress that identifies all exceptional case TINA waivers granted during a given fiscal year for any contract, subcontract, or modification expected to have a value of $15 million or greater. In addition, the report must have a separate section that lists exceptions based upon a commercial item determination. The listing shall identify the basis for determining that the item is commercial, and the specific steps taken to ensure that a fair and reasonable price was negotiated for the procurement. The clarification of the basis for acquiring items considered commercial is an example of a specific issue not covered within existing guidance that needed to be clarified. The information in the listing should be very helpful to contracting officers and acquisition policy officials. Therefore, the annual reporting requirement is a de facto implementation of the recommendation.

    Recommendation: The Secretary of Defense should survey buying organizations to assess whether additional specific issues not covered within existing guidance need to be clarified.

    Agency Affected: Department of Defense


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