Introduction
What is the “Truth in Negotiations Act” (TINA)? TINA was introduced into the federal government’s process for purchasing in 1961. The TINA was crafted to establish fair pricing between the government, who is procuring a particular good or service, and a contractor who is vying to supply the said good or service by establishing a contractor’s costs. The establishment of that cost happens as the contract for the supply is being negotiated. According to the TINA, the government will be given access to all relevant data that the contractor has that is relevant to the product or good’s price. The TINA is very decisive; it penalizes a contractor that does not provide information that is relevant to the determination of the “fairness”. The federal government charges the contractor the excess in price. However, the TINA does not deal with an “understated” cost. The federal government does not put a lot of importance of lowered prices by the US courts did, in its attempt to interpret how the TINA should be fair to the government and to its contractors since the data required by the government from these contractors must be “current, complete, and accurate” as they submit their bids before any contract is agreed upon. The contract price relevant was US$ 100,000 in 1961 but that has been increased to US$ 700,000 today .
Is TINA Fair?
Many people criticize the TINA because it is believed to be an unfair baseline that all contractors must adhere to. It requires everyone to provide the government all the necessary information on costs and pricing but does not define exactly what these cost and pricing information should be. Any contractor who is not able to provide the necessary cost or data information automatically falls under the suspicion as being fraudulent .
Because of the confusion caused by the inaccuracy of the definition of cost or pricing data, the government amended the meaning of “cost and pricing data” to mean “all facts” instead of the blanket term “all information” when referring to cost or prices in 1987. The term “facts” imply that the information to be provided shall be the type that can be verified through a reasonable financial or technical audit. It also includes subjective data that is not based on objective measures. Subjective data in this case includes budgets, forecasts, etc. This change is very important since the redefinition of the terms “cost “and “price” reduces the chance of a contractor as being seen as fraudulent by government regulators, if the data presented by the contractor is erroneous if the contractor makes an error in estimating budgets or forecasts, etc. This also limits the amount of information that the contractor is obliged to provide government regulators, instead of an open-ended approach as initially imposed in the original stipulation of the TINA .
Presenting Cost and Price Information
The next issue to hurdle for a contractor is to distinguish what is “fact” and what is a “judgemental” piece of information. The TINA has prepared guidelines for contractors in complying with the requirement of regulators.
Firstly, cost and pricing data is not a matter of simple disclosure. The contractor must prove that the cost or price that is presented in related to the contractor’s proposal. The contractor must provide the data to the reviewer and must clearly distinguish the data that is provided to be an actual “cost” or “price” data and if the data is a “non-cost” data. The information should support the contractor’s proposal. It is also the contractor’s responsibility to provide this information before the proposal is submitted, as it is the contractor’s responsibility to update this information during the bidding process and after the proposal is agreed on. If a contractor fails to do so, it may lead to “defective pricing”. A responsible contractor “sweeps” through his proposal prior to any agreement to ensure the accuracy of the information that the said contractor is providing .
Secondly, if a contractor has subcontractors, that contractor is responsible for the accuracy of the cost and pricing information provided. This is an intuitive requirement since the contractor will have to certify the accuracy of the data he is providing in his bid which includes that of his subcontractors. Contractors can manage this process by seeking exemptions for their subcontractors. If the government allows for these exemptions, then the contractor does not have to include any of the information provided by his subcontractors thereby reducing the risk of being found fraudulent .
In Case of Defective Pricing
A contractor that wins a contract with the federal government who is then found to have submitted fraudulent data is liable for payment of damages to the government. The TINA provides a straight forward formula for the determination of damages in the case of defective pricing. Liable contractors are charged the maximum price adjustment calculated by taking the value of the overstated costs (in US Dollars) and then adding the burdens and profit. The profit is the US Federal Government’s “opportunity cost” and is calculated using a simple interest rate formula using US Treasury rates. The application of the interest rate covers the date the contract was awarded to the contractor until the date of payment to the said contractor.
Damages are very significant but contractors must be aware that the cause of defective pricing would only come from allegations on the accuracy of the data that the contractor himself has presented to government regulating agencies. Therefore, it is important that the contractor is able to defend which of the information he has provided is “factual” or “subjective”. It has often been observed that defective pricing comes from interpretation of regulating agencies on which information provided is factual or subjective, a fault which lies with the contractor as well. A contractor should defend subjective information, if he is to prove that the information provided does not cause the contract price to be fraudulent .
Other contractors seek legal advice in proving that the data presented, which was found to be defective by regulatory agents, did not increase the price of the contract. The TINA provides for a “Price Negotiation Memorandum” or PNM in defending this position and often falls back on the basis for the exemption as discussed in the preceding section of this paper.
Conclusion
The Truth in Negotiations Act or TINA is a ground-setting law that is imposed for all federal procurement contracts in the United States. The basis for the crafting of the TINA is to provide a fair and accurate basis for the government to award procurement contracts. The TINA may have a lot of criticisms but it has enforced competition and innovation in the business landscape, from which everyone benefits from.
Works Cited
Clarence T. Kipps, J., & Rose, J. L. (1989). Living with TINA: A Practical Gudie to the Truth in Negotiations Act.
Guiseppe, T. A. (2011, July). Understanding the Truth in Negotations Act in Federal Procurment. Retrieved October 20, 2013, from CALU.Edu: http://www.calu.edu/business-community/government-agency-coordination-office/files/Understanding%20TINA.pdf
Jenner, & Block. (2011). Truth in Negotiations Act Checklist. Retrieved October 20, 2013, from MacPacMedia: http://macpamedia.org/media/downloads/2012GVC/devecchio_handout_TINA_Checklist.pdf
WikiInvest. (2013, January). Truth in Negotiations Act: Cost or Pricing Data Submission Requirements. Retrieved October 20, 2013, from WikiInvest: http://www.wikinvest.com/stock/Force_Protection_(FRPT)/Truth_Negotiations_Act_Cost_Pricing_Data_Submission_Requirements
