Effective on July 12, 2019, the Federal Acquisition Regulation (“FAR”) will be amended to limit the scope of the exception to certified cost or pricing data requirements when price is based on adequate price competition. This change will impact contracts awarded by DoD, NASA, and the Coast Guard.

Before awarding a contract, the Government must determine that the proposed contract price is fair and reasonable.  Under certain circumstances, the Government must ask the contractors to submit certified cost or pricing data. Generally speaking, cost or pricing data are all the facts that prudent buyers and sellers would reasonably expect to significantly affect price negotiations. Cost or pricing data are factual, verifiable, and not judgmental.  They include such things as vendor quotes, make-or-buy decisions, nonrecurring costs, and information on management decisions that could have a significant bearing on costs.

When the cost or pricing data threshold is exceeded, the Government must ask for the certified cost and pricing data when: (1) awarding any negotiated contract; (2) awarding a subcontract at any tier if the contractor and each higher-tier subcontractor were required to submit certified cost or pricing data; or (3) modifying a contract.  Currently, the cost or pricing data threshold is $2 million.  The Government may not, however, require certified cost or pricing data when an exception to the requirement applies.  One of the main exceptions to the requirement is adequate price competition.  When there is adequate price competition, the Government may not ask contractors for certified cost or pricing data.

As currently written, adequate price competition exists when: (1) two or more responsible offerors, competing independently, submit priced offers that satisfy the Government’s requirements; (2) award will be made to the offeror whose proposal represents the best value where price is a substantial factor in source selection; and (3) there is no finding that the price of the otherwise successful offeror is unreasonable. Adequate price competition also can exist when only one offer actually is received by the Government if: (1) the Government had a reasonable expectation that two or more responsible offerors, competing independently, would submit priced offers; and (2) the Government reasonably concludes that the offer was submitted with the expectation of competition or price analysis clearly demonstrates that the proposed price is reasonable in comparison with current or recent prices for the same or similar items.

Effective on July 12, 2019, for DoD, NASA, and the Coast Guard contracts, in order to have adequate price competition, the Government actually must receive two or more responsive offers.  If only one offer is received, there is no adequate competition even if the contractor believed it would have competition and the offer is otherwise fair and reasonable.  The change is being made to implement Section 822 of the 2017 NDAA.

Based on the foregoing change, contractors working for DoD, NSA, and the Coast Guard may now find that they are required to submit certified price and cost data more frequently.  This can raise the risk of bidding and performing these contracts as contractors who submit defective (i.e., inaccurate, incomplete or noncurrent) certified cost or pricing data may be subject to a downward price adjustment under the price reduction clauses.  See FAR 52.215-10, Price Reduction for Defective Certified Cost or Pricing Data, and FAR 52.215-11, Price Reduction for Defective Certified Cost or Pricing Data – Modifications.