Georgia Tech Procurement Assistance Center

Pentagon requests voluntary refund of millions of dollars from contractor TransDigm

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The Army and Defense Logistics Agency will both seek reimbursement on millions of dollars from contractor TransDigm, following an Inspector General report into the company’s contracts with the Pentagon.

TransDigm, which produces specialized parts for aircraft such as pumps, valves and batteries,, earned “excess profit” 112 of 113 contracts reviewed by the IG’s office, per a report released last Wednesday. The IG found that the company received $16.1 million in excess profit between January 2015 and January 2017, with a cost that could go up due to spare parts in the future.

The 112 contracts, signed with the Army or DLA, had profit margins ranging from 17 to a whopping 4,451 percent; The IG’s office calls profit percentages of 15 percent or below to be “reasonable.”

Keep reading this article at: https://www.defensenews.com/industry/2019/02/27/pentagon-requests-voluntary-refund-of-millions-of-dollars-from-contractor-transdigm/

Implications of the changing cost and pricing data thresholds for prime contractors and subcontractors

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Government contractors should explore updates to their purchasing system policies and procedures regarding subcontracts subject to Truthful Cost or Pricing Data (TCPD) and Cost Accounting Standards (CAS) requirements based on the upcoming effective date for the increased threshold for obtaining certified cost or pricing data.

Specifically, Section 811 of the National Defense Authorization Act for Fiscal Year 2018 (Pub. L. No. 115-91, 131 Stat. 1283) (FY 2018 NDAA), amends 10 USC § 2306a and 41 USC § 3502, increasing the threshold for obtaining certified cost or pricing data to US$2 million. Inevitably, this increased threshold impacts subcontracting, particularly under contractor purchasing systems that are subject to the Department of Defense (DOD) Business Systems Rule.

A recent memorandum issued by Shay D. Assad, Director of Defense Pricing/Defense Procurement and Acquisition Policy (DP/DPAP), which we addressed in a prior advisory, directs DOD contracting officers that, effective July 1, 2018, they shall use US$2 million as the threshold for obtaining certified cost and pricing data “in lieu of the threshold . . . at [FAR] 15.403-4.” Notably, while this class deviation provides direction to DOD contracting officers, it does not change the “current threshold” in FAR 15.403-4. Accordingly, absent a contract specifying a different threshold, prime contractors must wait until the threshold in FAR 15.403-4 is updated to implement the US$2 million threshold before they may safely use it for subcontracts and modifications that are not otherwise exempt.

Under FAR 52.215-12 and 52.215-13, a prime contractor’s obligation is to require a subcontractor to submit certified cst or pricing data when the expected value of the pricing action will exceed the threshold in FAR 15.403-4 and an exception does not apply. FAR 15.403-4(a)(1) states that certified cost or pricing data are required before the award or modification of subcontracts “expected to exceed the current threshold or, in the case of existing contracts, the threshold specified in the contract.” The same paragraph currently provides that “[t]he threshold for obtaining certified cost or pricing data is US$750,000,” and has not yet been updated to reflect the increased threshold.

Keep reading this article at: http://www.mondaq.com/article.asp?articleid=704542

Industry struggles with ever-changing acquisition rules

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Recent studies show that the percentage of overall research and development spending sponsored by the government has dropped sharply over the last 50 years.

Whereas government funding accounted for 67 percent of R&D in 1964, it accounted for 23 percent in 2015, a 44 percent reduction. For the government, this is not a salutary development. Increasingly, “state of the art” is being defined by the commercial marketplace, without government participation and often without its access to the resulting technological advances.

One need only recall the intense media furor over the government’s inability, for months, to obtain access to the shooters’ encrypted cell phone data following the December 2015 San Bernardino terrorist attack to appreciate the consequences when the developers of advanced commercial technology eschew the federal marketplace.

The government has attempted for years to reverse this trend. In fact, the Federal Acquisition and Streamlining Act of 1994, popularly known as “FASA,” had, as one of its primary purposes, the attraction of commercial entities into the federal marketplace. The trend, however, continues.

Keep reading this article at: http://www.mondaq.com/article.asp?articleid=641658

Note: This post was originally published in the October 2017 issue of the National Defense Industrial Association’s National Defense magazine.

The complications of cost and pricing

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One of the most controversial areas in government contracting surrounds cost and pricing: the means by which a contracting officer makes a “fair and reasonable” price determination. This can be expensive to bidders, especially if they are required to provide “certified cost and pricing data” and respond to Defense Contract Audit Agency or contracting officer questions. Recent inspector general reports have highlighted the problem.

Commercial companies don’t have similar requirements and aren’t structured for it. They maintain that creating such cost-accounting compliance would incur extra overhead costs, drive up prices, and hurt them competitively. Contractor concerns involve onerous government requirements, inapplicability, and potentially abandoning the government market.

Perhaps the biggest difference between government and commercial buying practices is symbolized in the Truth in Negotiations Act (TINA). Its main intent is to ensure accuracy of a contractor’s costs before negotiating with the government and includes providing government access to all cost or pricing data the contractor used to develop its offer. If the cost rises and the bidder is found to have withheld any data, the government can get back the added costs.

Keep reading this article at: http://www.federaltimes.com/article/20140826/BLG06/308260017/The-complications-cost-pricing

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