5.3 Cost Analysis, Certified Cost/Pricing Data & TAA (FAR 15.403 & 15.404)

5.3 Cost Analysis, Certified Cost/Pricing Data & TAA (FAR 15.403 & 15.404)

When price analysis alone cannot verify a proposed price to be fair and reasonable—or when required by statute—the Government performs cost analysis under FAR 15.404-1(c). Cost analysis involves the detailed evaluation of separate cost elements (such as direct labor, material, subcontracts, and indirect overhead pools) and proposed profit or fee in an offeror's cost proposal.

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Truthful Cost or Pricing Data Act (TINA) (FAR 15.403-4)

The Truthful Cost or Pricing Data Act (formerly known as the Truth in Negotiations Act or TINA, 10 U.S.C. 3702 and 41 U.S.C. 3502) requires contractors to submit certified cost or pricing data for high-dollar negotiated contracts.

Key TINA Parameters

• Statutory Threshold: $2,000,000 (FAR 15.403-4(a)(1)). Appreciates to non-exempt negotiated contract awards, subcontracts, and contract modifications exceeding $2,000,000.
• Definition of Cost or Pricing Data: All facts that prudent buyers and sellers would reasonably expect to affect price negotiations significantly as of the date of price agreement.
• Certificate of Current Cost or Pricing Data (FAR 15.406-2): The contractor must execute a formal certificate stating that, to the best of its knowledge and belief, the cost or pricing data submitted are accurate, complete, and current as of the date agreement on price was reached.

[Negotiations Complete / Agreement Reached] ➔ [Contractor Executes Certificate (FAR 15.406-2)] ➔ [Data Certified as Accurate, Complete & Current]

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Statutory Exceptions to Certified Cost or Pricing Data (FAR 15.403-1(b))

Under FAR 15.403-1(b), the Contracting Officer shall NOT request or require certified cost or pricing data if any of the following five statutory exceptions apply:

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Cost Realism Analysis & Most Probable Cost (MPC) (FAR 15.404-1(d))

Cost realism analysis is the process of independently reviewing and evaluating specific cost elements in an offeror's proposal to determine whether the proposed costs:

1. Are realistic for the work to be performed;
2. Reflect a clear understanding of contract requirements; and
3. Are consistent with the unique methods of performance described in the technical proposal.

Application Rules by Contract Type

• Cost-Reimbursement Contracts: Cost realism analysis is MANDATORY for all competitive cost-reimbursement contracts (FAR 15.404-1(d)(2)). The results of cost realism analysis must be used to adjust the offeror's proposed costs to determine the Most Probable Cost (MPC). The MPC represents the Government's estimate of the realistic cost of performance and must be used for evaluation purposes to evaluate best value. (However, the contract is awarded at the proposed target cost, not the MPC).
• Fixed-Price Contracts: Cost realism analysis may be performed on competitive fixed-price contracts (e.g., when evaluating performance risk or unreasonableness of low bids), but proposed prices SHALL NOT be adjusted as a result of cost realism analysis (FAR 15.404-1(d)(3)).

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Defective Pricing & Government Remedies (FAR 15.407-1)

If the Government subsequently discovers that a contractor submitted cost or pricing data that were inaccurate, incomplete, or noncurrent prior to the date of price agreement, the contract price is considered defective.

Government Defective Pricing Remedies

• Price Reduction Clause (FAR 52.215-10 / 52.215-11): The Government is entitled to an equitable price reduction, including profit or fee, in the amount by which the evaluation was over-stated due to defective data.
• Interest Payment: The Government is entitled to interest on any overpayments made to the contractor as a result of defective pricing.
• Penalties: If the contractor knowingly submitted defective cost or pricing data, the CO may assess penalty damages equal to the amount of the overpayment.

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Trade Agreements Act (TAA) Compliance (FAR Subpart 25.4)

The Trade Agreements Act (TAA) (19 U.S.C. 2501 et seq.) authorizes the President to waive Buy American Act restrictions for eligible products from countries that have entered into trade agreements with the United States.

TAA Statutory Dollar Thresholds

• Supply Contracts Threshold: $174,000
• Construction Contracts Threshold: $6,683,000

The Substantial Transformation Test (FAR 25.001(c))

Under the TAA, an end product is evaluated based on its country of origin. If a product contains components manufactured in non-designated countries, it satisfies TAA compliance only if it undergoes substantial transformation in the United States or a TAA designated country:

• Substantial Transformation: A process resulting in a new and different article of commerce having a distinctive name, character, or use different from that of the pre-existing raw materials or components.