Don't Run Afoul of Truth in Negotiations Act.

• Author: Gwinn, Michael
• Position: Ethics Corner

* Imagine paying a contractor $20,000 to remodel a kitchen. Although you aren't sure if you paid a fair price because you only received one bid, the contractor performed on time and to standard and you are pleased with the results.

Two weeks later, you go to the hardware store and discover that the remodel only cost the contractor $5,000, which is a 300 percent profit margin. Would you want some of that $15,000 back?

Uncle Sam would. That's why businesses in the federal marketplace should be aware of the Truth in Negotiations Act, or TINA.

The act is a frequent issue for government contractors, and it will become more frequent with the recent increase in defective pricing audits.

First, what is TINA? It is a procurement statute that requires contractors to provide information--known as cost or pricing data--when negotiating certain contracts or contract modifications. In simple terms, cost or pricing data is information a reasonable negotiator would want to know during negotiations. Congress demands that contractors provide this information so that government procurement personnel will be on equal footing during price negotiations.

If the contractor does not disclose cost or pricing data when it should have, the government can sue the contractor for the "overpayment" in what is known as a "defective pricing claim."

So when does TINA apply? The act applies to contracts and subcontracts greater than $2 million or modifications to contracts where the changes add up to more than $2 million. The threshold for modifications is not the net change, but the total dollar change. A $1.5 million addition and a $1 million deletion is a $2.5 million change for TINA purposes.

TINA has four major exceptions, however, that allow contractors and subcontracts to avoid TINA's disclosure requirements: bids that receive adequate price competition such as more than one competitive bidder; bids for contracts where the price is set by law or regulation such as utilities; contracts for commercial items; and where the head of the contracting activity has waived TINA for that procurement.

Subcontracts are exempt from TINA if the parent contract has an exception--unless the prime contract is exempt under a waiver. In that case, TINA will still apply to subcontractors unless another exception applies or they receive their own waiver. TINA can sneak up during solicitations or contract performance.

How does the government enforce TINA and what are the consequences? The...