View source for Establishing the Baseline for Audit, Determining the Defective Data, and Calculating the Recommended Price Adjustment (Postaward Audits) - DCAM 14-115

==14-116 Establishing the Baseline for Audit, Determining the Defective Data, and Calculating the Recommended Price Adjustment (Postaward Audits)<ref>DCAA Contract Audit Manual,  http://www.dcaa.mil/cam/Chapter_14_-_Other_Contract_Audit_Assignments.pdf</ref>==

The auditor must (1) establish the appropriate baseline for audit, (2) determine the potential defective data, and (3) calculate the total recommended price adjustment.

===14-116.1 Communicating with the Contracting Officer at the Start of the Audit===

When reviewing the Proposal Negotiation Memorandum (PNM) at the beginning of the audit, the auditor should confirm with the contracting officer the statement in the PNM that the Government relied on the certified cost or pricing data or if there is no statement on reliance, the auditor should ask the contracting officer if there was reliance on the certified cost or pricing data. If the PNM has not been provided to the FAO, request the contracting officer to provide it. A copy of a pro forma memorandum to the Contracting Officer which should be tailored to each specific circumstance is available on DCAA’s Intranet and APPS as Format for Announcing Postaward Audit and/or Requesting Data. After completing the risk assessment,
the auditor should notify the PCO of the planned audit, as described in 4-104.

===14-116.2 Baseline for Audit===

'''a.''' When contractors certify cost or pricing data (facts) and execute the Certificate of Current Cost or Pricing Data, they do not  specifically identify the amounts or elements of costs that are certified. Therefore, to evaluate certified cost or pricing data for compliance with TINA, the auditor must establish an audit baseline as a starting point in order to determine if the certified cost or pricing data were accurate, complete, and current. The audit baseline for determining if defective pricing exists is 

:(1) the contractor's last proposal before price negotiations began and 

:(2) adjustment for any additional certified cost or pricing data up to the time of price agreement or disclosure of sweeps data (see 14-120.4) for which the contractor addresses its significance on the proposal and submits it to the Government. Since the baseline starts with the contractor's proposal, it will include both certified cost or pricing data and judgments.

====DEFECTIVE PRICING AUDIT BASELINE====

$$$ Contractor's last proposal by cost element before price negotiations began

+ - (Plus or Minus) Additional certified cost or pricing data up to the time of agreementon price (or another date agreed upon between the parties), to include sweeps data, for which the contractor addresses its significance on the proposal and submits it to the Government

$$$ (Equals) Baseline for determining if defective pricing exists


'''b.''' Examine the PNM first to determine if the contractor updated its proposal or submitted additional certified cost or pricing data before negotiations of the contract price began.  Sources of data other than the PNM include the buying office's contract file and the contractor's PNM and contract file. Depending on the circumstances, the auditor may need to pursue one or more of these alternative data sources. Follow the procedures in 14-115 to obtain the PNM or other data needed if it is not available locally.


'''c.''' The PNM should clearly identify the certified cost or pricing data the contracting officer relied on to negotiate the prime contract price (FAR 15.406-3(a)(6)). If not specifically addressed in the PNM, coordinate with the contracting officer and obtain a written
statement as to what data were relied on. If the contracting officer will not provide a written statement on reliance and the FAO's review of the contracting officer's file discloses no contrary evidence, assume that the Government relied on all data submitted by the contractor
in negotiating the contract price.


'''d.''' Sometimes the contractor does not submit additional certified cost or pricing data, but the costs negotiated by the contracting officer are less than the amounts shown in the contractor's proposal. Unless the PNM discusses additional data provided at negotiations,
the contractor's proposal is the baseline for audit.

===14-116.3 Determining the Potential Defective Data===

Once the auditor has established the baseline for audit, the next step is to compare the certified cost or pricing data in the audit baseline to all accurate, complete, and current cost or pricing data reasonably available to the contractor prior to agreement on price, or another date agreed upon between the parties. Differences found identify potential defective pricing. For such differences the auditor must establish the five points identified at 14 102. If the auditor cannot establish or support these points, he or she has not developed evidence to support that potential defective pricing exists.
IDENTIFICATION OF POTENTIAL DEFECTIVE PRICING
$$$ Certified cost or pricing data in audit baseline (14-116.2)
- (Less) Accurate, complete, and current cost or pricing data reasonably available up to
the time of agreement on price (or another date agreed upon between the parties), to include
sweeps data, for which the contractor addresses its significance on the proposal and
submits it to the Government
- (Less) Adjustment for contracting officer nonreliance, contractor disclosures or Government's
actual knowledge, and specific adjustment by the contracting officer for the
effect of factual information on the negotiated price
$$$ (Equals) Potential defective pricing

===14-116.4 Calculating the Recommended Price Adjustment===

'''a.''' The recommended price adjustment is the total amount the contract price increased because the contractor submitted defective certified cost or pricing data. It includes not only the defective data, but also the associated costs and profit. Recommended price adjustments
that do not meet the materiality guidelines in 14-120.1 should not be reported.


'''b.''' If the defective pricing involves a subcontract, the prime contract auditor will compute the allocable portion of prime indirect costs and profit applicable to the subcontract defective pricing and include this amount in the total recommended price adjustment for the prime contract. The prime contract auditor's report will include prime add-ons (indirect costs and profit or fee) to the subcontract defect to reflect the total amount of the subcontract defective pricing on the prime contract price.


'''c.''' The following guidance applies when calculating the recommended defective pricing adjustment:

:(1) When particular cost or pricing data is not disclosed, or inaccurate or noncurrent certified cost or pricing data is used, (defective data) there is a presumption that the natural and probable consequence (see 14.109) of the defective data is an increase in the negotiated
contract price in the amount of the defect, plus indirect costs and profit or fee. However, the natural and probable consequence presumption has its limits in determining the extent to which defective certified cost or pricing data caused an increase in the contract price. When there is evidence of reductions obtained in negotiations, the "natural and probable consequence" is less than the full reduction attributed to the defective data. This is explained more fully in paragraphs (2) through (5) below.

:(2) When there is insufficient evidence to establish the negotiated value or price of a specific defective cost element, the starting point/baseline for calculating the recommended price adjustment is the contractor’s last proposal plus or minus the impact of subsequently
disclosed certified cost or pricing data less adjustment for contracting officer nonreliance (14-116.3).

:(3) The negotiated value of the defective element is the starting point/baseline for calculating the recommended price adjustment when there is evidence to show that the Government in negotiation already secured a reduction in the price of the defectively priced cost element below the contractor’s last proposal, plus or minus the impact of subsequently disclosed certified cost or pricing data related to the defective element.

:(4) Evidence to confirm the negotiated value or price of a specific defective element of cost may be included in the Government’s price negotiation memorandum or other documents such as the Government’s pre-negotiation clearance, target objectives, or technical analyses that were attached or referenced in the memorandum to show the breakdown of the elements of cost negotiated. Alternatively, the breakdown of the specific elements of cost in the pre-negotiation clearance or other similar documents that are not attached or referenced in the price negotiation memorandum but which the contracting officer asserts in writing is representative of the prices negotiated for those elements may
also represent substantiating evidence. If there is evidence available from Government sources that confirms the specific negotiated cost element prices, this cost level should be used in the computation of the recommended price adjustment for the defective element.

:(5) Computing recommended price adjustments:

::(a) Starting point/baseline for computing the adjustment:

:::(i). The value of the specific defectively priced element of cost (the level of detail at which the non-disclosed cost or pricing data relates) in the contractor’s last proposal, plus or minus the impact of certified cost or pricing data related to the defective element submitted up to the time of agreement (or another date agreed upon between the parties) to include “sweep” data (14-120.4).

:::(ii). However, if there is evidence available from Government sources of the negotiated value of the defectively priced element, use:
The negotiated value of the specific defectively priced cost element (the level of detail at which the non-disclosed cost or pricing data relates) based on evidence in the price negotiation memorandum or associated Government documents.

Less:

::(b) The corresponding value shown by the accurate, complete, and current certified cost or pricing data that was reasonably available up to the time of agreement on price (or another date agreed upon between the parties) to include sweeps data.

Plus:

::(c) Associated costs and profit:

:::(i). In all cases (starting points (a)i or (a)ii above) when the negotiated values of the associated indirect rates and factors can be confirmed and are not defective, apply the negotiated rates and factors to the defectively priced cost elements. If the nondefective
negotiated rates are not available, use the rates and factors in the contractor’s last proposal, plus or minus the impact of related certified cost or pricing data submitted up to the time of agreement (or another date agreed upon between the parties) including
“sweep” data.

:::(ii). When the indirect rates are defectively priced in addition to the defective element, follow the guidance for the starting point for (a)i or (a)ii under the circumstances.

Equals:

::(d) The total recommended price adjustment.

:(6) If there was a total bottom-line negotiation price based on a significant reduction to the last proposal, there can be no recognition of the reduction in computing the recommended price adjustment unless there is evidence available from Government sources to confirm the negotiated value of the specific defectively priced element. In such circumstances, the starting point for computing the recommended price adjustment would be 14 116.4c(5)(a)i.

==References==
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[[Category: Truth In Negotiations Act (TINA)]]