When Does a Management Decision Have To Be Disclosed Under TINA

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Introduction

TINA requires the disclosure in price negotiations of “cost or pricing data,” that is, all facts a prudent buyer or seller would reasonably expect to affect price negotiations significantly. 10 U.S.C. § 2306a(g). The Government takes the position that business plans and projections represent either “management decisions that could have a significant bearing on cost” or “facts that can be reasonably expected to contribute to the soundness of estimates of future costs” which FAR 15. includes within its expansive definition of cost or pricing data. Thus the Government asserts defective pricing claims based on a contractor’s failure to disclose such information, even when the plans or projections are not implemented nor finally adopted before agreement on price.


Over the years there have been arguments as to whether management plans, business strategies, budget forecasts, and estimates represent cost or pricing data, and what is a contractor's duty under the Truth in Negotiations Act (TINA) to disclose. The Armed Services Board of Contract Appeals (ASBCA) had attempted to resolve some of the confusion, setting forth "bright line" rules for when plans and projections constitute "disclosable" cost or pricing data.


In Lockheed Corp., ASBCA Nos. 36420, 37495, & 39195, May 23, 1995, the ASBCA provides guidance on three previously unresolved issues concerning disclosure of business plans and projections:


First, the ASBCA determines that business plans and projections do not become cost or pricing data until the contractor decides to act upon them. Once a contractor acts upon a decision, then it becomes cost or pricing data. For instance, a contractor makes a decision to close a facility but has taken no action related to the closing. The act of making the decision, triggers the requirement to disclose. That fact MUST be disclosed.


Second, the ASBCA articulates a two-part objective test for determining what constitutes a “management decision” that triggers the TINA disclosure obligation. The ASBCA ruled that:


  • (1) the plan must bear a substantial relationship to costs, and


  • (2) a company official with requisite authority must have decided to act on the plan.


Finally, the ASBCA reaffirms that purely judgmental estimates are not cost or pricing data, and it holds that projections containing a mix of facts (historical accounting data) and judgments (forecasts of future costs) need not be disclosed as long as the factual data have been previously disclosed.

A Decision to Act Triggers Disclosure

The ASBCA explained that the disclosure of business strategies and management plans is required only when a decision has been made to act on a strategy or plan even when not implemented.

The Bright Line Test

The ASBCA articulated a two-part objective test for determining what constitutes a “decision” bearing on costs.


First, “there should be a substantial relationship between the decision and the relevant cost element.”


Second, "the decision must be made at a level of management having the authority to approve or disapprove actions affecting that cost element."

Using the Statutory Purpose as a Guide

Consistent with the purpose of TINA, the basic rule to disclose is best stated in the following excerpts from the Court of Claims.

A proper determination of what acts are sufficient to satisfy a Government contractor's duty to submit information requires an examination of the reason Congress required such a submission. The court has stated that the purpose of TINA was to avoid excessive contract costs that result from a contractor having in his possession accurate, complete, and current information when the Government does not possess the same data. In order that there be effective disclosure of cost and pricing data by the prospective contractor the government must be clearly advised of the relevant cost and pricing data...If the Truth in Negotiations Act is to have any force and effect then the Government must be clearly and fully informed. This can only be achieved by complete disclosure...


Conclusion and Practical Guidelines

The ASBCA ruling in the Lockheed provides important guidance about a contractor’s obligations to disclose plans and projections during price negotiations. It substantially clarifies just what information need not be disclosed as cost or pricing data. To minimize exposure to defective pricing claims, contractors should consider the following steps:


• Establish clear lines of responsibility defining who has authority to make decisions to act on strategies, plans, projections, or estimates substantially related to cost elements.

• Clearly label non-final plans/projections as “Preliminary” or “Draft” or use some other appropriate legend, and establish controls to prevent action being taken on plans/projections that management has not approved.

• Develop procedures for informing company negotiators of decisions to act on plans/projections. A negotiator’s ignorance of cost or pricing data generally does not relieve the company of defective pricing liability.

• If projections are based on factual data not previously disclosed, segregate this data and disclose it.


When in doubt, disclose. TINA is a disclosure rule. Disclosing will prevent defective claims and assertions and prevent a contractor from the assertion of defective pricing, and time and money refuting the assertions.

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