DATE: February 19, 2003

SUBJECT: Department of Defense; Exceptions and Waivers to the Truth in Negotiations Act

SOURCE: Department of Defense Memorandum, dated February 11, 2003

AGENCIES: Department of Defense (DOD)

ACTION: Notice

SYNOPSIS: On February 11, 2003, Director of Defense Procurement and Acquisition Policy Deidre Lee issued a memorandum to the services' deputy assistant secretaries for acquisition, and the Defense Logistics Agency's executive director for acquisition, technology, and supply providing guidance on when it is appropriate to grant a waiver to cost or pricing data certification requirements and waivers of cost accounting standards.

EDITOR'S NOTE: For more on the acquisition-related provisions of Public Law 107-314, the National Defense Authorization Act for Fiscal Year 2003, see the December 3, 2002, FEDERAL CONTRACTS DISPATCH "Enactment of the National Defense Authorization Act for Fiscal Year 2003."

EFFECTIVE DATE: The guidance is effective February 11, 2003.

FOR FURTHER INFORMATION CONTACT: Richard Brown, 703-695-7197, or e-mail: Richard.G.Brown@osd.mil.

SUPPLEMENTAL INFORMATION: Paragraph (c)(4) of the Federal Acquisition Regulation (FAR) 15.403-1, Prohibition on Obtaining Cost or Pricing Data (10 U.S.C. 2306a and 41 U.S.C. 254b), authorizes the head of the contracting activity (HCA) to waive the requirement of the Truth in Negotiation Act (TINA) that contractors certify that cost or pricing data they have submitted in support of a proposed contract price is current, accurate, and complete. Such waivers may be granted by the HCA in exceptional cases.

The National Defense Authorization Act of Fiscal Year 2003 includes Section 817, Grants of Exceptions to Cost or Pricing Data Certification Requirements and Waivers of Cost Accounting Standards. Section 817 requires the secretary of defense or designee to issue guidance on when it is appropriate to grant a waiver to cost or pricing data certification requirements and waivers of cost accounting standards. Section 817 goes on to require the guidance to state that such waivers may be granted only upon a determination that (1) the property or services cannot reasonably be obtained under the contract, subcontract, or modification without the grant of the exception or waiver; (2) the price can be determined to be fair and reasonable without the submission of certified cost and pricing data or the application of cost accounting standards; and (3) there are demonstrated benefits to granting the exception or waiver." In her memorandum of February 11, 2003, Director of Defense Procurement Lee directs all HCAs to comply with the statutory language when granting exceptional case TINA waivers.

In addition, Section 817 requires the submission of an annual report to Congress "promptly after the end of each fiscal year" that identifies all exceptional case TINA waivers granted during that fiscal year for any contract, subcontract, or modification expected to have a value of $15,000,000 or greater. The report must identify each waiver, provide an explanation of the basis for the HCA's determination to grant the waiver, and describe the specific steps taken to ensure that the price of the contract, subcontract, or modification was fair and reasonable. Director Lee directs the deputy assistant secretaries for acquisition to submit to her the report no later than November 30, 2003, and in every subsequent year.

Also, Section 817 requires the report include an identification of exceptions to the TINA for contracts, subcontracts, or modifications expected to have a price of $15,000,000 or more because the item being acquired is commercial. The report is to include a separate section that lists commercial items exception determinations for actions of $15,000,000 or more, to identify the basis for determining that the item is commercial, and the specific steps taken to ensure that a fair and reasonable price was negotiated for the requirement. Director Lee directs that the report include this separate section.

Finally, on a related matter, Director Lee notes that the General Accounting Office (GAO) has noted "a wide spectrum in the quality of the data and analyses used to support TINA waivers, and recommended we address two situations in particular: (1) whether a TINA waiver can be granted for part of a proposed price, and (2) whether unpriced options can be the subject of TINA waivers."

Director Lee provides the following guidance:

      "A TINA waiver may be made applicable to part of a contractor's proposed price when it is possible to clearly identify that part of a contractor's cost proposal to which the waiver applies as separate and distinct from the balance of the contractor's proposal. In granting a partial waiver, in addition to complying with the guidance previously noted, the HCA must address why it is in the government's best interests to partially waive TINA, given that the contractor has no objection to certifying the balance of its cost proposal.
      "Because it has no price, an unpriced option cannot be subject to TINA certification requirements. The government cannot agree in advance to waive TINA certification requirements for an unpriced option, and can only consider a waiver at such time as the contractor proposes a price that would otherwise be subject to a TINA certification."

Director Lee finishes the memorandum by stating that this guidance will eventually be superceded by its incorporation into the Defense FAR Supplement (DFARS).

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2003 by Panoptic Enterprises. All Rights Reserved.

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