Truth In Negotiations Act Fraud

In the 1950s, many members of Congress became convinced that defense contractors were overcharging the government for goods and services obtained through negotiations. Therefore, legislators passed the Truth in Negotiations Act (“TINA”) in 1962. This act created regulations requiring contractors to disclose certain cost and pricing data and to certify that the data was current. Initially, TINA only applied to the Department of Defense, the Coast Guard, and NASA. In 1985, TINA’s scope was broadened and it now applies to many forms of government procurement.

TINA was designed to place the government in the same position as the contractor to ensure that price negotiations are fair and reasonable. To that end, contractors must provide certain cost and pricing data to the government when negotiating a contract or a contract modification over a specified amount. This data includes vendor quotations, nonrecurring costs, changes in production methods, and related costs of operations. There are three instances where this data is not required: (1) where the price agreed upon is based on adequate price competition or prices set by law or regulation; (2) for the acquisition or modification of the acquisition of a commercial item; or (3) in exceptional cases, where the head of the procuring activity, without delegation, waives the requirement and justifies in writing the reasons for the waiver. There is no exception, however, for cost or pricing data on noncommercial modifications of a commercial item, if those modifications will cost, in the aggregate, more than $500,000 or five percent of the total contract price.

Courts have gone to great lengths to define just what amounts to defective pricing. For example, in 2002, the United States Court of Appeals for the Federal Circuit held that a contractor’s failure to disclose the receipt of additional subcontractor bids to the government during price negotiations amounted to defective pricing. The court reasoned that knowledge of undisclosed bids was information a prudent buyer or seller reasonably would expect to affect price negotiations significantly.

While TINA is intended to minimize fraud on the government, it is not without its critics. Many commentators oppose TINA’s requirement that contractors disclose all relevant cost and pricing data during negotiations because raises the cost of doing business with the federal government. Defenders of TINA point out that unlike private buyers, the government has a responsibility not only to itself, but to millions of taxpayers who expect their dollars to go to good use.

Example

In 2009, the 9th Circuit held that knowingly making “false estimates” in connection with a bid for a government contract may be actionable under the False Claims Act. In this case, a relator filed a qui tam action against Lockheed Martin, alleging that Lockheed purposefully underbid a contract for the U.S. Air Force’s Range Standardization and Automation (“RSA”) IIA program. The RSA IIA contract was a cost plus award fee contract, whereby the contractor is reimbursed not only for costs incurred, but also paid periodic award fees based on its performance. Lockheed placed an initial bid for $432.7 million, but has subsequently been paid over $900 million for its work.