Preserve Government’s Access to Cost and Pricing Data to Ensure Fair Prices
General Services Administration
Regulatory Secretariat Division (MVCB)
1800 F St NW, 2nd Floor
Washington, DC 20405
ATTN: Lois Mandell
Submitted via Regulations.gov
Subject: FAR-2018-005
Dear Ms. Mandell:
The Project On Government Oversight (POGO) provides the following public comment regarding FAR Case 2018-005, “Federal Acquisition Regulation: Modifications to Cost or Pricing Data Reporting Requirements.”1 POGO is a nonpartisan independent watchdog that investigates and exposes waste, corruption, abuse of power, and when the government fails to serve the public or silences those who report wrongdoing. We champion reforms to achieve a more effective, ethical, and accountable federal government that safeguards constitutional principles.
The Federal Acquisition Regulatory (FAR) Council is proposing to amend the Federal Acquisition Regulation to implement a section of the National Defense Authorization Act for fiscal year 2018 by increasing the threshold for requiring certified cost or pricing data under the Truth In Negotiations Act from $750,000 to $2 million for contracts entered into after June 30, 2018. In the case of a change or modification made to a prime contract that was entered into before July 1, 2018, upon the request of a contractor, the contracting officer must modify the contract without requiring consideration to reflect a $2 million threshold for obtaining certified cost or pricing data from subcontractors.
POGO opposes the proposed rule. Increasing the threshold makes it easier for companies to raise their prices to the government beyond what is fair and reasonable. In fact, work done by the Department of Defense Inspector General, Congress, and POGO’s own investigators show that increasing this threshold is likely to increase cost risks for the public.2 The department’s former head of pricing called the change “disastrous for those contracting officers buying spare parts” and likely to result in “more instances of contracting officers requiring, yet not receiving, data” they need to make determinations about price reasonableness.3 The government’s ability to use pricing information to negotiate fair prices is undeniably diminished for transactions under the threshold, and increasing the threshold places significantly more government contracts at risk of overpricing. Moreover, there is evidence that companies will purposely keep transactions under the threshold to avoid having to provide certified cost or pricing data. For example, former employees of aircraft component supplier TransDigm Group, Inc. told the House Oversight and Reform Committee they were “coached not to provide cost data” by keeping transactions below the monetary threshold in the Truth in Negotiations Act.4 Emails provided to the committee showed that contracts were structured to stay under the threshold by artificially limiting the number of units or the duration of the contract.5
While TransDigm has become the most infamous contractor for these overcharges, there are numerous Defense Department Inspector General reports showing how loopholes in requirements to provide certified cost or pricing data—including in the definition of the term “commercial item”—have been exploited by numerous other federal contractors to charge excessive prices.6 And, as one contracting expert pointed out, only targeting TransDigm in the wake of these broader abuses reveals the “impotence” of the government when it comes to accountability.7 With so many loopholes and the increased threshold, which limit the government’s access to cost or pricing data, taxpayers are vulnerable to overpaying for products and services—paying prices that exceed anything in the commercial marketplace.
It is important to consider both the costs and the benefits of requiring cost data. The FAR states that “the administrative cost of verifying the reasonableness of the price for purchases may more than offset potential savings from detecting instances of overpricing.”8 However, the Defense Department’s own analyses of previous proposals to increase monetary thresholds found that they were “unlikely to provide cost savings to DoD” due in part to the loss of the negotiating advantage afforded to the government.9
Certified cost or pricing data is a vital part of contract pricing transparency and accountability. Such data places the government on an equal footing with contractors. It ensures smarter purchasing decisions, which will lead to better quality goods and services, as well as to savings for the government and taxpayers. Access to cost or pricing data can also speed up the procurement process by removing the burdensome market research that slows down contracting officers. For these reasons, POGO opposes the proposed rule.
If you have any questions, I can be reached at [email protected] or (202) 347-1122.
Sincerely,
Mandy Smithberger
Director, Center for Defense Information