Penalizing the Unsuspecting One Offeror

By Alan Chvotkin, EVP and Counsel, PSC | August 13, 2019

Federal agencies have long been troubled with what to do when there is an expectation that multiple proposals will be submitted in response to a solicitation but only one offer is actually received. Congress and the executive agencies have struggled with finding the right balance in this constantly evolving arena. Rules changes stemming from the Fiscal Year 2017 NDAA, and other policy changes, impose significant new burdens on the bidder who, while anticipating a competition, finds itself as the only qualified offeror. But why penalize that one offeror, as these changes do? Alan Chvotkin, PSC’s Executive Vice President and Counsel, answers that question.

In 2011, the Department of Defense (DoD) undertook a series of administrative actions to address challenges in the DoD acquisition system, compiled under the general heading of “Better Buying Power” initiatives. (1) One element of the initiative was directed at the problem for DoD when only offer was received in response to a solicitation expected to be competitive. Under “Better Buying Power 1.0,” DoD required its contracting officers to resolicit if less than 30 days was provided to offerors to respond to a solicitation and only one offer was received; this provision was subsequently codified in the Defense Federal Acquisition Regulation Supplement (DFARS). (2)

However, Congress was still concerned with the impact on the Defense Department’s acquisitions when only one offer was received. In Section 822 of the Fiscal Year 2017 National Defense Authorization Act, enacted August 13, 2018, Congress changed the rules regarding the determination of when there is “adequate price competition” and eliminated the prior “adequate price competition” exemption where offerors were not required to submit certified cost or pricing data under the Truth In Negotiations Act (TINA). (3) Notwithstanding the wide recognition that the requirement for certified cost or pricing data is among the most burdensome and risky business processes for both federal agencies and contractors, the FY17 NDAA provided that, for DoD, NASA and the Coast Guard only, unless the competition actually results in at least two or more competitive bids, the TINA requirements for “adequate price competition” are to be applied to the one offer received. The legislation did not change the exemptions from the submission of certified cost or pricing data for awards under the simplified acquisition threshold, for the acquisition of commercial items, or where the value of the award is below the $2 million threshold (effective as of July 2018). (4)

DoD issued a proposed rule in June 2018 to implement the Section 822 change. The FAR Council also issued a proposed rule that month to address the statutory coverage for DoD, NASA and the Coast Guard. The FAR Council issued a final rule amending the FAR on June 12, 2019, (5) and the DAR Council issued a final rule amending the DFARS on June 28, 2019. (6)

Under the prior FAR rule, a contractor was not required to submit certified cost or pricing data if, as relevant here, there was a reasonable expectation by the government contracting officer, based on market research or other assessments, that two or more responsible offerors would submit proposals. However, the June 2019 final FAR rule now adopts the new statutory standard of actual receipt of proposals applicable only to DoD, NASA and the Coast Guard, while retaining the prior rule for all other federal agencies.

The June 2019 final DFARS rule implements the final FAR rule and the statute. (7) Under that DFARS rule, if only one offer is received when competitive procedures were used, and it is not necessary for the buying activity to resolicit, the DoD contracting officer has to decide on one of three approaches to determine whether the submitted offeror’s price is fair and reasonable.

First, if no additional data is required from the contractor for the contracting officer to determine that the offered price is fair and reasonable, the contracting officer must still require the offeror to certify under TINA the already provided data, unless another exception to the requirement for certification exists. Second, if additional data is required from the contractor for the contracting officer to make the price reasonableness determination, the contracting officer shall require the TINA certification from the contractor of both the original data submitted and the additional data required, unless an exception to the requirement for certification exists.

Third, if the contracting officer is still unable to determine that the offered price is fair and reasonable, even after receiving all of the TINA-certified cost or pricing data, the contracting officer has to enter into negotiations with the offeror to establish a fair and reasonable price. But the final DFARS rule provides that the negotiated price should not exceed the offered price.

There are numerous reasons vendors assess a competitive solicitation and determine not to bid on it. Some of those reasons relate to how the buying activity has designed the solicitation or how it approaches the market. Some reasons have nothing to do with the federal agency action but rather how each potential offeror assesses its competitive position and likelihood of being awarded the contract. PSC has explored many of these reasons in the numerous “bid/no-bid sessions” we’ve conducted with federal agencies through Reverse Industry Days.

But it seems most unfair to burden an offeror who prepares a response to a competitive proposal for DoD, NASA or the Coast Guard and then finds out that it is the one offer standing —because of circumstances beyond its control —with the additional requirement to certify any cost or pricing data it submitted in support of its proposal. It seems even more unfair that the new DFARS rules creates the possibility that the single offeror could be asked to submit more data to support its offered price—and then also be required to certify this additional data under the TINA rules.

To make matters worse, on June 7, 2018, then Director of Defense Pricing Shay Assad issued a memo reducing the lead time associated with the submission of cost or pricing data after the date of price agreement (sometimes referred to as “sweep data”). (8) Under the Assad memo, effective on June 7, 2018, for actions subject to TINA, contracting officers shall request that offerors execute their cost or pricing data certificate no later than five business days after the date of price agreement. Furthermore, contracting officers are directed to defer any analysis of defective pricing until after contract award. An argument can be made that this memo is applicable to the request for the TINA certification under the “one offer” rule.

What if the firm declines the privilege of certifying its data at the first or second step? Under those circumstances, since the contracting officer would not be able (or willing) to make a price reasonableness determination based on the known information, s/he would have no choice but to cancel the solicitation. But then what of the program needs that the solicitation was designed to fulfill?

Interestingly, in Section 890 of the FY19 NDAA, titled “Pilot Program to Accelerate Contracting and Pricing Processes,” Congress authorized DoD to implement a pilot program for contracts in excess of $50 million (other than for a major defense program) to permit price reasonableness determinations to be based on actual cost and pricing data for purchases of the same or similar products for DoD and to reduce the cost or pricing data required to otherwise be submitted. On April 1, 2019 (not an April Fool’s joke), while awaiting the drafting of the necessary DFARS changes, DoD issued a class deviation to implement this exceptional circumstance waiver of the submission of certified cost or pricing data. (9) The DFARS class deviation was issued before the final FAR or DFARS “one offer” rule was published; surely DoD had knowledge of both of them, yet somehow failed to discuss how a contracting officer is to reconcile these two seemingly inconsistent standards. Maybe Section 890 simply creates another valid exception to TINA to support the contracting officer’s determination of price reasonableness, even when only one offer is received, before directing the one offeror to certify its data. I hope DoD will rapidly address this interrelationship in future rulemaking.

The DoD, NASA and Coast Guard vendor community needs to anticipate from the outset of the preparation of their competitive proposals whether they can certify their cost or pricing data if required, and what actions they will be prepared to take if unwilling or unable to do so. And these agencies’ buying activities should assess what other initiatives they can take, short of invoking these draconian steps, to best position the contracting officer to make that all-essential fair and reasonable price determination.

We haven’t written the last chapter of this story. Generated in part from the attention generated by Transdigm Corporation’s after-market item pricing of DoD requirements, as part of the House-passed FY20 National Defense Authorization Act (NDAA), Section 804 would allow contracting officers to request certified cost or pricing data “when necessary” to determine price reasonableness; the provision also removes the exception from the submission of certified cost or pricing data for commercial items. PSC is weighing in on this (and many other) NDAA-proposed changes. I’ll update this blog with the final results of these FY20 NDAA provisions.

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1 Better Buying Power 1.0 (September 14, 2010), available at: https://www.acq.osd.mil/fo/docs/USD_ATL_Guidance_Memo_September_14_2010_FINAL.PDF. See also BBP 2.0 and 3.0.

2 See DFARS 215-371-2(a), available at: https://www.acq.osd.mil/dpap/dars/dfars/html/current/215_3.htm#215.371.

3 The “TINA” statute has been formally renamed the “Truthful Cost or Pricing Data Act.” See Positive Law Codification of Title 41, United States Code, ‘‘Public Contracts’’ and other conforming changes, enacted on January 4, 2011, under Public Law 111–350.

4 Section 811 of the FY18 NDAA raised the TINA threshold government-wide to $2 million. Pending regulatory changes, the provision was implemented by the May 31, 2018 DFARS Class Deviation 2018-DO0015, available at: https://www.acq.osd.mil/dpap/policy/policyvault/USA001197-18-DPAP.pdf.

5 FAR final rule “Exception From Certified Cost or Pricing Data Requirements—Adequate Price Competition” (June 12, 2019), available at: https://www.govinfo.gov/content/pkg/FR-2019-06-12/pdf/2019-12263.pdf.

6 DFARS final rule “Only One Offer” (6/28/19) available at: https://www.govinfo.gov/content/pkg/FR-2019-06-28/pdf/2019-13739.pdf.

7 Id.

8 Memo “Reducing Acquisition Lead Time by Eliminating Inefficiencies Associated with Cost or Pricing Data Submissions After Price Agreement (‘Sweep Data’)” (June 7, 2018), available at: https://www.acq.osd.mil/dpap/policy/policyvault/USA000646-18-DPAP.pdf.

9 Class Deviation – “Section 890 Pilot Program to Accelerate Contracting and Pricing Processes” (April 1, 2019), available at: https://www.acq.osd.mil/dpap/policy/policyvault/USA000951-19-DPC.pdf.