FAR FAR Defective Pricing & Penalties 1 — Questions and Answers
Question 1: What constitutes 'defective pricing' under the Truthful Cost or Pricing Data Act?
- Contract prices that exceed published market rates
- Certified cost or pricing data that was inaccurate, incomplete, or not current as of the date of price agreement (Correct answer)
- Failure to submit cost or pricing data within the required timeframe
- Incorrect allocation of overhead rates to contract cost pools
Correct answer: Certified cost or pricing data that was inaccurate, incomplete, or not current as of the date of price agreement
Defective pricing occurs when certified cost or pricing data submitted was inaccurate, incomplete, or not current, resulting in an increased contract price that favored the contractor.
Question 2: What is the government's primary contractual remedy for defective pricing under FAR 15.407-1?
- Immediate contract termination for default
- A downward price reduction equal to the overstatement attributable to the defective data, plus interest (Correct answer)
- Criminal prosecution of the responsible contractor employees
- Suspension and debarment of the contractor for two years
Correct answer: A downward price reduction equal to the overstatement attributable to the defective data, plus interest
FAR 15.407-1(b) provides for a price reduction equal to the amount of overstatement attributable to defective cost or pricing data, plus applicable interest charges.
Question 3: Which FAR clause must be included in contracts requiring certified cost or pricing data to establish the basis for defective pricing price reductions?
- FAR 52.215-10, Price Reduction for Defective Cost or Pricing Data (Correct answer)
- FAR 52.215-2, Audit and Records—Negotiation
- FAR 52.215-14, Integrity of Unit Prices
- FAR 52.215-20, Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing Data
Correct answer: FAR 52.215-10, Price Reduction for Defective Cost or Pricing Data
FAR 52.215-10 (Price Reduction for Defective Cost or Pricing Data) is the mandatory clause that creates the contractual right to price reduction when defective pricing is found.
Question 4: What is the general statute of limitations for the government to assert a defective pricing claim?
- 1 year from contract award
- 3 years from final payment under the contract
- 6 years from the date of final payment under the contract (Correct answer)
- 10 years from contract execution
Correct answer: 6 years from the date of final payment under the contract
The statute of limitations for defective pricing claims is generally 6 years from the date of final payment, consistent with the Contract Disputes Act limitations period.
Question 5: When a contractor discovers after award that its certified cost or pricing data was defective, what is the contractor's obligation under FAR 52.215-10?
- Correct the data in the contract file without notifying the government
- Promptly notify the contracting officer of the defect (Correct answer)
- Wait until the next scheduled DCAA audit to disclose
- Seek legal counsel before taking any action
Correct answer: Promptly notify the contracting officer of the defect
Contractors who discover defective cost or pricing data after award should promptly notify the contracting officer, as voluntary disclosure may positively affect penalty and interest determinations.
Question 6: For certified cost or pricing data purposes, what standard determines whether data was 'current'?
- Data must be no more than 30 calendar days old at time of submission
- Data must be accurate as of the date of price agreement, or a later date agreed upon by the parties (Correct answer)
- Data must reflect figures from the contractor's most recently completed fiscal year
- Data must be independently verified by an external auditor
Correct answer: Data must be accurate as of the date of price agreement, or a later date agreed upon by the parties
Cost or pricing data must be accurate, complete, and current as of the date of price agreement (or another mutually agreed date), as stated in the certification requirement.
FAR FAR Defective Pricing & Penalties 1
What constitutes 'defective pricing' under the Truthful Cost or Pricing Data Act?