De-regulation of the U.S. Postal Service’s purchasing policies has stymied the prosecution of defective pricing fraud cases, according to a September 18, 2013 report issued by the USPS Office of Inspector General (OIG).  U.S. Attorney’s offices have thus declined to criminally prosecute suppliers for submitting defective cost or pricing data in procurement actions valued at $36 million. The OIG therefore recommends that the Postal Service require suppliers to certify that cost or pricing data are accurate, complete, and current. USPS management, however, disagrees. The Postal Service believes its interests are already fully protected and the disadvantages of imposing a new certification requirement would outweigh any benefits.

The issue here arises because the Postal Service is exempt from the Truth in Negotiation Act (TINA), which requires that contractors provide cost or pricing data in certain circumstances. Instead of applying by statute, a similar requirement may be imposed by the Postal Service’s “Price Reduction for Defective Cost or Pricing Data” contract clause. But that clause applies only when the contractor has actually provided cost or pricing data. Filling out solicitation pricing forms or providing some cost information is not the same as providing cost or pricing data under TINA or the Postal Service’s contract clause. The latter is a much more expansive and formal submission that is accompanied by a contractor certification that the cost or pricing data submitted is accurate, complete, and current.

As a practical matter, many Postal Service solicitations ask offerors to provide their price proposal build-up on “J forms,” which break down the offeror’s price into various estimated cost components. Does the OIG consider this to be the provision of cost or pricing data?  Let’s hope not, because those pricing sheets contain no warning that the information is considered to be “cost or pricing data.”  

The OIG report itself fails the test of providing accurate, complete, and current information. First, the OIG inaccurately states that the Postal Service “de-regulated” its purchasing policies on May 19, 2005 based on a recommendation by the President’s Commission on the United States Postal Service. Wrong. The President’s Commission actually recommended that the Postal Service “revise its regulations” to maximize its flexibility and incorporate best commercial practices. The Commission never suggested “de-regulation.”  [Five months later, the Postal Service did issue revised procurement regulations. The Postal Service did not “de-regulate” its purchasing manual until another18 months later, and it simply downgraded its existing regulations into non-regulations.]

Second, OIG failed to provide complete information in its report on when cost and pricing data submissions are required under the Truth in Negotiation Act (TINA). The OIG report makes it seem as if every contractor proposal should be accompanied by the submission of certified cost and pricing data. In fact, the submission of cost and pricing data is a relatively infrequent event, because there are so many exemptions to the requirement. Under the Federal Acquisition Regulation (FAR), contracting officers are actually prohibited from obtaining cost or pricing data in at least six different scenarios. The most common exemption is when there has been adequate price competition (i.e., receipt of two or more offers). Exemptions also exist for the purchase of commercial items (including modified commercial items), where a waiver has been obtained, and exercise of a priced option.

Third, the OIG does not address the Postal Service’s current practice of seeking pricing data from offerors when it should not be doing so. For example, the Postal Service typically asks offerors to submit detailed price build-up data when they submit their price proposals – regardless of whether adequate price competition exists. If TINA applied to the Postal Service, and such informaton were considered cost and pricing data, this would be a violation. It’s not clear from the OIG report if any of the examples it cites of defective cost and pricing data arose in circumstances where the data should never have been requested in the first place.

See how hard it is to provide accurate, complete, and current information?  So put me down on Postal Service management’s side for this one. If the Postal Service were to require contractors to submit certified cost and pricing data, the Postal Service might get more information – but it would not get any better or more useful information. On the other hand, contractors would be subject to greater uncertainty, risk, and the possibility of costly investigations years later. So as a lawyer, I would benefit, and the OIG might find it easier to find contractor violations, but that’s about the only upside – and not much of one.

One of the difficulties inherent in OIG’s recommendation is that there is no hard and fast rule on what constitutes cost and pricing data. FAR 2.101 defines it to include “all facts that, as of the date of price agreement … prudent buyers and sellers would reasonably expect to affect price negotiations significantly. Cost or pricing data are factual, not judgmental; and are verifiable.”  While some types of data may clearly fit within this definition, it is not always clear what is factual and what is judgmental. Contractors would have to spend substantial time making sure their submissions cover every conceivable type of fact and cost. Not only will this slow the process down, but to be on the safe side, contractors will need to inundate the Postal Service with reams of irrelevant information. In turn, the Postal Service will need to waste time and resources sorting through the irrelevant information to get to the actually relevant material.

The Postal Service is right to object to the OIG’s recommendation due to the additional burden it would place on suppliers and the agency, with little to no tangible benefit. If the President’s Commission on the Postal Service were around today, it would probably agree with management as well, because it recommended employing commercial best practices. One of those best practices is to reduce the amount of risk and uncertainty that suppliers take on under a contract. The less risk that a supplier faces, the lower its price can be. Having the Postal Service enact TINA by administrative fiat would substantially increase that risk. The end result would be a lot more information exchanged, a lot more time consumed in the process, a lot fewer suppliers interested in participating, a lot more work for lawyers like me, and a lot higher prices. Let’s hope Postal Service management holds firm on this one.