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Truth in Negotiations Act
Saturday, May 18, 2024

The Truth in Negotiations Act is a powerful fraud enforcement tool that every contractor, subcontractor, and employee should be cognizant of. Under certain circumstances, contractors with the federal government are compelled to provide full and complete price and cost information when submitting for bids. Failure to do so, or certifying inaccurate material at any point in the process can result in civil liability and the imposition of fines.

What is the Truth in Negotiations Act?

The Truth in Negotiations Act is a federal statute that governs contractors and subcontractors who submit for non-competitive bids with the government. The Truth in Negotiations Act has also been called the Defective Pricing Data Statute, the Defective Pricing Law, the Truth in Negotiations Statute and the Truth-in-Negotiating Certificate.

What is the Purpose of the Truth in Negotiations Act?

Imagine you’re remodeling a home in a new neighborhood, and you need help redoing a bathroom. You only talk to one contractor, who assures you the entire remodel can be done for $20,000. You hire him, pay him the money, and the job is completed to your satisfaction. But the next week after you’ve paid this contractor, you stop by the hardware store and see that the faucets he installed were only $20, the tiles were on clearance, and the cabinetry was actually a budget option. In total, the job can’t have cost the contractor more than $2,000 from start to finish, meaning that you paid an unreasonable additional $10,000, even once you include the cost of his labor.

It’s true, the job is done, but at an unnecessary cost to you.

The purpose of the Truth in Negotiations Act is to prevent the scenario above from taking place with the federal government. When government contractors do not have to compete against additional bidders for a job, they may be able to inflate prices and gouge the taxpayer for a job that can easily be done for less. The Truth in Negotiations Act is an attempt to create transparency and clarity so that the federal agency contracting for a project has a reasonable scale to refer to for how much it should cost to complete.

What is the History of the Truth in Negotiations Act?

Over time, there have been many notable instances of subcontractors and contractors scamming those who need their goods and services. The 1950s were infamous for tin men, or aluminum siding salesmen who ran a pyramid scheme convincing those who signed contracts with them to enroll others into buying the same siding. The 1950s were also an era of rampant Department of Defense fraud, leading to the term “tin man” to be applied to any contractor who makes promises they can’t keep, uses pushy sales techniques or scams their clients out of a job well done.

In 1962, as a response to this rampant contractor fraud, Congress passed the Truth in Negotiations Act (also known as TINA) to get a better hold on bleeding in the federal budget. The Truth in Negotiations Act created a slew of regulations around contractor bidding and price disclosure.

When it was first passed, TINA only applied to contracts with the Department of Defense, the Coast Guard, and NASA. In 1985 TINA was amended to cover a wider range of government procurement. Today, TINA applies to contractors and subcontractors who do business (including construction work) with the federal government. As of July 1, 2018, when a contract exceeds $2 million TINA price certification must be called into play. This is still the current Truth in Negotiations Act threshold to this day.

What is TINA Now Called?

Under the Federal Acquisitions Regulation, the Truth in Negotiations Act has been renamed, but is still in effect. The new name for the Truth in Negotiations Act is Truthful Cost or Pricing Data, 41 U.S.C. chapter 35. However, given the history of the act, many contractors and government fulfillment guidelines still refer to the requirements as TINA standards.

When Does the Truth in Negotiations Act Apply?

The Truth in Negotiations Act is one of the most important laws for contractors to follow when submitting for bids. However, not every bid is subject to TINA compliance. The Truth in Negotiations Act applies when contractors and subcontractors do not have adequate competition for a job with the federal government that involves over $2 million. The Truth in Negotiations Act applies to contractors negotiating for a sole source contract without any reachable market price.

What is the Truth in Negotiations Act Threshold?

Not every government contract needs to submit full price and data information. Only contracts that meet the TINA threshold need to do so. The Truth in Negotiations Act applies to both contracts and subcontracts that are worth more than $2 million.

However, not every initial contract for less than $2 million should disregard the requirements for the Truth in Negotiations Act. When modifications take place in a contract or subcontract and the total value of the modifications add up to more than $2 million, TINA regulations must be followed. Importantly, the trigger for TINA compliance is not the net change or final price of the job, but the total dollar change (additions and subtractions). If you receive a contract for $1.5 million that requires three additional modifications of $500,000 and a subtraction of $750,000, the total change for TINA purposes is $2.25 million. This job would be subject to defective pricing statutes.

What Are the Requirements for the Truth in Negotiations Act?

The Truth in Negotiations Act involves accurate and honest certification in several areas:

  1. Prices of any and all materials (with certain exceptions)
  2. Profit from contract
  3. Fees associated with the contract
  4. Costs reimbursable under the contract

All of these areas are subject to Truth in Negotiations Act requirements. Contractors and subcontractors must disclose this financial information in full to the government agency negotiating with them for the project, as well as update certification if any area should change.

Intent to defraud is not a factor in complying with TINA. Even honest mistakes must be reported in a timely manner in order to be in full compliance.

Truth in Negotiations Act FAR Clause

In government contracting, FAR stands for Federal Acquisition Regulation. The FAR Clause is the primary regulation in use for all suppliers and services that contract with the federal government. FAR compliance standards are issued jointly by the Department of Defense (DoD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA).

The FAR Clause in the Truth in Negotiations Act applies to contracts with supplies that are commonly available to the general public. Items that are typically used by nongovernmental entities for nongovernmental purposes are governed by the FAR Clause.

Truth in Negotiations Act Exemptions

The Truth in Negotiations Act does not apply to every bid. There are four main exceptions that contractors can qualify for in order to avoid TINA compliance. They are:

  1. Bids that receive adequate price competition do not need to submit or certify full cost and pricing information. The assumption in this case is that other competitive bidders will provide accurate context for the cost of the job and materials.
  2. Bids for contracts where prices are regulated by law, such as utilities and certain infrastructure proposals, do not need to submit for TINA certification. In these cases, because prices are already fixed, there is understood to be no opportunity for contractors to take advantage of the federal government by upcharging for materials.
  3. Contracts comprised solely of commercial items are exempt from TINA. When contract acquisitions qualify for the definition of FAR commercial items, they do not need to be listed with their cost and pricing data. FAR commercial items mean materials and objects that are commonly used by and available to the general public. The intent of excluding these items is because commercial use materials already have a relevant and easily accessible market price.
  4. When the head of contracting or relevant official has waived TINA for procurement, and the request has been granted due to exceptional circumstances.

Additionally, subcontractors are exempt from TINA requirements once the main contract has qualified for one of the previous exceptions, unless the method used is a TINA waiver. When the initial contract has qualified for a TINA waiver due to extreme circumstances, the subcontractor(s) involved must make a case for their own waiver or qualify for one of the other reasons not to submit for certification.

Truth in Negotiations Act Violations

A Truth in Negotiations Act violation might also be called defective pricing. Violations include:

  • Upcharging the federal government for costs of materials
  • Miscertifying costs
  • Furnishing incomplete information
  • Submitting out of date pricing data
  • Failing to disclose changing costs, especially price and cost reductions
  • Hiring subcontractors who fail to comply with any area of TINA

Truth in Negotiations Act Contractual Violation

A contractual violation of TINA compliance might involve a contractor who fails to disclose that the price of a non-consumer good involved in the project has dropped. Where their initial assessment included $100,000 in materials cost, the job will now cost $80,000 in materials. If the contractor pockets the extra $20,000 by failing to correctly disclose this change, they have violated their contract with the federal government. This is regardless of the fact that their initial TINA certification was correct, with accurate pricing submitted at the time of the bid. TINA applies both during the solicitations period, as well as throughout contract performance.

Truth in Negotiations Act Penalties

Failure to disclose full, accurate, and honest information about pricing in a government contract governed by TINA is subject to financial penalties and legal consequences. The government may seek to recover the amount that they have overpaid once the matter comes to light. The contract price may be adjusted downwards with interest, and additional liability may also apply.

False certifications can be reported by whistleblowers under the False Claims Act, which imposes treble liability per violation. This means that for each false claim knowingly made to the government, on separate occasions, the contractor in violation of TINA may be held liable for up to treble damages, plus additional penalties linked to the rate of inflation.

Truth in Negotiations Act Remedies

If you work for a contractor or subcontractor with the federal government and you know about pricing or cost adjustment on a non-competitive bid involving at least $2 million in cost or total change, report it at once. With voluntary disclosure around unintentional false certification, additional False Claims Act penalties may not apply. While contract pricing may still be adjusted downwards, you may able to remedy the situation before additional financial liability is assessed.

Blowing the Whistle on Truth in Negotiations Act Fraud

If you work for a contractor or subcontractor with a federal government entity and you suspect willful or ongoing false certifications and defective pricing is taking place, speak to a TINA attorney today. Blowing the whistle saves taxpayer money and stops dishonest contractors from being rewarded by the system. Speaking up is the right thing to do, both professionally as well as personally. You may be eligible to receive legal protections against employer retaliation, as well as a whistleblower reward for your information in the event of a successful settlement.

Rewards for Truth in Negotiations Act Whistleblowers

Under the qui tam provisions of the False Claims Act, whistleblowers who are the first to report unique, previously undisclosed evidence of fraud and false certifications to the federal government are eligible for anywhere from 15 to 30% of the total recovery once the case is settled.

Some important factors for TINA whistleblower rewards include:

  • You do not have to be a US citizen to blow the whistle and receive a reward from the settlement.
  • You can be implicated in the scam and still be eligible to receive a percentage of the recovery, although your reward percentage will be reduced.
  • Your reward percentage increases with early, immediate compliance and voluntary disclosure of fraud.
  • The statute of limitations (meaning the last day you can report fraud) is six years from when the government official in charge of TINA enforcement for the project either knew or should have known about the defective pricing event.
  • Working with a qui tam attorney can help ensure that any and all evidence you provide to support your claim is taken with legal consultation. Your whistleblower attorney will help you build your case and advocate for you to receive the highest possible reward for your honesty.

Are Truth in Negotiations Act Whistleblowers Protected?

TINA whistleblowers who report under the False Claims Act are protected by some of the most powerful whistleblower protections in federal law today. Under the False Claims Act, TINA whistleblowers are eligible to sue for any of the following remedies if they experience an adverse effect in their employment related to their protected disclosure:

  • Reinstatement in full
  • Double back pay, with interest
  • Front pay, in cases where reinstatement is not possible
  • Legal fees and expenses
  • Damages

If you experience any of the following as a whistleblower reporting under the False Claims Act, speak to a whistleblower lawyer today:

  • Harassment
  • Discrimination
  • Reduction of pay
  • Reduction of hours
  • Change of job site
  • Demotion
  • Being passed over for promotion or advancement opportunities
  • Suspension
  • Firing

Truth in Negotiations Act: FAQs

Contractors are experts in getting complicated, specialized work done. As one of the nation’s premier law firmsspecializing in fraud cases and qui tam law, we relate. Here are some of the most frequently asked questions about the Truth in Negotiations Act, as answered by our team. If you have additional questions about the specifics of your case, contact us today.

What is defective pricing?

Defective pricing is a violation of TINA. Defective pricing involves overcharging the federal government for costs, materials, and reimbursements associated with completing a project. Defective pricing guardrails like TINA apply whenever a project is a sole source contract, meaning there market competition does not exist to help naturally set prices for a job.

Are small businesses exempt from TINA?

Federal Acquisition Regulation (FAR) 15.403-1(b) provides some relief for small businesses, for whom TINA compliance can place an undue burden. In contracts, subcontracts, and contract modifications that are valued at less than $7.5 million, an exception to TINA may be made if the contractor or subcontractor is a small business or nontraditional defense contractor that is part of any of the following:

  • A technical, merit-based selection procedure, such as a broad agency announcement
  • The Small Business Innovation Research Program
  • The Small Business Technology Transfer Program

Defective pricing audits can be an additional expense for a small business, and in many cases, their project bids may not meet the TINA threshold of $2 million. However, FAR regulation also carves out this additional exception for other small businesses contracting with the Department of Defense.

Does TINA apply to competitive proposals?

No, TINA does not apply to competitive proposals. Only sole source contracts are subject to TINA. Having other bids available in a competitive market should allow for more transparency around price and cost from start to finish.

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