Violations of The Truth-In-Negotiations Act

Defense Contractors and the Truth-in-Negotiations Act

When the government wants to purchase highly specialized weapons or other military equipment, it often is limited to one defense contractor because of the specialized need or the expertise of that contractor.  The problem with purchasing from a single source contractor is that the government does not know if it is paying a fair price, because other competitors are not bidding for the work.  The Truth-in-Negotiations Act, enacted in 1962, attempts to resolve this problem by requiring single source defense contractors to disclose all factual information about their costs to the government.

Despite the Truth-in-Negotiations Act’s requirements (which are meant to protect the government from defective pricing), defense contractors sometimes conceal relevant information (such as discounts given to others in similar cases), or deliberately inflate their projected costs to get a higher price.  For example, a company might under-report its costs in order to win the contract bid and then rely on receiving “change orders” to increase the value of the contract.  The contractor might also overstate its historical costs so that it can fraudulently charge more under the contract.  Defense contractors that submit false cost and pricing data or fail to provide accurate cost information to intentionally inflate costs to increase profits can be liable for violating the Truth-in-Negotiations Act and result in an action arising under the False Claims Act.

The Truth-in-Negotiations Act and the Procurement Process

The means by which the government purchases a product or service is known as the procurement process.  There are three methods used to purchase goods or services:  (1) competitive or advertised bidding, (2) competitive proposals/negotiations, and (3) sole source procurement.  Depending on the method used, the procurement process may be governed by the Truth-in-Negotiations Act.  The Truth-in-Negotiations Act requires that contractors and sub-contractors provide the government with current, good faith estimates of the costs to perform contracts.  These estimates must be certified to be accurate, current, and complete as of the date of agreement on price.

The government uses various methods to purchase goods or services. Competitive or advertised bidding is used when the government has exact specifications of the product or service required.  There is no negotiation between the government and the responding bidders.  By bidding on the contract, the contractor agrees to all conditions that have been specified by the government.

Competitive negotiation, also referred to as competitive proposals, is used when the government has an idea for a product or service, but lacks the resources to develop the specifications and costs for the product or service.  As a result, contractors are given a degree of liberty in the development of the procurement proposal, as well as an opportunity to persuade the government into paying a higher price.

Sole source procurement is used when the government contacts the contractor it wants to supply the product or service.  The contracting agency must warrant that sole source contracts are the best and/or only way to acquire the quality goods and services needed in a timely fashion.

Defense contractor fraud remains one of the most active areas of litigation under the False Claims Act.  The government has recovered billions of dollars from defense contractors, largely as a result of qui tam/whistleblower plaintiffs acting under the False Claims Act.  If you are aware of a defense contractor violating the Truth-in-Negotiations Act and would like to blow the whistle on that defense contractor, contact Michael S. Bigin or Laurence J. Hasson, to discuss your legal options.