Contract Pricing: Threshold for Analysis of Subcontract Proposals Not Clear

Within the DOD procurement community, officials identify two different dollar thresholds as being applicable to the FAR requirement that prime contractors analyze cost or pricing data from prospective subcontractors before an agreement is reached on the prime contract price. Some procurement officials interpret the FAR as requiring such analysis if the prospective subcontract is expected to exceed the threshold for submitting data under the Truth in Negotiations Act P.L. 87-653, as amended, currently 500,000. Other officials cite another FAR section on prospective subcontracts to justify a higher threshold of 1 million or both more than 500,000 and then 10 percent of the prime contract value. These different interpretations could result in the government not receiving analyses needed to establish fair and reasonable contract prices or in contractors being burdened with analyses of subcontract proposals not required by the government. In the short term, clarifying the FAR section on analyses could eliminate confusion as to the threshold at which prime contractors are required to analyze prospective subcontractor cost or pricing data. For the long term, determining the effects of potential thresholds for analysis of such data could be done in conjunction with the congressionally mandated DOD Inspector General review of the effect of the threshold change in the Truth in Negotiations Act.