Truth in Negotiations Act: Getting the Incentives Right

The Truth In Negotiations Act TINA is a contracting statute that has been put into place in order to protect the Department of Defense s funds by mandating that contractors provide certified cost or pricing data. When cost estimates exceed the TINA threshold 700,000, and when all other means of negotiating fair and reasonable pricing are not available, TINA ensures that a fair and reasonable price can be determined from the contractor submitted data. Despite its good intentions, TINA remains controversial. Supporters of TINA argue that certified cost or pricing data protects the government s funding if a later audit shows pricing deviations, the U.S. government can charge contractors penalties and recoup funds if necessary. Critics of TINA, however, argue that TINA does not provide the right incentives to contractors to induce their best efforts. In fact, with certain types of contracts on the contract type spectrum, the contractor and the government both may benefit if TINA provisions are modified to allow for flexibility with certified cost or pricing data. This study proposes to evaluate TINA from an economic view, with a contracting emphasis on investigating incentives that are generated under TINA.