TheDefectiveSubcontractorDataProblem

Acontractingofficerawardedasolesource, non-commercial,firm-fixed-priceservice contractwithaone-year periodofperformanceforapriceof$10,000,000.Thecontractor submittedcertifiedcostorpricing datawithitsproposal,includingcertifiedcostorpricingdata it receivedfromaprospectivesubcontractor.Thecontractingofficer performedacostanalysis priortonegotiatingprice.Relying onthecertifiedcostorpricingdatasubmittedbythe contractor,includingthecertifiedcostorpricing datasubmittedbytheprospective subcontractor, she reached agreement on total price, not on individual elements of cost, anddetermined the price to be fair and reasonable. The contract contained the clause at FAR 52.215-10, "Price Reduction for Defective Certified Cost or Pricing Data (AUG 2011)."

The prospective subcontractor's proposed price was $2,220,000. The prime included that entire amount in its proposal. The prime did not negotiate with the prospective subcontractor before awardofthe prime contract, planning instead to negotiatethe subcontractprice afterit knew what price it would get from the government. But, after contract award the contractor decided to do the work itself instead of negotiating and awarding a subcontract. (Note: This was not improper.) The workcost the contractor $1,960,200, includingthe contractor's G&A (10%) and profit (10%).

The contractor completed the job acceptably. There were no changes, equitable adjustments, or claims. The government paid the contractor $10,000,000. After payment, the Government's contract audit office discovered that the prospective subcontractor's certified costorpricingdatahadbeendefectiveasofthedateofpriceagreementandthattheprospective subcontractor had intentionally submitted the defective data to the contractor. However, the contractor did not know that the prospective subcontractor's data were defective. The auditor believed that the defective certified cost or pricing data had caused the contracting officer to agree to a contract price that was $237,000 higher than she would have agreed to had the prospective subcontractor's certified cost or pricing data not been defective. The contracting officer agreed with the auditor's findings.

Questionsforthecontractingofficer:

1. Pursuanttothetextofthepricereductionclause, bywhatdollaramountshould the contracting officer reduce the contract price, excluding any interest and penalty?You must show how you derived your answer from specific wordsin the clause and on what words you relied."Common sense" or "it's obvious" are not acceptable justifications without reference to specific wordsin the contract clause. Explain how you calculated the amount and show any arithmetic.$0.00 is a permissible answer.

Should youseekthepaymentofinterest?Yesorno?

Shouldyouseekpayment ofapenalty?Yesorno?