Defective Pricing Audit

Scope

Examines whether all cost or pricing data available to the contractor as of the date of price agreement was disclosed to the government. Reviews labor rates, material costs, vendor quotes, make-or-buy decisions, learning curve assumptions, and indirect rates to identify data that existed but was not provided during negotiations.

Frequency

Conducted selectively based on risk assessment, typically within 3 years of contract award or modification. Higher likelihood for large-dollar sole-source contracts, significant price increases, or when other audit findings suggest potential data integrity issues. Not applicable to contracts awarded through adequate price competition or under the TINA threshold.

What to Expect

Auditors reconstruct the pricing data that existed at the time of negotiation and compare it with data actually provided. They review email records, purchasing files, engineering estimates, subcontractor proposals, and other records to identify undisclosed data. If defective pricing is found, the government seeks a price reduction plus interest. Can result in False Claims Act referral for intentional defects.

Key Documents

• Certificate of Current Cost or Pricing Data
• Contract pricing proposal (SF 1411 or equivalent)
• Subcontractor and vendor quotations
• Make-or-buy program documentation
• Engineering estimates and cost models
• Pre-negotiation and price negotiation memoranda

Other post-award Audits

Other DCAA Audit Types