Your contracting activity negotiated a $7,500,000 sole-source contract with the Williams Corporation about eight months ago. After the close of negotiations, Williams signed a Certificate of Current Cost or Pricing Data. During an audit for a follow-on contract, a Government technical expert identified an element that she suspects may be defective pricing. She has requested your assistance in determining the appropriate course of action.
Williams' proposal for 100 units of a $920 item was supported by three quotes as follows:
Holder Enterprises 100@ $1,230 $123,000 total
Minor Inc. 100@ $1,125 $112,500 total
Major Corporation 100@ $ 920 $123,000 total
After contract award, Williams sent an RFQ to two firms and received the following Quotes:
Woodson Inc. 100@ $105 $10,500 total
Greene Manufacturing 100@ $950 $95,000 total
The proposal never mentioned either Woodson Inc. or Greene Manufacturing.
Williams Corporation awarded the subcontract to Woodson Inc.
1. Is this defective Pricing?
2. What action should you take?
3. How much money is due the Government as a result of this situation?
1. Is this defective Pricing? Explain!
Defective pricing happens when the contract price which includes profit is increased by a significant amount. To read more on defective pricing, refer to http://www.acq.osd.mil/dpap/cpf/docs/contract_pricing_finance_guide/vol4_ch5.pdf. i find this document very informative.
Did Williams Corporation violated ...
When does defective pricing happen? What are the government remedies when there is defective pricing?