Contract and procurement fraud
Defective Pricing Schemes in Negotiated Contracts
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| Defective Pricing Schemes in Negotiated Contracts
Defective pricing arises when contractors intentionally use inaccurate cost or pricing data to inflate costs in negotiated contracts (i.e., the contracting method that permits negotiations between the procuring entity and prospective contractors). Defective pricing schemes are more limited than other forms of procurement fraud because they primarily occur in negotiated contracts. Typically, procuring entities use negotiated contracting when conditions are not appropriate for competitive, sealed bidding. Generally, when engaging in negotiated contracting, contractors submit cost or pricing data. Examples of cost or pricing data include information such as vendor quotes or bids, make/buy decisions, known upcoming production changes, already bargained for discounts, and so on. In negotiated contracts, contractors can submit defective pricing data when more current, complete, or accurate data exists, resulting in an inflated contract price. However, it should be noted that not every instance of defective pricing is the result of the contractor’s fraudulent behaviour. In fact, defective data might be submitted for various non-fraudulent reasons, such as negligence, accident, incompetence, and so on. Methods of Defective Pricing A contractor can use various defective pricing schemes to increase the cost of the contract and thereby its profits, but generally, defective pricing schemes involve inflated labour costs or inflated material costs. A contractor can inflate labour costs by: Using outdated cost schedules Using lower-rate personnel to perform work at higher rates Using salaried personnel to perform uncompensated overtime Failing to account for learning-curve cost reductions Subcontracting to affiliated companies at inflated rates Download 0.62 Mb. Share with your friends:
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