TINA Interest Calculations (FAR Case 2008-034)

Summary:

FAC 2005-53 includes a final rule amending the Federal Acquisition Regulation (FAR) ) to revise the FAR clauses on price reduction for defective pricing to require compound interest calculations be applied to Government overpayments as a result of defective cost or pricing data.

Supplementary Information:

I. Background

On September 14, 2009, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued a decision regarding the method of interest calculation on Cost Accounting Standards (CAS) cost impacts (see GATES v. Raytheon Co., 584 F.3d 1062 (Fed. Cir. 2009)). The interest on CAS cost impacts is set by reference in the enabling statute to 26 U.S.C. 6621. The CAFC ruled that the citation led to calculation of the interest using daily compounding. The Truth in Negotiation Act (TINA) also references 26 U.S.C. 6621 for interest calculation. (See 41 U.S.C. 3507 and 10 U.S.C. 2306a).

A proposed rule was published on September 22, 2010, (75 FR 57719) with regard to the application of compound interest calculations to Government overpayments as a result of defective cost or pricing data. This rule replaces the term "simple interest" as the requirement for calculating interest for Truth in Negotiations Act cost impacts with the phrase "Interest compounded daily as required by 26 U.S.C. 6622." Thus, compound interest calculations will be applied to Government overpayments as a result of defective cost or pricing data. DoD, GSA, and NASA received no comments on the proposed rule.

Dates:

The Effective Date for this final rule is 4 August 2011.

Click here to read the entire Federal Register notice for this rule.