## Facts

- In 1979, Honeywell Federal Systems, Inc. (HFS) supplied commercial computers and spare parts for the U.S. Army’s DAS‑3 mobile data-processing units under a subcontract with Management & Technical Services Company (GE/MATSCO).
- The Army later decided to obtain DAS‑3 spare parts directly from HFS and negotiated a Basic Ordering Agreement (BOA), No. DAAB07‑81‑G‑6156, to support Army ordering of those parts.
- During BOA negotiations, HFS requested an exception from the Truth in Negotiations Act (TINA) requirement to submit certified cost-or-pricing data, asserting the spare parts were qualifying commercial items.
- HFS supported its commercial-item position by pointing to (1) an existing General Services Administration (GSA) contract under which government agencies could purchase the same spare parts and (2) HFS’s Master Parts Price List, which listed the parts and was incorporated into the GSA contract.
- Although HFS generally provided spare parts to commercial customers through computer maintenance contracts (rather than by frequent standalone part sales), HFS represented that the spare parts were listed and priced according to the Master Parts Price List.
- The Army contracting officer (CO) requested an audit from the Defense Contract Audit Agency (DCAA) regarding HFS’s request for a TINA exception.
- DCAA recommended against granting the exception, stating that HFS had not provided sufficient sales data to support the pricing as commercial.
- Despite DCAA’s recommendation, the CO granted the exception and awarded the BOA after concluding that HFS charged commercial and government customers the same prices.
- In 1985, in connection with renewal activity for the BOA, a Department of Defense (DoD) investigation concluded HFS’s spare-part prices were “defective” because they were unrelated to HFS’s production costs.
- The Army issued a contracting officer’s final decision demanding that HFS reimburse the Army $10.5 million, asserting the CO lacked authority to grant the TINA exception.
- HFS appealed the final decision to the Armed Services Board of Contract Appeals (ASBCA).

## Issues

1. Whether the Army’s contracting officer had authority to grant a TINA commercial-item exception for the DAS‑3 spare parts under BOA No. DAAB07‑81‑G‑6156.
2. Whether the Army could recover $10.5 million by treating the BOA prices as “defective” based on a later conclusion that the prices were not tied to HFS’s production costs, after the CO had granted a TINA commercial-item exception.

## Decision

- The ASBCA sustained HFS’s appeal.
- The Board rejected the Army’s $10.5 million repayment demand.
- The Board held that the CO’s commercial-item exception determination controlled the procurement and could not be set aside years later simply because later reviewers believed the prices should have been justified by production costs.
- The Board concluded that, with a valid TINA exception in place, the government could not reframe the dispute as defective pricing based on a cost-based reasonableness theory.

## Legal Principles

- TINA requires certified cost-or-pricing data for negotiated procurements unless an exception applies, including an exception for qualifying commercial items.
- A contracting officer may grant a TINA commercial-item exception based on commerciality evidence such as established catalog or list pricing and proof of consistent pricing to commercial and government customers; an auditor’s recommendation is advisory and does not control the CO’s determination.
- Commercial-item pricing is not required to track a contractor’s production costs; market pricing and established list prices can be a lawful basis for price agreement when a commercial-item exception applies.
- When the government grants a valid TINA exception, it generally cannot later obtain a TINA defective-pricing remedy by asserting that the contractor should have provided cost-or-pricing data or that the agreed price was “defective” because it was not cost-based.
- A government claim seeking repayment after award must rest on a valid legal basis consistent with the contract’s pricing framework and the CO’s authorized determinations made at award.

## Conclusion

In *Appeal of Honeywell Federal Systems, Inc., No. DAAB07-81-G-6156 (1992)*, the ASBCA sustained Honeywell’s appeal from the Army’s $10.5 million final decision, where the Army tried to recoup amounts paid for DAS‑3 spare parts after a later DoD investigation attacked the commercial-item pricing as unrelated to production costs; the Board held the contracting officer’s TINA commercial-item exception determination governed and the Army could not retroactively convert that procurement into a defective-pricing case.
