FAR 52.214-27—Price Reduction for Defective Certified Cost or Pricing Data-Modifications-Sealed Bidding.
Plain-English Summary
FAR 52.214-27 is the sealed-bidding version of the defective certified cost or pricing data price-reduction clause for contract modifications. It explains when the clause becomes operative, what happens if a negotiated modification price was increased because the contractor, a subcontractor, or a prospective subcontractor submitted certified cost or pricing data that were not complete, accurate, and current, and how the Government can reduce the contract price to remove the effect of the defect. The clause also addresses special limits for defective data from a prospective subcontractor that was not ultimately awarded the subcontract, and it sets out defenses the contractor may not raise once the Contracting Officer determines a reduction is due. In addition, it allows limited offsets when the contractor can prove omitted but available data should have been considered, and it imposes repayment obligations, including daily compounded interest and a possible penalty, if the Government has already paid amounts later found to be overstated. In practice, this clause is a major pricing integrity safeguard for post-award modifications under sealed-bid contracts, and it creates strong incentives for contractors to submit complete, accurate, and current data and to maintain disciplined pricing records for both prime and subcontractor inputs.
Key Rules
Operative only above threshold
The clause applies only to modifications involving aggregate increases and/or decreases in cost plus applicable profit that are expected to exceed the FAR 15.403-4 certified cost or pricing data threshold on the date the modification is executed. It does not apply if an exception under FAR 15.403-1(b) applies.
Price reduction for defective data
If a negotiated modification price was increased by a significant amount because certified cost or pricing data were not complete, accurate, and current, the contract price must be reduced accordingly. This applies to defective data from the contractor, a subcontractor, or a prospective subcontractor, and the contract must be modified to reflect the reduction.
Limited rule for prospective subcontractors
When the defect comes from a prospective subcontractor that was not ultimately awarded the subcontract, the reduction is limited to the difference between the prospective estimate and the actual subcontract price or the contractor’s actual cost, plus applicable overhead and profit markup, so long as the actual subcontract price was not itself affected by defective certified cost or pricing data.
No specified defenses
The contractor may not defend against a reduction by arguing that it was a sole source, had superior bargaining power, the contracting officer should have known the data were defective, the contract was based on total cost rather than item-by-item pricing, or no Certificate of Current Cost or Pricing Data was submitted. These arguments do not bar the Government’s right to a reduction.
Offsets may be allowed
The contracting officer may allow an offset against the reduction if the contractor certifies entitlement to the offset and proves the omitted certified cost or pricing data were available before agreement on price but were not submitted. Offsets are not allowed if the contractor knew the data were understated when the certificate was signed, or if the Government proves the price would not have increased even if the data had been submitted.
Repayment, interest, and penalty
If the price reduction affects items already paid for before the modification, the contractor must repay the overpayment. The contractor also owes daily compounded interest from the date of overpayment until repayment, and a penalty equal to the overpayment if the contractor or subcontractor knowingly submitted incomplete, inaccurate, or noncurrent certified cost or pricing data.
Responsibilities
Contracting Officer
Determine whether the modification meets the clause’s threshold and whether an exception applies; evaluate whether defective certified cost or pricing data increased the negotiated price; calculate and document the appropriate reduction; decide whether an offset is appropriate based on the facts; and ensure the contract is modified to reflect any reduction and repayment terms.
Contractor
Submit complete, accurate, and current certified cost or pricing data for covered modifications; flow down and verify the quality of subcontractor and prospective subcontractor data; certify current cost or pricing data as required; repay any overpayment resulting from a later price reduction; and, if seeking an offset, certify entitlement and prove the omitted data were available before price agreement.
Subcontractor
Provide certified cost or pricing data that are complete, accurate, and current when required; avoid supplying defective data that could affect the prime contract modification price; and support the prime contractor’s pricing submissions with reliable, timely information.
Prospective Subcontractor
Provide accurate and current pricing data when its estimate is used in the prime contractor’s proposal for a modification; understand that defective data can still trigger a reduction even if the subcontract is never awarded, subject to the clause’s special limitation.
Government
Protect the public fisc by identifying defective data, enforcing price reductions, collecting overpayments, assessing interest and any applicable penalty, and rejecting defenses that the clause expressly bars.
Practical Implications
This clause matters most during post-award negotiations for modifications, where pricing changes can be large enough to trigger certified cost or pricing data requirements. Contractors should treat every modification proposal like a mini-pricing submission and keep audit-ready support for labor, materials, subcontractor quotes, and assumptions.
A common pitfall is relying on subcontractor or supplier information without confirming it is current and complete at the time of agreement on price. If the data later prove defective, the prime contractor can still face a reduction even when the error originated downstream.
Contractors should not assume that the Government’s awareness of a problem, or the fact that the contract was negotiated as a lump sum, will protect them. The clause expressly removes several common defenses, so documentation quality is critical.
Offsets can reduce exposure, but only when the contractor can prove the omitted data were available before price agreement and were not knowingly understated. In practice, offsets are evidence-driven and often narrower than contractors expect.
If the Government has already paid the higher amount, the contractor may owe not just the overpayment but also daily compounded interest and, in knowing cases, a penalty equal to the overpayment. That makes prompt internal review and voluntary correction important when pricing errors are discovered.
Official Regulatory Text
As prescribed in 14.201-7 (b) , insert the following clause: Price Reduction for Defective Certified Cost or Pricing Data-Modifications-Sealed Bidding (Jun 2020) (a) This clause shall become operative only for any modification to this contract involving aggregate increases and/or decreases in costs, plus applicable profits, expected to exceed the threshold for the submission of certified cost or pricing data in Federal Acquisition Regulation (FAR) 15.403-4 (a)(1) on the date of execution of the modification, except that this clause does not apply to a modification if an exception under FAR 15.403-1 (b) applies. (b) If any price, including profit, negotiated in connection with any modification under this clause, was increased by any significant amount because (1) the Contractor or a subcontractor furnished certified cost or pricing data that were not complete, accurate, and current as certified in its Certificate of Current Cost or Pricing Data, (2)a subcontractor or prospective subcontractor furnished the Contractor certified cost or pricing data that were not complete, accurate, and current as certified in the Contractor’s Certificate of Current Cost or Pricing Data, or (3) any of these parties furnished data of any description that were not accurate, the price shall be reduced accordingly and the contract shall be modified to reflect the reduction. This right to a price reduction is limited to that resulting from defects in data relating to modifications for which this clause becomes operative under paragraph (a) of this clause (c) Any reduction in the contract price under paragraph (b) of this clause due to defective data from a prospective subcontractor that was not subsequently awarded the subcontract shall be limited to the amount, plus applicable overhead and profit markup, by which (1) the actual subcontract or (2) the actual cost to the Contractor, if there was no subcontract, was less than the prospective subcontract cost estimate submitted by the Contractor; provided, that the actual subcontract price was not itself affected by defective certified cost or pricing data. (d) (1) If the Contracting Officer determines under paragraph (b) of this clause that a price or cost reduction should be made, the Contractor agrees not to raise the following matters as a defense: (i) The Contractor or subcontractor was a sole source supplier or otherwise was in a superior bargaining position and thus the price of the contract would not have been modified even if accurate, complete, and current certified cost or pricing data had been submitted. (ii) The Contracting Officer should have known that the certified cost or pricing data in issue were defective even though the Contractor or subcontractor took no affirmative action to bring the character of the data to the attention of the Contracting Officer. (iii) The contract was based on an agreement about the total cost of the contract and there was no agreement about the cost of each item procured under the contract. (iv) The Contractor or subcontractor did not submit a Certificate of Current Cost or Pricing Data. (2) (i) Except as prohibited by subdivision (d)(2)(ii) of this clause, an offset in an amount determined appropriate by the Contracting Officer based upon the facts shall be allowed against the amount of a contract price reduction if- (A) The Contractor certifies to the Contracting Officer that, to the best of the Contractor’s knowledge and belief, the Contractor is entitled to the offset in the amount requested; and (B) The Contractor proves that the certified cost or pricing data were available before the date of agreement on the price of the contract (or price of the modification) and that the data were not submitted before such date. (ii) An offset shall not be allowed if- (A) The understated data was known by the Contractor to be understated when the Certificate of Current Cost or Pricing Data was signed; or (B) The Government proves that the facts demonstrate that the contract price would not have increased in the amount to be offset even if the available data had been submitted before the date of agreement on price. (e) If any reduction in the contract price under this clause reduces the price of items for which payment was made prior to the date of the modification reflecting the price reduction, the Contractor shall be liable to and shall pay the United States at the time such overpayment is repaid- (1) Interest compounded daily, as required by 26U.S.C.6622 , the amount of such overpayment to be computed from the date(s) of overpayment to the Contractor to the date the Government is repaid by the Contractor at the applicable underpayment rate effective for each quarter prescribed by the Secretary of the Treasury under 26 U.S.C. 6621(a)(2) ; and (2) A penalty equal to the amount of the overpayment, if the Contractor or subcontractor knowingly submitted certified cost or pricing data which were incomplete, inaccurate, or noncurrent. (End of clause)