10 U.S.C. § 3706 (ARMED FORCES)
§ 3706. Price reductions for defective cost or pricing data
(a) Provision Requiring Adjustment.—
(1) In general.—
A prime contract (or change or modification to a prime contract) under which a certificate under section 3702(b) of this title is required shall contain a provision that the price of the contract to the United States, including profit or fee, shall be adjusted to exclude any significant amount by which it may be determined by the head of the agency that such price was increased because the contractor (or any subcontractor required to make available such a certificate) submitted defective cost or pricing data.
(2) What constitutes defective cost or pricing data.—
For the purposes of this chapter, defective cost or pricing data are cost or pricing data which, as of the date of agreement on the price of the contract (or another date agreed upon between the parties), were inaccurate, incomplete, or noncurrent. If for purposes of the preceding sentence the parties agree upon a date other than the date of agreement on the price of the contract, the date agreed upon by the parties shall be as close to the date of agreement on the price of the contract as is practicable.
(b) Valid Defense.—
In determining for purposes of a contract price adjustment under a contract provision required by subsection (a) whether, and to what extent, a contract price was increased because the contractor (or a subcontractor) submitted defective cost or pricing data, it shall be a defense that the United States did not rely on the defective data submitted by the contractor or subcontractor.
(c) Invalid Defenses.—
It is not a defense to an adjustment of the price of a contract under a contract provision required by subsection (a) that—
(1) the price of the contract would not have been modified even if accurate, complete, and current cost or pricing data had been submitted by the contractor or subcontractor because the contractor or subcontractor—
(A) was the sole source of the property or services procured; or
(B) otherwise was in a superior bargaining position with respect to the property or services procured;
(2) the contracting officer should have known that the cost and 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;
(3) the contract was based on an agreement between the contractor and the United States about the total cost of the contract and there was no agreement about the cost of each item procured under such contract; or
(4) the prime contractor or subcontractor did not submit a certification of cost and pricing data relating to the contract as required under section 3702(b) of this title.
(d) Offsets.—
(1) When allowed.—
A contractor shall be allowed to offset an amount against the amount of a contract price adjustment under a contract provision required by subsection (a) if—
(A) the contractor certifies to the contracting officer (or to a designated representative of the contracting officer) that, to the best of the contractor’s knowledge and belief, the contractor is entitled to the offset; and
(B) the contractor proves that the cost or pricing data were available before the date of agreement on the price of the contract (or price of the modification) or, if applicable consistent with subsection (a)(2), another date agreed upon between the parties, and that the data were not submitted as specified in section 3702(c) of this title before such date.
(2) A contractor shall not be allowed to offset an amount otherwise authorized to be offset under paragraph (1) if—
(A) the certification under section 3702(b) of this title with respect to the cost or pricing data involved was known to be false when signed; or
(B) the United States proves that, had the cost or pricing data referred to in paragraph (1)(B) been submitted to the United States before the date of agreement on the price of the contract (or price of the modification) or, if applicable consistent with subsection (a)(2), another date agreed upon between the parties, the submission of such cost or pricing data would not have resulted in an increase in that price in the amount to be offset.