What regulation or policy governs reducing a requirement to avoid the TINA or subcontracting plan thresholds?
A Contracting Officer should not be reducing a requirement to stay below the Truth in Negotiations Act (TINA) threshold. The only one reducing a requirement should be the requiring activity because they do not need the larger requirement or they do not have the money for the larger requirement. The purpose of TINA and requiring contractors to provide certified cost or pricing data in noncompetitive situations is to put the Government on a level playing field with the contractor since there is not competition to control the price. The Truth in Negotiations Act is a law and if the contract value is above the TINA threshold, certification of cost or pricing data is required unless an exemption applies.
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I am not aware of anywhere in the FAR where it specifically says a requirement cannot be reduced to stay under the (TINA) threshold, however, splitting requirements to stay under thresholds is not allowed. In the situation you had if they later contracted for the quantity that it was reduced by, this would be splitting the requirement and would be wrong , see FAR 13.003(c)(2)(ii) You cannot split a requirement to “avoid” something required by law, in this case the Truth in Negotiations Act. In your situation the Contracting Officer basically reduced the requirement to avoid a law, which is not appropriate.
In general reducing the requirement to stay under the threshold would not be a wise business decision for the Government. You would be allowing the contractor to dictate how things are to be done and not following a law set up to protect the Government and the tax payer.
Recommend you speak with your legal department for their interpretation.