Pricing Government Contracts:
Fair and Reasonable or Most Favored Customer?
Presented By:
William A. Shook, Esq.
June 15, 2006
Statutory/Regulatory Standard
 FAR 15.402
“Contracting officers must—(a) Purchase supplies and
services from responsible sources at fair and reasonable
prices.”
 GSAR 538.270
(a) The Government will seek to obtain the offeror's best
price (the best price given to the most favored customer).
However, the Government recognizes that the terms and
conditions of commercial sales vary and there may be
legitimate reasons why the best price is not achieved.
Fair and Reasonable – Methods To Establish
 Cost or Pricing Data
 Truth in Negotiations Act (TINA)
 10 USC 2306a and 41 USC 254b
 Certified as Current, Accurate, and Complete
 Definition – FAR 2.101
 Information Other Than Cost or Pricing Data
 Accurate only
 Definition – FAR 2.101
Exceptions to Cost or Pricing Data
 Contracts under Simplified Acquisition Threshold
($100,000)
 Adequate Price Competition
 Commercial Items (Products and Services)
 Prices Set By Law or Regulation
 Waivers
Adequate Price Competition
 FAR 15.403-1(c)
 Two or more independent, responsible offers
 Price a “substantial” factor in best value award
 No finding of price unreasonableness
 Approved at level of contracting officer
 Only one offer received
 Offer submitted with expectation of competition
 Approved at level of contracting officer
 Price Analysis demonstrates price is fair and
reasonable
Commercial Item
 Definition – FAR 2.101
 Products
 Of a type customarily used by general public for non-governmental
purposes and offered for sale, lease or license
 Minor modifications
 Newly developed products
 Services
 Installation, maintenance, repair, training and other services that
support commercial products and offered under similar terms
 Of a type offered and sold competitively in substantial quantities in
the commercial marketplace at catalog or market prices
 Contracting Officer discretion and determination
Price Analysis
Information Other Than Cost Or Pricing Data
 No certification, but accurate
 Not required with adequate price competition or statutory prices
 Any Information necessary to determine price reasonableness
or cost realism
 Examples
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Previous federal contract prices
Previous commercial contract prices
Catalogs/Price Lists
Prices for similar products/services
Component “costs”
Market pricing
 Audit Rights – Preaward – 52.215-20
Price Analysis - Waterfall
 15.402(a)
 No additional information if adequate price competition
 Pricing information within the government
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Other contracts for same or similar products/services
GSA MAS schedule pricing – Advantage!
Other Government Wide Acquisition Contracts (GWACs)
Government estimates
 Pricing information outside the government
 Market price information
 Public catalog pricing
 Pricing information from the offeror
 Previous pricing for same or similar items/services
Price Analysis Techniques
 FAR 15.404-1(b)
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Does not include review of separate cost elements or profit
Comparison of competitive prices
Previous prices
Parametric measures – price per pound, dollars per person
hour
Published price lists
Published market prices
Independent government estimates
Pricing information provided by offeror
 See Contract Pricing Reference Guide 5 Volumes
 http://www.acq.osd.mil/dpap/contractpricing/
Cost or Pricing Data - Required
 No exceptions apply
 No price competition, i.e., sole source
 Acquisition of non-commercial item
 No waiver
 No statutory price
 Negotiated contract over $550,000
 Subcontracts over $550,000 where higher tier
provided cost or pricing data unless exception applies
 Contract modifications over $550,000 unless
exception applies
Cost or Pricing Data – Definition – FAR 2.101

All facts that, as of the date of price agreement or, if applicable, an earlier date agreed
upon between the parties that is as close as practicable to the date of agreement on
price, prudent buyers and sellers would reasonably expect to affect price negotiations
significantly.
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Are factual, not judgmental; and are verifiable.
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All the facts that can be reasonably expected to contribute to the soundness of estimates
of future costs and to the validity of determinations of costs already incurred.
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Vendor quotations;
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Nonrecurring costs;
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Information on changes in production methods and in production or purchasing volume;
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Data supporting projections of business prospects and objectives and related operations
costs;
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Unit-cost trends such as those associated with labor efficiency;
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Make-or-buy decisions;
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Estimated resources to attain business goals; and
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Information on management decisions that could have a significant bearing on costs.
Cost or Pricing Data - Certification
 Current
 Accurate
 Complete
 Penalties
 Defective pricing claims
 Criminal false statements
 Civil false claims
Cost or Pricing Data – Cost Categories
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Materials and Services
Direct Labor
Indirect Costs
Other costs
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Special tooling
Travel
IT services
Rework
 Royalties
 Facilities Capital Cost of Money
Cost Principles
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FAR Part 31
Reasonable
Allocable
Allowable
 52 Principles
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Advertising costs
Cost of money
Employee morale
Professional and consultant services
Alcoholic beverages
Audit Rights
 Adequate Price Competition-Fixed Price Contracts
 No contractual audit right
 Information other than cost or pricing data
 Pre-award accuracy of data – no cost or profit data for catalog or
market pricing – 52.215-20
 Adequate Price Competition-Time and Material
Contracts
 Direct and indirect costs – 52.215-2
 Cost or pricing data
 All data – 52.215-2
 Comptroller General
 Inspector General – Subpoena – Waste, Fraud and
Abuse
General Services Administration
Multiple Award Schedules
 Commercial Sales Practices
 GSA’s device for seeking “Most Favored
Customer” pricing
 Contractor discloses in substantial detail its
discounts and other concessions granted to all
customers
 Significant “tug of war” on pricing in most GSA
MAS Contract negotiations
Key CSP Terms - Customer
 “Customer” = all purchasers except Federal
Government:
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OEMs
VARs
State and Local Government agencies
Distributors
Educational Institutions
National Accounts
Consumers
Dealers
 GSA often requests details on Federal customer sales
 Resist disclosing direct and indirect sales to Federal customers
Key CSP Terms - Discount
 “Discount” = any reduction to published or
unpublished catalog prices
 Discounts include (but are not limited to):
 Rebates
 Quantity discounts
 Purchase option credits
 Any other terms or conditions which reduce the end user’s
overall acquisition cost for the product or service
Key CSP Terms - Concessions
 “Concession” = any benefit, enhancement or
privilege (other than a “discount”), which reduces
overall acquisition costs or encourages the
customer to consummate a purchase
 Concessions include (but are not limited to):
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Freight allowances
Extended warranties
Extended price guarantees
Free installation, and
Bonus goods
Completing The CSP Form
 Submit CSP for all Special Item Numbers (SINs)
 CSP Chart lists five columns:
 Column 1—Customer (by category)
 Column 2—Discount
 Column 3—Quantity/Volume
 Column 4—FOB Term
 Column 5—Concessions
GSA – Pricing
 Most Favored Customer Goal
 Manufacturer – Type of Customer
 Reseller – Percent mark-up
 Supplier – CSP chart requested
 Certification
 Current, Accurate, and Complete
Partners
 Teaming Agreements
 Executed prior to proposal submission
 Agreement to Negotiate in Good Faith;
 Agreement to Agree; or
 Absolute Duty to Place Subcontract
 After award, only prime contractor has privity
with agency
Teaming Agreements - Pricing
 Exclusive
 Multiple Partners
 Similar pricing for similar terms
 Different pricing for different terms
Pricing Strategies – Market Research
 Government Databases of Contract Awards
 Fedbizopps – www.fedbizopps.gov
 Federal Procurement Data System – www.fpds.gov
 GSA Advantage! – www.gsaadvantage.gov
 Freedom of Information Act
 Contract prices
 Line item prices
 Issue of competitive prejudice
Questions?
If we were unable to answer your question during
the webcast, we will respond to you via email.
Please contact us anytime
with additional questions.
William A. Shook, Esq
billsh@prestongates.com
(202) 628-1700
Thank you for participating!