AIR 2.0 Competency Training
Price Analysis Techniques
NCMA
20 January 2009
Sandy Scharn-Stevens
& Warren Walch
References and dollar thresholds reflected in this training package are current as of the date shown above. Recommend confirming references and thresholds with
law, regulations and policy that may have been implemented after the above date
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Outline
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Purpose—Overview & Intent
Policy
Price Analysis Techniques
Estimating/Purchasing System Reviews
Summary
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Overview & Intent
• Price Analysis is the process of
examining and evaluating a
proposed price without evaluating
its separate cost elements and
proposed profit.
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Overview & Intent
• Contractors conduct price analysis on
subcontract cost for cost proposals
and for obtaining subcontract consent
in ongoing contracts
• PCO’s use price analysis to establish
price reasonableness IAW FAR 13,
14 or 15 and consider contractor price
analysis for proposal analysis and
subcontract consent IAW FAR 44
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Policy
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Policy
FAR 15.408 and Table 15-2.II.A Contractor Proposal
Instructions: For material and services proposed,
identify the item and show the source, quantity, and
price. Conduct price analyses of all subcontractor
proposals.
FAR 15.404-3 Contracting Officer Proposal Analysis:
PCO’s should consider whether a contractor has an
approved purchasing system, has performed cost or
price analysis of proposed subcontractor prices, or
has negotiated the subcontract prices before
negotiation of the prime contract, in determining the
reasonableness of the prime contract price.
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Policy
FAR 44.202 Consent to Subcontract
• Contractor Responsibilities: Obtain
consent to subcontract (defined as supplies or
services at FAR 44.101)
• PCO/ACO Responsibilities: Evaluate
subcontracts and supporting data
considering the following:
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Policy
FAR 44.202-2 PCO/ACO Considerations
1) Is subcontract iaw/contractor’s make or buy plan?
2) Is subcontract available from government source?
3) Is selection technically justified?
4) Is there compliance w/subcontracting plan, purchase from JWOD?
5) Adequate price competition?
6) Alternate proposals considered?
7) Sound basis for selection and responsibility determination?
8) Adequate cost or price analysis?
9) Contract type appropriate?
10)GFP involved?
11)Adequate description of technical requirements?
12)Compliance with CAS?
13)Not listed in excluded parties list?
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NAWC WD Contract Part 44 administration
Division Wide (STARS, ESS, WSISS) require:
(1) COR or PCO approval of subcontracts with
non-team members >$2,500
(2) COR or PCO approval of hardware, software,
spare and repair parts purchase >$2,500
(3) COR or PCO approval of all vehicle purchases
and/or leases
Other NAWCWD IDIQ contracts have similar
provisions depending on amount of material
purchased or whether contractor has approved
purchasing system.
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Price Analysis Techniques to
Determine Prices Fair and
Reasonable
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Price Analysis Techniques
FAR15.404-1(b)(2)
(i) Competition (preferred method)
(ii) Historical prices (preferred method)
(iii) Parametrics*
(iv) Published price lists, published market prices
of commodities, indexes, discounts or rebates
(v) Comparison with IGCE’s
(vi) Market research
(vii) Pricing information provided by offeror*
*All techniques except these two are also listed at 13.106-3 SAP
required for >$2.5K to $100K
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(i) Competition
Comparison of proposed prices received in
response to a request for quote or request for
proposal. Normally, adequate price competition
establishes price reasonableness.
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(ii) Historical Prices
A historical comparison with prices for same or
similar items should be used whenever
possible.
•Document why current purchase is similar to
historical purchase and whether thorough
analysis was performed to arrive at that
historical price
•Identify adjustments for differences in item
(Have demand, volume, market forces
changed?)
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(ii) Historical Prices (cont)
– Not verifying that a previous analysis was
performed or the consistencies in quantities
has been a recurring issue on sole source
commercial items reported by GAO and DoD
IG. Extra attention is required to verify that
previous prices paid were sufficiently
analyzed and determined fair and
reasonable. From DAU CLC 131 Commercial Item Pricing
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(iii) Parametric Estimating
•
Estimating technique that uses validated
relationships between technical,
programmatic, and cost with known
historical values
• Examples:
– Dollars per pound
– Cost per flight hour
– Cost of construction per square foot
– Cost of software per line of code
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(iv) Published Price Lists, Catalogs, Published
Market Prices
– Obtain a copy of the catalog, date, pages for
the offered items, or
– Obtain current discount policies and price
lists (published or unpublished), e.g.,
wholesale, original equipment manufacturer,
or reseller.
– Obtain basis of each offered price and its
relationship to the established catalog price.
– Describe how the proposed price relates to
the price of recent sales in similar quantities
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(iv) Published Price Lists, Catalogs, Published
Market Prices (cont)
– The fact that a price is included in a catalog
does not in and of itself, make it fair and
reasonable.
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(iv) Published Price Lists, Catalogs,
Published Market Prices (cont)
•
Compare offered price to catalog price of
same or similar items
•
Adjust for differences in quantities,
characteristics, time, discounts, etc.
•
Negotiate a fair and reasonable price
–
Request discounts, better terms, etc.
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(v) Comparison with Engineering Estimates
– Provide basis of the estimate
• How was the estimate made?
• What assumptions were made?
• What information and tools were used?
• Where was the information obtained?
• When was the estimate done?
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(v) Comparison with Engineering Estimates
(cont)
• Possible estimating problems:
– Assuming market has not changed
– Assuming most recent price is reasonable
– Assuming stock list prices are valid
– Estimate may have come from the offeror
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(vi) Market Research
• Techniques listed at FAR 10.002(b)(2)
(i) Contact experts
(ii) Review results of recent market research
(iii) Publish formal requests for information
(RFI’s)
(iv) Query databases
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(vi) Market Research (cont)
(v) Participate in interactive, on-line
communication among industry, acquisition
personnel, and customers.
(vi) Obtain source lists from other contracting
activities, trade associations or other sources
(vii) Review catalogs and product literature
(viii) Conduct interchange meetings
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(vii) Pricing Information Provided by the
Offeror
Analysis of any other pricing information
provided by the offeror
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Estimating and Purchasing System
Reviews
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Estimating/Purchasing System Reviews
• Estimating System: Increased Government reviews if
contractor has significant estimating deficiencies in the
area of subcontract pricing.
• Purchasing System: Government reviews efficiency and
effectiveness with which the contractor spends
Government funds and complies with Government
policy when subcontracting. Review includes contractor
performance and documentation of price analysis on
subcontracts. (Gov sales >$25M/yr)
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Summary
•Price analysis is required by contractors and
government personnel
•Documentation is key
•The goal is fair and reasonable prices
•Everything is negotiable including a catalog price
Oh by the way -- DFARS 215.404 Weighted Guidelines Profit
policy allows for assigning below normal profit ratings for
management and cost control if “contractor fails to provide an
adequate analysis of subcontractor costs.”
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Other References:
• DAU CLC 131 Commercial Item Pricing
• Contract Pricing Reference Guides
http://www.acq.osd.mil/dpap/cpf/contract_pricing_reference_guides.
html
• DCAA website brochure “Information for
Contractors”
http://www.dcaa.mil
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