Every federal award rests on a finding that the price is fair and reasonable. Contracting officers do not reach that conclusion by instinct. The FAR describes specific techniques they use, and the contract file must show what supported the decision. Knowing those techniques helps a contractor present a price the government can justify quickly, which matters most in the fourth quarter, when buyers have little time to chase supporting information. This is general information; talk to an advisor experienced in government pricing about your own situation.
Price analysis versus cost analysis
Price analysis evaluates a proposed price without examining its separate cost elements and profit. It asks whether the total is in line with other evidence of what the work or item is worth. Cost analysis goes further, reviewing labor, materials, indirect costs and profit one element at a time. Most competitive buys and most commercial purchases rely on price analysis. Cost analysis typically appears when competition is absent, when certified cost or pricing data is required or when the government needs to understand how a price was built.
The techniques the FAR describes
The FAR has long listed several price analysis techniques and treats the first two as preferred:
- Comparing proposed prices received in response to the solicitation; adequate price competition normally establishes a reasonable price
- Comparing the proposed price with historical prices paid, by the government or others, for the same or similar items, adjusted for differences in quantity, timing and terms
- Using parametric estimates or rough yardsticks, such as a price per square foot or per unit of capacity, to spot significant inconsistencies
- Comparing the price with published price lists, market prices and discount arrangements
- Comparing the price with the government’s independent cost estimate
- Comparing the price with prices found through market research for the same or similar items
- Analyzing data other than certified cost or pricing data provided by the offeror
For simplified acquisitions, the FAR similarly allows reasonableness to rest on competitive quotes and, when only one quote arrives, on market research, comparison with earlier purchases, current price lists or catalogs, or other reasonable bases.
When the government asks for more information
If competition is thin or the price is out of line with the available comparisons, a contracting officer may ask you for information to support the price. That request is often for data other than certified cost or pricing data: commercial sales history, published price lists, invoices for similar sales with sensitive details redacted, or a breakdown of how a price was built. Answering quickly and clearly can keep an award on schedule. Ignoring or resisting a reasonable request can leave the contracting officer unable to make the required finding.
Making your price easy to support
- Price from documented sources, such as your commercial price list or established schedule rates, and say so in the quote.
- Keep records of comparable sales so you can produce them if asked.
- Explain unusual elements, such as expedited delivery or specialized labor, in a sentence or two.
- Make sure the price matches the scope you described; a price that looks unrelated to the work invites questions.
- Be consistent across quotes to the same office, or be ready to explain why terms differ.
A price that is easy to justify is easier to award. The FAR’s price analysis guidance is in Part 15, with simplified acquisition rules in Part 13, both at acquisition.gov.