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Ch 6 - Compar i ng Pr i ces
bull 6 0 - Chapt er I nt r oduct i on bull 6 1 - Sel ect i ng Pr i ces For Compar i son
o 6 1 1 - Ot her Pr oposed Pr i ces
o
6 1 2 - Commer ci al Pr i ces o 6 1 3 - Pr evi ousl y- Pr oposed Pr i ces And Cont r actPr i ces
o 6 1 4 - Par amet r i c And Rough Yar dst i cks Est i mat es o 6 1 5 - I ndependent Gover nment Est i mat es
bull 6 2 - I dent i f yi ng Fact or s That Af f ect Compar abi l i t y bull 6 3 - Det er mi ni ng The Ef f ect Of I dent i f i ed Fact or s bull 6 4 - Adj ust i ng The Pr i ces Sel ect ed For Compar i son bull 6 5 - Compar i ng Adj ust ed Pr i ces
60 Chapter Introduction
The f i gur e bel ow depi ct s t he pr ocess i nvol ved i n maki ngpr i ce compar i sons f or pr i ce anal ysi s
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Comparisons in Price Analysis ( FAR 15 404- 1( b) ( 1) ) Pr i ceanal ys i s
bull I s t he pr ocess of exami ni ng and eval uat i ng a pr oposedpr i ce t o det er mi ne i f i t i s f ai r and r easonabl e
wi t hout eval uat i ng i t s separ at e cost el ement s andpr oposed pr of i t Pr i ce anal ysi s may however besuppor t ed by anal ysi s of some cost el ement s and orpr of i t
bull Al ways i nvol ves some f or m of compar i son wi t h ot herpr i ces
Hence you compar e pr i ces t o det er mi ne whet her t hepr i ce f r om t he appar ent successf ul of f er i s f ai r andr easonabl e The base f or your compar i son shoul d be a pr i cet hat you f eel i s a r easonabl e est i mat e of t he pr i ce t hatyou shoul d pay - - t he shoul d- pay pr i ce
Should-Pay Price The shoul d- pay pr i ce i s t he pr i ce t hat i n your best j udgment t he Gover nment shoul d r easonabl yexpect t o pay f or t he del i ver abl e based on avai l abl ei nf or mat i on concer ni ng compet i t i ve of f er s hi st or i calpr i ces commer ci al pr i ces pr i ci ng yar dst i cks andI ndependent Gover nment Est i mat es
Bear i n mi nd t hat your shoul d- pay pr i ce i s an est i mat eBei ng an est i mat e i t i s by def i ni t i on i nexact I f you havedone a good j ob of pr i ce anal ysi s your shoul d- pay pr i cewi l l pr obabl y be cl ose t o t he mar k St i l l don t bedogmat i c about your est i mat e - t o t he poi nt of r ej ect i ngof f er s t hat ar e cl ose t o but not exact l y at your shoul d-pay pr i ce est i mat e
I f t he appar ent successf ul of f er i s si gni f i cant l yhi gher or l ower t han your est i mat e
bull Det er mi ne why t her e i s a si gni f i cant var i ance bet weent he shoul d- pay pr i ce and t hat of f er and t hen
Make t he cr i t i cal pr i ce- r el at ed deci si ons i n awar di ngcont r act s t hr ough seal ed bi ddi ng or negot i at i ons
Comparability Compar abi l i t y i s t he qual i t y or st at e ofbei ng compar abl e Pr oduct s do not have t o be al i ke t o becompar ed Any t wo t hi ngs can be compar ed but t hecompar i son may show t hat t hey have no char act er i st i cs i ncommon However i f you ar e at t empt i ng t o eval uat e pr i ce
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r easonabl eness t he compar i son wi l l not be of any val ue i ft he i t ems ar e unl i ke i n ever y way
For pr i ce anal ysi s t he i t ems bei ng compar ed must haveenough si mi l ar char act er i st i cs or qual i t i es t o make t he
compar i son usef ul The mor e si mi l ar t he i t ems ar e t heeasi er t he compar i son I f your exami nat i on di scl osessi gni f i cant di f f er ences you may need t o quant i f y t heef f ect of t hose di f f er ences ( e g acqui s i t i on of di f f er entpr oduct s at di f f er ent t i mes or i n di f f er ent pl aces) andmake adj ust ment s bef or e you can r each val i d concl usi onsabout pr i ce r easonabl eness The gr eat er t he di ssi mi l ar i t i esand t he mor e subj ect i ve your adj ust ment t he gr eat er t hepossi bi l i t y f or doubt s about your concl usi ons and t he l essl i kel y t hat your anal ysi s wi l l be per suasi ve
Multiple Comparisons Use t he i nf or mat i on gat her ed dur i ngyour mar ket r esear ch t o make mul t i pl e compar i sons i ndet er mi ni ng pr i ce r easonabl eness and i ncr ease conf i dence i nyour pr i ci ng deci si on
For example adequate price competition is normallyconsidered one of the best bases for price analysisHowever you can have appar ent compet i t i on and st i l l havepr i ces t hat ar e unr easonabl y hi gh How woul d you know Youmust consi der ot her bases f or pr i ce anal ysi s ( e g hi s t or i cal pr i ces cat al og pr i ces or mar ket pr i ces)
The number of compar i sons t hat you consi der shoul ddepend on t he avai l abi l i t y of i nf or mat i on and t he pr i ci ngr i sk i nvol ved i n t he acqui si t i on
bull I f t he i nf or mat i on i s readi l y avai l abl e i n a f or m t hatcan be used f or pr i ce anal ysi s why not consi der i t Aqui ck compar i son wi l l i ncr ease your conf i dence ofpr i ce r easonabl eness
I f t he pr i ce i s l ar ge or you st i l l have concer ns aboutpr i ce r easonabl eness af t er your i ni t i al compar i son t he
r i sk i nvol ved makes i t par t i cul ar l y i mpor t ant t o consi derot her compar i sons
Comparison Steps Each di f f er ent compar i son wi l l i nvol vedi f f er ent i nf or mat i on and some bases wi l l r equi r esubst ant i al adj ust ment pr i or t o maki ng your anal ysi sHowever t he compar i son pr ocess i s descr i bed i n f i ve st epsout l i ned bel ow
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Step Action Questions to Consider 1 Sel ect pr i ces
f or compar i son
bull Ot her
pr oposedpr i ces
bull Commer ci alpr i ces
bull Pr evi ousl y-pr oposedpr i ces andcont r actpr i ces
bull Par amet r i cest i mat es
or r oughyar dst i ckest i mat esor
bull I ndependentGover nmentEst i mat es
Woul d t hi s compar i son be val i d
Ar e mor e compar abl e pr i cesavai l abl e
2 I dent i f y f actor st hat af f ectcompar abi l i t y
Have I consi der ed al lpot ent i al l y s i gni f i cant f act or s i ncl udi ng di f f er ences i n
bull Mar ket condi t i onsbull Quant i t y or si zebull Geogr aphi c l ocat i onbull Pur chasi ng power of t he
dol l ar bull Ext ent of compet i t i onbull Technol ogy orbull Ter ms and condi t i ons ( e g
di f f er ences i n f eat ur es orcapabi l i t i es del i ver y
l ead- t i mes one- t i me cost se t c )
3 Det er mi ne t hepot ent i al i mpactof t hese f act or son pr i cessel ect ed f or
How subst ant i al i s t he i mpact I n vi ew of t hese f act or s andt hei r i mpact wi l l t hecont empl at ed compar i son have anycr edi bi l i t y
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compar i son4 Adj ust pr i ces
sel ect ed f orcompar i son
Have I account ed f or al l f act or st hat can be dol l ar i zed
What t echni ques shoul d be
appl i ed i n maki ng t headj ust ment
How much r el i ance can I pl ace ont he resul t i ng est i mat e
5 Compar e adj ust edpr i ces t o t heof f er i n l i nef or awar d
How much wei ght shoul d I pl aceon each compar i son
I f adj us ted pr i ces di f f ersubst ant i al l y f r om t he appar entsuccessf ul of f er what pr i ce
shoul d t he Gover nment r easonabl yexpect t o pay
61 Selecting Prices For Comparison
Thi s sect i on i dent i f i es and def i nes f i ve pot ent i albases f or pr i ce anal ysi s Af t er def i ni ng each base speci alconsi der at i ons f or usi ng each base ar e out l i ned
bull 6 1 1 - Ot her Pr oposed Pr i ces bull 6 1 2 - Commer ci al Pr i ces bull 6 1 3 - Pr evi ousl y- Pr oposed Pr i ces And Cont r act Pr i ces bull 6 1 4 - Par amet r i c And Rough Yar dst i cks Est i mat es bull 6 1 5 - I ndependent Gover nment Est i mat es
Potential Bases ( FAR 15 404- 1( b) ) You may sel ect any oft he f ol l owi ng bases f or pr i ce anal ysi s
bull Ot her pr oposed pr i ces r ecei ved i n r esponse t o t hesol i ci t at i on
bull Commer ci al pr i ces i ncl udi ng compet i t i ve publ i shed
pr i ce l i st s publ i shed commodi t y mar ket pr i cessi mi l ar i ndexes and di scount or r ebat e ar r angement sbull Pr evi ousl y- pr oposed pr i ces and cont r act pr i ces f or t he
same or si mi l ar end i t ems i f you can est abl i sh bot ht he val i di t y of t he compar i son and t he r easonabl enessof t he pr oposed pr i ce
bull Par amet r i c est i mat es or est i mat es devel oped usi ngr ough yar dst i cks or
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avai l abl e Consi der t he f ol l owi ng f act or s whendet er mi ni ng t he number of sour ces t o sol i ci t
o The nat ur e of t he ar t i cl e or ser vi ce t o bepur chased and whet her i t i s hi ghl y compet i t i veand readi l y avai l abl e i n sever al makes or br andsor i s r el at i vel y noncompet i t i ve
o The avai l abi l i t y of an el ect r oni c commer ce met hodt hat empl oys wi despr ead publ i c not i ce of t her equi r ement
o The ur gency of t he pr oposed pur chaseo The dol l ar val ue of t he pr oposed pur chase ando Past exper i ence concer ni ng speci f i c deal er s
pr i ces bull I f you onl y r ecei ve one quot e consi der t he f ol l owi ng
bases f or pr i ce anal ysi so Pr i ces i dent i f i ed dur i ng mar ket r esear cho Pr i ces f ound r easonabl e f or pr evi ous pur chaseso Cur r ent pr i ce l i s t cat al og or adver t i sed
pr i ces o Pr i ces f or s i mi l ar i t ems i n a r el at ed i ndust r yo Pr i ce est i mat es devel oped dur i ng val ue anal ysi so Per sonal knowl edge of i t em pr i ceso The I ndependent Gover nment Est i mat e oro Any ot her r easonabl e base f or pr i ce anal ysi s
Contracts over the Simplified Acquisition ThresholdConsi der ever y t ype of compar i son whi ch you bel i evepr ovi des a val i d shoul d- pay pr i ce
bull For exampl e i f you have dat a on pr evi ous cont r actpr i ces and have r eason t o bel i eve t hat t hese dat ar ef l ect good pr i or deci si ons on pr i ce r easonabl enesst hen compar e t he appar ent success f ul of f er t o t hosepr i ces I f you have r eason t o bel i eve t hat pr evi ouscont r act pr i ces wer e not r easonabl e t hen gi ve l i t t l eor no wei ght t o t hose pr i ces as you per f or m your pr i ceanal ysi s I f you have no pr i ce hi st or y you must r el yon ot her compar i son bases f or your pr i ce anal ysi s
611 Other Proposed Prices
Proposed Prices ( FAR 15 404- 1( b) ( 2) ) Compar i son of apr oposed pr i ce wi t h ot her pr oposed pr i ces r ecei ved i nr esponse t o t he same sol i ci t at i on i s gener al l y consi der edone of t he best bases f or pr i ce anal ysi s because al l
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of f er s wer e submi t t ed t o meet t he same r equi r ement dur i ngt he same t i me per i od
Using Proposed Prices ( FAR 15 403- 1( c) ( 1) ) Any pr oposedpr i ce used as a base f or pr i ces anal ysi s must meet t he
f ol l owi ng gener al r equi r ement sbull The pr i ce must be submi t t ed by a f i r m compet i ng
i ndependent l y f or cont r act awar dbull The pr i ce must be par t of an of f er t hat meet s
Gover nment r equi r ement sbull Awar d must be made t o t he of f er or whose pr oposal
r epr esent s t he best val ue t o t he Gover nment
I f you have mor e t han one compet i t i ve of f er you coul duse mor e t han one of f er i n your anal ysi s
Do not use t he pr i ce f r om any of f er t hat you woul d notconsi der f or cont r act awar d as a basi s f or pr i ce anal ysi s
bull Never use an of f er f r om a f i r m t hat you havedet er mi ned i s nonr esponsi bl e
bull I n seal ed bi ddi ng never use a nonr esponsi ve bi d
I n negot i at i ons never use a pr i ce f r om a pr oposal t hati s t echni cal l y unaccept abl e
Special Concerns ( CGEN B- 176217 December 14 1972 and CGENB- 189884 Mar ch 29 1979)
You shoul d nor mal l y pl ace l ess r el i ance on compar i sonswi t h ot her pr oposed pr i ces when
bull The sol i ci t at i on was made under condi t i ons t hatunr easonabl y deni ed one or mor e known and qual i f i edof f er or s an oppor t uni t y t o compet e
bull The appar ent successf ul of f er or has such a deci dedadvant age t hat i t i s pr act i cal l y i mmune f r omcompet i t i on
bull Anot her pr i ce compar i son cost anal ysi s or a costr eal i sm anal ysi s i ndi cat es t hat t he appar entsuccessf ul of f er may be unr easonabl e ( t oo hi gh or t ool ow)
bull Gover nment r equi r ement s per mi t of f er or s t o pr oposewi del y di f f er ent t echni cal appr oaches t o cont r actper f or mance For exampl e a cer ami c mug and a papercup may bot h meet a r equi r ement t o hol d 8 ounces of
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i nf or mat i on f r om t he f i r m submi t t i ng t he of f er and orpubl i shed pr i ci ng i nf or mat i on f r om ot her f i r msof f er i ng s i mi l ar pr oducts
bull Published market prices - - pr i ces est abl i shed i n t hecour se of or di nar y and usual t r ade bet ween buyer s andsel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r omsour ces i ndependent of t he of f er or Nor mal l y mar ketpr i ci ng i nf or mat i on i s t aken f r om i ndependent mar ketr epor t s but a mar ket pr i ce coul d be est abl i shed bysur veyi ng t he f i r ms i n a par t i cul ar i ndust r y ormar ket
bull Similar indexes - - commer ci al i t em pr i ces est abl i shedusi ng a means ot her t han t hose descr i bed above Forexampl e an of f er or mi ght pr ovi de i nf or mat i on on t hepr i ces char ged commer ci al cust omer s over a per i od oft i me Such a r ecor d woul d not qual i f y as publ i shedpr i ce l i st or mar ket pr i ce but i t woul d pr ovi de agood r ecor d of t he f i r m s commer ci al pr i ci ngpr act i ces
Discounts Commer ci al sal es t ypi cal l y i ncl ude di scount sf or di f f er ent t ypes of cust omer s Di scount amount st ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egyof t he f i r m Common f act or s af f ect i ng di scount s i ncl udeser vi ces pr ovi ded by t he sel l er ( e g whol esal e and r et ai lsal es) and t he i mpor t ance of t he sal e ( e g dol l ar si nvol ved or t he r el at i onshi p t o ot her sal es)
Rebates Rebat es ar e of t en of f er ed t o var i ous cust omer sbased on t he cust omer s t ot al pur chases over a speci f i cper i od of t i me For exampl e aut omobi l e manuf act ur er st ypi cal l y of f er deal er s r ebat es based on t ot al sal es Thati s one r eason why deal er s can adver t i se sal es at i nvoi ce Deal er pr of i t i s based on t he r ebat e amount
Contracting Situation Differences Remember t hat yourcont r act i ng si t uat i on may be di f f er ent t han t he si t uat i oni n t he commer ci al mar ket For exampl e t he of f er or maypr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment I f t he Gover nment i s r ecei vi ngl ess you shoul d expect t o pay l ess
613 Previously-Proposed Prices And Contract Prices
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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Comparisons in Price Analysis ( FAR 15 404- 1( b) ( 1) ) Pr i ceanal ys i s
bull I s t he pr ocess of exami ni ng and eval uat i ng a pr oposedpr i ce t o det er mi ne i f i t i s f ai r and r easonabl e
wi t hout eval uat i ng i t s separ at e cost el ement s andpr oposed pr of i t Pr i ce anal ysi s may however besuppor t ed by anal ysi s of some cost el ement s and orpr of i t
bull Al ways i nvol ves some f or m of compar i son wi t h ot herpr i ces
Hence you compar e pr i ces t o det er mi ne whet her t hepr i ce f r om t he appar ent successf ul of f er i s f ai r andr easonabl e The base f or your compar i son shoul d be a pr i cet hat you f eel i s a r easonabl e est i mat e of t he pr i ce t hatyou shoul d pay - - t he shoul d- pay pr i ce
Should-Pay Price The shoul d- pay pr i ce i s t he pr i ce t hat i n your best j udgment t he Gover nment shoul d r easonabl yexpect t o pay f or t he del i ver abl e based on avai l abl ei nf or mat i on concer ni ng compet i t i ve of f er s hi st or i calpr i ces commer ci al pr i ces pr i ci ng yar dst i cks andI ndependent Gover nment Est i mat es
Bear i n mi nd t hat your shoul d- pay pr i ce i s an est i mat eBei ng an est i mat e i t i s by def i ni t i on i nexact I f you havedone a good j ob of pr i ce anal ysi s your shoul d- pay pr i cewi l l pr obabl y be cl ose t o t he mar k St i l l don t bedogmat i c about your est i mat e - t o t he poi nt of r ej ect i ngof f er s t hat ar e cl ose t o but not exact l y at your shoul d-pay pr i ce est i mat e
I f t he appar ent successf ul of f er i s si gni f i cant l yhi gher or l ower t han your est i mat e
bull Det er mi ne why t her e i s a si gni f i cant var i ance bet weent he shoul d- pay pr i ce and t hat of f er and t hen
Make t he cr i t i cal pr i ce- r el at ed deci si ons i n awar di ngcont r act s t hr ough seal ed bi ddi ng or negot i at i ons
Comparability Compar abi l i t y i s t he qual i t y or st at e ofbei ng compar abl e Pr oduct s do not have t o be al i ke t o becompar ed Any t wo t hi ngs can be compar ed but t hecompar i son may show t hat t hey have no char act er i st i cs i ncommon However i f you ar e at t empt i ng t o eval uat e pr i ce
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r easonabl eness t he compar i son wi l l not be of any val ue i ft he i t ems ar e unl i ke i n ever y way
For pr i ce anal ysi s t he i t ems bei ng compar ed must haveenough si mi l ar char act er i st i cs or qual i t i es t o make t he
compar i son usef ul The mor e si mi l ar t he i t ems ar e t heeasi er t he compar i son I f your exami nat i on di scl osessi gni f i cant di f f er ences you may need t o quant i f y t heef f ect of t hose di f f er ences ( e g acqui s i t i on of di f f er entpr oduct s at di f f er ent t i mes or i n di f f er ent pl aces) andmake adj ust ment s bef or e you can r each val i d concl usi onsabout pr i ce r easonabl eness The gr eat er t he di ssi mi l ar i t i esand t he mor e subj ect i ve your adj ust ment t he gr eat er t hepossi bi l i t y f or doubt s about your concl usi ons and t he l essl i kel y t hat your anal ysi s wi l l be per suasi ve
Multiple Comparisons Use t he i nf or mat i on gat her ed dur i ngyour mar ket r esear ch t o make mul t i pl e compar i sons i ndet er mi ni ng pr i ce r easonabl eness and i ncr ease conf i dence i nyour pr i ci ng deci si on
For example adequate price competition is normallyconsidered one of the best bases for price analysisHowever you can have appar ent compet i t i on and st i l l havepr i ces t hat ar e unr easonabl y hi gh How woul d you know Youmust consi der ot her bases f or pr i ce anal ysi s ( e g hi s t or i cal pr i ces cat al og pr i ces or mar ket pr i ces)
The number of compar i sons t hat you consi der shoul ddepend on t he avai l abi l i t y of i nf or mat i on and t he pr i ci ngr i sk i nvol ved i n t he acqui si t i on
bull I f t he i nf or mat i on i s readi l y avai l abl e i n a f or m t hatcan be used f or pr i ce anal ysi s why not consi der i t Aqui ck compar i son wi l l i ncr ease your conf i dence ofpr i ce r easonabl eness
I f t he pr i ce i s l ar ge or you st i l l have concer ns aboutpr i ce r easonabl eness af t er your i ni t i al compar i son t he
r i sk i nvol ved makes i t par t i cul ar l y i mpor t ant t o consi derot her compar i sons
Comparison Steps Each di f f er ent compar i son wi l l i nvol vedi f f er ent i nf or mat i on and some bases wi l l r equi r esubst ant i al adj ust ment pr i or t o maki ng your anal ysi sHowever t he compar i son pr ocess i s descr i bed i n f i ve st epsout l i ned bel ow
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Step Action Questions to Consider 1 Sel ect pr i ces
f or compar i son
bull Ot her
pr oposedpr i ces
bull Commer ci alpr i ces
bull Pr evi ousl y-pr oposedpr i ces andcont r actpr i ces
bull Par amet r i cest i mat es
or r oughyar dst i ckest i mat esor
bull I ndependentGover nmentEst i mat es
Woul d t hi s compar i son be val i d
Ar e mor e compar abl e pr i cesavai l abl e
2 I dent i f y f actor st hat af f ectcompar abi l i t y
Have I consi der ed al lpot ent i al l y s i gni f i cant f act or s i ncl udi ng di f f er ences i n
bull Mar ket condi t i onsbull Quant i t y or si zebull Geogr aphi c l ocat i onbull Pur chasi ng power of t he
dol l ar bull Ext ent of compet i t i onbull Technol ogy orbull Ter ms and condi t i ons ( e g
di f f er ences i n f eat ur es orcapabi l i t i es del i ver y
l ead- t i mes one- t i me cost se t c )
3 Det er mi ne t hepot ent i al i mpactof t hese f act or son pr i cessel ect ed f or
How subst ant i al i s t he i mpact I n vi ew of t hese f act or s andt hei r i mpact wi l l t hecont empl at ed compar i son have anycr edi bi l i t y
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compar i son4 Adj ust pr i ces
sel ect ed f orcompar i son
Have I account ed f or al l f act or st hat can be dol l ar i zed
What t echni ques shoul d be
appl i ed i n maki ng t headj ust ment
How much r el i ance can I pl ace ont he resul t i ng est i mat e
5 Compar e adj ust edpr i ces t o t heof f er i n l i nef or awar d
How much wei ght shoul d I pl aceon each compar i son
I f adj us ted pr i ces di f f ersubst ant i al l y f r om t he appar entsuccessf ul of f er what pr i ce
shoul d t he Gover nment r easonabl yexpect t o pay
61 Selecting Prices For Comparison
Thi s sect i on i dent i f i es and def i nes f i ve pot ent i albases f or pr i ce anal ysi s Af t er def i ni ng each base speci alconsi der at i ons f or usi ng each base ar e out l i ned
bull 6 1 1 - Ot her Pr oposed Pr i ces bull 6 1 2 - Commer ci al Pr i ces bull 6 1 3 - Pr evi ousl y- Pr oposed Pr i ces And Cont r act Pr i ces bull 6 1 4 - Par amet r i c And Rough Yar dst i cks Est i mat es bull 6 1 5 - I ndependent Gover nment Est i mat es
Potential Bases ( FAR 15 404- 1( b) ) You may sel ect any oft he f ol l owi ng bases f or pr i ce anal ysi s
bull Ot her pr oposed pr i ces r ecei ved i n r esponse t o t hesol i ci t at i on
bull Commer ci al pr i ces i ncl udi ng compet i t i ve publ i shed
pr i ce l i st s publ i shed commodi t y mar ket pr i cessi mi l ar i ndexes and di scount or r ebat e ar r angement sbull Pr evi ousl y- pr oposed pr i ces and cont r act pr i ces f or t he
same or si mi l ar end i t ems i f you can est abl i sh bot ht he val i di t y of t he compar i son and t he r easonabl enessof t he pr oposed pr i ce
bull Par amet r i c est i mat es or est i mat es devel oped usi ngr ough yar dst i cks or
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avai l abl e Consi der t he f ol l owi ng f act or s whendet er mi ni ng t he number of sour ces t o sol i ci t
o The nat ur e of t he ar t i cl e or ser vi ce t o bepur chased and whet her i t i s hi ghl y compet i t i veand readi l y avai l abl e i n sever al makes or br andsor i s r el at i vel y noncompet i t i ve
o The avai l abi l i t y of an el ect r oni c commer ce met hodt hat empl oys wi despr ead publ i c not i ce of t her equi r ement
o The ur gency of t he pr oposed pur chaseo The dol l ar val ue of t he pr oposed pur chase ando Past exper i ence concer ni ng speci f i c deal er s
pr i ces bull I f you onl y r ecei ve one quot e consi der t he f ol l owi ng
bases f or pr i ce anal ysi so Pr i ces i dent i f i ed dur i ng mar ket r esear cho Pr i ces f ound r easonabl e f or pr evi ous pur chaseso Cur r ent pr i ce l i s t cat al og or adver t i sed
pr i ces o Pr i ces f or s i mi l ar i t ems i n a r el at ed i ndust r yo Pr i ce est i mat es devel oped dur i ng val ue anal ysi so Per sonal knowl edge of i t em pr i ceso The I ndependent Gover nment Est i mat e oro Any ot her r easonabl e base f or pr i ce anal ysi s
Contracts over the Simplified Acquisition ThresholdConsi der ever y t ype of compar i son whi ch you bel i evepr ovi des a val i d shoul d- pay pr i ce
bull For exampl e i f you have dat a on pr evi ous cont r actpr i ces and have r eason t o bel i eve t hat t hese dat ar ef l ect good pr i or deci si ons on pr i ce r easonabl enesst hen compar e t he appar ent success f ul of f er t o t hosepr i ces I f you have r eason t o bel i eve t hat pr evi ouscont r act pr i ces wer e not r easonabl e t hen gi ve l i t t l eor no wei ght t o t hose pr i ces as you per f or m your pr i ceanal ysi s I f you have no pr i ce hi st or y you must r el yon ot her compar i son bases f or your pr i ce anal ysi s
611 Other Proposed Prices
Proposed Prices ( FAR 15 404- 1( b) ( 2) ) Compar i son of apr oposed pr i ce wi t h ot her pr oposed pr i ces r ecei ved i nr esponse t o t he same sol i ci t at i on i s gener al l y consi der edone of t he best bases f or pr i ce anal ysi s because al l
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of f er s wer e submi t t ed t o meet t he same r equi r ement dur i ngt he same t i me per i od
Using Proposed Prices ( FAR 15 403- 1( c) ( 1) ) Any pr oposedpr i ce used as a base f or pr i ces anal ysi s must meet t he
f ol l owi ng gener al r equi r ement sbull The pr i ce must be submi t t ed by a f i r m compet i ng
i ndependent l y f or cont r act awar dbull The pr i ce must be par t of an of f er t hat meet s
Gover nment r equi r ement sbull Awar d must be made t o t he of f er or whose pr oposal
r epr esent s t he best val ue t o t he Gover nment
I f you have mor e t han one compet i t i ve of f er you coul duse mor e t han one of f er i n your anal ysi s
Do not use t he pr i ce f r om any of f er t hat you woul d notconsi der f or cont r act awar d as a basi s f or pr i ce anal ysi s
bull Never use an of f er f r om a f i r m t hat you havedet er mi ned i s nonr esponsi bl e
bull I n seal ed bi ddi ng never use a nonr esponsi ve bi d
I n negot i at i ons never use a pr i ce f r om a pr oposal t hati s t echni cal l y unaccept abl e
Special Concerns ( CGEN B- 176217 December 14 1972 and CGENB- 189884 Mar ch 29 1979)
You shoul d nor mal l y pl ace l ess r el i ance on compar i sonswi t h ot her pr oposed pr i ces when
bull The sol i ci t at i on was made under condi t i ons t hatunr easonabl y deni ed one or mor e known and qual i f i edof f er or s an oppor t uni t y t o compet e
bull The appar ent successf ul of f er or has such a deci dedadvant age t hat i t i s pr act i cal l y i mmune f r omcompet i t i on
bull Anot her pr i ce compar i son cost anal ysi s or a costr eal i sm anal ysi s i ndi cat es t hat t he appar entsuccessf ul of f er may be unr easonabl e ( t oo hi gh or t ool ow)
bull Gover nment r equi r ement s per mi t of f er or s t o pr oposewi del y di f f er ent t echni cal appr oaches t o cont r actper f or mance For exampl e a cer ami c mug and a papercup may bot h meet a r equi r ement t o hol d 8 ounces of
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i nf or mat i on f r om t he f i r m submi t t i ng t he of f er and orpubl i shed pr i ci ng i nf or mat i on f r om ot her f i r msof f er i ng s i mi l ar pr oducts
bull Published market prices - - pr i ces est abl i shed i n t hecour se of or di nar y and usual t r ade bet ween buyer s andsel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r omsour ces i ndependent of t he of f er or Nor mal l y mar ketpr i ci ng i nf or mat i on i s t aken f r om i ndependent mar ketr epor t s but a mar ket pr i ce coul d be est abl i shed bysur veyi ng t he f i r ms i n a par t i cul ar i ndust r y ormar ket
bull Similar indexes - - commer ci al i t em pr i ces est abl i shedusi ng a means ot her t han t hose descr i bed above Forexampl e an of f er or mi ght pr ovi de i nf or mat i on on t hepr i ces char ged commer ci al cust omer s over a per i od oft i me Such a r ecor d woul d not qual i f y as publ i shedpr i ce l i st or mar ket pr i ce but i t woul d pr ovi de agood r ecor d of t he f i r m s commer ci al pr i ci ngpr act i ces
Discounts Commer ci al sal es t ypi cal l y i ncl ude di scount sf or di f f er ent t ypes of cust omer s Di scount amount st ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egyof t he f i r m Common f act or s af f ect i ng di scount s i ncl udeser vi ces pr ovi ded by t he sel l er ( e g whol esal e and r et ai lsal es) and t he i mpor t ance of t he sal e ( e g dol l ar si nvol ved or t he r el at i onshi p t o ot her sal es)
Rebates Rebat es ar e of t en of f er ed t o var i ous cust omer sbased on t he cust omer s t ot al pur chases over a speci f i cper i od of t i me For exampl e aut omobi l e manuf act ur er st ypi cal l y of f er deal er s r ebat es based on t ot al sal es Thati s one r eason why deal er s can adver t i se sal es at i nvoi ce Deal er pr of i t i s based on t he r ebat e amount
Contracting Situation Differences Remember t hat yourcont r act i ng si t uat i on may be di f f er ent t han t he si t uat i oni n t he commer ci al mar ket For exampl e t he of f er or maypr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment I f t he Gover nment i s r ecei vi ngl ess you shoul d expect t o pay l ess
613 Previously-Proposed Prices And Contract Prices
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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Comparisons in Price Analysis ( FAR 15 404- 1( b) ( 1) ) Pr i ceanal ys i s
bull I s t he pr ocess of exami ni ng and eval uat i ng a pr oposedpr i ce t o det er mi ne i f i t i s f ai r and r easonabl e
wi t hout eval uat i ng i t s separ at e cost el ement s andpr oposed pr of i t Pr i ce anal ysi s may however besuppor t ed by anal ysi s of some cost el ement s and orpr of i t
bull Al ways i nvol ves some f or m of compar i son wi t h ot herpr i ces
Hence you compar e pr i ces t o det er mi ne whet her t hepr i ce f r om t he appar ent successf ul of f er i s f ai r andr easonabl e The base f or your compar i son shoul d be a pr i cet hat you f eel i s a r easonabl e est i mat e of t he pr i ce t hatyou shoul d pay - - t he shoul d- pay pr i ce
Should-Pay Price The shoul d- pay pr i ce i s t he pr i ce t hat i n your best j udgment t he Gover nment shoul d r easonabl yexpect t o pay f or t he del i ver abl e based on avai l abl ei nf or mat i on concer ni ng compet i t i ve of f er s hi st or i calpr i ces commer ci al pr i ces pr i ci ng yar dst i cks andI ndependent Gover nment Est i mat es
Bear i n mi nd t hat your shoul d- pay pr i ce i s an est i mat eBei ng an est i mat e i t i s by def i ni t i on i nexact I f you havedone a good j ob of pr i ce anal ysi s your shoul d- pay pr i cewi l l pr obabl y be cl ose t o t he mar k St i l l don t bedogmat i c about your est i mat e - t o t he poi nt of r ej ect i ngof f er s t hat ar e cl ose t o but not exact l y at your shoul d-pay pr i ce est i mat e
I f t he appar ent successf ul of f er i s si gni f i cant l yhi gher or l ower t han your est i mat e
bull Det er mi ne why t her e i s a si gni f i cant var i ance bet weent he shoul d- pay pr i ce and t hat of f er and t hen
Make t he cr i t i cal pr i ce- r el at ed deci si ons i n awar di ngcont r act s t hr ough seal ed bi ddi ng or negot i at i ons
Comparability Compar abi l i t y i s t he qual i t y or st at e ofbei ng compar abl e Pr oduct s do not have t o be al i ke t o becompar ed Any t wo t hi ngs can be compar ed but t hecompar i son may show t hat t hey have no char act er i st i cs i ncommon However i f you ar e at t empt i ng t o eval uat e pr i ce
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r easonabl eness t he compar i son wi l l not be of any val ue i ft he i t ems ar e unl i ke i n ever y way
For pr i ce anal ysi s t he i t ems bei ng compar ed must haveenough si mi l ar char act er i st i cs or qual i t i es t o make t he
compar i son usef ul The mor e si mi l ar t he i t ems ar e t heeasi er t he compar i son I f your exami nat i on di scl osessi gni f i cant di f f er ences you may need t o quant i f y t heef f ect of t hose di f f er ences ( e g acqui s i t i on of di f f er entpr oduct s at di f f er ent t i mes or i n di f f er ent pl aces) andmake adj ust ment s bef or e you can r each val i d concl usi onsabout pr i ce r easonabl eness The gr eat er t he di ssi mi l ar i t i esand t he mor e subj ect i ve your adj ust ment t he gr eat er t hepossi bi l i t y f or doubt s about your concl usi ons and t he l essl i kel y t hat your anal ysi s wi l l be per suasi ve
Multiple Comparisons Use t he i nf or mat i on gat her ed dur i ngyour mar ket r esear ch t o make mul t i pl e compar i sons i ndet er mi ni ng pr i ce r easonabl eness and i ncr ease conf i dence i nyour pr i ci ng deci si on
For example adequate price competition is normallyconsidered one of the best bases for price analysisHowever you can have appar ent compet i t i on and st i l l havepr i ces t hat ar e unr easonabl y hi gh How woul d you know Youmust consi der ot her bases f or pr i ce anal ysi s ( e g hi s t or i cal pr i ces cat al og pr i ces or mar ket pr i ces)
The number of compar i sons t hat you consi der shoul ddepend on t he avai l abi l i t y of i nf or mat i on and t he pr i ci ngr i sk i nvol ved i n t he acqui si t i on
bull I f t he i nf or mat i on i s readi l y avai l abl e i n a f or m t hatcan be used f or pr i ce anal ysi s why not consi der i t Aqui ck compar i son wi l l i ncr ease your conf i dence ofpr i ce r easonabl eness
I f t he pr i ce i s l ar ge or you st i l l have concer ns aboutpr i ce r easonabl eness af t er your i ni t i al compar i son t he
r i sk i nvol ved makes i t par t i cul ar l y i mpor t ant t o consi derot her compar i sons
Comparison Steps Each di f f er ent compar i son wi l l i nvol vedi f f er ent i nf or mat i on and some bases wi l l r equi r esubst ant i al adj ust ment pr i or t o maki ng your anal ysi sHowever t he compar i son pr ocess i s descr i bed i n f i ve st epsout l i ned bel ow
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Step Action Questions to Consider 1 Sel ect pr i ces
f or compar i son
bull Ot her
pr oposedpr i ces
bull Commer ci alpr i ces
bull Pr evi ousl y-pr oposedpr i ces andcont r actpr i ces
bull Par amet r i cest i mat es
or r oughyar dst i ckest i mat esor
bull I ndependentGover nmentEst i mat es
Woul d t hi s compar i son be val i d
Ar e mor e compar abl e pr i cesavai l abl e
2 I dent i f y f actor st hat af f ectcompar abi l i t y
Have I consi der ed al lpot ent i al l y s i gni f i cant f act or s i ncl udi ng di f f er ences i n
bull Mar ket condi t i onsbull Quant i t y or si zebull Geogr aphi c l ocat i onbull Pur chasi ng power of t he
dol l ar bull Ext ent of compet i t i onbull Technol ogy orbull Ter ms and condi t i ons ( e g
di f f er ences i n f eat ur es orcapabi l i t i es del i ver y
l ead- t i mes one- t i me cost se t c )
3 Det er mi ne t hepot ent i al i mpactof t hese f act or son pr i cessel ect ed f or
How subst ant i al i s t he i mpact I n vi ew of t hese f act or s andt hei r i mpact wi l l t hecont empl at ed compar i son have anycr edi bi l i t y
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compar i son4 Adj ust pr i ces
sel ect ed f orcompar i son
Have I account ed f or al l f act or st hat can be dol l ar i zed
What t echni ques shoul d be
appl i ed i n maki ng t headj ust ment
How much r el i ance can I pl ace ont he resul t i ng est i mat e
5 Compar e adj ust edpr i ces t o t heof f er i n l i nef or awar d
How much wei ght shoul d I pl aceon each compar i son
I f adj us ted pr i ces di f f ersubst ant i al l y f r om t he appar entsuccessf ul of f er what pr i ce
shoul d t he Gover nment r easonabl yexpect t o pay
61 Selecting Prices For Comparison
Thi s sect i on i dent i f i es and def i nes f i ve pot ent i albases f or pr i ce anal ysi s Af t er def i ni ng each base speci alconsi der at i ons f or usi ng each base ar e out l i ned
bull 6 1 1 - Ot her Pr oposed Pr i ces bull 6 1 2 - Commer ci al Pr i ces bull 6 1 3 - Pr evi ousl y- Pr oposed Pr i ces And Cont r act Pr i ces bull 6 1 4 - Par amet r i c And Rough Yar dst i cks Est i mat es bull 6 1 5 - I ndependent Gover nment Est i mat es
Potential Bases ( FAR 15 404- 1( b) ) You may sel ect any oft he f ol l owi ng bases f or pr i ce anal ysi s
bull Ot her pr oposed pr i ces r ecei ved i n r esponse t o t hesol i ci t at i on
bull Commer ci al pr i ces i ncl udi ng compet i t i ve publ i shed
pr i ce l i st s publ i shed commodi t y mar ket pr i cessi mi l ar i ndexes and di scount or r ebat e ar r angement sbull Pr evi ousl y- pr oposed pr i ces and cont r act pr i ces f or t he
same or si mi l ar end i t ems i f you can est abl i sh bot ht he val i di t y of t he compar i son and t he r easonabl enessof t he pr oposed pr i ce
bull Par amet r i c est i mat es or est i mat es devel oped usi ngr ough yar dst i cks or
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avai l abl e Consi der t he f ol l owi ng f act or s whendet er mi ni ng t he number of sour ces t o sol i ci t
o The nat ur e of t he ar t i cl e or ser vi ce t o bepur chased and whet her i t i s hi ghl y compet i t i veand readi l y avai l abl e i n sever al makes or br andsor i s r el at i vel y noncompet i t i ve
o The avai l abi l i t y of an el ect r oni c commer ce met hodt hat empl oys wi despr ead publ i c not i ce of t her equi r ement
o The ur gency of t he pr oposed pur chaseo The dol l ar val ue of t he pr oposed pur chase ando Past exper i ence concer ni ng speci f i c deal er s
pr i ces bull I f you onl y r ecei ve one quot e consi der t he f ol l owi ng
bases f or pr i ce anal ysi so Pr i ces i dent i f i ed dur i ng mar ket r esear cho Pr i ces f ound r easonabl e f or pr evi ous pur chaseso Cur r ent pr i ce l i s t cat al og or adver t i sed
pr i ces o Pr i ces f or s i mi l ar i t ems i n a r el at ed i ndust r yo Pr i ce est i mat es devel oped dur i ng val ue anal ysi so Per sonal knowl edge of i t em pr i ceso The I ndependent Gover nment Est i mat e oro Any ot her r easonabl e base f or pr i ce anal ysi s
Contracts over the Simplified Acquisition ThresholdConsi der ever y t ype of compar i son whi ch you bel i evepr ovi des a val i d shoul d- pay pr i ce
bull For exampl e i f you have dat a on pr evi ous cont r actpr i ces and have r eason t o bel i eve t hat t hese dat ar ef l ect good pr i or deci si ons on pr i ce r easonabl enesst hen compar e t he appar ent success f ul of f er t o t hosepr i ces I f you have r eason t o bel i eve t hat pr evi ouscont r act pr i ces wer e not r easonabl e t hen gi ve l i t t l eor no wei ght t o t hose pr i ces as you per f or m your pr i ceanal ysi s I f you have no pr i ce hi st or y you must r el yon ot her compar i son bases f or your pr i ce anal ysi s
611 Other Proposed Prices
Proposed Prices ( FAR 15 404- 1( b) ( 2) ) Compar i son of apr oposed pr i ce wi t h ot her pr oposed pr i ces r ecei ved i nr esponse t o t he same sol i ci t at i on i s gener al l y consi der edone of t he best bases f or pr i ce anal ysi s because al l
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of f er s wer e submi t t ed t o meet t he same r equi r ement dur i ngt he same t i me per i od
Using Proposed Prices ( FAR 15 403- 1( c) ( 1) ) Any pr oposedpr i ce used as a base f or pr i ces anal ysi s must meet t he
f ol l owi ng gener al r equi r ement sbull The pr i ce must be submi t t ed by a f i r m compet i ng
i ndependent l y f or cont r act awar dbull The pr i ce must be par t of an of f er t hat meet s
Gover nment r equi r ement sbull Awar d must be made t o t he of f er or whose pr oposal
r epr esent s t he best val ue t o t he Gover nment
I f you have mor e t han one compet i t i ve of f er you coul duse mor e t han one of f er i n your anal ysi s
Do not use t he pr i ce f r om any of f er t hat you woul d notconsi der f or cont r act awar d as a basi s f or pr i ce anal ysi s
bull Never use an of f er f r om a f i r m t hat you havedet er mi ned i s nonr esponsi bl e
bull I n seal ed bi ddi ng never use a nonr esponsi ve bi d
I n negot i at i ons never use a pr i ce f r om a pr oposal t hati s t echni cal l y unaccept abl e
Special Concerns ( CGEN B- 176217 December 14 1972 and CGENB- 189884 Mar ch 29 1979)
You shoul d nor mal l y pl ace l ess r el i ance on compar i sonswi t h ot her pr oposed pr i ces when
bull The sol i ci t at i on was made under condi t i ons t hatunr easonabl y deni ed one or mor e known and qual i f i edof f er or s an oppor t uni t y t o compet e
bull The appar ent successf ul of f er or has such a deci dedadvant age t hat i t i s pr act i cal l y i mmune f r omcompet i t i on
bull Anot her pr i ce compar i son cost anal ysi s or a costr eal i sm anal ysi s i ndi cat es t hat t he appar entsuccessf ul of f er may be unr easonabl e ( t oo hi gh or t ool ow)
bull Gover nment r equi r ement s per mi t of f er or s t o pr oposewi del y di f f er ent t echni cal appr oaches t o cont r actper f or mance For exampl e a cer ami c mug and a papercup may bot h meet a r equi r ement t o hol d 8 ounces of
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i nf or mat i on f r om t he f i r m submi t t i ng t he of f er and orpubl i shed pr i ci ng i nf or mat i on f r om ot her f i r msof f er i ng s i mi l ar pr oducts
bull Published market prices - - pr i ces est abl i shed i n t hecour se of or di nar y and usual t r ade bet ween buyer s andsel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r omsour ces i ndependent of t he of f er or Nor mal l y mar ketpr i ci ng i nf or mat i on i s t aken f r om i ndependent mar ketr epor t s but a mar ket pr i ce coul d be est abl i shed bysur veyi ng t he f i r ms i n a par t i cul ar i ndust r y ormar ket
bull Similar indexes - - commer ci al i t em pr i ces est abl i shedusi ng a means ot her t han t hose descr i bed above Forexampl e an of f er or mi ght pr ovi de i nf or mat i on on t hepr i ces char ged commer ci al cust omer s over a per i od oft i me Such a r ecor d woul d not qual i f y as publ i shedpr i ce l i st or mar ket pr i ce but i t woul d pr ovi de agood r ecor d of t he f i r m s commer ci al pr i ci ngpr act i ces
Discounts Commer ci al sal es t ypi cal l y i ncl ude di scount sf or di f f er ent t ypes of cust omer s Di scount amount st ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egyof t he f i r m Common f act or s af f ect i ng di scount s i ncl udeser vi ces pr ovi ded by t he sel l er ( e g whol esal e and r et ai lsal es) and t he i mpor t ance of t he sal e ( e g dol l ar si nvol ved or t he r el at i onshi p t o ot her sal es)
Rebates Rebat es ar e of t en of f er ed t o var i ous cust omer sbased on t he cust omer s t ot al pur chases over a speci f i cper i od of t i me For exampl e aut omobi l e manuf act ur er st ypi cal l y of f er deal er s r ebat es based on t ot al sal es Thati s one r eason why deal er s can adver t i se sal es at i nvoi ce Deal er pr of i t i s based on t he r ebat e amount
Contracting Situation Differences Remember t hat yourcont r act i ng si t uat i on may be di f f er ent t han t he si t uat i oni n t he commer ci al mar ket For exampl e t he of f er or maypr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment I f t he Gover nment i s r ecei vi ngl ess you shoul d expect t o pay l ess
613 Previously-Proposed Prices And Contract Prices
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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r easonabl eness t he compar i son wi l l not be of any val ue i ft he i t ems ar e unl i ke i n ever y way
For pr i ce anal ysi s t he i t ems bei ng compar ed must haveenough si mi l ar char act er i st i cs or qual i t i es t o make t he
compar i son usef ul The mor e si mi l ar t he i t ems ar e t heeasi er t he compar i son I f your exami nat i on di scl osessi gni f i cant di f f er ences you may need t o quant i f y t heef f ect of t hose di f f er ences ( e g acqui s i t i on of di f f er entpr oduct s at di f f er ent t i mes or i n di f f er ent pl aces) andmake adj ust ment s bef or e you can r each val i d concl usi onsabout pr i ce r easonabl eness The gr eat er t he di ssi mi l ar i t i esand t he mor e subj ect i ve your adj ust ment t he gr eat er t hepossi bi l i t y f or doubt s about your concl usi ons and t he l essl i kel y t hat your anal ysi s wi l l be per suasi ve
Multiple Comparisons Use t he i nf or mat i on gat her ed dur i ngyour mar ket r esear ch t o make mul t i pl e compar i sons i ndet er mi ni ng pr i ce r easonabl eness and i ncr ease conf i dence i nyour pr i ci ng deci si on
For example adequate price competition is normallyconsidered one of the best bases for price analysisHowever you can have appar ent compet i t i on and st i l l havepr i ces t hat ar e unr easonabl y hi gh How woul d you know Youmust consi der ot her bases f or pr i ce anal ysi s ( e g hi s t or i cal pr i ces cat al og pr i ces or mar ket pr i ces)
The number of compar i sons t hat you consi der shoul ddepend on t he avai l abi l i t y of i nf or mat i on and t he pr i ci ngr i sk i nvol ved i n t he acqui si t i on
bull I f t he i nf or mat i on i s readi l y avai l abl e i n a f or m t hatcan be used f or pr i ce anal ysi s why not consi der i t Aqui ck compar i son wi l l i ncr ease your conf i dence ofpr i ce r easonabl eness
I f t he pr i ce i s l ar ge or you st i l l have concer ns aboutpr i ce r easonabl eness af t er your i ni t i al compar i son t he
r i sk i nvol ved makes i t par t i cul ar l y i mpor t ant t o consi derot her compar i sons
Comparison Steps Each di f f er ent compar i son wi l l i nvol vedi f f er ent i nf or mat i on and some bases wi l l r equi r esubst ant i al adj ust ment pr i or t o maki ng your anal ysi sHowever t he compar i son pr ocess i s descr i bed i n f i ve st epsout l i ned bel ow
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Step Action Questions to Consider 1 Sel ect pr i ces
f or compar i son
bull Ot her
pr oposedpr i ces
bull Commer ci alpr i ces
bull Pr evi ousl y-pr oposedpr i ces andcont r actpr i ces
bull Par amet r i cest i mat es
or r oughyar dst i ckest i mat esor
bull I ndependentGover nmentEst i mat es
Woul d t hi s compar i son be val i d
Ar e mor e compar abl e pr i cesavai l abl e
2 I dent i f y f actor st hat af f ectcompar abi l i t y
Have I consi der ed al lpot ent i al l y s i gni f i cant f act or s i ncl udi ng di f f er ences i n
bull Mar ket condi t i onsbull Quant i t y or si zebull Geogr aphi c l ocat i onbull Pur chasi ng power of t he
dol l ar bull Ext ent of compet i t i onbull Technol ogy orbull Ter ms and condi t i ons ( e g
di f f er ences i n f eat ur es orcapabi l i t i es del i ver y
l ead- t i mes one- t i me cost se t c )
3 Det er mi ne t hepot ent i al i mpactof t hese f act or son pr i cessel ect ed f or
How subst ant i al i s t he i mpact I n vi ew of t hese f act or s andt hei r i mpact wi l l t hecont empl at ed compar i son have anycr edi bi l i t y
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compar i son4 Adj ust pr i ces
sel ect ed f orcompar i son
Have I account ed f or al l f act or st hat can be dol l ar i zed
What t echni ques shoul d be
appl i ed i n maki ng t headj ust ment
How much r el i ance can I pl ace ont he resul t i ng est i mat e
5 Compar e adj ust edpr i ces t o t heof f er i n l i nef or awar d
How much wei ght shoul d I pl aceon each compar i son
I f adj us ted pr i ces di f f ersubst ant i al l y f r om t he appar entsuccessf ul of f er what pr i ce
shoul d t he Gover nment r easonabl yexpect t o pay
61 Selecting Prices For Comparison
Thi s sect i on i dent i f i es and def i nes f i ve pot ent i albases f or pr i ce anal ysi s Af t er def i ni ng each base speci alconsi der at i ons f or usi ng each base ar e out l i ned
bull 6 1 1 - Ot her Pr oposed Pr i ces bull 6 1 2 - Commer ci al Pr i ces bull 6 1 3 - Pr evi ousl y- Pr oposed Pr i ces And Cont r act Pr i ces bull 6 1 4 - Par amet r i c And Rough Yar dst i cks Est i mat es bull 6 1 5 - I ndependent Gover nment Est i mat es
Potential Bases ( FAR 15 404- 1( b) ) You may sel ect any oft he f ol l owi ng bases f or pr i ce anal ysi s
bull Ot her pr oposed pr i ces r ecei ved i n r esponse t o t hesol i ci t at i on
bull Commer ci al pr i ces i ncl udi ng compet i t i ve publ i shed
pr i ce l i st s publ i shed commodi t y mar ket pr i cessi mi l ar i ndexes and di scount or r ebat e ar r angement sbull Pr evi ousl y- pr oposed pr i ces and cont r act pr i ces f or t he
same or si mi l ar end i t ems i f you can est abl i sh bot ht he val i di t y of t he compar i son and t he r easonabl enessof t he pr oposed pr i ce
bull Par amet r i c est i mat es or est i mat es devel oped usi ngr ough yar dst i cks or
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avai l abl e Consi der t he f ol l owi ng f act or s whendet er mi ni ng t he number of sour ces t o sol i ci t
o The nat ur e of t he ar t i cl e or ser vi ce t o bepur chased and whet her i t i s hi ghl y compet i t i veand readi l y avai l abl e i n sever al makes or br andsor i s r el at i vel y noncompet i t i ve
o The avai l abi l i t y of an el ect r oni c commer ce met hodt hat empl oys wi despr ead publ i c not i ce of t her equi r ement
o The ur gency of t he pr oposed pur chaseo The dol l ar val ue of t he pr oposed pur chase ando Past exper i ence concer ni ng speci f i c deal er s
pr i ces bull I f you onl y r ecei ve one quot e consi der t he f ol l owi ng
bases f or pr i ce anal ysi so Pr i ces i dent i f i ed dur i ng mar ket r esear cho Pr i ces f ound r easonabl e f or pr evi ous pur chaseso Cur r ent pr i ce l i s t cat al og or adver t i sed
pr i ces o Pr i ces f or s i mi l ar i t ems i n a r el at ed i ndust r yo Pr i ce est i mat es devel oped dur i ng val ue anal ysi so Per sonal knowl edge of i t em pr i ceso The I ndependent Gover nment Est i mat e oro Any ot her r easonabl e base f or pr i ce anal ysi s
Contracts over the Simplified Acquisition ThresholdConsi der ever y t ype of compar i son whi ch you bel i evepr ovi des a val i d shoul d- pay pr i ce
bull For exampl e i f you have dat a on pr evi ous cont r actpr i ces and have r eason t o bel i eve t hat t hese dat ar ef l ect good pr i or deci si ons on pr i ce r easonabl enesst hen compar e t he appar ent success f ul of f er t o t hosepr i ces I f you have r eason t o bel i eve t hat pr evi ouscont r act pr i ces wer e not r easonabl e t hen gi ve l i t t l eor no wei ght t o t hose pr i ces as you per f or m your pr i ceanal ysi s I f you have no pr i ce hi st or y you must r el yon ot her compar i son bases f or your pr i ce anal ysi s
611 Other Proposed Prices
Proposed Prices ( FAR 15 404- 1( b) ( 2) ) Compar i son of apr oposed pr i ce wi t h ot her pr oposed pr i ces r ecei ved i nr esponse t o t he same sol i ci t at i on i s gener al l y consi der edone of t he best bases f or pr i ce anal ysi s because al l
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of f er s wer e submi t t ed t o meet t he same r equi r ement dur i ngt he same t i me per i od
Using Proposed Prices ( FAR 15 403- 1( c) ( 1) ) Any pr oposedpr i ce used as a base f or pr i ces anal ysi s must meet t he
f ol l owi ng gener al r equi r ement sbull The pr i ce must be submi t t ed by a f i r m compet i ng
i ndependent l y f or cont r act awar dbull The pr i ce must be par t of an of f er t hat meet s
Gover nment r equi r ement sbull Awar d must be made t o t he of f er or whose pr oposal
r epr esent s t he best val ue t o t he Gover nment
I f you have mor e t han one compet i t i ve of f er you coul duse mor e t han one of f er i n your anal ysi s
Do not use t he pr i ce f r om any of f er t hat you woul d notconsi der f or cont r act awar d as a basi s f or pr i ce anal ysi s
bull Never use an of f er f r om a f i r m t hat you havedet er mi ned i s nonr esponsi bl e
bull I n seal ed bi ddi ng never use a nonr esponsi ve bi d
I n negot i at i ons never use a pr i ce f r om a pr oposal t hati s t echni cal l y unaccept abl e
Special Concerns ( CGEN B- 176217 December 14 1972 and CGENB- 189884 Mar ch 29 1979)
You shoul d nor mal l y pl ace l ess r el i ance on compar i sonswi t h ot her pr oposed pr i ces when
bull The sol i ci t at i on was made under condi t i ons t hatunr easonabl y deni ed one or mor e known and qual i f i edof f er or s an oppor t uni t y t o compet e
bull The appar ent successf ul of f er or has such a deci dedadvant age t hat i t i s pr act i cal l y i mmune f r omcompet i t i on
bull Anot her pr i ce compar i son cost anal ysi s or a costr eal i sm anal ysi s i ndi cat es t hat t he appar entsuccessf ul of f er may be unr easonabl e ( t oo hi gh or t ool ow)
bull Gover nment r equi r ement s per mi t of f er or s t o pr oposewi del y di f f er ent t echni cal appr oaches t o cont r actper f or mance For exampl e a cer ami c mug and a papercup may bot h meet a r equi r ement t o hol d 8 ounces of
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i nf or mat i on f r om t he f i r m submi t t i ng t he of f er and orpubl i shed pr i ci ng i nf or mat i on f r om ot her f i r msof f er i ng s i mi l ar pr oducts
bull Published market prices - - pr i ces est abl i shed i n t hecour se of or di nar y and usual t r ade bet ween buyer s andsel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r omsour ces i ndependent of t he of f er or Nor mal l y mar ketpr i ci ng i nf or mat i on i s t aken f r om i ndependent mar ketr epor t s but a mar ket pr i ce coul d be est abl i shed bysur veyi ng t he f i r ms i n a par t i cul ar i ndust r y ormar ket
bull Similar indexes - - commer ci al i t em pr i ces est abl i shedusi ng a means ot her t han t hose descr i bed above Forexampl e an of f er or mi ght pr ovi de i nf or mat i on on t hepr i ces char ged commer ci al cust omer s over a per i od oft i me Such a r ecor d woul d not qual i f y as publ i shedpr i ce l i st or mar ket pr i ce but i t woul d pr ovi de agood r ecor d of t he f i r m s commer ci al pr i ci ngpr act i ces
Discounts Commer ci al sal es t ypi cal l y i ncl ude di scount sf or di f f er ent t ypes of cust omer s Di scount amount st ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egyof t he f i r m Common f act or s af f ect i ng di scount s i ncl udeser vi ces pr ovi ded by t he sel l er ( e g whol esal e and r et ai lsal es) and t he i mpor t ance of t he sal e ( e g dol l ar si nvol ved or t he r el at i onshi p t o ot her sal es)
Rebates Rebat es ar e of t en of f er ed t o var i ous cust omer sbased on t he cust omer s t ot al pur chases over a speci f i cper i od of t i me For exampl e aut omobi l e manuf act ur er st ypi cal l y of f er deal er s r ebat es based on t ot al sal es Thati s one r eason why deal er s can adver t i se sal es at i nvoi ce Deal er pr of i t i s based on t he r ebat e amount
Contracting Situation Differences Remember t hat yourcont r act i ng si t uat i on may be di f f er ent t han t he si t uat i oni n t he commer ci al mar ket For exampl e t he of f er or maypr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment I f t he Gover nment i s r ecei vi ngl ess you shoul d expect t o pay l ess
613 Previously-Proposed Prices And Contract Prices
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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Step Action Questions to Consider 1 Sel ect pr i ces
f or compar i son
bull Ot her
pr oposedpr i ces
bull Commer ci alpr i ces
bull Pr evi ousl y-pr oposedpr i ces andcont r actpr i ces
bull Par amet r i cest i mat es
or r oughyar dst i ckest i mat esor
bull I ndependentGover nmentEst i mat es
Woul d t hi s compar i son be val i d
Ar e mor e compar abl e pr i cesavai l abl e
2 I dent i f y f actor st hat af f ectcompar abi l i t y
Have I consi der ed al lpot ent i al l y s i gni f i cant f act or s i ncl udi ng di f f er ences i n
bull Mar ket condi t i onsbull Quant i t y or si zebull Geogr aphi c l ocat i onbull Pur chasi ng power of t he
dol l ar bull Ext ent of compet i t i onbull Technol ogy orbull Ter ms and condi t i ons ( e g
di f f er ences i n f eat ur es orcapabi l i t i es del i ver y
l ead- t i mes one- t i me cost se t c )
3 Det er mi ne t hepot ent i al i mpactof t hese f act or son pr i cessel ect ed f or
How subst ant i al i s t he i mpact I n vi ew of t hese f act or s andt hei r i mpact wi l l t hecont empl at ed compar i son have anycr edi bi l i t y
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compar i son4 Adj ust pr i ces
sel ect ed f orcompar i son
Have I account ed f or al l f act or st hat can be dol l ar i zed
What t echni ques shoul d be
appl i ed i n maki ng t headj ust ment
How much r el i ance can I pl ace ont he resul t i ng est i mat e
5 Compar e adj ust edpr i ces t o t heof f er i n l i nef or awar d
How much wei ght shoul d I pl aceon each compar i son
I f adj us ted pr i ces di f f ersubst ant i al l y f r om t he appar entsuccessf ul of f er what pr i ce
shoul d t he Gover nment r easonabl yexpect t o pay
61 Selecting Prices For Comparison
Thi s sect i on i dent i f i es and def i nes f i ve pot ent i albases f or pr i ce anal ysi s Af t er def i ni ng each base speci alconsi der at i ons f or usi ng each base ar e out l i ned
bull 6 1 1 - Ot her Pr oposed Pr i ces bull 6 1 2 - Commer ci al Pr i ces bull 6 1 3 - Pr evi ousl y- Pr oposed Pr i ces And Cont r act Pr i ces bull 6 1 4 - Par amet r i c And Rough Yar dst i cks Est i mat es bull 6 1 5 - I ndependent Gover nment Est i mat es
Potential Bases ( FAR 15 404- 1( b) ) You may sel ect any oft he f ol l owi ng bases f or pr i ce anal ysi s
bull Ot her pr oposed pr i ces r ecei ved i n r esponse t o t hesol i ci t at i on
bull Commer ci al pr i ces i ncl udi ng compet i t i ve publ i shed
pr i ce l i st s publ i shed commodi t y mar ket pr i cessi mi l ar i ndexes and di scount or r ebat e ar r angement sbull Pr evi ousl y- pr oposed pr i ces and cont r act pr i ces f or t he
same or si mi l ar end i t ems i f you can est abl i sh bot ht he val i di t y of t he compar i son and t he r easonabl enessof t he pr oposed pr i ce
bull Par amet r i c est i mat es or est i mat es devel oped usi ngr ough yar dst i cks or
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avai l abl e Consi der t he f ol l owi ng f act or s whendet er mi ni ng t he number of sour ces t o sol i ci t
o The nat ur e of t he ar t i cl e or ser vi ce t o bepur chased and whet her i t i s hi ghl y compet i t i veand readi l y avai l abl e i n sever al makes or br andsor i s r el at i vel y noncompet i t i ve
o The avai l abi l i t y of an el ect r oni c commer ce met hodt hat empl oys wi despr ead publ i c not i ce of t her equi r ement
o The ur gency of t he pr oposed pur chaseo The dol l ar val ue of t he pr oposed pur chase ando Past exper i ence concer ni ng speci f i c deal er s
pr i ces bull I f you onl y r ecei ve one quot e consi der t he f ol l owi ng
bases f or pr i ce anal ysi so Pr i ces i dent i f i ed dur i ng mar ket r esear cho Pr i ces f ound r easonabl e f or pr evi ous pur chaseso Cur r ent pr i ce l i s t cat al og or adver t i sed
pr i ces o Pr i ces f or s i mi l ar i t ems i n a r el at ed i ndust r yo Pr i ce est i mat es devel oped dur i ng val ue anal ysi so Per sonal knowl edge of i t em pr i ceso The I ndependent Gover nment Est i mat e oro Any ot her r easonabl e base f or pr i ce anal ysi s
Contracts over the Simplified Acquisition ThresholdConsi der ever y t ype of compar i son whi ch you bel i evepr ovi des a val i d shoul d- pay pr i ce
bull For exampl e i f you have dat a on pr evi ous cont r actpr i ces and have r eason t o bel i eve t hat t hese dat ar ef l ect good pr i or deci si ons on pr i ce r easonabl enesst hen compar e t he appar ent success f ul of f er t o t hosepr i ces I f you have r eason t o bel i eve t hat pr evi ouscont r act pr i ces wer e not r easonabl e t hen gi ve l i t t l eor no wei ght t o t hose pr i ces as you per f or m your pr i ceanal ysi s I f you have no pr i ce hi st or y you must r el yon ot her compar i son bases f or your pr i ce anal ysi s
611 Other Proposed Prices
Proposed Prices ( FAR 15 404- 1( b) ( 2) ) Compar i son of apr oposed pr i ce wi t h ot her pr oposed pr i ces r ecei ved i nr esponse t o t he same sol i ci t at i on i s gener al l y consi der edone of t he best bases f or pr i ce anal ysi s because al l
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of f er s wer e submi t t ed t o meet t he same r equi r ement dur i ngt he same t i me per i od
Using Proposed Prices ( FAR 15 403- 1( c) ( 1) ) Any pr oposedpr i ce used as a base f or pr i ces anal ysi s must meet t he
f ol l owi ng gener al r equi r ement sbull The pr i ce must be submi t t ed by a f i r m compet i ng
i ndependent l y f or cont r act awar dbull The pr i ce must be par t of an of f er t hat meet s
Gover nment r equi r ement sbull Awar d must be made t o t he of f er or whose pr oposal
r epr esent s t he best val ue t o t he Gover nment
I f you have mor e t han one compet i t i ve of f er you coul duse mor e t han one of f er i n your anal ysi s
Do not use t he pr i ce f r om any of f er t hat you woul d notconsi der f or cont r act awar d as a basi s f or pr i ce anal ysi s
bull Never use an of f er f r om a f i r m t hat you havedet er mi ned i s nonr esponsi bl e
bull I n seal ed bi ddi ng never use a nonr esponsi ve bi d
I n negot i at i ons never use a pr i ce f r om a pr oposal t hati s t echni cal l y unaccept abl e
Special Concerns ( CGEN B- 176217 December 14 1972 and CGENB- 189884 Mar ch 29 1979)
You shoul d nor mal l y pl ace l ess r el i ance on compar i sonswi t h ot her pr oposed pr i ces when
bull The sol i ci t at i on was made under condi t i ons t hatunr easonabl y deni ed one or mor e known and qual i f i edof f er or s an oppor t uni t y t o compet e
bull The appar ent successf ul of f er or has such a deci dedadvant age t hat i t i s pr act i cal l y i mmune f r omcompet i t i on
bull Anot her pr i ce compar i son cost anal ysi s or a costr eal i sm anal ysi s i ndi cat es t hat t he appar entsuccessf ul of f er may be unr easonabl e ( t oo hi gh or t ool ow)
bull Gover nment r equi r ement s per mi t of f er or s t o pr oposewi del y di f f er ent t echni cal appr oaches t o cont r actper f or mance For exampl e a cer ami c mug and a papercup may bot h meet a r equi r ement t o hol d 8 ounces of
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i nf or mat i on f r om t he f i r m submi t t i ng t he of f er and orpubl i shed pr i ci ng i nf or mat i on f r om ot her f i r msof f er i ng s i mi l ar pr oducts
bull Published market prices - - pr i ces est abl i shed i n t hecour se of or di nar y and usual t r ade bet ween buyer s andsel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r omsour ces i ndependent of t he of f er or Nor mal l y mar ketpr i ci ng i nf or mat i on i s t aken f r om i ndependent mar ketr epor t s but a mar ket pr i ce coul d be est abl i shed bysur veyi ng t he f i r ms i n a par t i cul ar i ndust r y ormar ket
bull Similar indexes - - commer ci al i t em pr i ces est abl i shedusi ng a means ot her t han t hose descr i bed above Forexampl e an of f er or mi ght pr ovi de i nf or mat i on on t hepr i ces char ged commer ci al cust omer s over a per i od oft i me Such a r ecor d woul d not qual i f y as publ i shedpr i ce l i st or mar ket pr i ce but i t woul d pr ovi de agood r ecor d of t he f i r m s commer ci al pr i ci ngpr act i ces
Discounts Commer ci al sal es t ypi cal l y i ncl ude di scount sf or di f f er ent t ypes of cust omer s Di scount amount st ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egyof t he f i r m Common f act or s af f ect i ng di scount s i ncl udeser vi ces pr ovi ded by t he sel l er ( e g whol esal e and r et ai lsal es) and t he i mpor t ance of t he sal e ( e g dol l ar si nvol ved or t he r el at i onshi p t o ot her sal es)
Rebates Rebat es ar e of t en of f er ed t o var i ous cust omer sbased on t he cust omer s t ot al pur chases over a speci f i cper i od of t i me For exampl e aut omobi l e manuf act ur er st ypi cal l y of f er deal er s r ebat es based on t ot al sal es Thati s one r eason why deal er s can adver t i se sal es at i nvoi ce Deal er pr of i t i s based on t he r ebat e amount
Contracting Situation Differences Remember t hat yourcont r act i ng si t uat i on may be di f f er ent t han t he si t uat i oni n t he commer ci al mar ket For exampl e t he of f er or maypr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment I f t he Gover nment i s r ecei vi ngl ess you shoul d expect t o pay l ess
613 Previously-Proposed Prices And Contract Prices
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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compar i son4 Adj ust pr i ces
sel ect ed f orcompar i son
Have I account ed f or al l f act or st hat can be dol l ar i zed
What t echni ques shoul d be
appl i ed i n maki ng t headj ust ment
How much r el i ance can I pl ace ont he resul t i ng est i mat e
5 Compar e adj ust edpr i ces t o t heof f er i n l i nef or awar d
How much wei ght shoul d I pl aceon each compar i son
I f adj us ted pr i ces di f f ersubst ant i al l y f r om t he appar entsuccessf ul of f er what pr i ce
shoul d t he Gover nment r easonabl yexpect t o pay
61 Selecting Prices For Comparison
Thi s sect i on i dent i f i es and def i nes f i ve pot ent i albases f or pr i ce anal ysi s Af t er def i ni ng each base speci alconsi der at i ons f or usi ng each base ar e out l i ned
bull 6 1 1 - Ot her Pr oposed Pr i ces bull 6 1 2 - Commer ci al Pr i ces bull 6 1 3 - Pr evi ousl y- Pr oposed Pr i ces And Cont r act Pr i ces bull 6 1 4 - Par amet r i c And Rough Yar dst i cks Est i mat es bull 6 1 5 - I ndependent Gover nment Est i mat es
Potential Bases ( FAR 15 404- 1( b) ) You may sel ect any oft he f ol l owi ng bases f or pr i ce anal ysi s
bull Ot her pr oposed pr i ces r ecei ved i n r esponse t o t hesol i ci t at i on
bull Commer ci al pr i ces i ncl udi ng compet i t i ve publ i shed
pr i ce l i st s publ i shed commodi t y mar ket pr i cessi mi l ar i ndexes and di scount or r ebat e ar r angement sbull Pr evi ousl y- pr oposed pr i ces and cont r act pr i ces f or t he
same or si mi l ar end i t ems i f you can est abl i sh bot ht he val i di t y of t he compar i son and t he r easonabl enessof t he pr oposed pr i ce
bull Par amet r i c est i mat es or est i mat es devel oped usi ngr ough yar dst i cks or
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avai l abl e Consi der t he f ol l owi ng f act or s whendet er mi ni ng t he number of sour ces t o sol i ci t
o The nat ur e of t he ar t i cl e or ser vi ce t o bepur chased and whet her i t i s hi ghl y compet i t i veand readi l y avai l abl e i n sever al makes or br andsor i s r el at i vel y noncompet i t i ve
o The avai l abi l i t y of an el ect r oni c commer ce met hodt hat empl oys wi despr ead publ i c not i ce of t her equi r ement
o The ur gency of t he pr oposed pur chaseo The dol l ar val ue of t he pr oposed pur chase ando Past exper i ence concer ni ng speci f i c deal er s
pr i ces bull I f you onl y r ecei ve one quot e consi der t he f ol l owi ng
bases f or pr i ce anal ysi so Pr i ces i dent i f i ed dur i ng mar ket r esear cho Pr i ces f ound r easonabl e f or pr evi ous pur chaseso Cur r ent pr i ce l i s t cat al og or adver t i sed
pr i ces o Pr i ces f or s i mi l ar i t ems i n a r el at ed i ndust r yo Pr i ce est i mat es devel oped dur i ng val ue anal ysi so Per sonal knowl edge of i t em pr i ceso The I ndependent Gover nment Est i mat e oro Any ot her r easonabl e base f or pr i ce anal ysi s
Contracts over the Simplified Acquisition ThresholdConsi der ever y t ype of compar i son whi ch you bel i evepr ovi des a val i d shoul d- pay pr i ce
bull For exampl e i f you have dat a on pr evi ous cont r actpr i ces and have r eason t o bel i eve t hat t hese dat ar ef l ect good pr i or deci si ons on pr i ce r easonabl enesst hen compar e t he appar ent success f ul of f er t o t hosepr i ces I f you have r eason t o bel i eve t hat pr evi ouscont r act pr i ces wer e not r easonabl e t hen gi ve l i t t l eor no wei ght t o t hose pr i ces as you per f or m your pr i ceanal ysi s I f you have no pr i ce hi st or y you must r el yon ot her compar i son bases f or your pr i ce anal ysi s
611 Other Proposed Prices
Proposed Prices ( FAR 15 404- 1( b) ( 2) ) Compar i son of apr oposed pr i ce wi t h ot her pr oposed pr i ces r ecei ved i nr esponse t o t he same sol i ci t at i on i s gener al l y consi der edone of t he best bases f or pr i ce anal ysi s because al l
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of f er s wer e submi t t ed t o meet t he same r equi r ement dur i ngt he same t i me per i od
Using Proposed Prices ( FAR 15 403- 1( c) ( 1) ) Any pr oposedpr i ce used as a base f or pr i ces anal ysi s must meet t he
f ol l owi ng gener al r equi r ement sbull The pr i ce must be submi t t ed by a f i r m compet i ng
i ndependent l y f or cont r act awar dbull The pr i ce must be par t of an of f er t hat meet s
Gover nment r equi r ement sbull Awar d must be made t o t he of f er or whose pr oposal
r epr esent s t he best val ue t o t he Gover nment
I f you have mor e t han one compet i t i ve of f er you coul duse mor e t han one of f er i n your anal ysi s
Do not use t he pr i ce f r om any of f er t hat you woul d notconsi der f or cont r act awar d as a basi s f or pr i ce anal ysi s
bull Never use an of f er f r om a f i r m t hat you havedet er mi ned i s nonr esponsi bl e
bull I n seal ed bi ddi ng never use a nonr esponsi ve bi d
I n negot i at i ons never use a pr i ce f r om a pr oposal t hati s t echni cal l y unaccept abl e
Special Concerns ( CGEN B- 176217 December 14 1972 and CGENB- 189884 Mar ch 29 1979)
You shoul d nor mal l y pl ace l ess r el i ance on compar i sonswi t h ot her pr oposed pr i ces when
bull The sol i ci t at i on was made under condi t i ons t hatunr easonabl y deni ed one or mor e known and qual i f i edof f er or s an oppor t uni t y t o compet e
bull The appar ent successf ul of f er or has such a deci dedadvant age t hat i t i s pr act i cal l y i mmune f r omcompet i t i on
bull Anot her pr i ce compar i son cost anal ysi s or a costr eal i sm anal ysi s i ndi cat es t hat t he appar entsuccessf ul of f er may be unr easonabl e ( t oo hi gh or t ool ow)
bull Gover nment r equi r ement s per mi t of f er or s t o pr oposewi del y di f f er ent t echni cal appr oaches t o cont r actper f or mance For exampl e a cer ami c mug and a papercup may bot h meet a r equi r ement t o hol d 8 ounces of
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i nf or mat i on f r om t he f i r m submi t t i ng t he of f er and orpubl i shed pr i ci ng i nf or mat i on f r om ot her f i r msof f er i ng s i mi l ar pr oducts
bull Published market prices - - pr i ces est abl i shed i n t hecour se of or di nar y and usual t r ade bet ween buyer s andsel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r omsour ces i ndependent of t he of f er or Nor mal l y mar ketpr i ci ng i nf or mat i on i s t aken f r om i ndependent mar ketr epor t s but a mar ket pr i ce coul d be est abl i shed bysur veyi ng t he f i r ms i n a par t i cul ar i ndust r y ormar ket
bull Similar indexes - - commer ci al i t em pr i ces est abl i shedusi ng a means ot her t han t hose descr i bed above Forexampl e an of f er or mi ght pr ovi de i nf or mat i on on t hepr i ces char ged commer ci al cust omer s over a per i od oft i me Such a r ecor d woul d not qual i f y as publ i shedpr i ce l i st or mar ket pr i ce but i t woul d pr ovi de agood r ecor d of t he f i r m s commer ci al pr i ci ngpr act i ces
Discounts Commer ci al sal es t ypi cal l y i ncl ude di scount sf or di f f er ent t ypes of cust omer s Di scount amount st ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egyof t he f i r m Common f act or s af f ect i ng di scount s i ncl udeser vi ces pr ovi ded by t he sel l er ( e g whol esal e and r et ai lsal es) and t he i mpor t ance of t he sal e ( e g dol l ar si nvol ved or t he r el at i onshi p t o ot her sal es)
Rebates Rebat es ar e of t en of f er ed t o var i ous cust omer sbased on t he cust omer s t ot al pur chases over a speci f i cper i od of t i me For exampl e aut omobi l e manuf act ur er st ypi cal l y of f er deal er s r ebat es based on t ot al sal es Thati s one r eason why deal er s can adver t i se sal es at i nvoi ce Deal er pr of i t i s based on t he r ebat e amount
Contracting Situation Differences Remember t hat yourcont r act i ng si t uat i on may be di f f er ent t han t he si t uat i oni n t he commer ci al mar ket For exampl e t he of f er or maypr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment I f t he Gover nment i s r ecei vi ngl ess you shoul d expect t o pay l ess
613 Previously-Proposed Prices And Contract Prices
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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avai l abl e Consi der t he f ol l owi ng f act or s whendet er mi ni ng t he number of sour ces t o sol i ci t
o The nat ur e of t he ar t i cl e or ser vi ce t o bepur chased and whet her i t i s hi ghl y compet i t i veand readi l y avai l abl e i n sever al makes or br andsor i s r el at i vel y noncompet i t i ve
o The avai l abi l i t y of an el ect r oni c commer ce met hodt hat empl oys wi despr ead publ i c not i ce of t her equi r ement
o The ur gency of t he pr oposed pur chaseo The dol l ar val ue of t he pr oposed pur chase ando Past exper i ence concer ni ng speci f i c deal er s
pr i ces bull I f you onl y r ecei ve one quot e consi der t he f ol l owi ng
bases f or pr i ce anal ysi so Pr i ces i dent i f i ed dur i ng mar ket r esear cho Pr i ces f ound r easonabl e f or pr evi ous pur chaseso Cur r ent pr i ce l i s t cat al og or adver t i sed
pr i ces o Pr i ces f or s i mi l ar i t ems i n a r el at ed i ndust r yo Pr i ce est i mat es devel oped dur i ng val ue anal ysi so Per sonal knowl edge of i t em pr i ceso The I ndependent Gover nment Est i mat e oro Any ot her r easonabl e base f or pr i ce anal ysi s
Contracts over the Simplified Acquisition ThresholdConsi der ever y t ype of compar i son whi ch you bel i evepr ovi des a val i d shoul d- pay pr i ce
bull For exampl e i f you have dat a on pr evi ous cont r actpr i ces and have r eason t o bel i eve t hat t hese dat ar ef l ect good pr i or deci si ons on pr i ce r easonabl enesst hen compar e t he appar ent success f ul of f er t o t hosepr i ces I f you have r eason t o bel i eve t hat pr evi ouscont r act pr i ces wer e not r easonabl e t hen gi ve l i t t l eor no wei ght t o t hose pr i ces as you per f or m your pr i ceanal ysi s I f you have no pr i ce hi st or y you must r el yon ot her compar i son bases f or your pr i ce anal ysi s
611 Other Proposed Prices
Proposed Prices ( FAR 15 404- 1( b) ( 2) ) Compar i son of apr oposed pr i ce wi t h ot her pr oposed pr i ces r ecei ved i nr esponse t o t he same sol i ci t at i on i s gener al l y consi der edone of t he best bases f or pr i ce anal ysi s because al l
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of f er s wer e submi t t ed t o meet t he same r equi r ement dur i ngt he same t i me per i od
Using Proposed Prices ( FAR 15 403- 1( c) ( 1) ) Any pr oposedpr i ce used as a base f or pr i ces anal ysi s must meet t he
f ol l owi ng gener al r equi r ement sbull The pr i ce must be submi t t ed by a f i r m compet i ng
i ndependent l y f or cont r act awar dbull The pr i ce must be par t of an of f er t hat meet s
Gover nment r equi r ement sbull Awar d must be made t o t he of f er or whose pr oposal
r epr esent s t he best val ue t o t he Gover nment
I f you have mor e t han one compet i t i ve of f er you coul duse mor e t han one of f er i n your anal ysi s
Do not use t he pr i ce f r om any of f er t hat you woul d notconsi der f or cont r act awar d as a basi s f or pr i ce anal ysi s
bull Never use an of f er f r om a f i r m t hat you havedet er mi ned i s nonr esponsi bl e
bull I n seal ed bi ddi ng never use a nonr esponsi ve bi d
I n negot i at i ons never use a pr i ce f r om a pr oposal t hati s t echni cal l y unaccept abl e
Special Concerns ( CGEN B- 176217 December 14 1972 and CGENB- 189884 Mar ch 29 1979)
You shoul d nor mal l y pl ace l ess r el i ance on compar i sonswi t h ot her pr oposed pr i ces when
bull The sol i ci t at i on was made under condi t i ons t hatunr easonabl y deni ed one or mor e known and qual i f i edof f er or s an oppor t uni t y t o compet e
bull The appar ent successf ul of f er or has such a deci dedadvant age t hat i t i s pr act i cal l y i mmune f r omcompet i t i on
bull Anot her pr i ce compar i son cost anal ysi s or a costr eal i sm anal ysi s i ndi cat es t hat t he appar entsuccessf ul of f er may be unr easonabl e ( t oo hi gh or t ool ow)
bull Gover nment r equi r ement s per mi t of f er or s t o pr oposewi del y di f f er ent t echni cal appr oaches t o cont r actper f or mance For exampl e a cer ami c mug and a papercup may bot h meet a r equi r ement t o hol d 8 ounces of
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i nf or mat i on f r om t he f i r m submi t t i ng t he of f er and orpubl i shed pr i ci ng i nf or mat i on f r om ot her f i r msof f er i ng s i mi l ar pr oducts
bull Published market prices - - pr i ces est abl i shed i n t hecour se of or di nar y and usual t r ade bet ween buyer s andsel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r omsour ces i ndependent of t he of f er or Nor mal l y mar ketpr i ci ng i nf or mat i on i s t aken f r om i ndependent mar ketr epor t s but a mar ket pr i ce coul d be est abl i shed bysur veyi ng t he f i r ms i n a par t i cul ar i ndust r y ormar ket
bull Similar indexes - - commer ci al i t em pr i ces est abl i shedusi ng a means ot her t han t hose descr i bed above Forexampl e an of f er or mi ght pr ovi de i nf or mat i on on t hepr i ces char ged commer ci al cust omer s over a per i od oft i me Such a r ecor d woul d not qual i f y as publ i shedpr i ce l i st or mar ket pr i ce but i t woul d pr ovi de agood r ecor d of t he f i r m s commer ci al pr i ci ngpr act i ces
Discounts Commer ci al sal es t ypi cal l y i ncl ude di scount sf or di f f er ent t ypes of cust omer s Di scount amount st ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egyof t he f i r m Common f act or s af f ect i ng di scount s i ncl udeser vi ces pr ovi ded by t he sel l er ( e g whol esal e and r et ai lsal es) and t he i mpor t ance of t he sal e ( e g dol l ar si nvol ved or t he r el at i onshi p t o ot her sal es)
Rebates Rebat es ar e of t en of f er ed t o var i ous cust omer sbased on t he cust omer s t ot al pur chases over a speci f i cper i od of t i me For exampl e aut omobi l e manuf act ur er st ypi cal l y of f er deal er s r ebat es based on t ot al sal es Thati s one r eason why deal er s can adver t i se sal es at i nvoi ce Deal er pr of i t i s based on t he r ebat e amount
Contracting Situation Differences Remember t hat yourcont r act i ng si t uat i on may be di f f er ent t han t he si t uat i oni n t he commer ci al mar ket For exampl e t he of f er or maypr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment I f t he Gover nment i s r ecei vi ngl ess you shoul d expect t o pay l ess
613 Previously-Proposed Prices And Contract Prices
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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avai l abl e Consi der t he f ol l owi ng f act or s whendet er mi ni ng t he number of sour ces t o sol i ci t
o The nat ur e of t he ar t i cl e or ser vi ce t o bepur chased and whet her i t i s hi ghl y compet i t i veand readi l y avai l abl e i n sever al makes or br andsor i s r el at i vel y noncompet i t i ve
o The avai l abi l i t y of an el ect r oni c commer ce met hodt hat empl oys wi despr ead publ i c not i ce of t her equi r ement
o The ur gency of t he pr oposed pur chaseo The dol l ar val ue of t he pr oposed pur chase ando Past exper i ence concer ni ng speci f i c deal er s
pr i ces bull I f you onl y r ecei ve one quot e consi der t he f ol l owi ng
bases f or pr i ce anal ysi so Pr i ces i dent i f i ed dur i ng mar ket r esear cho Pr i ces f ound r easonabl e f or pr evi ous pur chaseso Cur r ent pr i ce l i s t cat al og or adver t i sed
pr i ces o Pr i ces f or s i mi l ar i t ems i n a r el at ed i ndust r yo Pr i ce est i mat es devel oped dur i ng val ue anal ysi so Per sonal knowl edge of i t em pr i ceso The I ndependent Gover nment Est i mat e oro Any ot her r easonabl e base f or pr i ce anal ysi s
Contracts over the Simplified Acquisition ThresholdConsi der ever y t ype of compar i son whi ch you bel i evepr ovi des a val i d shoul d- pay pr i ce
bull For exampl e i f you have dat a on pr evi ous cont r actpr i ces and have r eason t o bel i eve t hat t hese dat ar ef l ect good pr i or deci si ons on pr i ce r easonabl enesst hen compar e t he appar ent success f ul of f er t o t hosepr i ces I f you have r eason t o bel i eve t hat pr evi ouscont r act pr i ces wer e not r easonabl e t hen gi ve l i t t l eor no wei ght t o t hose pr i ces as you per f or m your pr i ceanal ysi s I f you have no pr i ce hi st or y you must r el yon ot her compar i son bases f or your pr i ce anal ysi s
611 Other Proposed Prices
Proposed Prices ( FAR 15 404- 1( b) ( 2) ) Compar i son of apr oposed pr i ce wi t h ot her pr oposed pr i ces r ecei ved i nr esponse t o t he same sol i ci t at i on i s gener al l y consi der edone of t he best bases f or pr i ce anal ysi s because al l
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of f er s wer e submi t t ed t o meet t he same r equi r ement dur i ngt he same t i me per i od
Using Proposed Prices ( FAR 15 403- 1( c) ( 1) ) Any pr oposedpr i ce used as a base f or pr i ces anal ysi s must meet t he
f ol l owi ng gener al r equi r ement sbull The pr i ce must be submi t t ed by a f i r m compet i ng
i ndependent l y f or cont r act awar dbull The pr i ce must be par t of an of f er t hat meet s
Gover nment r equi r ement sbull Awar d must be made t o t he of f er or whose pr oposal
r epr esent s t he best val ue t o t he Gover nment
I f you have mor e t han one compet i t i ve of f er you coul duse mor e t han one of f er i n your anal ysi s
Do not use t he pr i ce f r om any of f er t hat you woul d notconsi der f or cont r act awar d as a basi s f or pr i ce anal ysi s
bull Never use an of f er f r om a f i r m t hat you havedet er mi ned i s nonr esponsi bl e
bull I n seal ed bi ddi ng never use a nonr esponsi ve bi d
I n negot i at i ons never use a pr i ce f r om a pr oposal t hati s t echni cal l y unaccept abl e
Special Concerns ( CGEN B- 176217 December 14 1972 and CGENB- 189884 Mar ch 29 1979)
You shoul d nor mal l y pl ace l ess r el i ance on compar i sonswi t h ot her pr oposed pr i ces when
bull The sol i ci t at i on was made under condi t i ons t hatunr easonabl y deni ed one or mor e known and qual i f i edof f er or s an oppor t uni t y t o compet e
bull The appar ent successf ul of f er or has such a deci dedadvant age t hat i t i s pr act i cal l y i mmune f r omcompet i t i on
bull Anot her pr i ce compar i son cost anal ysi s or a costr eal i sm anal ysi s i ndi cat es t hat t he appar entsuccessf ul of f er may be unr easonabl e ( t oo hi gh or t ool ow)
bull Gover nment r equi r ement s per mi t of f er or s t o pr oposewi del y di f f er ent t echni cal appr oaches t o cont r actper f or mance For exampl e a cer ami c mug and a papercup may bot h meet a r equi r ement t o hol d 8 ounces of
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i nf or mat i on f r om t he f i r m submi t t i ng t he of f er and orpubl i shed pr i ci ng i nf or mat i on f r om ot her f i r msof f er i ng s i mi l ar pr oducts
bull Published market prices - - pr i ces est abl i shed i n t hecour se of or di nar y and usual t r ade bet ween buyer s andsel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r omsour ces i ndependent of t he of f er or Nor mal l y mar ketpr i ci ng i nf or mat i on i s t aken f r om i ndependent mar ketr epor t s but a mar ket pr i ce coul d be est abl i shed bysur veyi ng t he f i r ms i n a par t i cul ar i ndust r y ormar ket
bull Similar indexes - - commer ci al i t em pr i ces est abl i shedusi ng a means ot her t han t hose descr i bed above Forexampl e an of f er or mi ght pr ovi de i nf or mat i on on t hepr i ces char ged commer ci al cust omer s over a per i od oft i me Such a r ecor d woul d not qual i f y as publ i shedpr i ce l i st or mar ket pr i ce but i t woul d pr ovi de agood r ecor d of t he f i r m s commer ci al pr i ci ngpr act i ces
Discounts Commer ci al sal es t ypi cal l y i ncl ude di scount sf or di f f er ent t ypes of cust omer s Di scount amount st ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egyof t he f i r m Common f act or s af f ect i ng di scount s i ncl udeser vi ces pr ovi ded by t he sel l er ( e g whol esal e and r et ai lsal es) and t he i mpor t ance of t he sal e ( e g dol l ar si nvol ved or t he r el at i onshi p t o ot her sal es)
Rebates Rebat es ar e of t en of f er ed t o var i ous cust omer sbased on t he cust omer s t ot al pur chases over a speci f i cper i od of t i me For exampl e aut omobi l e manuf act ur er st ypi cal l y of f er deal er s r ebat es based on t ot al sal es Thati s one r eason why deal er s can adver t i se sal es at i nvoi ce Deal er pr of i t i s based on t he r ebat e amount
Contracting Situation Differences Remember t hat yourcont r act i ng si t uat i on may be di f f er ent t han t he si t uat i oni n t he commer ci al mar ket For exampl e t he of f er or maypr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment I f t he Gover nment i s r ecei vi ngl ess you shoul d expect t o pay l ess
613 Previously-Proposed Prices And Contract Prices
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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of f er s wer e submi t t ed t o meet t he same r equi r ement dur i ngt he same t i me per i od
Using Proposed Prices ( FAR 15 403- 1( c) ( 1) ) Any pr oposedpr i ce used as a base f or pr i ces anal ysi s must meet t he
f ol l owi ng gener al r equi r ement sbull The pr i ce must be submi t t ed by a f i r m compet i ng
i ndependent l y f or cont r act awar dbull The pr i ce must be par t of an of f er t hat meet s
Gover nment r equi r ement sbull Awar d must be made t o t he of f er or whose pr oposal
r epr esent s t he best val ue t o t he Gover nment
I f you have mor e t han one compet i t i ve of f er you coul duse mor e t han one of f er i n your anal ysi s
Do not use t he pr i ce f r om any of f er t hat you woul d notconsi der f or cont r act awar d as a basi s f or pr i ce anal ysi s
bull Never use an of f er f r om a f i r m t hat you havedet er mi ned i s nonr esponsi bl e
bull I n seal ed bi ddi ng never use a nonr esponsi ve bi d
I n negot i at i ons never use a pr i ce f r om a pr oposal t hati s t echni cal l y unaccept abl e
Special Concerns ( CGEN B- 176217 December 14 1972 and CGENB- 189884 Mar ch 29 1979)
You shoul d nor mal l y pl ace l ess r el i ance on compar i sonswi t h ot her pr oposed pr i ces when
bull The sol i ci t at i on was made under condi t i ons t hatunr easonabl y deni ed one or mor e known and qual i f i edof f er or s an oppor t uni t y t o compet e
bull The appar ent successf ul of f er or has such a deci dedadvant age t hat i t i s pr act i cal l y i mmune f r omcompet i t i on
bull Anot her pr i ce compar i son cost anal ysi s or a costr eal i sm anal ysi s i ndi cat es t hat t he appar entsuccessf ul of f er may be unr easonabl e ( t oo hi gh or t ool ow)
bull Gover nment r equi r ement s per mi t of f er or s t o pr oposewi del y di f f er ent t echni cal appr oaches t o cont r actper f or mance For exampl e a cer ami c mug and a papercup may bot h meet a r equi r ement t o hol d 8 ounces of
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i nf or mat i on f r om t he f i r m submi t t i ng t he of f er and orpubl i shed pr i ci ng i nf or mat i on f r om ot her f i r msof f er i ng s i mi l ar pr oducts
bull Published market prices - - pr i ces est abl i shed i n t hecour se of or di nar y and usual t r ade bet ween buyer s andsel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r omsour ces i ndependent of t he of f er or Nor mal l y mar ketpr i ci ng i nf or mat i on i s t aken f r om i ndependent mar ketr epor t s but a mar ket pr i ce coul d be est abl i shed bysur veyi ng t he f i r ms i n a par t i cul ar i ndust r y ormar ket
bull Similar indexes - - commer ci al i t em pr i ces est abl i shedusi ng a means ot her t han t hose descr i bed above Forexampl e an of f er or mi ght pr ovi de i nf or mat i on on t hepr i ces char ged commer ci al cust omer s over a per i od oft i me Such a r ecor d woul d not qual i f y as publ i shedpr i ce l i st or mar ket pr i ce but i t woul d pr ovi de agood r ecor d of t he f i r m s commer ci al pr i ci ngpr act i ces
Discounts Commer ci al sal es t ypi cal l y i ncl ude di scount sf or di f f er ent t ypes of cust omer s Di scount amount st ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egyof t he f i r m Common f act or s af f ect i ng di scount s i ncl udeser vi ces pr ovi ded by t he sel l er ( e g whol esal e and r et ai lsal es) and t he i mpor t ance of t he sal e ( e g dol l ar si nvol ved or t he r el at i onshi p t o ot her sal es)
Rebates Rebat es ar e of t en of f er ed t o var i ous cust omer sbased on t he cust omer s t ot al pur chases over a speci f i cper i od of t i me For exampl e aut omobi l e manuf act ur er st ypi cal l y of f er deal er s r ebat es based on t ot al sal es Thati s one r eason why deal er s can adver t i se sal es at i nvoi ce Deal er pr of i t i s based on t he r ebat e amount
Contracting Situation Differences Remember t hat yourcont r act i ng si t uat i on may be di f f er ent t han t he si t uat i oni n t he commer ci al mar ket For exampl e t he of f er or maypr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment I f t he Gover nment i s r ecei vi ngl ess you shoul d expect t o pay l ess
613 Previously-Proposed Prices And Contract Prices
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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i nf or mat i on f r om t he f i r m submi t t i ng t he of f er and orpubl i shed pr i ci ng i nf or mat i on f r om ot her f i r msof f er i ng s i mi l ar pr oducts
bull Published market prices - - pr i ces est abl i shed i n t hecour se of or di nar y and usual t r ade bet ween buyer s andsel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r omsour ces i ndependent of t he of f er or Nor mal l y mar ketpr i ci ng i nf or mat i on i s t aken f r om i ndependent mar ketr epor t s but a mar ket pr i ce coul d be est abl i shed bysur veyi ng t he f i r ms i n a par t i cul ar i ndust r y ormar ket
bull Similar indexes - - commer ci al i t em pr i ces est abl i shedusi ng a means ot her t han t hose descr i bed above Forexampl e an of f er or mi ght pr ovi de i nf or mat i on on t hepr i ces char ged commer ci al cust omer s over a per i od oft i me Such a r ecor d woul d not qual i f y as publ i shedpr i ce l i st or mar ket pr i ce but i t woul d pr ovi de agood r ecor d of t he f i r m s commer ci al pr i ci ngpr act i ces
Discounts Commer ci al sal es t ypi cal l y i ncl ude di scount sf or di f f er ent t ypes of cust omer s Di scount amount st ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egyof t he f i r m Common f act or s af f ect i ng di scount s i ncl udeser vi ces pr ovi ded by t he sel l er ( e g whol esal e and r et ai lsal es) and t he i mpor t ance of t he sal e ( e g dol l ar si nvol ved or t he r el at i onshi p t o ot her sal es)
Rebates Rebat es ar e of t en of f er ed t o var i ous cust omer sbased on t he cust omer s t ot al pur chases over a speci f i cper i od of t i me For exampl e aut omobi l e manuf act ur er st ypi cal l y of f er deal er s r ebat es based on t ot al sal es Thati s one r eason why deal er s can adver t i se sal es at i nvoi ce Deal er pr of i t i s based on t he r ebat e amount
Contracting Situation Differences Remember t hat yourcont r act i ng si t uat i on may be di f f er ent t han t he si t uat i oni n t he commer ci al mar ket For exampl e t he of f er or maypr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment I f t he Gover nment i s r ecei vi ngl ess you shoul d expect t o pay l ess
613 Previously-Proposed Prices And Contract Prices
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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i nf or mat i on f r om t he f i r m submi t t i ng t he of f er and orpubl i shed pr i ci ng i nf or mat i on f r om ot her f i r msof f er i ng s i mi l ar pr oducts
bull Published market prices - - pr i ces est abl i shed i n t hecour se of or di nar y and usual t r ade bet ween buyer s andsel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r omsour ces i ndependent of t he of f er or Nor mal l y mar ketpr i ci ng i nf or mat i on i s t aken f r om i ndependent mar ketr epor t s but a mar ket pr i ce coul d be est abl i shed bysur veyi ng t he f i r ms i n a par t i cul ar i ndust r y ormar ket
bull Similar indexes - - commer ci al i t em pr i ces est abl i shedusi ng a means ot her t han t hose descr i bed above Forexampl e an of f er or mi ght pr ovi de i nf or mat i on on t hepr i ces char ged commer ci al cust omer s over a per i od oft i me Such a r ecor d woul d not qual i f y as publ i shedpr i ce l i st or mar ket pr i ce but i t woul d pr ovi de agood r ecor d of t he f i r m s commer ci al pr i ci ngpr act i ces
Discounts Commer ci al sal es t ypi cal l y i ncl ude di scount sf or di f f er ent t ypes of cust omer s Di scount amount st ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egyof t he f i r m Common f act or s af f ect i ng di scount s i ncl udeser vi ces pr ovi ded by t he sel l er ( e g whol esal e and r et ai lsal es) and t he i mpor t ance of t he sal e ( e g dol l ar si nvol ved or t he r el at i onshi p t o ot her sal es)
Rebates Rebat es ar e of t en of f er ed t o var i ous cust omer sbased on t he cust omer s t ot al pur chases over a speci f i cper i od of t i me For exampl e aut omobi l e manuf act ur er st ypi cal l y of f er deal er s r ebat es based on t ot al sal es Thati s one r eason why deal er s can adver t i se sal es at i nvoi ce Deal er pr of i t i s based on t he r ebat e amount
Contracting Situation Differences Remember t hat yourcont r act i ng si t uat i on may be di f f er ent t han t he si t uat i oni n t he commer ci al mar ket For exampl e t he of f er or maypr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment I f t he Gover nment i s r ecei vi ngl ess you shoul d expect t o pay l ess
613 Previously-Proposed Prices And Contract Prices
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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Historical Prices ( FAR 15 404- 1( b) ( 2) ) Pr evi ous l y-pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -- pr i ces r el at ed t o past pur chasi ng act i vi t y The pur chaseassoci at ed wi t h a par t i cul ar pr i ce may have been made byyour of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s
Using Historical Prices Whenever you consi der usi nghi st or i cal pr i ces t o anal yze pr i ce r easonabl eness ask t hef ol l owi ng quest i ons
bull Has the product been purchased before
The pur chase may have been made by your of f i ce or byanot her pur chasi ng of f i ce
bull What was the historical price
You can obt ai n pr i ce i nf or mat i on f r om pur chase f i l escomput er dat a f i l es or manual i nvent or y i t em r ecor ds
bull Was the historical price fair and reasonable
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t her easonabl eness of an of f er ed pr i ce you must know t hat t hehi s t or i cal pr i ce was f ai r and r easonabl e Be car ef ul I t i snot uncommon t o r evi ew an i t em pur chase hi st or y and f i ndt hat no base ot her t han t he l ast pr i ce pai d has been usedf or year s t o det er mi ne pr i ce r easonabl eness I n one st udyt he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer er evi ewed and anal yst s f ound t hat f or ever y acqui si t i onexcept t he f i r st t he det er mi nat i on of pr i ce r easonabl enesswas based on t he l ast pr i ce pai d Anal yst s al so f ound t hatt he f i r s t acqui s i t i on was a mul t i pl e- i t em acqui si t i on andwhi l e t her e was an anal ysi s of t he r easonabl eness of t heover al l acqui si t i on pr i ce no one ever exami ned t her easonabl eness of i ndi vi dual i t em pr i ces I n ot her wor dsf or year s cont r act i ng of f i cer s f ound pr i ces r easonabl ebased on an ar bi t r ar y deci si on made dur i ng t he f i r stacqui s i t i on
bull Is the comparison valid
For t he compar i son t o be val i d you must be abl e t oi dent i f y and consi der any i t em or mar ket di f f er ences t hatmi ght s i gni f i cant l y af f ect cont r act pr i ce
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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614 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15 404- 1( b) ( 2) ) Cos test i mat i ng r el at i onshi ps ( CERs) ar e used t o devel oppar amet r i c est i mat es or r ough yar dst i ck est i mat es A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi pof past pr i ces wi t h one or mor e pr oduct physi cal orper f or mance char act er i st i cs ( e g dol l ar s per pound ordol l ar s per hor sepower ) Whenever you can r el at e i t em pr i cewi t h t he val ue of one or mor e physi cal or per f or mancechar act er i st i cs you can use t he r el at i onshi p t o est i mat et he pr i ce of a si mi l ar pr oduct For exampl e bui l der scommonl y est i mat e t he pr i ce of a pl anned bui l di ng bymul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by anest i mat ed cost per squar e f oot
Using Cost Estimating Relationships
Whenever you consi der usi ng a CER t o det er mi ne pr i cer easonabl eness ask t he f ol l owi ng quest i ons
bull Has the CER been widely accepted in the market place
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t heval i di t y of a par t i cul ar r el at i onshi p yar dst i ck and t her easonabl eness of val ues used i n est i mat i ng Sel l er s mayuse a r el at i onshi p yar dst i ck t hat pr oduces an est i mat ehi gher t han t hat nor mal l y accept ed by buyer s
bull Does the CER produce reasonable results
The user of t he r el at i onshi p yar dst i ck has t he bur den ofdemonst r at i ng t hat t he r el at i onshi p yar dst i ck pr oducesr easonabl e est i mat es The user shoul d be abl e t odemonst r at e t he dat a and cal cul at i ons used t o devel op t her el at i onshi p yar ds t i ck
bull How accurate is the CER
Val i dat e t he usi ng known pr oduct dat a and pr i ces Exami net he accur acy of t he r esul t s Remember t hat even a pr oper l ydevel oped pr i ci ng r el at i onshi p yar dst i ck wi l l not al wayspr edi ct pr i ce exact l y Some r el at i onshi p yar dst i cks ar ever y accur at e ot her s wi l l onl y gi ve you a r oughappr oxi mat i on of t he pr oper pr i ce Asr el at i onshi p yar dst i ck accur acy decr eases t he wei ght t hat
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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you pl ace on t he r el at i onshi p yar dst i ck i n your pr i ci ngdeci si on shoul d al so decr ease
615 Independent Government Estimates Independent Government Estimates As t he name i mpl i es anI ndependent Gover nment Est i mat e i s an est i mat e made by t heGover nment Thi s sect i on wi l l def i ne and consi der t hr eet ypes of I ndependent Gover nment Est i mat e
bull The most common i s t he I ndependent Gover nment Est i mat et hat accompani es t he purchase request
bull A value analysis estimate resul t s f r om a speci al i zedanal ysi s of t he f unct i on of a pr oduct and i t s r el at edpr i ce I t may l i t er al l y i nvol ve t aki ng t he i t em apar tt o det er mi ne how i t i s made and why i t cost s what i tdoes
bull A visual analysis estimate r esul t s f r om a vi suali nspect i on of an i t em or dr awi ng of an i t em t oest i mat e i t s pr obabl e val ue
General Guidelines on Using Independent GovernmentEstimates Ear l i er i n t hi s t ext you l ear ned f i vequest i ons t o ask when anal yzi ng t he r el i abi l i t y andval i di t y of Gover nment pur chase r equest est i mat es Ask t hesame quest i ons of any I ndependent Gover nment Est i mat ebef or e usi ng i t as a basi s f or compar i son wi t h of f er edpr i ces
bull How was the estimate made bull What assumptions were made bull What information and tools were used bull Where was the information obtained bull How did previous estimates compare with prices paid
Special Considerations for Using Value Analysis You mayappl y t he t echni ques of val ue anal ysi s t o any pr oduct r egar dl ess of i t s compl exi t y However gener al l y consi deronl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hatmer i t t he t i me and cost of t he anal ysi s r equi r ed
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i ncompar i son wi t h possi bl e subst i t ut es I t i s par t i cul ar l yusef ul when
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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compar i ng a cur r ent of f er wi t h a pr i or pr i ce t he i dealcompar i son woul d be wi t h a cont r act pr i ce agr eed t oyest er day That compar i son woul d l i mi t t he ef f ect s of t i meon mar ket condi t i ons
However do not sel ect a pr i ce f or compar i son mer el ybecause i t i s t he most r ecent Look instead for prices thatwere established under similar market conditions Fori nst ance i f you ar e buyi ng pot at oes i n Oct ober of f er sf r om t he pr evi ous Oct ober may be mor e compar abl e t o cur r entof f er s t han pr i ces pai d l ast Febr uar y gi ven t he cycl i calpat t er n of suppl y and demand i n t he mar ket f or pot at oes
Consi der t he most cur r ent avai l abl e dat a on t r ends andpat t er ns i n mar ket condi t i ons Remember t hat l ags of t enoccur bet ween dat a col l ect i on and cont r act awar d Changesi n mar ket condi t i ons over t hat per i od can r educe t heusef ul ness of t he dat a assembl ed
Quantity or Size Var i at i ons i n quant i t y can have asi gni f i cant i mpact on uni t pr i ce A change i n quant i t y canhave an upwar d ef f ect a downwar d ef f ect or no ef f ect atal l
I n supply and equipment acqui si t i ons we usual l y assumet hat l ar ger suppl y acqui si t i ons command l ower uni t pr i cesWher e economi es of scal e ar e i nvol ved t hat shoul d be t hecase However economi es of scal e do not al ways appl y
bull I ncr eases i n or der si ze beyond a cer t ai n poi nt may t axa suppl i er s capaci t y and r esul t i n hi gher pr i ces
bull Mar ket f or ces may i mpose oppor t uni t y cost s on asuppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat ervol umes For exampl e i f t he pr i ce of oi l i s expect edt o i ncr ease 20 per cent over a 12- mont h per i od asuppl i er may choose t o wi t hhol d a por t i on f or a sal eat a l at er dat e when t he pr i ce i s hi gher I n such amar ket t he ef f ect of pur chase quant i t y on pr i ce maynot be as expect ed at some poi nt i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t hel ower pr i ced oi l i s exhaust ed
bull Fi nal l y i f a pr i ce compar i son i s based on st andar dcommer ci al i t ems t hat ar e pr oduced at a r egul ar r at evar i at i ons i n quant i t y may have no ef f ect at al l
A meani ngf ul compar i son of pr i ces r equi r es t hat t heef f ect of vol ume on pr i ce be account ed f or The best way t o
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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do t hi s i s t o sel ect pr i ces f or compar i son based on equalvol umes I f t hat i s not possi bl e exami ne t he speci f i csuppl i er s and t he nat ur e of t he mar ket at t he t i me of t hepur chase
I n service acquisitions t he pr obl ems ar e di f f er ent Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ngt he compar i son t o pr i ce per squar e f oot or pr i ce perpr oduct i ve l abor hour Because t hese appr oaches ar e notal ways ef f ect i ve t r y t o f act or out si ze or quant i t yvar i at i ons as much as possi bl e I f you don t succeed t hepr i ce compar i son wi l l have l i t t l e val ue
Geographic Location Geogr aphy can have a r ange of ef f ect son compar abi l i t y Pr i ces f or many nat i onal l y adver t i sedpr oduct s wi l l not var y much f r om pl ace t o pl aceNever t hel ess because geogr aphi c l ocat i on can af f ectcompar abi l i t y you shoul d f i r st t r y t o compar e of f er edpr i ces wi t h pr i ces obt ai ned f r om t he same ar ea I n maj ormet r opol i t an cent er s you shoul d gener al l y be abl e t oi dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi onI n mor e r emot e l ess ur ban ar eas you must of t en getpr i ci ng i nf or mat i on f r om beyond t he i mmedi at e ar ea
When you must compar e pr i ces acr oss geogr aphi cboundar i es t ake t he f ol l owi ng act i ons t o enhancecompar abi l i t y
bull Check f or di f f er ences i n t he l evel compet i t i on t hatmay af f ect pr i ce compar i sons
bull I dent i f y l abor r at e di f f er ences t hat must beneut r al i zed f or val i d pr i ce compar i sons
bull Check f r ei ght r equi r ement s and accompanyi ng cost s These can var y consi der abl y especi al l y f or chemi cal sand ot her hazar dous mat er i al s
I dent i f y geogr aphi c anomal i es or t r ends For exampl ean i t em may be mor e expensi ve on t he West Coast t han i n t heEast
Purchasing Power of the Dollar I nf l at i on under mi nescompar abi l i t y by er odi ng t he r eal val ue of money Becausepr i ces over t i me ar e expr essed i n t he same cur r ency( dol l ar s and cent s) t he denomi nat i ons must have compar abl epur chasi ng power i f compar i son i s t o be meani ngf ul You cannor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ngval ue of t he dol l ar over t i me
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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Extent of Competition When compar i ng one pr i ce wi t hanot her assess t he compet i t i ve envi r onment shapi ng t hepr i ces For exampl e you can compar e l ast year scompet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t emHowever i f l ast year s pr ocur ement was made wi t houtcompet i t i on you may not have a good pr i ce wi t h whi ch t ocompar e t he cur r ent of f er A poor l y wr i t t en speci f i cat i onand an ur gent need may have combi ned t o make compet i t i oni mpossi bl e l ast year but now t he speci f i cat i ons have beenr ewr i t t en and t he del i ver y i s not ur gent Gi ven t heseci r cumst ances a cur r ent of f er coul d be t he same as ( orl ess t han) l ast year s best pr i ce and st i l l not ber easonabl e
Technology Pr i ces f r om dyi ng i ndust r i es can r i se becauset he t echnol ogi es don t keep pace wi t h r i si ng cost sConver sel y t echnol ogi cal advances i n gr owt h i ndust r i es candr i ve pr i ces down The comput er i ndust r y i s an exampl e
Technol ogi cal advances have been made so f ast t hat acompar i son of pr i ces separ at ed by onl y a f ew weeks mustaccount f or t hese advances i f t he compar i son i s t o have anyval ue
Engi neer i ng or desi gn changes must al so be t aken i nt oaccount Thi s means you must i dent i f y t he new or modi f i edf eat ur es and est i mat e t hei r ef f ect on pr i ce
Government-Unique Requirements Of t en t he Gover nment sr equi r ement s var y t o some degr ee f r om t he commer ci alr equi r ement s f or si mi l ar pr oduct s The quest i on i s t hei mpact t hese var i at i ons have on pr i ce For exampl e t heGover nment may r equi r e t hat t he car pet i n a Navy shi p bef i r epr oof t o a f ar gr eat er ext ent t han any commer ci alcar pet That may j ust i f y a subst ant i al di f f er ence i n pr i ceover ot her wi se compar abl e commer ci al car pet s
Si mi l ar l y you must of t en i ncor por at e cl auses i ncont r act s t hat ar e not r equi r ed i n commer ci al mar kett r ansact i ons For exampl e cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si onsr el at i ng t o t he Davi s- Bacon Act t he Ser vi ce Cont r act Act cl ean ai r and wat er and many ot her speci al condi t i onsConsequent l y compar i son of an of f er wi t h commer ci al pr i cesmay be di f f i cul t Uni que t er ms and condi t i ons af f ectpr i ces but i t i s of t en ext r emel y di f f i cul t t o assi gn adol l ar val ue t o t hei r ef f ect s
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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J ust as Gover nment r equi r ement s may be di f f er ent f r omcommer ci al r equi r ement s Gover nment r equi r ement s at aspeci f i c t i me and pl ace may be di f f er ent t han r equi r ement sat anot her t i me and pl ace These di f f er ences wi l l al soaf f ect pr i ce compar i sons
63 Determining The Effect Of Identified Factors
Introduction Once you have i dent i f i ed t he f act or s t hatmay af f ect compar abi l i t y you must det er mi ne t he ef f ect oneach speci f i c compar i son wi t h t he of f er ed pr i ce As youdet er mi ne t he ef f ect of var i ous f act or s on pr i cecompar i sons you must ask your sel f t he f ol l owi ng quest i ons
bull What factors affect this specific comparison bull How do these factors affect the comparison bull Does this comparison even with its limitations
contribute to the price analysis
Other Proposed Prices ( FAR 15 206 ) I n seal ed bi ddi ng al lbi ds are pr i ced agai nst t he cont r act r equi r ement sCompar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war dcompar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t heeval uat i on pr ocess i nvol ves t he use of pr i ce- r el at edf act or s
Compar i ng pr oposal s may not be as s i mpl e as compar i ngbi ds when
bull The of f er i n l i ne f or awar d depar t s f r om t he st at edsol i ci t at i on r equi r ement s I f t he depar t ur e does notmeet st at ed cont r act r equi r ement s but i s accept abl et o t he Gover nment pr ovi de ot her of f er or s t heoppor t uni t y t o submi t a r evi sed pr oposal based on t her evi sed r equi r ement s However you must not r eveal anyi nf or mat i on about t he pr oposed sol ut i on or any ot herof f er or i nf or mat i on ent i t l ed t o pr ot ect i on
bull Of f er s di f f er i n t hei r basi c appr oaches t o meet i ngper f or mance or f unct i onal r equi r ement s Remember t hepr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ngi f t he pr i ce of a paper cup i s r easonabl e even t houghbot h can sat i sf y a r equi r ement f or a cont ai ner t hatwi l l hol d ei ght ounces of cof f ee
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
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possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
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I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
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cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
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Commercial Prices Any of t he gener al f act or s i dent i f i edear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y ofcommer ci al pr i ces ( i e mar ket condi t i ons may have changedsi nce t he ef f ect i ve dat e of publ i shed pr i ces t hepur chasi ng power of t he dol l ar may have changed t hepubl i shed pr i ces may have been based on di f f er ent t er ms andcondi t i ons t han sol i ci t ed by t he Gover nment )
Dur i ng your anal ysi s you shoul d gi ve speci alconsi der at i on t o aski ng how t he f ol l owi ng have af f ect edpr i ce anal ysi s compar i sons
bull I s t her e a di f f er ence bet ween t he ser vi ces pr ovi dedcommer ci al and Gover nment cust omer s Ar e publ i shedpr i ces r et ai l whol esal e or di s t r i but or pr i ces
bull I s t her e a di f f er ence bet ween t he cat al og ( orsuggest ed pr i ce) and t he pr i ce pai d by commer ci alcust omer s wi t h r equi r ement s s i mi l ar t o t heGover nment s r equi r ement s
bull Ar e t her e di f f er ent pr i ces f or di f f er ent cust omercl asses (e g ar e t her e di f f er ent pr i ces f ordi f f er ent cl asses of cust omer s- publ i c vs br oker s vsr et ai l er s )
bull What speci al r ebat es or di scount s ar e of f er edcommer ci al cust omer s
What i s t he val ue of ext r as pr ovi ded commer ci alcust omer s f or pr omot i onal pur poses ( e g f r ee packagi ngf r ee t r anspor t at i on f r ee i nsur ance et c ) wi t hout ext r achar ge
Previously Proposed Prices and Contract Prices Consi deral l gener al f actors i dent i f i ed ear l i er i n t he chapt er Atmi ni mum ask t he f ol l owi ng
bull How have the specific changes in the contractingsituation affected contract price
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r entacqui si t i on si t uat i on di f f er s I mpor t ant dat a el ement si ncl ude
o Sour ceso Quant i t i eso Pr oduct i on Del i ver y Rat eso St ar t - up Cost s
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2327
possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2427
I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2627
You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2727
cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
8122019 vol1_ch6
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o Ter ms of Pur chase
bull How have changes in the general economic situationaffected contract price
Economi c changes ar e r ef l ect ed i n t he gener al l evel ofi nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar eacqui r i ng Have pr i ces gone up or down I f t hey have howmuch have t hey changed
Parametric and Rough Yardstick Estimates Consi der al lgener al f actor s i dent i f i ed ear l i er i n t he chapt er I npar t i cul ar consi der t he quest i ons above t hat appl y t ohi s t or i cal pr i ces Af t er al l pr i c i ng yar dst i cks ar e basedon hi s t or i cal pr i c i ng i nf or mat i on
I n addi t i on you must ask i f t he hi st or i cal r el at i onshi pr emai ns val i d As a mi ni mum consi der t he f ol l owi ngquest i ons
bull How have changes in market conditions affected theestimating relationship
bull How have changes in technology affected the estimatingrelationship
bull How have changes in production efficiency affected theestimating relationship
bull How have changes in the purchasing power of the dollaraffected the estimating relationship
Independent Government Estimates Consi der al l gener alf actor s i dent i f i ed ear l i er i n t he chapt er f or possi bl eef f ect s on compar abi l i t y
I ndependent Gover nment Est i mat es especi al l y t hosedevel oped pr evi ousl y f or s uch pur poses as pr epar i ngbudget s may no l onger be val i d Budget opt i mi sm orpessi mi sm can have a si gni f i cant ef f ect on budgetest i mat es I n addi t i on many est i mat es ar e devel oped year sbef or e t he actual cont r act act i on i s i ni t i at ed
64 Adjusting The Prices Selected For Comparison
Introduction I f you have a pr i ce anal ysi s compar i son baset hat does not r equi r e adj ust ment use i t I f you must makean adj ust ment t r y t o make t he adj ust ment as obj ect i vel y as
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2327
possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2427
I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2527
Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2627
You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2727
cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2327
possi bl e You may need t o use st at i st i cal t echni ques oral gebr ai c f or mul as t o est abl i sh a common basi s f orcompar i son
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t ybull I dent i f y and document pr i ce- r el at ed di f f er ences
t aki ng i nt o account t he f act or s af f ect i ngcompar abi l i t y
bull Fact or out pr i ce- r el at ed di f f er ences
Rest or i ng compar abi l i t y by est abl i shi ng a common basi sf or compar i son r equi r es t hat you assi gn a dol l ar val ue t oeach i dent i f i ed di f f er ence However you cannot al ways dot hi s The cost of t er ms and condi t i ons pecul i ar t oGover nment cont r act s i s har d t o est i mat e so exer ci sedi scr et i on i n such cases
Other Proposed Prices Appl y any pr i ce- r el at ed f act or sest abl i shed i n t he sol i c i t at i on t o adj ust t he of f er edpr i ces f or compar i son wi t h one anot her
Other Information The chal l enge i s t o use t he avai l abl ei nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nmentshoul d pay
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect ofeach f act or on cont r act pr i ce I n t hi s ef f or t useappr opr i at e quant i t at i ve anal ysi s t echni ques
I f you cannot obj ect i vel y adj ust t he pr i ces f or t hef act or i nvol ved you may need t o make a subj ect i veadj ust ment For exampl e est i mat i ng t he ef f ect on pr i ce ofuni que Gover nment t er ms and condi t i ons
Ever y acqui si t i on si t uat i on wi l l be di f f er ent What evermet hod you use al ways document t he i nf or mat i on t hat youused and how you used i t i n maki ng t he adj ust ment
65 Comparing Adjusted Prices
Introduction Use adj ust ed pr i ces t o est i mat e r ange ofr easonabl e pr i ces Use t he pr i ce t hat appear s mostr easonabl e as your shoul d- pay pr i ce
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2427
I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2527
Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2627
You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2727
cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2427
I f t he shoul d- pay pr i ce depar t s s i gni f i cant l y f r om t heappar ent successf ul of f er anal yze t he di f f er ences Youwi l l t hen be ready t o make t he pr i ce- r el at ed deci si onsr equi r ed t o det er mi ne t he success f ul of f er or and makecont r act awar d
Other Proposed Prices Compar i ng compet i t i ve of f er s i snor mal l y t he easi est f or m of pr i ce anal ysi s I t al so t endst o be t he most val i d because you ar e compar i ng of f er spr epar ed f or t he same r equi r ement under t he same mar ketcondi t i ons However t he wei ght pl aced on t hi s t ype ofcompar i son depends on t he ci r cumst ances of t he acqui si t i onPl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot herpr i ce compar i sons) when
bull Adequat e pr i ce compet i t i on does not exi st ( r egar dl essof t he number of of f er s) - i n whi ch case t he wei ghtshoul d be zer o
bull Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t hei ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i ft he condi t i ons of t he sol i ci t at i on unr easonabl y deni edsuch f i r ms a chance t o compet e)
bull The appar ent of f er or appear s t o enj oy an unf ai rcompet i t i ve advant age
bull Havi ng used a per f or mance or f unct i onal speci f i cat i ont he appar ent successf ul of f er or s pr oposed appr oach i sl ess compar abl e t o ot her pr oposed appr oaches t han ( a)t o wor k per f or med under pr i or cont r act s or ( b)commer ci al cont r act s
bull The del i ver abl e i n l i ne f or awar d i s l ess compar abl et o ot her of f er ed del i ver abl es t han t o ( a) t hoseacqui r ed under pr i or cont r act s or t o ( b) commer ci alcont r acts
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne wi t h ot her of f er s
bull The appar ent successf ul of f er i s si gni f i cant l y out ofl i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t heshoul d- pay pr i ce f r om ot her t ypes of compar i sons ( t ot he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) bull The cos t of t he acqui si t i on i s subst ant i al The l ar ger
t he dol l ar val ue of t he cont r act t he mor e i mpor t anceyou shoul d pl ace on si zabl e di f f er ences i n dol l ar sbet ween di f f er ent t ypes of compar i sons ( even i f t hedi f f er ences ar e modest when expr essed as per cent ages)
8122019 vol1_ch6
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Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
8122019 vol1_ch6
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You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2727
cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2527
Commercial Prices Ask t he f ol l owi ng quest i ons t odet er mi ne t he wei ght t hat shoul d be pl aced on compar i sonswi t h commer ci al pr i ces
bull Can the offeror explain any differences between the
offered price and its own commercial prices The of f er or must be abl e t o expl ai n any di f f er ences bet weent he of f er ed pr i ce and commer ci al pr i ces You may basepr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct For exampl e a r adi o t r anscei ver may r equi r e di f f er entconnect or s and adapt er s t o wor k wi t h di f f er ent syst ems Thepar t number may even be di f f er ent f or each syst em but t hebasi c component i s t he same I f t he of f er or can suppor t t hepr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce oft he basi c component pl us t he cost of t he addi t i onaldevi ces you can use t hat dat a t o pr i ce t he ent i r e f ami l yof pr oduct s
bull Is your purchase situation different from the typicalcommercial market situation
Even when you gr ant an except i on f r om t he submi ss i on ofcost or pr i ci ng dat a based on commer ci al pr i ci ng you donot have t o accept t he commer ci al pr i ce as t he cont r actpr i ce I f you f eel t hat t he ci r cumst ances of your pur chasear e di f f er ent you shoul d at t empt t o negot i at e a di f f er entpr i ce
bull Do other price analysis bases confirm that the offered price is
reasonable
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r andr easonabl e use t hat i nf or mat i on i n pr epar i ng your pr i cenegot i at i on obj ect i ves
Previously Proposed Prices and Contract Prices Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h hi st or i cal pr i ces
bull How does the offered price compare with the historical price considering changes in the contracting
situation
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2627
You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2727
cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2627
You may be abl e t o use quant i t at i ve t echni ques t o adj ustpr i ces f or changes i n t he cont r act i ng si t uat i on I f youcannot you must subj ect i vel y anal yze t he changes
bull Do other types of price comparisons confirm that the
offered price is reasonable Because of t he changes i n t he acqui si t i on si t uat i onhi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se basef or det er mi ni ng pr i ce r easonabl eness I f possi bl e useot her bases of pr i ce anal ysi s t o conf i r m t hat t he of f er edpr i ce i s f ai r and r easonabl e
Parametric and Rough Yardstick Estimates Ask t hef ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d bepl aced on compar i sons wi t h par amet r i c or r ough yar dst i ckest i mat es
bull How does the offered price compare with the pricedeveloped using the pricing relationship
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat et he shoul d- pay pr i ce Compar e t he of f er ed pr i ce wi t h t heest i mat ed pr i ce and car ef ul l y document t he t echni ques andt he j udgment you use i n your anal ysi s
bull Do other types of price comparisons confirm that theoffered price is reasonable
Because of i t em di f f er ences pr i ci ng r el at i onshi pst ypi cal l y cannot pr eci sel y conf i r m or r ef ut e pr i cer easonabl eness I f possi bl e use ot her pr i ce compar i sons t oconf i r m t hat t he of f er ed pr i ce i s f ai r and r easonabl e
Independent Government Estimates Remember t hat yourr el i ance on I ndependent Gover nment Est i mat es shoul d al waysbe t emper ed by your answer s t o t he f ol l owi ng quest i ons
bull How Was the Estimate Made bull What Assumptions Were Made bull What Information and Tools Were Used bull Where Was the Information Obtained bull How Did Previous Estimates Compare with Prices Paid
Pl ace no wei ght on an I ndependent Gover nment Est i mat et hat or i gi nat ed wi t h an of f er or or i s a sheer guess I f t heI ndependent Gover nment Est i mat e t ur ns out t o be a past
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2727
cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
8122019 vol1_ch6
httpslidepdfcomreaderfullvol1ch6 2727
cont r act pr i ce anal yze t hat pr i ce as you woul d anyhi s t or i cal pr i ce
On t he ot her hand you mi ght pl ace gr eat conf i dence i nI ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done
