FAR 15: Contracting by Negotiation

15.4 Contract Pricing

15.5 PreAward, Award, and Postaward Notification,

Protest and Mistakes

15.6 Unsolicited Proposals

15.400-15.401

Contract PricingScope

◦Cost / price negotiations for contracts and subcontracts and contract modifications, including sealed bid awards

Definitions◦Price = cost + fee or any profit◦Subcontract – includes commercial

item transfer between affiliates

15.402

Contract Pricing (cont.)Policy

◦Establish fair and reasonable price (FRP) by requiring submission of certified cost or pricing data (CC/PD), or data other than CC/PD

◦Require only necessary data◦Contract priced separately◦Price evaluated without contingencies

if contract terms will allow for adjustment

15.403-1, 15.403-2

Prohibition on Obtaining CC/PDNot obtained for contracts≤ SATExceptions – CC/PD not required when:

◦ CO determines adequate competition ◦ Price based on law or regulation◦ Commercial item acquired◦ Waiver granted◦ Modifying contract or subcontract for

commercial itemsOther circumstances

◦ Exercise of option at price established at contract award

◦ Overrun funding or interim billing price adjustments

Requiring Data Other Than CC/PDObtain from USG sources to determine FRP; if

unavailable, use:◦ Offeror’s cost data; pricing data on same/similar

items◦ Contract Pricing Reference Guide◦ Use offeror’s format; ensure data current or updated◦ Contractor ineligible if data not provided, unless HCA

determines otherwise in best interest of USGCommercial items

◦ Price analysis required◦ Requests for sales data - limit to relevant time frame

15.403-3

15.403-4

Requiring CC/PDRequired if CO determines no exceptions applyThreshold: $700,000CC/PD obtained before award of contract,

subcontract or modification exceeding the threshold◦ Threshold amount includes both increases

and decreases in price adjustments◦ Exception: HCA may authorize obtaining

CC/PD for contracts > SAT < CC/PD Threshold

Required info◦ CC/PD or other than CC/PD◦ Certificate of CC/PD

15.403-5

Instructions for SubmissionCO specifies in solicitation:

◦If CC/PD required◦If Offeror may request exception◦If data other than CC/PD required◦If Pre- or post-award access to records

required◦What data format to use for CC/PD,

other than CC/PD, or forward pricing rate agreements

Proposal Analysis TechniquesPurpose: ensure final, agreed-to price is

fair and reasonableTechniques

◦ Price analysis – CC/PD not required (commercial)

◦ Cost analysis – CC/PD required + price analysis for overall price

◦ Cost analysis – data other than CC/PD◦ Cost realism – when FRP can’t be determined

for commercial or non-commercial items; CR contracts

◦ Expert advice as needed; conclusions not divulged to offeror without CO concurrence

◦ Contract Pricing Reference Guides

15.404-1(a)

Price Analysis for Commercial and Non-Commercial items Evaluate price w/o separate cost elements or profits If no exception, CO obtains data, without certification, on prices for same or similar items If FRP can’t be determined, get data other than CC/PD Compare proposed prices received* Compare historical prices - valid basis* Parametric estimates to reveal inconsistencies Competitive published prices vs independent USG estimates Proposed prices compared to market research Analysis of data other than CC/PD Value analysis – relative worth

15.404-1(b)

15.404-1(c)

Cost AnalysisPerformed when CC/PD required

◦Evaluate separate cost elements & fee◦Verify cost or pricing data◦Effect of current practices on future

costs?◦Compare proposed costs◦Verify costs comply with applicable cost

principles◦Determine whether pertinent data

missing and obtain from offeror◦When evaluating subcontracts,

compare make-or-buy program reviews

Cost Realism AnalysisIndependently evaluate whether cost

elements realistic, USG requirements understood, elements consistent with methods/materials in proposal

Performed on Cost Reimbursable contracts◦ CO determines probable cost to add or

reduce to adjust offeror’s proposal to realistic levels

◦ May also be used on FPI or FP contracts if scope not understood, quality concerns, or quality/service shortfalls

◦ Offered price may not be adjusted after analysis

15.404-1(d)

15.404-1(e)

Technical AnalysisDetermines need for and

reasonableness of resourcesPerformed by specialists at CO

requestAt minimum, review types and

quantity of materials, labor hours, labor mix

Analysis also used for evaluating prices of “similar to” or commercial items “of a type”, or items that require minor modifications

15.404-1(f)

Unit PricesReflect intrinsic value proportional

to base cost, unless adequate competition

No allocation method distorting costs

Offerors must identify which items they will not manufacture or to which they don’t contribute significant value

Unbalanced PricingLine items over/understated as

determined by cost or price analysisRisk indicators

◦ Startup work, mobilization, first articles/testing◦ Base and option quantities◦ Price aggregate of est. quantities on separate

line itemsAll proposals with separate line item

pricing evaluatedCO considers risk in determining

competitive range and source selection, USG price, and whether risk acceptable

15-404.1(g)

15.404-2

Data to Support Proposal AnalysisCO requests field pricing assistance

when information available inadequate for FRP◦ Audit or technical reports, pricing

practices, sales history, offeror’s other customary business practices

Pricing information directly to CO; becomes part of contract file

Cognizant audit office assistance – auditor responsible for scope/depth

Deficient proposals – data insufficient or offeror non-cooperative, CO to request data or elevate to next level

15.404-3

Subcontract Pricing ConsiderationsCO evaluates

◦Contractor/sub approved purchasing system?

◦Contractor analyzed sub’s costs and negotiated price before submitting proposal?

◦Separate analysis of prime and subcontractor’s proposals, including CC/PD

Prime or sub shall◦Conduct price or cost analysis to establish

reasonableness◦Include results in price proposal

15.404-3

Subcontract Pricing Considerations (cont.)If CC/PD required, Contractor or Sub

shall obtain and analyze CC/PD from their respective subcontractors◦Required for subcontracts lower of either

≥$12.5M or Both >$700K (CC/PD threshold) and >10% of

prime contractor’s proposed priceData must be current and accurate;

updated by Prime during negotiations as necessary

If > one contender for specific scope, submit only most likely subcontractor’s CC/PD

15.404-4(a) and (b)

ProfitEstablishing profit or fee portion of

prenegotiation objectives based on cost analysis◦Potential total remuneration >

allocable costs (not net income)◦USG estimate of allowable costs to be

incurredPolicy: structured approach

ensures relevant factors considered◦Noncompetitive awards >$100K

totaling $50M/year must use structured approach, unless exemption approved

15.404-4(c)

Profit (cont.)CO responsibilities:

◦If negotiation not based on cost analysis, profit analysis not required

◦Used structured approach or profit analysis factors for prenegotiation objectives

◦Contractor acquired equipment/property and facilities cost of capital excluded from analysis

◦Statutory limits CPFF experimental or R&D: 15% A/E services for public works or utilities: 6% CPFF all others: 10%

(Percentage of estimated costs excluding fee)

15.404(d)

Profit (cont.)Profit-analysis factors

◦Contractor effort◦Contract cost risk

T&M, Labor Hour, FFP, and LOE term treated as CPFF contracts by CO for evaluation purposes

◦Federal socioeconomic programs◦Capital investments◦Cost control / past accomplishments◦Independent development◦Additional factors may be added by

agency

15.405

Price NegotiationPurpose to reach agreement on

FRP◦If expert recommendations not

incorporated, CO must justify in writing

Overall price USG pays is primary concern

Greatest incentive for contractor efficiency

Profit/fee not negotiated without concurrent negotiation of cost and type of contract

If contractor unreasonable, CO refers contract action to level above CO

15.406-2

DocumentationPrenegotiation Objectives

◦ Results of CO analysis◦ Established before negotiating price◦ Cost analysis – issues, objectives, profit/fee

Certificate of Cost or Pricing Data◦ When CC/PD required, certificate also

required and part of contract file◦ Certificate applies to data, not contractor’s

judgment◦ Concurrence on cutoff dates for data

Submitted with proposal Updated as necessary prior to final price

negotiations Later exception: certificate not submitted, data

not certified

15.406-3

Documenting the NegotiationPrice negotiation memorandum

◦ Purpose, acquisition, parties involved, contractor systems considered

◦ If threshold exceeded, exception for CC/PD◦ If CC/PD required, how used, whether accurate, whether

exception applied◦ Proposal summary, field pricing recommendations, USG

position and any variance in final◦ Prenegotiation objectives – initial and final◦ Impact of any congressional or agency direction◦ Prenegotiation objective profit/fee – initial and final

position◦ Documentation of FRPField pricing assistance – CO sends copy of documentation to office providing assistance

15.407-1

Special Cost or Pricing AreasDefective CC/PD

◦ Before award – notify contractor, corrected, documented

◦ After award – Per contract clauses, USG entitled to price adjustment including profit/fee Offset for understated data up to amount of USG claim of

overstated pricing, if contractor entitled and CC/PD available

but not submitted

Disallowed if data known to be understated, price wouldn’t

have increased

Overpayment exists only if made for accepted supplies or

services

Interest charged for each quarter from time of overpayment

to repayment

Penalty for known defective data submission is equal to

amount of overpayment

Demand letter issued by CO

15.407-1

Special Cost or Pricing Areas (cont.)If CO learns of defective data, can request

audit◦ If defective, CO gives contractor opportunity

to respond; FAPIIS updated if final determination changed

◦ Right to reduced price whether subcontract a cost estimate or firm agreement

◦ Defective subcontract data adjustment limited to ∆ between price used for prime and actual subcontract or actual cost to contractor, if no subcontract awarded

◦ CR/FP except FFP and FP with economic price adjustment: disallowance or non-recognition of costs

15.407-2(a),(b),(c),(d)

Make-or-buy ProgramsContractor ensures lowest cost

and risk to USGUSG may reserve right to

review/agreeAcquisitions requiring make-or-buy

◦CC/PD required and value >$12.5M, except R&D or no follow-on production

◦Under $12.5M – if CO determines info necessary, reasons documented

◦Solicitation must include requirement and evaluation factors

15.407-2(e),(f),(g)

Make-or-buy Programs (cont.)Program requirements in proposal

Items and work included, categorized by ‘make’ or ‘buy’;

Production location, whether near labor surplus area;

Identification of subcontractors, location, size Whether make-or-buy decision should be deferred

Evaluation, negotiation Before contract award; no ‘make items’ if

otherwise available unless lower cost to USGIncorporation in contracts for major

systems or other supplies/services if cost reimbursable or contractor cost share <25%

15.407-3

Forward Pricing Rate AgreementsAny FPRA must be identified in

proposal and latest cost or pricing data updated regularly

Negotiated with COIf changed condition affects

agreement, FPRA revisedCertification of FPRA not required

unless used to price agreement requiring CC/PD

15.407-4

Should-cost ReviewForm of cost analysis which

doesn’t assume historical costs reflect efficiency

Promotes improvements to reduce cost

Program review Evaluate significant elements of direct costs Separate audit required CO determines which operations have

greatest cost savings potential Team report required Identified in acquisition plan and solicitation

Estimating Systems – cognizant audit agency◦ Auditor provides corrective action

recommendations

15.407-4(c)

Should-cost ReviewOverhead review

◦Evaluate and negotiate FPRA◦Separate audit report required◦Evaluate significant indirect cost

elements in depth◦Identify, recommend corrective

actions for inefficient practices◦No separate report required if

performed with program should-cost review

◦Follow-up plan to monitor corrections

15.408 - Table 15-2

Table 15-2 – Instructions for submitting CC/PDRequirement met when all reasonably

available data submittedRequirement for submission continues until

price negotiated or earlier date establishedInclude index of all certified data and

information accompanying proposal, annotate future revisions

Explain estimating process, identify contingencies, include cost element breakdown

Identify preaward costs incurredInclude FPRA, if negotiatedSubmit Certificate of Current Cost or

Pricing Data

Table 15-2Cost Elements

◦Materials & services Subcontractor cost analyses, if threshold

exceeded; prime responsible for updating subcontractor data

Adequate price competition (subs, purchase orders, materials, etc.)

◦Direct Labor◦Indirect Costs◦Other costs◦Royalties, if >$1500◦Facilities Capital Cost of Money, if claimed

15.503(a)

Preaward, Award, and Postaward Notifications, Protests and MistakesApplies to competitive proposalsNotifications to unsuccessful offerorsPreaward Notices

◦ Notice of exclusion from competitive range; basis for determination, proposal revision not considered

◦ Small business programs: Notified prior to award, after completion of

negotiations, type of small business selected Identify successful offeror, no subsequent revisions

considered; no response required unless SBC status of apparent awardee challenged

Notice not required if urgency necessitates award, or contract is under 8(a) program

15.503(b)

Postaward Notices3 days after date of contract award,

CO issues written notification to those in competitive range not selected or not previously notified◦Notice also made on request for proposals

under simplified acquisition procedures◦Information in notice:

Number of offers solicited and proposals received

Name and address of award recipients, including offered items/quantity/unit prices

Reason proposal not accepted No confidential business information revealed

15.504

Award to Successful OfferorIf award includes information

different from proposal, both parties sign

If award for less than all possible items, notice states USG may make subsequent awards within proposal acceptance period

If USG forms OF 307, SF 26, or SF 33 not used, USG acceptance statement must be included with CO name, signature, date; likewise, contractor must sign if award contains different information than proposal

15.505

Preaward Debriefing of Offerors May request debriefing within 3 days of

notice if excluded from competitive range◦ May be delayed until after award, but can

affect protest timliness◦ No more than one debriefing per proposal

CO should debrief in timely manner, but may refuse if in USG’s best interest

Debriefings chaired by CO and include◦ Evaluation of significant elements, rationale

for elimination, reasonable responses to questions

◦ Do not disclose number or identity of other offerors, content, ranking, evaluation or other prohibited information

15.506

Postaward Debriefing of OfferorsAgency should receive request for

debriefing within 3d of unsuccessful offeror’s receipt of notice◦ Debrief occurs within 5 days of receipt of request

◦ If late, not entitled to debrief

◦ Delayed debriefing or untimely request doesn’t automatically extend protest deadline

Debrief format determined by CO◦ Evaluation of weaknesses, cost or price, technical

rating; offerors’ ranking; rationale for award, make/model of items supplied; responses to questions

◦ Excludes specific comparisons, business confidential information

15.507

Protests Against Award, MistakesHandled per Part 33If protest causes agency within one

year of award:◦Issue new solicitation

All offerors receive debriefing and other non-proprietary information given to original offerors

◦Request revised proposals Copy of debriefing and other non-proprietary

information provided to offerors in the competitive range of the original proposal

If mistakes disclosed after award, process at 14.407-4 followed.

15.601-15.603

Unsolicited ProposalsResponses encouraged to to BAA,

SBIR, STTR, or Program R&D announcements or any government-initiated solicitation or program

Results in contract for R&DSuch proposals must be

◦Unique and innovative, independently developed

◦Sufficiently detailed to evaluate agency benefit

◦Evaluated for energy-savings performance

15.604

Agency Points of ContactAgency POC must make following

available:◦Definition and content for acceptability◦Requirements for responsibility (9.1)

and organizational COI (9.2)◦Preferred methods and procedures for

submittal◦Names of agency POCs◦ Information sources◦ Instructions for marking proprietary info◦Only cognizant CO has authority to bind

USG

15.605

Content of Unsolicited ProposalsBasic information

◦Contact information, date, signature, other agencies, proprietary data identification

Technical information◦Title and abstract, objectives, key

personnel, agency support neededSupporting information

◦Price or total estimated costs, period and duration, type of preferred contract, organizational description, agency personnel contacted

15.606

Agency ProceduresAgency must control receipt,

evaluation, disposition of proposalsEstablish agency points of contactReceipt and initial review

◦Is proposal valid, suitable, relevant, sufficient to evaluate merit, properly approved, proper marking requirements

◦If rejected, agency POC notifies offerorEvaluation

◦Methods, merit, contribution, capabilities, key personnel skills, realistic cost

15.607, 15.608

Criteria for Acceptance and Negotiation - Unsolicited ProposalReturn if

◦Available elsewhere without restriction, resembles pending competitive acquisition, not relevant to mission or not innovative

Negotiate sole source if ◦Favorably evaluated, justification

approved, agency funds, CO complied with synopsis requirements

USG prohibited from◦using proposal as basis for any

solicitation w/o permission or from disclosing restrictively marked information

15.609

Limited Use of DataOfferor may restrict use if marked

appropriately, otherwise proposal will be returned

Agency POC routes with restriction unless offeror specifically states no restrictions imposed

If unrestricted and evaluation outside USG necessary, proposal data may not be disclosed to others◦ If restricted, offeror must agree to external

review◦ If not an educational/non-profit institution,

written permission required before release for evaluation

◦ Written concurrence from non-USG evaluator not to disclose