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The importance of Proposal Pricing for Government Contractors

Posted by Mike Anderson on Tue, Jan 14, 2014 @ 03:06 PM

How a business prices it's goods and services is key to the success of the business.  For Government Contractors, this is critical as most Federal Government Contracts require the contracts to be priced per the Federal Acquisition Regulations (FAR) part 15.4.  If the contract is for less than the simplified acquisition threshold (this is less than $700,000 per FAR 15.403-4) then certified cost and pricing data of FAR 15.4 doesn't apply.  These are the criteria that are exempt from cost and pricing data:

  • When the CO determines there is adequate price competition
  • When the CO determines that the prices agreed on are based on law or regulation
  • When a commercial item is being acquired
  • When a wavier has been granted
  • When modifying a contract or subcontract for commercial items.
  • The exercise of an option at the price established at contract award or initial negotiation
  • Proposals used solely for overrun funding or interim billing price adjustments

For all other situations the requirements of FAR part 15.4 will apply.  The government does this to make sure that the final agreed to price is fair and reasonable.  The government rationalizes that they are the largest purchaser of goods and services in the world, always pay on time (when processed per their guidelines) and therefore deserve the best pricing from their suppliers.  FAR Part 15.408 describes the provisions that the CO is normally required to add to the contract.  There are some clauses in here that are worth noting.  For instance, FAR part 52.215-10 (Price Reduction for Defective Certified Cost or Pricing Data) is required when the contract is subject to negotiation.  This Clause allows the government to adjust the pricing down if the pricing or cost data is found to be defective.  Contractors should be careful as errors in the pricing could later lead to reductions in price.  This could lead to an inadvertent loss in profit by the contractor.  Certainly this is not the goal of the government but it could be a consequence of not knowing, understanding or properly applying the principles of FAR part 15.4.

Table 15-2 in this section of the FAR describes the process for submitting the Cost/Price proposals when this is required.  It is interesting to note that FAR Table 15-2 references the definition in FAR part 201.1 for Certified Cost & Pricing Data which references 10 U.S.C 2306a which sets limits on the amount of fee (or profit) that will be acceptable to the government.  Many contractors do not know that there are limits set by regulation, much less what they are.  Further, Table 15-2 describes the cost elements that must be used in the pricing and cost data that make up the certified cost & pricing data.  These requirements parallel an approved accounting system (FAR Part 31) that may be required for the contractor as well.  These requirements for certified cost and pricing data can be flowed down to subcontractors as well when they meet the criteria of FAR part 15.4.  For a small business, this can be unsettling when their customer (the Prime) asks them for certified cost and pricing data.  As this type of information can make or break a small business, especially when disclosed to a customer. 

As you can see, this is not a straightforward exercise when certified cost and pricing data is required.  For the un-initiated it can be a real exercise in chasing down a myriad of complex, intertwined regulations.  This is the main reason we recommend that small businesses enlist experts like we have at ReliAscent to help prepare the cost and pricing data for submission on government contracts.  Do you have an expert on your team?

Topics: government contractor, Proposal Pricing, FAR 15.408