Myth-Information: Price Analysis is Always Required
There seems to be a closely held belief by some in the Federal contracting community that the FAR requires the contracting officer to perform a price analysis before awarding any contract. CON 111 used to contain the following statements:
You must use price analysis to ensure that the overall price is fair and reasonable. Even when an offeror is required to provide the most in depth type of proposal data ? data known as "cost or pricing data" -- you will still need to use price analysis to ensure that the overall price is fair and reasonable. Point: You'll always, always, always use price analysis!
A number of my colleagues, both practitioners and instructors, would agree with those statements. Further, I have had a number of students pre-programmed by their contracting offices to believe that price analysis is always required.
What does the FAR say?
Subparagraphs a(2) and a(3) of FAR 15.404-1 discuss the requirements for the performance of price and cost analysis:
(2) Price analysis shall be used when cost or pricing data are not required (see paragraph ( of this subsection and 15.404-3).(3) Cost analysis shall be used to evaluate the reasonableness of individual cost elements when cost or pricing data are required. Price analysis should be used to verify that the overall price offered is fair and reasonable.
Note that a(2) qualifies the requirement for price analysis with the language "when cost or pricing data are not required." To interpret a(2) to mean that price analysis is always required would render meaningless the qualifying language in the statement ("when cost or pricing data are not required"). Such an interpretation would be inconsistent with the fundamental principle that statutes and regulations must be read and interpreted as a whole, thereby giving effect to all provisions. See Waste Mgmt. of North Am., B-225551, B-225553, Apr. 24, 1987, 87-1 CPD ? 435 at 5.
Subparagraph a(3) sets forth the requirement for performing cost analysis (i.e., when cost or pricing data are required) and contains the statement that "Price analysis should be used to verify that the overall price offered is fair and reasonable." Does this statement require price analysis when cost or pricing data are required? To answer this, we need to review the definitions of "should" and "shall" in FAR 2.101:
"Should" means an expected course of action or policy that is to be followed unless inappropriate for a particular circumstance."Shall" means the imperative.
Thus, when cost or pricing data are required, the contracting officer is 1) required to perform cost analysis and 2) expected to perform price analysis unless it's inappropriate for a particular circumstance. That's different than stating that the contracting officer must perform both price and cost analysis when cost or pricing data are required. The implicit acknowledgement that price analysis could be inappropriate in a particular circumstance (and thus, not required) contradicts the assertion that price analysis is always required.
Why the Confusion?
I'm not sure why some folks think that price analysis is always required. Perhaps they haven't read the FAR carefully. I recently had my students read subparagraphs a(2) and a(3) and asked them whether it was true or false that price analysis was always required. They were split about 50% true 50% false. When I had the students who answered "False" re-read a(2) and a(3), I was able to get the split to about 15% true 80% false and 5% I don't know. I can live with that.
A more likely reason behind the existence of this myth is that an uncomfortably large number of people in our field do not know what the FAR says because they do not read it. Instead, they are guided by, and they repeat, rumors.
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