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prices set by law or regulation vs. history of sales


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We have a difference of professional opinion in our office. We are evaluating the price reasonableness of commercial services in a business arena where the contractor is obligated to file public tariffs. This is a sole source situation. That said, we know (based on our knowledge of the market) that no sales are actually ever made at those tariff prices - much like the analogy that very few, if any, new cars are ever sold at the publicly available MSRPs.

Some believe we can use the tariffs as valid bases for comparison because they are prices set by law or regulation. Others believe the tariffs are not valid since there is no history of sales at those prices.

By the way, many times we find examples where the proposed pricing is 50% to 70% lower than the tariff, which causes the second camp to crow even louder that tariffs are not valid comparisons.

Can both camps be right in this scenario?

AS

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I used to contract for port services in European and Middle Eastern ports. It was common that the Port Authorities would set tariffs for certain services. It was also common for discounts to be granted in an attempt to lure additional business to the ports. I only viewed the tariff price as being set by law or reg in the few cases when I knew that discounts were not given. In most cases, I negotiated discounts, and I prepared a price justification (or rationalization) using factors other than the tariffs.

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Price set by law or regulation is only a bar to obtaining certified cost or pricing data (FAR 15.403-1( c )( 2 )). It is not a guarantee of price reasonableness, and should not be seen as such.

You need to pay attention to FAR 15.404-1( b ), Price Analysis for Commercial and Non-Commercial Items.

Do you want to pay the tariff price? Go ahead. Do you want to negotiate a lower price? Go ahead. You can call either price reasonable, if you want to. FAR 15.404-1( b )( 2 ) lists some price analysis techniques, as follows:

. (i) comparison to proposed prices received in response to the solicitation...

. (ii) comparison to historical prices paid...

. (iii) use of parametric estimating methods...

. (iv) comparison with competitive published price lists...

. (v) comparison with independent Government cost estimates...

. (vi) comparison with market research prices...

. (vii) analysis of other than certified cost or pricing data...

NOTE: comparison with regulated or tariff prices is not included in the listing, other than the reach-all statement that the above are examples of techniques.

The proper question is not whether you can compare. The better question for a contracting officer or manager is whether you will negotiate for the best possible price for your agency.

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AgencySpecialist,

You're confusing an exception to TINA (prices set by law or regulation) with a basis of comparison for determining price resonableness. Assuming that the tariff prices are set by law or regulation, if the tariff prices are much higher than what people actually pay, they are not reasonable.

It sounds like one camp is interested in pro forma compliance with a regulation and the other camp is interested in paying a reasonable price.

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