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An offeror for a sole source non-commercial supply contract has taken the position that adequate price competition is applicable and the Government should only require price analysis for evlauation of their proposal and Cost or Pricing Data should not be required. The offeror has referenced FAR 15.403-1(c )(1)(iii) indicating that the supplies sold to other Government entities represents adequate price competition. The offeror goes on to state FAR 15.403-1(c ) includes the term "or" and therefore not all three subparts are required to determine adequate price competition. The question is whether this position has validity or not. It is currently the Government's position that Cost or Pricing Data is required and the exception does not apply.

Reference:

FAR 15.403-1(c )(1)(iii) states, "Price analysis clearly demonstrates that the proposed price is reasonable in comparison with current or recent prices for the same or similar items, adjusted to reflect changes in market conditions, economic conditions, quantities, or terms and conditions under contracts that resulted from adequate price competition."

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Sap: An interesting question and I'm sure you will get very thoughtful responses from the experts here. A couple of quick observations from this layman however:

  • FAR 15.403-1( c) includes the term "or" between (ii) and (iii), but not between (i) and (ii). I guess we should read that to read (i) and either (ii) or (iii). Worse yet, (ii) also requires (A)(1) AND (2) AND ( B ). ( B ) contains the "OR"...so is (iii) okay in lieu of (ii)( B ) only or (iii) okay in lieu of (ii)?

I'm sure you (Sap) are the only one that dissected that bullet enough for it to make sense. The experts here will admonish me (kindly) for getting caught up in the words and not the meaning behind the regs. They are right, but keep in mind that the front-line of lawyers (of which I am not) will read the words.

My second layman observation:

  • Just because this seller is indicating they sell to other Government entities, does not in-of-itself validate that those sales are based on adequate price competition...were those sales also sole-sourced? If they ARE selling to other government entities based on adequate price competition, it may make your job easier to confirm competition, pricing, and negotiate applicable adjustments (including regional).

Good luck and please keep us posted.

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Prior to this requirement, I would have only considered the meaning of the regs. However, the offeror's arguement is based on interpretation and so the words have become increasingly more important to distinguish. I think in order for the Government to make an informed decision, both the meaning of the regs and the interpretation of the words need to be addressed in some capacity.

Unfortunately, the contracting method of other Government entities (mostly foreign) are unknown at this point. But it is our understanding that the initial requirement is competed and in some case the contract may be renewed without competition (possibly using follow-on like justification).

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SapereAude,

Only one of the conditions at FAR 15.403-1( c )(1) need to be met in order to have adequate price competition. The condition at FAR 15.403-1( c )(1)(iii) could theoretically be met in a sole source environment.

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The offeror has referenced FAR 15.403-1©(1)(iii) indicating that the supplies sold to other Government entities represents adequate price competition. The offeror goes on to state FAR 15.403-1© includes the term "or" and therefore not all three subparts are required to determine adequate price competition. The question is whether this position has validity or not.

The offeror's position valid.

FAR 15.403-1( c)(1) is one long sentence comprised of three subparagraphs: (i), (ii), and (iii). There is an "or" at the end of subparagraph (ii). Thus, the proper interpretation of 15.403-1( c )(1) is: A price is based on adequate price competition if (i), (ii), or (iii) is true. It would be wrong to interpret it to mean that (i), (ii), and (iii) must be true.

You can confirm this plain English interpretation by looking in the government's Contract Pricing Reference Guides. See FAR 15.404-1(a)(7), which refers you to the Contract Pricing Reference Guides and provides a link to them at a Defense Acquisition University website. Once you get to the website, go to Volume 3, "Cost Analysis." Then go to Chapter 2, "Obtaining Offeror Information for Cost Analysis." Then go to Section 2.1, "Recognizing the Need for Cost or Pricing Data." There you will find a table that guides you through the adequate price competition exception. The table says: "A price is based on adequate price competition when one of the following situations exists... ." Emphasis added. It then lists the three situations described in 15.403-1( c)(1), subparagraphs (i), (ii), and (iii). Thus, the government's own Contract Pricing Reference Guides confirm the validity of the offeror's interpretation.

See also Government Contract Costs & Pricing 2d ed., by Karen Manos, § 84:5: "Even when only one responsible offeror submits an offer, adequate price competition exists if the listed conditions for either of the following two circumstances are met... " [emphasis added], and then the author describes (1) FAR 15.403-1( c)(1)(ii) and (2) FAR 15.403-1( c)((iii).

Once the CO understands that the offeror's price might be based on adequate price competition under 15.403-1( c)(1)(iii), he or she must then apply the criteria in that subparagraph to determine if the offeror's price is, in fact, based on adequate price competition. It is not based on adequate price competition just because there was adequate price competition in the past. The offeror's price is based on adequate price competition if, and only if, the CO can determine that the offeror's price is reasonable by comparing it to prices under prior contracts for the same or similar items. If the CO cannot make that determination, then the offeror's price is not based on adequate price competition, even though adequate price competition was present in past procurements.

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Interesting. Thank you for the indepth references. There are still a few areas of concern.

Does the fact that most of the recent contracts for similar items are not only with the US Government entities, but international entities, affect the analysis? The terms and conditions of the contract, length of the contract, competition received in response to the requirement, even general contracting process, etc. are unknown at this point. What level of information should be collected from the offeror to adequately make this analysis have substance.

Also, what qualifies as "prior cntracts" for the purposes of this analysis. Say, less than 5 years?

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Sap, I would pay particular attention to Vern's last paragraph. If most of the sales are to foreign entities under unknown acquisition conditions, is there a way to correlate pricing and adjustment for selling or shipping outside of US, possible import duties, etc.? Since this is a negotiated acquisition, the seller ought to be able to provide that information to the KO.

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Sorry, I was interrupted while typing my last post. Just saw SAP's post #6 after I posted above.

EDITED: The Contractor needs to provide enough info to know what factors affected pricing of earlier foreign sales and how those prices correlate with the instant price, which has been offered to you in a non-competitive environment. The seller apparently wants you to determine that the price is fair and reasonable in comparison with previous sales, many or most of which were with "international entities", whatever that means. Are the "entities" government customers, commercial customers...? That alone can affect pricing if customs duties, value added taxes, etc. were applicable to such sales. Differences in shipping costs and methods can be significant.

You are asking for specific advice here when we don't know the the nature of the supplies or items you are buying. All we know is that, they are non-commercial and that some version of them have been purchased by the US and by international entities. The fact that they are not commercial item supplies is a possible indicator that they aren't standard commercial items sold to the public in substantial quantities and that your specific spec requirements and/or market conditions might differ from some or all of the other sales. Are you able to compare apples to apples?

You are negotiating on a sole source basis, right?

Don't let the seller turn the negotiation around to make the KO justify why he/she needs the info to determine that the price is based upon adequate competition and to simply be able to compare prices to determine that one need only to compare current prices with those sales. If you can't determine that the actual items and sales are comparable or determine the factors that might distinguish differences, then I don't think that you can simply use price analysis to determine that the instant price is fair and reasonable.

I remember a recent post where the poster discussed how manufacturing processes had changed from earlier sales.

As to your question concerning length of time, length of time would affect prices, so have the seller explain the correlation. Five years is a long time in commerce I would think.

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Does the fact that most of the recent contracts for similar items are not only with the US Government entities, but international entities, affect the analysis? The terms and conditions of the contract, length of the contract, competition received in response to the requirement, even general contracting process, etc. are unknown at this point. What level of information should be collected from the offeror to adequately make this analysis have substance.

Also, what qualifies as "prior cntracts" for the purposes of this analysis. Say, less than 5 years?

The regulation is silent on these matters. Subparagraph 15.403-1( c)(1)(iii) says:

(iii) Price analysis clearly demonstrates that the proposed price is reasonable in comparison with current or recent prices for the same or similar items, adjusted to reflect changes in market conditions, economic conditions, quantities, or terms and conditions under contracts that resulted from adequate price competition.

It says only "contracts that resulted from adequate price competition." It does not say contracts with the United States or contracts with the Government. It says "current or recent prices," but it doesn't define current or recent. Five years sounds a little old to me. In some cases, two years might be a little old.

There are no pat answers to your questions, which are prompted mainly by your ignorance and self doubt. Do some research. Think. Use your judgment. Stick your neck out. The regulation is giving you room to think and decide, yet you're looking for definitive rules.

As for the "level" of information to collect, that's up to the CO. What information does he or she want in order to make a price analysis? See FAR 15.404-1( b ) for guidance. Look at the Contract Pricing Reference Guides, Volume 1.

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