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kellyz007

8a Direct Award Fair Market Price and price reasonableness

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This question is in regards to 8a sole source awards.

FAR 19.202-6 both with respect to meeting the requirement at 19.806(B ) and in order to accurately estimate the current fair market price, contracting officers shall follow the procedures at 19.807.

If I am understanding this correctly 19.807 is determining the fair market price or basically the price that an award is unreasonable however; FAR 19.806(B ) references using FAR 15.4 procedures for determining the price to be fair and reasonable.

So fair market price is different from price reasonableness? I can use FAR 15.404 to negotiate lower prices? Example we have history of prior awards to the same company but the historical price reasonableness and fair market price were based on comparison to history. So there is never a real basis for determining the price reasonable. There is never competition. And the awards are always just under the $4M threshold and are split into 6 month increments.

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Your references in your first paragraph are fitting.

So in your second paragraph where in 19.807 does it discuss “unreasonable”. Isn’t it fair market price or not and is not fair market the ”trigger” for award (Ref. FAR 19.806(B ))?

And finally to the third paragraph use anything you want to negotiate it is 8(a) (certification of price or cost is another issue) just remember you will be beholding to SBA with regard to that decision. And with regard to the $4 million threshold, presuming it relates to sole source 8(a) versus competitive 8(a) who is manipulating the award you or SBA? If you, why not insist on competitive and extend the term and if SBA then shame on them.

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Kelly:

You asked:

So fair market price is different from price reasonableness?

The answer to that is no.

See FAR 19.001:

Fair market price means a price based on reasonable costs under normal competitive conditions and not on lowest possible cost (see 19.202–6).

Now see FAR 19.202-6:

The fair market price shall be the price achieved in accordance with the reasonable price guidelines in 15.404–1( b (....

FAR 15.404-1( b ) is about conducting price analysis. Now go back and look at FAR 19.807( b ) and put it all together.

"Fair market price" is just the term used for "fair and reasonable price" in the context of decision-making about various small business programs. See the rest of 19.202-6 and see the Contract Pricing Reference Guides, Vol. I, Ch. 1, Section I.2.1, "Pay A Fair And Reasonable Price." https://acc.dau.mil/CommunityBrowser.aspx?id=379437

Don't get wrapped around the axle. Move on.

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And the awards are always just under the $4M threshold and are split into 6 month increments.

Don't know the particulars of your case, but you might want to consider FAR 19.805-1 ( c ) and 13 CFR 124.506( a )( 4 ). A proposed 8(a) requirement with an estimated value exceeding the applicable competitive threshold amount may not be divided into several separate procurement actions for lesser amounts in order to use 8(a) sole source procedures to award to a single contractor.

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This question is in regards to 8a sole source awards.

FAR 19.202-6 both with respect to meeting the requirement at 19.806(B ) and in order to accurately estimate the current fair market price, contracting officers shall follow the procedures at 19.807.

If I am understanding this correctly 19.807 is determining the fair market price or basically the price that an award is unreasonable however; FAR 19.806(B ) references using FAR 15.4 procedures for determining the price to be fair and reasonable.

So fair market price is different from price reasonableness? I can use FAR 15.404 to negotiate lower prices? Example we have history of prior awards to the same company but the historical price reasonableness and fair market price were based on comparison to history. So there is never a real basis for determining the price reasonable. There is never competition. And the awards are always just under the $4M threshold and are split into 6 month increments.

With respect to your first question, fair market prices must be fair and reasonable for 8 ( a ) sole source contracts, so there is a tie between the two terms. FAR 19.001 defines "fair market price” for use in Part 19 as "a price based on reasonable costs under normal competitive conditions and not on lowest possible cost (see 19.202-6)."

Please note that paragraph ( a ) of 19.202-6 (Determination of Fair Market Price.) describes the fair market price as the price achieved in accordance with the reasonable price guidelines in 15.404–1 ( b ), using price analysis for set-asides other than 8( a ) and specifically for other than sole source 8 ( a ) contracts.

For 8 ( a ) contracts, paragraph 19.202-6 ( b ) applies. I have restated 19.202-6 ( b ) to be more readable (to me at least).

Joel's take on 19.202-6 ( b ): 'Contracting officers shall follow the procedures at 19.807 ("Estimating Fair Market Price") for 8( a ) contracts to be able to accurately estimate the current fair market price and to meet the requirement at paragraph ( b ) of 19.806 ("Pricing the 8(a) Contract") '

Let's first look at 19.806 ( a ) and ( b ), because they are both applicable to 8 ( a ) sole source awards (I bolded two phrases for emphasis):

19.806 -- Pricing the 8( a ) Contract.

( a ) The contracting officer shall price the 8(a) contract in accordance with Subpart 15.4. If required by Subpart 15.4, the SBA shall obtain certified cost or pricing data from the 8(a) contractor. If the SBA requests audit assistance to determine the proposed price to be fair and reasonable in a sole source acquisition, the contracting activity shall furnish it to the extent it is available.

( b ) An 8(a) contract, sole source or competitive, may not be awarded if the price of the contract results in a cost to the contracting agency which exceeds a fair market price...

OK, so the applicable parts of 15.4 are used to price the contract. This means that not only price analysis is applicable for a sole source contract when cost or pricing data is applicable or where additional data other than cost or pricing data is necessary to determine if the price is fair and reasonable.

Continuing, the KO is supposed to use the procedures at 19.807 to estimate the fair market price of the work that the 8 ( a ) contractor will perform and to price the contract within a fair market price that is fair and reasonable.

19.807 -- Estimating Fair Market Price.

( a ) The contracting officer shall estimate the fair market price of the work to be performed by the 8(a) contractor.

( b ) In estimating the fair market price for an acquisition other than those covered in paragraph © of this section, the contracting officer shall use cost or price analysis and consider commercial prices for similar products and services, available in-house cost estimates, data (including certified cost or pricing data) submitted by the SBA or the 8(a) contractor, and data obtained from any other Government agency.

( c ) In estimating a fair market price for a repeat purchase, the contracting officer shall consider recent award prices for the same items or work if there is comparability in quantities, conditions, terms, and performance times. The estimated price should be adjusted to reflect differences in specifications, plans, transportation costs, packaging and packing costs, and other circumstances. Price indices may be used as guides to determine the changes in labor and material costs. Comparison of commercial prices for similar items may also be used.

Your second question was

I can use FAR 15.404 to negotiate lower prices?

The anser is yes - plus use 19.807 for estimating purposes. I am a little confused about whether you are limited to using 19.807 ( c ) to estimate the fair market price of a repeat purchase when you really aren't sure whether the previous purchases were awarded at fair market prices. Since this is a sole source contract (I assume for non-commecial item), you have the additional tools of FAR 15.4 available to evaluate the proposed cost AND price.

But you added:

So there is never a real basis for determining the price reasonable. There is never competition. And the awards are always just under the $4M threshold and are split into 6 month increments.

In order to successfully negotiate a fair market price, you would have to have some basis to estimate what that is. In order to negotiate a fair and reasonable price, you would also have to have a yardstick or some feel for what would be fair and reasonable. We don't know if this is a supply type purchase, construction, services, etc. So, I don't kniow what type of comparisons can be made, what type of proposal information you could evaluate or if the type of purchase is anything you can analyze.

P.S., Since you made a point of stating that the awards for what appear to be continuing needs "are always just under the $4M threshold and are split into 6 month increments", I share Martin's concerns about the prohibition against project splitting to avoid competition. Is there only one firm that can perform this work?

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If a "fair market price" assumes that the purchase is made under "normal competitive conditions", what does that mean when you are in a non-competitive situation? I think that one must ALSO consider when you select an 8 ( a ) firm or most firms for that matter to negotiate with, you must accept that there may be some NORMAL limitations which the firm cannot reasonably overcome in performing your project. Thus, it may be more expensive than the lowest competitive price or more expensive than a "best value" selectee in a trade-off situation.

For instance, in construction the contractor might not be the "best" or most efficient firm to construct a project. Its equipment might not be the newest available. Its means and methods might be limited by its experience, skill level of its supervisors and employees and/or equipment availability. 8 ( a ) contractors often don't have access to as many local subs and suppliers as more established local firms. That's a whole separate topic!

If a contractor reasonably has some flexibility in what equipment, technical approach and/or resources available to efficiently accomplish the work like other firms under a competitive market situation, then I would take that into consideration in my negotiation objectives, negotiation strategy and during negotiations.

A "fair market price" means to me that I don't have to accept a purposely inflated price, methodology, etc. under a "take it or or leave it" offer. I'd expect the firm to negotiate a reasonable price as though it were competing to get the job - not as a monopoly. We have rejected firms that wouldn't reasonably negotiate and that couldn't justify their technical approach and/or pricing. The SBA generally agreed with us in my experience.

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Boy! That clears things right up.

A fair market price is a fair and reasonable price, pure and simple. Don't get wrapped around the axle because some congressman or regulation writer at SBA did not know what terminology to use.

If you think the price is fair and the contractor will accept it, you're good to go.

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Boy! That clears things right up.

A fair market price is a fair and reasonable price, pure and simple. Don't get wrapped around the axle because some congressman or regulation writer at SBA did not know what terminology to use.

If you think the price is fair and the contractor will accept it, you're good to go.

Kellyz appears to have concerns that they are spending almost 8 million dollars a year by 6 month incremental sole source award and apparently feels that the basis for determining fair market pricing or whatever is previous awards to this same contractor. I don't think that Kellyz feels good to go.

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I don't think she feels good to go, either. The question is: Why not? The fair market price concept has been around since 1979. It's not new. It's not hard to explain. So why doesn't she get it? The answer is: Because she doesn't know enough. Our job is to explain the thing in the simplest possible terms, like this:

Fair Market Price = Fair and Reasonable Price

It's a "market" price. So get out into the market and use price analysis to determine what's'fair.

Her second question was: "I can use FAR 15.404 to negotiate lower prices?"

Answer: Yes, of course, as long as you don't try to negotiate a price that's not fair or not reasonable.

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I understand. Thanks.

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