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While conducting reviews of SAP purchases a colleague and I had an discussion about what is necessary to award at a fair and reasonable price, in a particular situation.  

While price reasonableness is always a function of all the facts in a given procurement, absent any clear evidence of collusion or improper business relationships.  Would two quotes from authorized distributors be sufficient fair and reasonable pricing? 

Assume that the determination necessary to support a single source BN/OEM has been properly executed for a part/item.   Award is made to low price quoter of the same part/item.

Would quotes from two different authorized distributors for the same BN/OEM item be sufficient price analysis to meet the threshold of FAR 13.106-3(a)(1)?  

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Didn't the justification include a determination that fair and reasonable prices could be determined? Whatever method went into that justification should be followed afterwards. I think you need more than competing distributers (no value add) - perhaps a comparison to prior sales (perhaps prior sales that were made competitively.

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3 hours ago, CharterParty said:

Would quotes from two different authorized distributors for the same BN/OEM item be sufficient price analysis to meet the threshold of FAR 13.106-3(a)(1)? 

It depends entirely on who is writing the statement and what facts they have.

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3 hours ago, CharterParty said:

Would quotes from two different authorized distributors for the same BN/OEM item be sufficient price analysis to meet the threshold of FAR 13.106-3(a)(1)?  

Maybe...FAR 15.404-1(b)(2)(i) states "Normally, adequate price competition establishes a fair and reasonable price" (emphasis added...you can reference the definition for adequate price competition at FAR 15.403-1( c )(1)).

I add the emphasis because there are situations where adequate price competition would not result in a fair and reasonable price - for example, let's imagine a requirement for widgets that has a Government estimate, based on market research, of $50k.  The requirement is solicited via a RFQ for 3 days and results in 2 offers for $100k and $150k (let's assume we meet the definition of adequate price competition mentioned previously).  Now ask yourself, is $100k a fair and reasonable price?  Maybe, maybe not.  Any good contracting officer/professional would need to consider the totality of the circumstances and then do some thinking to make the proper determination.  Consider the following:

  • The prices quoted are inconsistent with the Government estimate...why is that?
  • The prices quote by the offerors are 40% different...why is that?
  • Why did the Government receive only two quotes?  Did market research indicate a large number of potential suppliers for the requirement or a few?  Or, did the short solicitation response time limit other offerors' abilities to participate?
  • Was the requirement clearly explained in the solicitation and adequate understood by the offerors?

I could go on and on.  Point being, Vern is absolutely right when he states "it depends."

Final point - you stated you're doing reviews.  It sounds like this may be a case of a poorly documented contract file.  I'd stress the importance of making sure that individuals document their business judgment (even if it seems apparent) for this very reason - a decision needs to be able to be readily understood and needs to be reasonable...even for SAP purchases.

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CharterParty,

Aparently, the contracting officer was satisfied, and that is what matters.  Are you doing a review of file documentation, or are you really thinking that money is being wasted?  If the first, remember that FAR Part 13 is supposed to be simplified, faster, and so forth than Part 15.  If the second, share your superior knowledge with the contracting officer for his or her learning.  

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I've done this before and here's what we advise our clients when this comes up:

If the offerors were notified in the solicitation that it was a competitive procurement, and if bidders acted independently, and if there was nothing that otherwise suggested an invalid competition (i.e. competitive range considerations) then the competition can be accepted as valid.  Based upon the criteria stated, one can be reasonably assured that market forces are present which result in reasonable pricing.  

While admittedly a special case, competing among distributors does not in and of itself invalidate a competition.

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1 hour ago, ji20874 said:

Aparently, the contracting officer was satisfied, and that is what matters.

I disagree - if a contracting officer made an unreasonable determination, or no determination at all, that matters.

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There is nothing in the original posting to suggest that the contracting officer made an unreasonable determination.  Let's not assume the worst.  

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There is no reason to assume anything, best or worst. Instead of assuming, read the CO's statement and decide whether he or she has made a sound argument.

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I think ji20874 is highlighting the fact that FAR 13.106-3 only requires statements (documentation) of price reasonableness under certain circumstances. In context, documentation requirements for determinations (not D&Fs) and statements appear different.

This still leaves FAR 4.801 to deal with.

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I agree with Vern please don’t assume either the best or the worst.  This is an intellectual question, not a questions of particular facts.  

 

Here is language from the NAVSUP 4200.85D:

“FAIR AND REASONABLE PRICE DETERMINATION

Ref: Purchase Request/Solicitation Number_____________________

1. I am recommending award to XXXXXXX. I used one or more of the following price analysis techniques compared to the quoted price of $____________. The quoted price was similar enough to the comparative price(s) to conclude that the quoted price is determined fair and reasonable.

a. Adequate Price Competition. XX vendors were solicited and XX quotes were received. After comparing the quoted prices, I consider the quotes to be competitive. See the Simplified Acquisition Worksheet or other record of price quotes received.” Page 6-12.

I have seen similar templates before in several offices.  These are template documents that have check boxes. The contracting officer makes an assertion (Box check or otherwise like above) that the price is fair and reasonable based on competitive quotes and then two or more quotes are in the file to review.

I don’t like this template’s use of the term “Adequate Price Competition”. As far as I can tell “Adequate Price Competition” is a term of art to describing procedures laid out in FAR 15. 

I have seen these templates in several offices and this question is one that always comes up.  FAR 13.106-3(a) has only three options for price fair and reasonableness (1), (2), or (3).  (1) leads with “ (1) Whenever possible, base price reasonableness on competitive quotations or offers. “ then (2) states “ (2) If only one response is received, include a statement of price reasonableness in the contract file. The contracting officer may base the statement on— (i) Market research; (ii) Comparison of the proposed price with prices found reasonable on previous purchases; (iii) Current price lists, catalogs, or advertisements. However, inclusion of a price in a price list, catalog, or advertisement does not, in and of itself, establish fairness and reasonableness of the price; (iv) A comparison with similar items in a related industry; (v) The contracting officer’s personal knowledge of the item being purchased; (vi) Comparison to an independent Government estimate; or (vii) Any other reasonable basis.” 

Competitive is not defined in FAR 2 or FAR 13 and I don’t know how you would apply the definition of adequate price competition to a FAR 13 procurement.    Do two tractor suppliers who sell you a computer for your tractor count as competition? These tractor suppliers are stuck buying the computer from tractor manufacturer who normally does not sell direct (even to the federal Government).  Don’t use the term tractor to confuse this question, it could equally be cell phone maker, engine manufacturer, software supplier.  I also suspect this will become more of an issue in the future as software makes more items unique and necessary to keep the whole package working.

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CharterParty,

Are you asserting that the contracting officer failed to perform an adequate price reasonableness determination?  Or failed to adequately document it?  If so, what is the basis for your assertion of the contracting officer's failure?

Let's not make our FAR Part 13 buys harder than they have to be. From what you have written, I am unable to discern a failure.

When one has a sole source justification for the product of one manufacturer, and it is a commercial product, and two or more bona fide distributors submit quotations, and there is nothing else suggesting otherwise, I think the requirements of FAR Part 13 are satisfied.  

Yes, the contracting officer could have done more -- one can always do more -- but how much more is appropriate?  How about a five-week study of the marketplace?  How about setting the approval level for such a circumstance at the first flag officer/SES in the contracting officer's chain of command?  No, I think all is well, based on what you have written.  Academic curiosity and second-guessing can grind the purchasing process to a halt.

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2 hours ago, Jamaal Valentine said:

In context, documentation requirements for determinations and statements appear different.

I don't think so, and neither should you.

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5 hours ago, CharterParty said:

I don’t like this template’s use of the term “Adequate Price Competition”. As far as I can tell “Adequate Price Competition” is a term of art to describing procedures laid out in FAR 15.

 

I have seen these templates in several offices and this question is one that always comes up.  FAR 13.106-3(a) has only three options for price fair and reasonableness (1), (2), or (3).  (1) leads with “ (1) Whenever possible, base price reasonableness on competitive quotations or offers. “ then (2) states “ (2) If only one response is received, include a statement of price reasonableness in the contract file. The contracting officer may base the statement on— (i) Market research; (ii) Comparison of the proposed price with prices found reasonable on previous purchases; (iii) Current price lists, catalogs, or advertisements. However, inclusion of a price in a price list, catalog, or advertisement does not, in and of itself, establish fairness and reasonableness of the price; (iv) A comparison with similar items in a related industry; (v) The contracting officer’s personal knowledge of the item being purchased; (vi) Comparison to an independent Government estimate; or (vii) Any other reasonable basis.” 

Competitive is not defined in FAR 2 or FAR 13 and I don’t know how you would apply the definition of adequate price competition to a FAR 13 procurement.    Do two tractor suppliers who sell you a computer for your tractor count as competition? These tractor suppliers are stuck buying the computer from tractor manufacturer who normally does not sell direct (even to the federal Government).  Don’t use the term tractor to confuse this question, it could equally be cell phone maker, engine manufacturer, software supplier.  I also suspect this will become more of an issue in the future as software makes more items unique and necessary to keep the whole package working.

Great post, Charter Party! I agree about "adequate price competition." It's an official term associated with Truthful Cost or Pricing Data (formerly, Truth in Negotiations), which is a statute and a regulation that does not apply to simplified acquisition and a term that does not appear in Part 13.

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However, FAR 6.302-1(c) clearly states that brand name acquisitions are not full and open competition regardless of the number of sources solicited. As such, I do not think it appropriate to make a price reasonableness statement in the file that says prices were determined reasonable based on competition.

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20 minutes ago, Whynot said:

However, FAR 6.302-1(c) clearly states that brand name acquisitions are not full and open competition regardless of the number of sources solicited. As such, I do not think it appropriate to make a price reasonableness statement in the file that says prices were determined reasonable based on competition.

The lack "full and open competition" does not mean that you cannot determine a fair and reasonable price based on "competition."

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13 hours ago, Vern Edwards said:

Great post, Charter Party! I agree about "adequate price competition." It's an official term associated with Truthful Cost or Pricing Data (formerly, Truth in Negotiations), which is a statute and a regulation that does not apply to simplified acquisition and a term that does not appear in Part 13.

Vern,  I somewhat disagree.  The statement I quoted, FAR 15.404-1(b)(2)(i) uses the term "adequate price competition" in the context of price analysis (and then references you back to the definition of "adequate price competition" which is, admittedly, under the FAR section for Prohibition on Obtaining Certified Cost or Pricing Data).  Still, it's association with price analysis, the consistency between the price analysis techniques/standards at FAR 13.106-3(a) and FAR 15.404-1(a), and the statement in FAR Part 13 at FAR 13.003(g) which authorizes "any appropriate combination of procedures in Parts 13, 14, 15, 35, or 36..." leads me to conclude that if I'm trying to determine a fair and reasonable price based on competition IAW FAR 13.106-3(a), since FAR Part 13 does not provide an explicit standard for what meets that standard, it is appropriate to use the standard for "adequate price competition" from FAR Part 15.

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1 hour ago, Matthew Fleharty said:

The statement I quoted, FAR 15.404-1(b)(2)(i) uses the term "adequate price competition" in the context of price analysis (and then references you back to the definition of "adequate price competition" which is, admittedly, under the FAR section for Prohibition on Obtaining Certified Cost or Pricing Data).  Still, it's association with price analysis, the consistency between the price analysis techniques/standards at FAR 13.106-3(a) and FAR FAR 15.404-1(a), and the statement in FAR Part 13 at FAR 13.003(g) which authorizes "any appropriate combination of procedures in Parts 13, 14, 15, 35, or 36..." leads me to conclude that if I'm trying to determine a fair and reasonable price based on competition IAW FAR 13.106-3(a), since FAR Part 13 does not provide an explicit standard for what meets that standard, it is appropriate to use the standard for "adequate price competition" from FAR Part 15.

That kind of thing is why I have long said that the rules and guidance for conducting simplified acquisitions should be removed from FAR and placed in a separate publication. If I were running a contracting shop doing simplified acquisitions, I would forbid my buyers from ever looking at FAR Part 15 in connection with simplified acquisitions. Anyone caught looking at FAR Part 15 in connection with a simplified acquisition would spend the rest of their life assigned exclusively to doing contract closeouts. I would not want buyers wasting time with concepts like adequate price competition and trying to apply the criteria in 15.403-1(c)(1) to simplified acquisitions. I can hear them now, arguing if you could ever have adequate price competition based on quotes, since 15.403-1(c)(1) mentions only offers, and FAR 2.101 makes a distinction between offers and quotes.

FAR Part 15 was written by Satan.

Here's the original question:

On August 16, 2016 at 5:19 AM, CharterParty said:

Would quotes from two different authorized distributors for the same BN/OEM item be sufficient price analysis to meet the threshold of FAR 13.106-3(a)(1)?  

In simplified acquisition, the adequacy of a CO's determination of fairness and reasonableness depends on the argument the CO makes in his statement (it could be as brief as three sentences) and the facts on which the argument is based. (For instance--were the quotes from the different distributors the same? Were the quotes for identical items? Were the distributors in close geographical proximity? Did the CO bargain for better prices than originally quoted? Did the CO get a better price from either distributor?)

The answer does not depend on FAR terminology or rules in Part 6 and Part 15.

Teach people doing simplifieds to be BUYERS, not regulation hounds.

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Doesn't FAR 13.501 bring in FAR Part 6? At any rate, this section clearly states that brand name acquisitions are sole source acquisitions. I do not know how you reconcile sole source and competition.

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37 minutes ago, Whynot said:

Doesn't FAR 13.501 bring in FAR Part 6? At any rate, this section clearly states that brand name acquisitions are sole source acquisitions. I do not know how you reconcile sole source and competition.

No. It merely refers to the use of a format. Didn't you read 6.001(a)? It's short. Didn't you understand it?

The issue in this thread is fairness and reasonableness of price, not competition. Competition is not essential to getting a fair and reasonable price, and competition does not guarantee a fair and reasonable price. You can get a fair and reasonable price from a sole source. COs do it all the time (or claim they do).

And people wonder why contracting is such a mess.

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27 minutes ago, Vern Edwards said:

I can hear them now, arguing if you could ever have adequate price competition based on quotes, since 15.403-1(c)(1) mentions only offers.

Fair point Vern, I withdraw my disagreement regarding the application of the standard for "adequate price competition" to simplified acquisitions; however, in that case, should there be a definition in FAR 2.101 for "adequate price competition" that captures both quotes and offers?

I hope if you were my boss you wouldn't assign me to working contract closeouts... :)

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1 hour ago, Matthew Fleharty said:

hould there be a definition in FAR 2.101 for "adequate price competition" that captures both quotes and offers?

It depends on what the policy makers want to do. Remember that adequate price competition is a statutory term that was adopted by the ASPR, then the DAR, and now the FAR in order to implement TINA. The statute does not define the term or provide criteria for determining its existence.

Historically, agencies did not solicit quotes in large acquisitions. They solicited proposals (meaning offers). Quotes were sought primarily in simplified acquisitions, and Congress never meant to apply TINA to simplified acquisitions (which used to be called "small purchases"). Thus, it did not make sense to include quotes in the criteria for adequate price competition. I doubt that the term was even discussed when the regulations first fleshed out the concept of adequate price competition.

Of course, careless usage of legal terminology, a trait of our profession (think of "scope"), has led people to talk of adequate price competition in simplified acquisitions, although the term does not appear in Part 13. A cursory check of the Contract Pricing Reference Guides, Volume I, Price Analysis, shows that adequate price competition is discussed only with reference to cost or pricing data, and no mention is made of it in the context of simplified acquisitions.

A careful reading of FAR 15.403-1(c)(1) suggests that there is a legitimate issue whether you can have adequate price competition, in the sense in which that term is used in FAR, based on quotes, since the FAR refers to adequate price competition expressly and solely in the context of offers and FAR Part 2 makes a clear distinction between offers and quotes. Moreover, if I rightly recall, the only mention of adequate price competition in FAR 15.404-1 is in a single sentence in subparagraph (b)(2)(i), which is a rather weak basis for applying it to simplified acquisitions, which, I believe, are not mentioned anywhere in 15.404. Not once.

Does the government solicit quotes very often in acquisitions valued in excess of $750,000. I suspect not, but I don't know. I doubt it. If not, then why bother changing the criteria in 15.403-1(c)(1)? 

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Please ignore the strikethrough in my last post. Its occasional unbidden appearance is one of the mysteries of the software for this site. The post is too long for me to write again. I'm off to the county fair for the rest of the day.

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I am not saying that competition is the only way to determine price reasonableness.

What I am saying is that you should not make a price reasonableness statement in the file that price reasonableness was determined for this brand name (sole source) simplified acquisition through a competition of the two distributer quotes.

We may not know what actually constitutes adequate price competition, but we know what it isn’t – and that is prices obtained through a sole source acquisition

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