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Kaseybaja

Cost or Price Analysis for Fixed Price Contracts

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go back to the drawing board (cost analysis is not necessary for a fixed price contract)

research

re-write your question after you understand the difference between price and cost analysis as used in the Federal Acquisition Regulation

 

@Kaseybaja The question for you: What is it about a fixed price contract that makes you think price analysis is not necessary or useful? 

 

 

 

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This indicates a cost analysis would be required for a fixed price contract when price analysis is not able to be determined.

15.305 -- Proposal Evaluation.

(a) Proposal evaluation is an assessment of the proposal and the offeror’s ability to perform the prospective contract successfully. An agency shall evaluate competitive proposals and then assess their relative qualities solely on the factors and subfactors specified in the solicitation. Evaluations may be conducted using any rating method or combination of methods, including color or adjectival ratings, numerical weights, and ordinal rankings. The relative strengths, deficiencies, significant weaknesses, and risks supporting proposal evaluation shall be documented in the contract file.

(1) Cost or price evaluation. Normally, competition establishes price reasonableness. Therefore, when contracting on a firm-fixed-price or fixed-price with economic price adjustment basis, comparison of the proposed prices will usually satisfy the requirement to perform a price analysis, and a cost analysis need not be performed. In limited situations, a cost analysis (see 15.403-1(c)(1)(i)(B)) may be appropriate to establish reasonableness of the otherwise successful offeror’s price. When contracting on a cost-reimbursement basis, evaluations shall include a cost realism analysis to determine what the Government should realistically expect to pay for the proposed effort, the offeror’s understanding of the work, and the offeror’s ability to perform the contract. Cost realism analyses may also be used on fixed-price incentive contracts or, in exceptional cases, on other competitive fixed-price-type contracts (see 15.404-1(d)(3)). (See 37.115 for uncompensated overtime evaluation.) The contracting officer shall document the cost or price evaluation.

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FAR 15.404-1(a)(2) - Price analysis shall be used when certified cost and pricing data (CCPD) are not required.

FAR 15.404-1(a)(3) - Cost analysis shall be used when certified cost and pricing data (CCPD) are required. 

The trigger for a cost analysis is whether or not certified cost and pricing data are required.  If you do not have an exception to CCPD requirements then a cost analysis is required.

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1 hour ago, Kaseybaja said:

Why does the Government consider price and cost analysis necessary where a fixed price contract is contemplated?

Why would you not do a price or cost analysis for a fixed price contract?  After all the objective of evaluating a bid/proposal is to award a contract at a fair and reasonable price.  How would you do this without a price/cost analysis?

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7 hours ago, Kaseybaja said:

Why does the Government consider price and cost analysis necessary where a fixed price contract is contemplated?

Are you referring to a fixed price contract using competitively negotiated source selection or to negotiations with a sole source or otherwise one on one negotiation?

 

6 hours ago, PepeTheFrog said:

go back to the drawing board (cost analysis is not necessary for a fixed price contract)

This is NOT necessarily correct  - Perhaps not necessary for many competitively negotiated, fixed price contracts.  

Depending upon what you are buying , and the dollar amount, cost analysis may be necessary to evaluate the reasonableness of the fixed price for sole source, non-competitive or otherwise one on one (e.g., Architect-Engineer) price negotiations.

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Just had a very senior DOD contract person explain to me that the sole-source contract my client was about to receive was going to be FFP "to avoid Part 15 requirements". Yes, for real. We shrugged. Just give us the award.

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2 hours ago, here_2_help said:

Just had a very senior DOD contract person explain to me that the sole-source contract my client was about to receive was going to be FFP "to avoid Part 15 requirements". Yes, for real. We shrugged. Just give us the award.

It’s the Peter principle at work here. It is alive and well in the federal government!

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21 hours ago, Kaseybaja said:

This indicates a cost analysis would be required for a fixed price contract when price analysis is not able to be determined.

Yes I suppose, but its not a big deal.

 

The objective of analysis is to ensure the final price is fair and reasonable.  There are  seven types of analysis listed in FAR 15, cost and price being just two of them.  This analysis is required but most of the times its actually much more simple and common-sense than it appears in FAR 15.

Price Analysis. Say you want to buy some software.  The company sells their software on their website for $10.    You ask your friend who bought the same thing last week.  She says she also paid $10.  You have just determined the firm-fixed price to be fair and reasonable through price analysis per FAR 15.404 (b) (2) (ii)  and (iv).   

Cost Analysis. You want your house painted.  A painter says he'll do it for $8,000.  $5,000 labor and $3,000 paint.  That seems like way to much $ for paint for your 2,000 sf house .   You estimated you'd need maybe 10 - 20 gallons and the very best paint costs $80 a gallon.   You were expecting at most $1,600 for paint.  Too expensive.  You have just determined the firm-fixed price to not be fair nor reasonable thorough cost analysis per FAR 15.404(c)(2)(i).

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