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Can someone help me understand FAR 15.404-1(a)(3)?  It says:

"Cost analysis shall be used to evaluate the reasonableness of individual cost elements when certified cost or pricing data are required. Price analysis should be used to verify that the overall price offered is fair and reasonable."

Is 15.404-1(a)(3) trying to say that WHEN individual cost elements have been proposed (or when a Contracting Officer has requested they be submitted/proposed), they must be evaluated using cost analysis, OR is it trying to say that cost analysis must always occur when certified cost or pricing data is required?  Stated another way, could we do only a price analysis when certified cost or pricing data is required?

For example, lets say I have a non-commercial purchase for a supply item that will cost $2.5M.  The Contractor is able to provide numerous previous invoices proving they have sold the item in question to other Government agencies at the same price.  As a result, we feel we are able to justify a fair and reasonable price based on price analysis alone. However, because the purchase is above $2M, certified cost or pricing data is required per 15.403-4(a)(1). And also as a result, 15.404-1(a)(3) says that cost analysis SHALL BE USED. If we were to award our contract using only price analysis, did we comply with 15.404-1(a)(3) because no cost element breakdown was submitted or requested to be submitted? Or did we fail to comply with 15.404-1(a)(3) because cost analysis was not used at all in the evaluation, and it says cost analysis "shall be used"?

It seems like the current wording in 15.404-1(a)(3) does not account for the possibility that certified cost or pricing data could be required without a cost breakdown of individual cost elements being submitted.

 

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2 minutes ago, aordway said:

Is 15.404-1(a)(3) trying to say that WHEN individual cost elements have been proposed (or when a Contracting Officer has requested they be submitted/proposed), they must be evaluated using cost analysis, OR is it trying to say that cost analysis must always occur when certified cost or pricing data is required?  Stated another way, could we do only a price analysis when certified cost or pricing data is required?

I bolded the answer to your question.

4 minutes ago, aordway said:

For example, lets say I have a non-commercial purchase for a supply item that will cost $2.5M.  The Contractor is able to provide numerous previous invoices proving they have sold the item in question to other Government agencies at the same price.  As a result, we feel we are able to justify a fair and reasonable price based on price analysis alone. However, because the purchase is above $2M, certified cost or pricing data is required per 15.403-4(a)(1). And also as a result, 15.404-1(a)(3) says that cost analysis SHALL BE USED. If we were to award our contract using only price analysis, did we comply with 15.404-1(a)(3) because no cost element breakdown was submitted or requested to be submitted? Or did we fail to comply with 15.404-1(a)(3) because cost analysis was not used at all in the evaluation, and it says cost analysis "shall be used"?

In this situation, you could potentially make the argument that there was adequate price competition based on FAR 15.403-1(c)(1)(ii)(B) (provided the acquisition is not for DoD, NASA, or the Coast Guard). If you can't do that, you can request a waiver for the submission of certified cost or pricing data from the HCA. However, If no exceptions apply, you must obtain certified cost or pricing data and perform a cost analysis.

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Thanks @Don Mansfield.  This would be for DOD, so the FAR 15.403-1(c)(1)(ii)(B) allowance could not apply.

How does that jive with DFARS PGI 215.404-1(c)(i) where it says "When the contracting officer cannot obtain sufficient data to perform a price analysis in accordance with the pricing steps in FAR 15.404-1(b), a cost analysis is required."  In my example, we do have enough pricing data to perform a price analysis. The DFARS seems to say try and do a price analysis first and foremost. I guess 15.404-1(b) is missing something that says "unless you are over the cost or pricing data threshold, in which case you must expend time and resources to evaluate using cost analysis despite the sufficient pricing data already in hand"? I don't quite understand the logic behind the mandate to evaluate using cost analysis, but perhaps I should not be looking for logic within the FAR...

Thanks again.

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9 minutes ago, aordway said:

I guess 15.404-1(b) is missing something that says "unless you are over the cost or pricing data threshold, in which case you must expend time and resources to evaluate using cost analysis despite the sufficient pricing data already in hand"?

That's why there's a provision for a waiver--if obtaining certified cost or pricing data and doing a cost analysis would be a waste of time.

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16 hours ago, aordway said:

It seems like the current wording in 15.404-1(a)(3) does not account for the possibility that certified cost or pricing data could be required without a cost breakdown of individual cost elements being submitted.

aordway, are you equating a proposal with cost or pricing data?  If certified cost or pricing data are required to be submitted in the Table 15-2 format, wouldn't this result in a breakdown of individual cost elements?

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@Retreadfed I'm just talking about fair and reasonable price determination. FAR 15.404-1(a)(3) says "Cost analysis shall be used to evaluate the reasonableness of individual cost elements when certified cost or pricing data are required." That appears to say, and with Don's guidance, that when cost or pricing data is required (i.e. when the contract is over $2M), fair and reasonable price determination must be made through the cost analysis method.  It does not say "when certified cost or pricing data is submitted" or "when certified cost or pricing data is requested", but says "when required", whether actually submitted/needed for the fair and reasonable determination or not.  It seems then that the need to do cost analysis is tied to a dollar threshold rather than submission of actual certified cost or pricing data.

Submission in the Table 15-2 is optional in accordance with FAR 15.403-5(b)(1). If we requested info in the Table 15-2 format, then yes we would receive a breakdown of cost elements, and it would be obvious that a cost analysis would be the best way to evaluate those submitted elements to determine a fair and reasonable price. If the initial citation said "a cost analysis is required when individual cost elements have been submitted as certified cost or pricing data", there would be no confusion. But since the citation says "when certified cost or pricing data is required", and the requirement occurs for anything over $2M, that citation then applies to purchases where we did not request cost element breakdowns at all (whether in the 15-2 format or another format) because we have sufficient pricing data to determine the overall price proposed fair and reasonable. The citation referenced requires (apparently) that we perform a cost analysis in that situation nonetheless.

 

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13 hours ago, aordway said:

That appears to say, and with Don's guidance, that when cost or pricing data is required (i.e. when the contract is over $2M), fair and reasonable price determination must be made through the cost analysis method.

That is not what the FAR says, IMO, and that is not what Don said, IMO.

FAR 15.404-1(a)(3):  "Cost analysis shall be used to evaluate the reasonableness of individual cost elements when certified cost or pricing data are required. Price analysis should be used to verify that the overall price offered is fair and reasonable."

Cost analysis for cost elements.

Price analysis for price.

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Appears to be a sole source acquisition or one where only one offer has been submitted.

if it is non-commercial, then it possibly or probably involves services or supplies that are not standardized to the extent that they are common to every sale?  Thus, it would seem that the mere fact that the contractor can provide invoices for previous purchases wouldn’t necessarily indicate the type of purchase (competitive or sole source) or other specific market conditions, specific product configuration or specific service, maturation of the product or service, similar quantities for shipping and/or pricing, etc., etc. 

 

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On 8/13/2020 at 7:54 PM, ji20874 said:

FAR 15.404-1(a)(3):  "Cost analysis shall be used to evaluate the reasonableness of individual cost elements when certified cost or pricing data are required. Price analysis should be used to verify that the overall price offered is fair and reasonable."

Cost analysis for cost elements.

Price analysis for price.

@ji20874 That's what logic would tell me makes sense, however that appears to be the opposite of what Don stated. I'm curious what you take Don's initial response to mean.  Or perhaps @Don Mansfield can let us know if he agrees with your post or not. I would also note that it says cost analysis SHALL be used, and price analysis SHOULD be used. It does not use "shall" in both instances. Also, it does not require cost analysis when cost elements are submitted, but rather when certified cost or pricing data is required, which is at $2M. Although what I think you stated is how i thought it should work, I can't help but think the FAR would have worded those two sentences a lot differently if that's what they intended it to mean. 

 

@joel hoffman My scenario would indeed be for a sole source situation, since we cannot rely on price competition to make a fair and reasonable determination (or could be for a competitive acquisition where only one offer was received, since DOD cannot rely on the "expectation of competition" fair and reasonable determination strategy any longer.  A non-commercial purchase is likely unique, which would make price analysis difficult or impossible in most circumstances, but I would not say that is always the case.  I'm curious about the situation where a price analysis is possible for a non-commercial purchase, and am just trying to determine if the FAR allows only a price analysis to occur.

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@Don Mansfield Thanks. If that is the case, can you expand upon what your initial post was trying to convey? I feel like I am getting mixed messages.

My initial question was "Is 15.404-1(a)(3) trying to say that (a) WHEN individual cost elements have been proposed (or when a Contracting Officer has requested they be submitted/proposed), they must be evaluated using cost analysis, OR is it trying to say that (b) cost analysis must always occur when certified cost or pricing data is required?  Stated another way, could we do only a price analysis when certified cost or pricing data is required?" [I added (a) and (b) for clarity's sake]

You had initial said that (b) is the one that is correct; "cost analysis must always occur when certified cost or pricing data is required". As a result, that would mean that the requirement to perform cost analysis is not based on if you have had cost elements broken out/proposed/provided, but rather is based on the certified cost or pricing data threshold of $2M. Said another way: you must do cost analysis when the purchase is over $2M, regardless of if you have/need/want cost elements to review.

ji20874's post says that if you have cost elements, you use cost analysis, and if you have just price proposed, you do price analysis. That would correlate to (a) I think.

Are you now saying (a) is the correct interpretation? Or still saying (b) is correct? 

 

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I don't think that's what @ji20874 was saying.

I think you are getting confused by factoring in "what the offeror/contractor submitted" in determining what type of analysis is required. That's irrelevant. Regardless of what the offeror/contractor submitted--

1. When certified cost or pricing data are required, cost analysis is required and price analysis should also be conducted.

2. When certified cost or pricing data are not required, price analysis is required and cost analysis may be used when a fair and reasonable price cannot be determined through price analysis alone.

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On 8/13/2020 at 7:54 PM, ji20874 said:
On 8/13/2020 at 5:10 PM, aordway said:

That appears to say, and with Don's guidance, that when cost or pricing data is required (i.e. when the contract is over $2M), fair and reasonable price determination must be made through the cost analysis method.

That is not what the FAR says, IMO, and that is not what Don said, IMO.

@ji20874 what Don just now said in item #1 of his post (When certified cost or pricing data are required, cost analysis is required and price analysis should also be conducted) and what you say you agree with seems identical to me to the statement I made in your first post, in which I said "when cost or pricing data is required (i.e. when the contract is over $2M), fair and reasonable price determination must be made through the cost analysis method" and you said you do NOT agree.  Help me understand how you agree with one and not the other, since they seem like they are saying the exact same thing.

Are we all in agreement that "certified cost or pricing data" could be comprised entirely of information that aids only a price analysis and not a cost analysis? 

Are we in agreement that when the FAR says "when certified cost or pricing data is required", it is talking about the dollar threshold, and not "when certified cost or pricing data is necessary to come to a fair and reasonable price"?

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Here's what I agree with--

Quote

Regardless of what the offeror/contractor submitted--

1. When certified cost or pricing data are required, cost analysis is required and price analysis should also be conducted.

2. When certified cost or pricing data are not required, price analysis is required and cost analysis may be used when a fair and reasonable price cannot be determined through price analysis alone.

[from Don M.]

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27 minutes ago, aordway said:

Are we all in agreement that "certified cost or pricing data" could be comprised entirely of information that aids only a price analysis and not a cost analysis?

I don't agree with that. By definition, "cost or pricing data" are:

Quote

[…] all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred.

 

41 minutes ago, aordway said:

Are we in agreement that when the FAR says "when certified cost or pricing data is required", it is talking about the dollar threshold, and not "when certified cost or pricing data is necessary to come to a fair and reasonable price"?

I don't agree with that, either. I think it means when certified cost or pricing data are required over or under the $2M threshold.

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Hmm I thought we were on the same page there.

Quote

15.403-4...Unless an exception applies, certified cost or pricing data are required before accomplishing any of the following actions expected to exceed the current threshold or, in the case of existing contracts, the threshold specified in the contract:  (i) The award of any negotiated contract (except for undefinitized actions such as letter contracts)....

This makes it seem like certified cost or pricing data is required prior to award of a negotiated contract above the threshold (it does not make the need of that info by the contracting officer to make a fair and reasonable determination as a condition for its requirement). As a result, I understood the word "required" in  FAR 15.404-1(a)(3) to reference only these two factors; above the threshold, and a negotiated contract. However it seems you view the word "required" in FAR 15.404-1(a)(3) to mean "needed by the contracting officer to make a fair and reasonable determination" no matter the dollar value, which completely changes the discussion I have been having on this entire post. My initial example in my very first post was trying to get at this specific question. I had said:

Quote

For example, lets say I have a non-commercial purchase for a supply item that will cost $2.5M.  The Contractor is able to provide numerous previous invoices proving they have sold the item in question to other Government agencies at the same price.  As a result, we feel we are able to justify a fair and reasonable price based on price analysis alone. However, because the purchase is above $2M, certified cost or pricing data is required per 15.403-4(a)(1). And also as a result, 15.404-1(a)(3) says that cost analysis SHALL BE USED. If we were to award our contract using only price analysis, did we comply with 15.404-1(a)(3) because no cost element breakdown was submitted or requested to be submitted? Or did we fail to comply with 15.404-1(a)(3) because cost analysis was not used at all in the evaluation, and it says cost analysis "shall be used"?

My example tried to illustrate a situation where it appears cost or pricing data was not required to make the fair and reasonable determination, yet the acquisition met the two stated requirements for certified cost or pricing data: above $2M and a negotiated procurement.  I understood your response to say that cost analysis is required in my example, despite the fact that i did not need certified cost or pricing data to make a fair and reasonable determination.  Now, it appears you are saying that even if I have a negotiated procurement above $2M (which meets the only two requirements for being required to have certified cost or pricing data), if i don't actually have any cost or pricing data or cost elements to evaluate, then i did not "require" cost or pricing data in accordance with what 15.404-1(a)(3) says, and therefore I need not conduct cost analysis. Am I understanding your thinking correctly?

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1 hour ago, aordway said:

Now, it appears you are saying that even if I have a negotiated procurement above $2M (which meets the only two requirements for being required to have certified cost or pricing data), if i don't actually have any cost or pricing data or cost elements to evaluate, then i did not "require" cost or pricing data in accordance with what 15.404-1(a)(3) says, and therefore I need not conduct cost analysis. Am I understanding your thinking correctly?

No. Whether or not certified cost or pricing data are required doesn't depend on what you have or what the offeror/contractor submitted. When certified cost or pricing data are required by FAR 15.403-4(a)(1) or (2), then cost analysis is required.

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On 8/10/2020 at 3:28 PM, aordway said:

1. is 15.404-1(a)(3) trying to say that WHEN individual cost elements have been proposed (or when a Contracting Officer has requested they be submitted/proposed), they must be evaluated using cost analysis, OR is it trying to say that cost analysis must always occur when certified cost or pricing data is required?  Stated another way, could we do only a price analysis when certified cost or pricing data is required?

2. For example, lets say I have a non-commercial purchase for a supply item that will cost $2.5M.  The Contractor is able to provide numerous previous invoices proving they have sold the item in question to other Government agencies at the same price.  As a result, we feel we are able to justify a fair and reasonable price based on price analysis alone. However, because the purchase is above $2M, certified cost or pricing data is required per 15.403-4(a)(1). And also as a result, 15.404-1(a)(3) says that cost analysis SHALL BE USED. If we were to award our contract using only price analysis, did we comply with 15.404-1(a)(3) because no cost element breakdown was submitted or requested to be submitted? Or did we fail to comply with 15.404-1(a)(3) because cost analysis was not used at all in the evaluation, and it says cost analysis "shall be used"?

3. It seems like the current wording in 15.404-1(a)(3) does not account for the possibility that certified cost or pricing data could be required without a cost breakdown of individual cost elements being submitted.

I do not contemplate that my prime contractor practice should be any different than a Contracting Officer's practice in compliance with the requirement for cost or pricing data and cost analysis.

My response to the above is as follows:

1. Cost or pricing data must be requested by the Buyer (Government) and submitted by the Seller (Contractor). A cost analysis is required to evaluate the reasonableness of the cost or pricing data. Upon receipt of the cost or pricing data, some quick evaluation of its compliance/completeness with 15-408 Table 15-2 should be performed. If the submission is non-compliant to the degree that a cost analysis can not be reasonably performed, the Seller should be informed and it should be corrected. If not, find another source.

2. Awarding a contract without the above submission and cost analysis would be non-compliant with the requirements.

3. There is no possibility that compliant certified cost or pricing data excludes basic cost element breakdowns.    

Edited by Neil Roberts
delete words
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@aordway,

Does the contractor meet the definition of "nontraditional defense contractor" at DFARS 202.101:

Quote

“Nontraditional defense contractor” means an entity that is not currently performing and has not performed any contract or subcontract for DoD that is subject to full coverage under the cost accounting standards prescribed pursuant to 41 U.S.C. 1502 and the regulations implementing such section, for at least the 1-year period preceding the solicitation of sources by DoD for the procurement (10 U.S.C. 2302(9)).

If yes, then DFARS 212.102(a)(iii) permits you to treat the acquisition as commercial. That would be an exception to certified cost or pricing data.

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@Don MansfieldI will have to inquire as to if the contractor meets the definition of nontraditional defense contractor or not, but I had not considered that as a method of making certified cost or pricing data exempt. Thanks for that suggestion.

If we assume they are not a nontraditional defense contractor (for argument's sake), then to sum up where we stand thus far, a non-commercial purchase in which a fair and reasonable determination can be made without the need for cost or pricing data (because cost or pricing data by definition is information that includes or supports cost elements, and the data in hand is that which supports the total price proposed), would therefor NOT fall under the 15.404-1(a)(3) requirement to do cost analysis when certified cost or pricing data is required, therefore a cost analysis would not be required to be performed because we have no cost or pricing data as it was not necessary for this procurement's fair and reasonable determination. However, because we are claiming certified cost or pricing data is not needed, and this is a negotiated procurement over $2M, then we would require a waiver of the submission of certified cost or pricing data in accordance with 15.403-1(c)(4), which is reserved for "exceptional cases" and requires HCA approval, both of which may deter us from requesting the waiver out of prudency. And if we decide not to submit for that waiver, then we would be required to request "unnecessary" certified cost or pricing data and do a cost analysis to reach the fair and reasonable determination to comply with the Part 15 rules. Is that the correct summation of everything I have learned on this post?

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5 hours ago, aordway said:

If we assume they are not a nontraditional defense contractor (for argument's sake), then to sum up where we stand thus far, a non-commercial purchase in which a fair and reasonable determination can be made without the need for cost or pricing data (because cost or pricing data by definition is information that includes or supports cost elements, and the data in hand is that which supports the total price proposed), would therefor NOT fall under the 15.404-1(a)(3) requirement to do cost analysis when certified cost or pricing data is required, therefore a cost analysis would not be required to be performed because we have no cost or pricing data as it was not necessary for this procurement's fair and reasonable determination.

No, you keep getting confused by considering the information you have on hand. That's irrelevant. Forget about that. 

If certified cost or pricing data are required by FAR 15.403-4(a)(1) or (2), then cost analysis is required. If you think that you don't need certified cost or pricing data (even though it's required by the regs) because you can determine a fair and reasonable price without it, then request a waiver from the HCA.

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On 8/17/2020 at 2:15 PM, aordway said:

Now, it appears you are saying that even if I have a negotiated procurement above $2M (which meets the only two requirements for being required to have certified cost or pricing data), if i don't actually have any cost or pricing data or cost elements to evaluate, then i did not "require" cost or pricing data in accordance with what 15.404-1(a)(3) says, and therefore I need not conduct cost analysis. Am I understanding your thinking correctly?

“...if i don't actually have any cost or pricing data or cost elements to evaluate, then i did not "require" cost or pricing data in accordance with what 15.404-1(a)(3) says.

[Therefore, NOW I need to obtain Cost or Pricing Data to analyze the elements of cost and profit comprising the proposed price]. “ 

A large, non-competitive acquisition (commonly referred to outside of the government as a “no-bid contract”) for non-commercial supply item should then be a cost based negotiation.

Its illogical and no excuse to say “I didn’t do my job, so I need not analyze what I was supposed to get but didn’t get.”

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