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Price Reasonableness v Fair and Reasonable


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Is "Reasonableness" the same as "Fair and Reasonable Price"? 

The subject came up in a conversation about how a cost/price analyst should document findings and conclusions of its price analysis since the Fair and Reasonable determination is made by the CO or KO.   

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  • Neurotic changed the title to Price Reasonableness v Fair and Reasonable

“15.404-1   Proposal analysis techniques.

(a) General. The objective of proposal analysis is to ensure that the final agreed-to price is fair and reasonable.

(1) The contracting officer is responsible for evaluating the reasonableness of the offered prices. The analytical techniques and procedures described in this section may be used, singly or in combination with others, to ensure that the final price is fair and reasonable. The complexity and circumstances of each acquisition should determine the level of detail of the analysis required.”

...“(a) (5) The contracting officer may request the advice and assistance of other experts to ensure that an appropriate analysis is performed.”

The cost/price analyst may advise and assist the KO in the determination of degree of reasonableness. How they document that may or may not be subject to agency or local regulations.

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Reasonable is an adjective while reasonableness is a noun.  That’s the primary difference I believe.

”15.402   Pricing policy.

Contracting officers shall—

(a) Purchase supplies and services from responsible sources at fair and reasonable prices. In establishing the reasonableness of the offered prices, the contracting officer...”

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Joel, thanks for your response. I'm not concerned about the grammar but they way they are used as a term of art.  Having said that, I don't think a price analyst should use the term that a price is "Fair and Reasonable" in its report to the CO/KO. The price analysts cannot make this determination. So the question is, if the price analyst uses the term "reasonable price" or just "reasonable", do you believe would be the same as saying "Fair and Reasonable"? Thanks 

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1 hour ago, Neurotic said:

Joel, thanks for your response. I'm not concerned about the grammar but they way they are used as a term of art.  Having said that, I don't think a price analyst should use the term that a price is "Fair and Reasonable" in its report to the CO/KO. The price analysts cannot make this determination. So the question is, if the price analyst uses the term "reasonable price" or just "reasonable", do you believe would be the same as saying "Fair and Reasonable"? Thanks 

I edited my above post while you were adding this post. The cost price/analyst may advise and assist you as a KO in making your determination. If You don’t want them to directly state that it’s fair and reasonable tell them not to say that.

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https://www.lawinsider.com/dictionary/fair-and-reasonable-conditions

Also: 

“Definitions of fair price
(of a good or a service) a good price that is acceptable to both the buyer and the seller, often one that reflects the current market value.
www.translegal.com › noun

fair price meaning – Legal definition – TransLegal

I wouldn’t overanalyze it. 
 

The Idea of a fair and reasonable price therefore, reflects the result of the negotiations and resulting prices between the parties.

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The price analyst could write, "In my opinion, the proposed price is fair and reasonable."  

Then, the contracting officer could write, "I find the proposed price to be fair and reasonable."

Or something like that.

I wouldn't spend too much time trying to parse between "fair" and "reasonable" -- there may may be a nuanced difference, but it isn't worth too much time.  FAR 15.404-1(a)(1) and (3) speak of using analytical techniques "to ensure that the final price is fair and reasonable" and "to verify that the overall price is fair and reasonable," respectively.

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If there are no negotiations, then “fair and reasonable” should simply reflect the resulting price(s) of the pricing action, if acceptable to both parties. 

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2 hours ago, Neurotic said:

Is "Reasonableness" the same as "Fair and Reasonable Price"

In the context of a cost analysis, reasonableness is addressed in FAR 31.201-3.  That determination relates to an individual cost, not the total cost proposed by the contractor.

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Good point.  Speaking generally, determining pre-award reasonableness for proposal evaluation/negotiation purposes is covered by FAR subpart 15.4, while post-award reasonableness for incurred costs is covered by FAR subpart 31.2.  These are different.  In 15.4 pre-award, the concern is the proposed contract price.  In 31.2 post-award, the concern is each element of incurred cost.  Principles from 31.2 may inform a 15.4 analysis, but accepting a cost as reasonable in a 15.4 pre-award analysis does not promise that that exact cost will be accepted as reasonable in a 31.2 post-award analysis.

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31 minutes ago, ji20874 said:

Speaking generally, determining pre-award reasonableness for proposal evaluation/negotiation purposes is covered by FAR subpart 15.4, while post-award reasonableness for incurred costs is covered by FAR subpart 31.2.  These are different.

See FAR 31.000, Scope of part:

Quote

This part contains cost principles and procedures for-

      (a) The pricing of contracts, subcontracts, and modifications to contracts and subcontracts whenever cost analysis is performed (see 15.404-1(c)); and

      (b) The determination, negotiation, or allowance of costs when required by a contract clause.

 

 

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Neurotic, your post and initial question stirred my memory. I negotiated many contracts and contract mods and claims, either as a negotiator for the PCO, KO or ACO or those which were above my warranted ACO level. The point I want to make is that any negotiated actions not within my warrant limit were recommendations and would require PCO/KO agreement, acceptance and award. The KO/PCO/ACO as applicable had the last say.

The PCO or KO would review and approve my pre-negotiation objectives memorandum (POM) prior to negotiations and would review the memorandum/record  of negotiations. These were always recommendations for the PCO/KO, including the assessment of fairness and reasonableness upon conclusion of negotiations. Of course, they could accept or reject - approve or send them back. Didn’t happen but that was their prerogative. 

(“Fairness” addresses acceptability of the negotiated price to the parties. I don’t necessarily equate that with a “good price”.  Negotiations frequently involve “give and take”. ) 

I and others doing the same were always required to inform the proposer or contractor that any negotiated settlement was subject to the approval and acceptance of the PCO or KO. 

If we used additional cost and or price analysts,  their products were their opinion and recommendations. If “fairness” relates to the acceptability of a price to both parties, perhaps cost/price analysts shouldn’t include that term in their recommendation, unless it is a recommendation to accept the proposed price for negotiations? Im probably getting too nit picky about that.  

(From my recollection,  auditors generally don’t recommend but note their opinion and findings (I forget the specific terms). I don’t have any audit reports in front of me - those are my recollections.)

If the KO or I didn’t agree with some finding or opinion of the auditor or other advisors, it would be reflected in the POM for approval or in the record of negotiations, depending upon the timing of our differing opinion(s). I believe that we had to advise the auditors if we disagreed with something in the audit. 

It didn’t happen to me personally but when I was in an oversight position, occasionally my staff or I would object to something that one of our field offices negotiated or proposed in a PNO for the PCO/KO to approve.  If the field office disagreed, we’d elevate it to the PCO/KO for their decision.  

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39 minutes ago, C Culham said:

I am always intrigued about these discussions and how "fair market price" does not creep into the dialog.   So there you have have it, I just did it for this one.

Fair market price is good yardstick for price analysis when acquiring comparable goods, supplies and services, right?

But when both price and cost analysis are necessary and/or the action is for more than something that you can simply compare market prices, it may not be directly applicable, although may be useful for reality checks.

Even then, there may be terms and conditions, wage rates, etc. that make it impossible to directly compare with fair market prices.

I admit that my post was related to more complex cost and price analyses.

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Since neurotic changed the title of the thread, I don’t remember the initial title. Neurotic started the thread, referring to price analysis, then it broadened to include both cost and price analyses. Sorry to veer off.

My sense is that neurotic’s questions concerned what terms the price analyst should use in their report, since they are providing input to the KO to make the actual determination.

From what I have been reading, unless the government intends to accept a price as bid, offered, proposed, etc. it would be premature to include the term “fair” as in “fair and reasonable”  in a price analysis report. “Fair and reasonable”  implies that it is acceptable to both parties. If you plan to negotiate, you don’t know if the other party will accept something other than what was offered. 

Edited by joel hoffman
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1 hour ago, joel hoffman said:

If we used additional cost and or price analysts,  their products were their opinion and recommendations. If “fairness” relates to the acceptability of a price to both parties, perhaps cost/price analysts shouldn’t include that term in their recommendation, unless it is a recommendation to accept the proposed price for negotiations? Im probably getting too nit picky about that.  

That's our team's role, cost/price analysts (i.e. field support). We are not warranted, do not directly negotiate with offerors/contractors, and are not the award decision makers. We only get to analyze price or cost proposals. I agree that fairness is related to acceptability, so without consideration of other aspects of the proposal (i.e. value for the $) I do not agree with using the term "fair and reasonable" in a cost/price analysis report. That F&R determination cannot be based on price alone. We currently document findings and recommendations and determine reasonableness of a cost and/or price, based on analysis techniques. However, some COs seem to equate reasonableness (as indicated by cost or price analysts techniques) with fair and reasonable and occasionally some COs have even requested cost/price analysts to make the F&R statement in the cost/price report.       

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28 minutes ago, joel hoffman said:

Fair market price is good yardstick for price analysis when acquiring comparable goods, supplies and services, right?

Ah but my intent was in truth splitting hairs.   I think what is forgotten is the requirement of FAR 19.202-6.  All the same effort but its seems "fair market price" is the proper term for set asides.

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45 minutes ago, joel hoffman said:

My sense is that neurotic’s questions concerned what terms the price analyst should use in their report, since they are providing input to the KO to make the actual determination.

Thanks Joel. That's exactly the point in question.

"From what I have been reading, unless the government intends to accept a price as bid, offered, proposed, etc. it would be premature to include the term “fair” as in “fair and reasonable”  in a price analysis report. “Fair and reasonable”  implies that it is acceptable to both parties. If you plan to negotiate, you don’t know if the other party will accept something other than what was offered."

I agree with this statement. The cost/price analyst would not know if the proposed solution, for the proposed price, is fair to the government.    

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On 2/5/2021 at 6:49 AM, Neurotic said:

Is "Reasonableness" the same as "Fair and Reasonable Price"? 

@Neurotic Warning: I have been thinking about writing what follows for a long time, but it may be more than you care to know. Keep that in mind if you decide to read it, and don't think me or accuse me of being pedantic if you read it and don't like it. (Not that you would, but some probably will.)

Do not complain, all ye who proceed from here.

"Fair and reasonable price" is an old phrase. I searched the Congressional Serial Set and found that what appears to have been its first official use was in an 1834 Senate debate about the purchase of printing services for Congress. It is an example of what linguists call "synonymy in idiomatic expression," which includes phrases like "plain and simple." An idiom is common speech, defined in Chambers Dictionary, 13th ed., as "A group of words established by usage as having a meaning not deducible from those of the individual words (e.g., rain cats and dogs , see the light )."

Bryan Garner calls such idiomatic expressions "doublets." See Garner's Dictionary of Legal Usage, 3d. ed., "Doublets, Triplets, and Synonym-Strings." Garner includes a long list of examples, such as: aid and abet, all and sundry, any and all, each and every, fit and proper, free and clear, indemnify and hold harmless, null and void, part and parcel, separate and distinct, terms and conditions, will and testament. Such phrases are examples of "synonymy in idiomatic expression." They include two words that mean the same thing---synonyms. 

In our field we speak of "fair and reasonable prices" and "reasonable costs." "Fair and reasonable price" is an example of a synonymous idiomatic expression. "Fair" and "reasonable" do not denote distinct attributes. "Fair and reasonable price" it is simply a synonymously idiomatic way of saying "fair price" or "reasonable price," that is, an amount that we should be willing to pay without fear of being called fools. The doublet is used for emphasis. Acquisition law, regulation, and policy have adopted the idiom, but have not defined or set specific and distinct standards for "fair price" and for "reasonable price." Another such expression is "full and open competition." There are no distinct standards and definitions for "full competition" and for "open competition."

On the other hand, "reasonable" as in the phrases "reasonable cost" and "cost reasonableness", refers to a specific standard prescribed by FAR 31.201-3. 

In  short, "fair and reasonable price" does not mean anything specific. It is the undefined label for a very fuzzy goal. But "reasonable cost" is specific, more or less, with wiggle room.

Short answer to your question: No. [Cost] reasonableness and "fair and reasonable" price are not the same.

You probably knew all this, but I have had so many questions about "fair and reasonable" over the years that I just had to get this off my chest.

Forgive me.

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Wow. It's tough to follow Vern's tour de force response with my small add, but here goes:

Frequently auditors will opine in their report to a contracting officer on whether or not the cost or pricing data submitted by the contractor is "adequate to negotiate a fair and reasonable price." I wonder if something akin to that phraseology might suit Neurotic?

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4 hours ago, joel hoffman said:

From what I have been reading, unless the government intends to accept a price as bid, offered, proposed, etc. it would be premature to include the term “fair” as in “fair and reasonable”  in a price analysis report.

A price that is fair and reasonable may still be further negotiated.  Hopefully, after the negotiation, the new negotiated price will also be fair and reasonable.

I do not want well-paid cost-price analysts to give me reports that evade the entire purpose of their analyses -- I want the cost-price analyst to declare his or her opinion on whether the price is reasonable, and then I will either agree or disagree.  They do not earn their salaries if they simply produce a lot of text and figures without also giving me their professional opinion.

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Thanks, Vern!  Makes perfect sense.

Outside of government, I’ve often heard and used the expression “that’s a fair price.”

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On 2/5/2021 at 6:49 AM, Neurotic said:

The subject came up in a conversation about how a cost/price analyst should document findings and conclusions of its price analysis since the Fair and Reasonable determination is made by the CO or KO.   

The cost/price analyst should simply report "my findings and recommendations." Should analysts state that they "find" that the price is fair and reasonable? Let them, if that is their opinion. So what? See FAR 15.405(a):

Quote

The purpose of performing cost or price analysis is to develop a negotiation position that permits the contracting officer and the offeror an opportunity to reach agreement on a fair and reasonable price. A fair and reasonable price does not require that agreement be reached on every element of cost, nor is it mandatory that the agreed price be within the contracting officer's initial negotiation position. Taking into consideration the advisory recommendations, reports of contributing specialists, and the current status of the contractor's purchasing system, the contracting officer is responsible for exercising the requisite judgment needed to reach a negotiated settlement with the offeror and is solely responsible for the final price agreement. However, when significant audit or other specialist recommendations are not adopted, the contracting officer should provide rationale that supports the negotiation result in the price negotiation documentation. [Emphasis added.]

If you agree with the analyst, you can cite their finding. If you don't agree with the analyst and seek a lower price, who is going to blame you?

Edited by Vern Edwards
Change "auditor" to "analyst."
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If the KO wants a price or cost/price analyst to state that the proposed price is fair and reasonable, it’s likely that the KO doesn’t know - and that’s probably acceptable. They have cost/price analyst to advise them. Right? 

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