2 CFR 200: How to Document Cost Reasonableness for Subrecipients

[GovKor]

We are a recipient (or pass-through entity) under 2 CFR 200 and issue many subawards. 2 CFR 200.324 states that the pass-through entity must perform a cost or price analysis for every procurement transaction greater than the SAT. There is no such direction for subaward transactions that I have found (defined separately from procurement transactions in 2 CFR 200.331). However, we are required under 2 CFR 200 Subpart E to determine for all costs that they are reasonable. Currently we are using cost or price analysis (the methods listed in FAR Part 15) to document reasonableness. As the majority of our subrecipients are non-competitive and R&D (meaning there are no comparable market/historical prices), we are having to perform full cost analyses for these subawards, and it is incredibly cumbersome and time consuming. Is there a less burdensome way we can be documenting cost reasonableness?

[here_2_help]

GovKor,

Are you requiring submission of certified cost or pricing data? If not, what cost data are you analyzing?

 

[GovKor]

We require cost data (not certified) to be submitted. 

[here_2_help]

Quote

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 subsection 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.

(2) Price analysis shall be used when certified cost or pricing data are not required (see paragraph (b) of this subsection and 15.404-3).

(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.

(4) Cost analysis may also be used to evaluate data other than certified cost or pricing data to determine cost reasonableness or cost realism when a fair and reasonable price cannot be determined through price analysis alone. 

Emphasis added to the above. With respect to price analysis, there are several available techniques that may be used before one needs to use cost analysis. Only one technique requires competition.

Quote

The Government may use various price analysis techniques and procedures to ensure a fair and reasonable price. Examples of such techniques include, but are not limited to, the following:

(i) Comparison of proposed prices received in response to the solicitation. Normally, adequate price competition establishes a fair and reasonable price (see 15.403-1(c)(1)).

(ii) Comparison of the proposed prices to historical prices paid, whether by the Government or other than the Government, for the same or similar items. This method may be used for commercial products or commercial services including those “of a type” or when requiring minor modifications for commercial products.

(A) The prior price must be a valid basis for comparison. If there has been a significant time lapse between the last acquisition and the present one, if the terms and conditions of the acquisition are significantly different, or if the reasonableness of the prior price is uncertain, then the prior price may not be a valid basis for comparison.

(B) The prior price must be adjusted to account for materially differing terms and conditions, quantities and market and economic factors. For similar items, the contracting officer must also adjust the prior price to account for material differences between the similar item and the item being procured.

(C) Expert technical advice should be obtained when analyzing similar items, or commercial products or commercial services that are “of a type”, or requiring minor modifications for commercial products, to ascertain the magnitude of changes required and to assist in pricing the required changes

(iii) Use of parametric estimating methods/application of rough yardsticks (such as dollars per pound or per horsepower, or other units) to highlight significant inconsistencies that warrant additional pricing inquiry.

(iv) Comparison with competitive published price lists, published market prices of commodities, similar indexes, and discount or rebate arrangements.

(v) Comparison of proposed prices with independent Government cost estimates.

(vi) Comparison of proposed prices with prices obtained through market research for the same or similar items.

(vii) Analysis of data other than certified cost or pricing data (as defined at 2.101) provided by the offeror.

(3) The first two techniques at 15.404-1(b)(2) are the preferred techniques. However, if the contracting officer determines that information on competitive proposed prices or previous contract prices is not available or is insufficient to determine that the price is fair and reasonable, the contracting officer may use any of the remaining techniques as appropriate to the circumstances applicable to the acquisition.

In summary, if you want to avoid cost analysis but don't have competition, the regulations say you may be able to do so. The onus is on you to choose the right technique to show why the proposed subrecipient price is fair & reasonable. One way may be to have the subrecipient show prices paid by other entities for the same or similar services.

I realize that this is all proposal evaluation 101; but in my experience some people forget that competition and comparison of proposed prices is not the only price analysis technique available.

Hope this helps.

[Vern Edwards]

@GovKor You're in business and you cannot figure out how to determine whether a prospective sub's price is reasonable?

Really? You can't think that through?

[GovKor]

@here_2_help Thank you for your response! The problem is these efforts are all R&D services being performed for the first time so none of the price analysis methods are applicable (no historical prices paid, no comparable market prices, etc.). 

[Retreadfed]

GovKor, the Uniform Guidance is not regulatory in nature.  It is a template for agencies to use is establishing their grant and cooperative agreement regulations.  Have you checked the regulations issued by the agency issuing you your grant/CA to see if those regulations contain any guidance in this area?

[GovKor]

@Retreadfed I haven't. This is for DoD. Do you have a suggestion on where to start a search for their regulation on this? Our CO handles FAR based contracts and is stumped by my questions surrounding this. 

 

[here_2_help]

1 hour ago, GovKor said:

@here_2_help Thank you for your response! The problem is these efforts are all R&D services being performed for the first time so none of the price analysis methods are applicable (no historical prices paid, no comparable market prices, etc.). 

So ... the subrecipients have never performed R&D services for any other entity before. They have never performed independent R&D for their own benefit. Is that what you are saying? Because if so, I wonder why in the heck you are considering using them.

[Retreadfed]

GovKor, the DODGAR (pronounced dodger) is found at 32 CFR 21-37.

[GovKor]

@here_2_help Haha, good question. We are tasked with finding non-traditional partners and small businesses to provide out of the box innovative solutions to government problems. So yes, often these are entities that have never performed R&D services before.

[here_2_help]

4 hours ago, GovKor said:

@here_2_help Haha, good question. We are tasked with finding non-traditional partners and small businesses to provide out of the box innovative solutions to government problems. So yes, often these are entities that have never performed R&D services before.

Quote

212.102 Applicability.

(a)(i) Use of FAR part 12 procedures. Use of FAR part 12 procedures is based on—

(A) A determination that an item is a commercial product or commercial service (see paragraph (a)(iii) of this section); or

(B) Applicability of one of the following statutes that provide for treatment as a commercial product or commercial service and use of FAR part 12 procedures, even though the item may not meet the definition of “commercial product” or “commercial service” at FAR 2.101 and does not require a commercial product or commercial service determination:

(1) 41 U.S.C. 1903 - Supplies or services to be used to facilitate defense against or recovery from cyber, nuclear, biological, chemical, or radiological attack pursuant to FAR 12.102(f).

(2) 10 U.S.C. 3457 - Supplies or services from nontraditional defense contractors pursuant to 212.102 (a)(iv).

(3) 10 U.S.C. 3458 – Supplies or services resulting from a commercial solutions opening pursuant to subpart 212.70.

*****

(iv) Nontraditional defense contractors. In accordance with 10 U.S.C. 3457, contracting officers—

(A) Except as provided in paragraph (a)(iv)(B) of this section, may treat supplies and services provided by nontraditional defense contractors as commercial products or commercial services. This permissive authority is intended to enhance defense innovation and investment, enable DoD to acquire items that otherwise might not have been available, and create incentives for nontraditional defense contractors to do business with DoD. It is not intended to recategorize current noncommercial other than commercial products or commercial services; however, when appropriate, contracting officers may consider applying commercial product or commercial service procedures to the procurement of supplies and services from business segments that meet the definition of “nontraditional defense contractor” even though they have been established under traditional defense contractors. The decision to apply commercial product and commercial service procedures to the procurement of supplies and services from nontraditional defense contractors does not require a commercial product or commercial service determination and does not mean the item is commercial;

(B) Shall treat services provided by a business unit that is a nontraditional defense contractor as commercial services, to the extent that such services use the same pool of employees as used for commercial customers and are priced using methodology similar to methodology used for commercial pricing; and

(C) Shall document the file when treating supplies or services from a nontraditional defense contractor as commercial products or commercial services in accordance with paragraph (a)(iv)(A) or (B) of this section.

(v) Commercial item guidebook. For a link to the commercial item guidebook, see PGI 212.102(a)(v).

Have you considered treating your nontraditional subrecipients as being providers of commercial services pursuant to the above?

[Retreadfed]

H2H, I believe GovKor is talking about a grant.  If that is the case, the FAR does not apply.

[GovKor]

@Retreadfed I'm not seeing anything in the DODGAR regarding determination of price reasonableness. Am I missing something?

[GovKor]

@here_2_help @Retreadfed While this is a grant and the FAR doesn't apply, we have been leveraging the FAR to outline our internal procedures for determining cost reasonableness as our award is silent on how to do that. Hence my question - is there a different/easier way we can determine cost reasonableness that's applicable to 2 CFR 200? Specific to FAR Part 12, while some of our acquisitions could be applicable, from what I can tell, it doesn't help in alleviating the price/cost analysis burden as the listed price analysis techniques are still not applicable. 

 

[here_2_help]

On 11/16/2024 at 1:10 PM, Retreadfed said:

H2H, I believe GovKor is talking about a grant.  If that is the case, the FAR does not apply.

Okay. Perhaps you're speaking broadly. But my reading of 2 CFR 200 tells me that the FAR Part 31 cost principles definitely do apply. A price that is not reasonable is not allowable. I see nothing objectionable about searching the FAR and DFARS for available techniques for determining price reasonableness. I would assert that if a technique is acceptable for a DoD contracting officer to use, that same technique ought to be acceptable for a contractor's buyer to use.

 

In any case, GovKor asked for suggestions and I provided some. If none of my suggestions work then ... shrug. I've done what I can do. Perhaps someone else has better ideas.

[Retreadfed]

On 11/14/2024 at 1:56 PM, GovKor said:

We are a recipient (or pass-through entity) under 2 CFR 200

Why do you think this applies to you?

[GovKor]

@Retreadfed 2 CFR 200 is incorporated by reference in two of our awards with two different agencies. 

[Neil Roberts]

On 11/14/2024 at 10:56 AM, GovKor said:

We are a recipient (or pass-through entity) under 2 CFR 200 and issue many subawards. 2 CFR 200.324 states that the pass-through entity must perform a cost or price analysis for every procurement transaction greater than the SAT. There is no such direction for subaward transactions that I have found (defined separately from procurement transactions in 2 CFR 200.331). However, we are required under 2 CFR 200 Subpart E to determine for all costs that they are reasonable. Currently we are using cost or price analysis (the methods listed in FAR Part 15) to document reasonableness. As the majority of our subrecipients are non-competitive and R&D (meaning there are no comparable market/historical prices), we are having to perform full cost analyses for these subawards, and it is incredibly cumbersome and time consuming. Is there a less burdensome way we can be documenting cost reasonableness?

Have you compared your independent estimates (required before bid or proposal) to the proposed/negotiated amount and quantified any difference in $ ??

[GovKor]

@Neil RobertsThe requirement for an advance independent estimate under 2 CFR 200.324 is only required for procurement transactions and therefore doesn't apply to subawards (reference definitions of contract and subaward in 2 CFR 200.1). Regardless of the requirement, preparing an independent estimate pre-solicitation could definitely provide a path for a price analysis; however, considering the level of R&D and innovation involved in these efforts, no one (the program managers or SMEs) knows where they would even start in creating an independent estimate. Do you have any ideas or experience in tackling that hurdle?

[Neil Roberts]

@GovKorYes, your company can adopt a policy requiring independent estimates before subaward solicitations. If you do not have the expertise in house to do so, I suggest you spend some money to have an outside consultant provide it. It would tend to made you a whole lot smarter before bidding and negotiations and about a project I assume you are responsible for overseeing from a cost and technical standpoint, even if your estimate was only able to focus on labor rates/categories and expected length of project. The process of estimating might also make you a more attractive source for other customers.

[GovKor]

@Neil Roberts I like this idea and appreciate your input! In your experience, has that third-party consultant been an allowable cost? Additionally, do you have any recommendations on where to start a search for an outside consultant?

[C Culham]

52 minutes ago, GovKor said:

no one (the program managers or SMEs) knows where they would even start in creating an independent estimate. Do you have any ideas or experience in tackling that hurdle?

Sorry but I can not help myself - are they not program managers and SMEs?    This posed have you tried something this simple -

Interent Search - "How to create an independent cost estimate for an r&d project + dod"  Try it it might yield some helpful results.  Likewise playing with wording regarding subawards and determination of price reasonableness I got several hits especially University policy and direction on making such determinations.   Maybe weaving everything together you can solve your concerns and questions.

[GovKor]

@C Culham Yeah...I know. The SMEs are our government customer and they want an innovative solution, but do not have the time/cost knowledge to provide any sort of justifiable estimate. Then we get complaints that we take too long to get a sub on contract (often due to a lengthy cost analysis), which has led to constant questions for our contracting department whether it is REALLY necessary? What I'm finding (here, in other forums, on the internet, and in the numerous courses I've taken on the subject) is confirmation that price/cost analysis process for a subrecipient is required, there is no way around it, and the Government personnel can either provide additional time/resources for a pre-solicitation estimate or accept the speed to contract.

 

[C Culham]

6 minutes ago, GovKor said:

Yeah...I know.

So I did not go back and re-read the whole thread but this thought occurred to me.  So price/cost analysis is required.   Your contracting department questions its need.  So  does your organization have internal policy to address the need?   If not maybe it is time to create one.

As to the tools to do the analysis I picked this up in a previous read of the thread and my own research/experience.   There are several measures to do the analysis, some you have said are not existent, so maybe a policy again that says here is how you do analysis that allows for acknowledgement that if some methods are not appropriate the policy simply allows for it.   Bottomline - Reasonableness is a subjective effort that if documented should hold up no matter what method or combination of methods were used.  Or in otherwords are you too wrapped around the axle in trying to create an exact analysis effort?